February's big-bang stock drop had the world squawking: "Cracking China! US housing bubble! US hard ...
February's big-bang stock drop had the world squawking: "Cracking China! US housing bubble! US hard landing!" Nonsense. Bull markets end with a whimper, not a bang. Bangs are corrections, nothing more. The Great Humiliator or TGH - my pet name for the market - parts fools and their money.
Yanks, Brits and the entire developed world fret over housing havoc and an economic hangover. Everyone agrees on a slowdown - the argument is whether the landing will be hard or soft. Nothing doing - there won't be any landing at all. The global economy is accelerating, bringing the US and UK with it - never in modern history does the world go one way while the US or UK go another way.
In the US, existing home sales are up, prices are higher and inventories are lower now than six months ago, while commercial real estate is as strong as ever.
Since last quarter, UK and US housing stocks have trounced their respective markets. The market is telling us housing bubble fears are unfounded - housing is accelerating.
But so is the rest of the world. Professionals persist in prognosticating earnings growth slumping with a sleepy economy. Note: they've been too pessimistic for years and this year is no different. First, blinded by silly bubble fears, they can't divine the accelerating world economy driving exceptional earnings. Second, they aren't accounting for merger mania and booming buybacks - massive volumes globally - goading earnings per share by shrinking the number of shares outstanding.
Earnings yields are above bond yields and the longer that goes on the more CEOs will learn to play the earnings game. Last year American buybacks and take-overs totalled a whopping 4.5% of US GDP. It will be higher in 2007 and is happening all over the developed world. Stock destruction and global acceleration will fuel earnings growth, which in turn spurs productivity, translating into rising profits, salaries, and overall economic growth. There's reason to celebrate - the world economy is booming.
Ken Fisher is chairman of Fisher Wealth Management