Corporate earnings during the current earnings season have been anything but good. As I wrote yesterday, to add to the misery, corporate earnings for the fourth quarter could be worse than the third quarter.
I have written in the past about how large public companies were able to show better corporate earnings after 2009 because they slashed their costs—a reasonable strategy to earn higher income. Now, with many companies operating leanly, they don’t have many options left other than reducing their staff in order to deliver corporate earnings on par with market expectations.
Sadly, it’s already started happening. Many large-cap companies are already announcing cuts to their workforce. And it’s not just U.S. companies showing concern; the multinationals are struggling as well.
This earnings season, E.I. du Pont de Nemours and Company (NYSE/DD), a Dow Jones Industrial Average company, delivered corporate earnings that were eye-watering for its shareholders. To retaliate and fight the declining profit, the company is planning to cut 1,500 employees, or two percent of its entire workforce, worldwide. (Source: Reuters, October 23, 2012.)
Another Dow Jones Industrial Average component, United Technologies Corporation (NYSE/UTX), frustrated with weak global demand and dismal corporate earnings this earnings season, is planning to cut its overall budget by 20%. It won’t be a surprise to see the company lay off employees in order to meet its targets.
The financial companies, the best-performing sector in the recent earnings season, are concerned about their corporate earnings as well. The Goldman Sachs Group, Inc (NYSE/GS) has decreased its number of partners in the company. (Source: Bloomberg, November 4, 2012.) In its filing with the Securities and Exchange Commission (SEC), the company says that it cut its number of partners to control its expenses. (Source: Reuters, November 5, 2012.)
Likewise, HSBC Holdings plc (NYSE/HBC) is planning to cut 30,000 jobs and predicts the number will increase in order to cut costs and increase efficiency. (Source: Reuters, November 5, 2012.) In the third quarter, the company’s corporate earnings fell 52% from a year ago. (Source: MarketWatch, November 5, 2012.)
All of these job cuts to improve corporate earnings will obviously have a negative impact on the economy. More troublesome is the fact that these companies are not the only ones struggling with their corporate earnings. So much for all those trillions of dollars thrown at world economies since 2009; looks like we are back at square one, once again.
Michael’s Personal Notes:
Every once in a while, I read or hear an analyst or economist say that gold bullion has no future and the price of gold bullion will decline because it’s in a bubble.
Sadly, what these financial commentators don’t realize is that gold bullion is money; it stores value.
I’m a strong believer in gold bullion as a hedge against paper money printing gone mad! I believe gold bullion will continue bucking its 11-year uptrend. The fundamentals haven’t changed. Gold bullion still provides safety and can be a hedge against the fiat currency.
Whoever says gold bullion isn’t going anywhere needs to realize that we are in a period of time where central banks around the world are devaluing what they have created. These central banks need to back their currency with something other than a devaluing U.S. dollar. Hence, central banks around the world are realizing the potential of gold bullion and what it can do for their reserves—and they are scrambling to get more.
In recent developments, the central bank of Brazil increased its gold bullion reserves this past September, for the first time since December 2008, by 1.7 tons, for a total of 35.3 tons, according to the International Monetary Fund (IMF). This central bank owns only about 0.5% of its reserves in gold bullion. (Source: World Gold Council, November 2012.) Even though the purchase looks to be menial, keep in mind that the central bank of Brazil is pursuing a plan to devalue its currency in order to keep the exports flowing. As the bank attempts to further devalue its currency, it will need to buy more gold bullion.
Other central banks around the world are doing the same—buying gold bullion because they are in desperate need of it. Hong Kong’s shipment of gold bullion to China increased 23% in September to 69.7 tonnes. (Source: “PRECIOUS-Gold rises on short-covering, U.S. election eyed,” Reuters, November 5, 2012.) The Chinese central bank will never say when and how much gold bullion it’s going to buy, but it looks to be buying a lot of gold.
From all of this, it is clear: the demand for gold bullion by central banks is present. I won’t be surprised to see central banks buying more gold bullion—in fact, they have to or their reserves are in danger.
I’m looking at any pullback in the price of gold bullion as a buying opportunity. I will become skeptical of gold bullion when central banks become net sellers of gold bullion and fiat money becomes valuable—something I can’t see happening unless world governments start working at an annual budget surplus as opposed to a deficit…and we know how far-fetched that concept is for politicians.
What He Said:
“If I had to pick one stock exchange that would rank as the best performer of 2007, it would be the TSX (Canada’s equivalent of the NYSE). Interest rates in Canada remain very low and they are not expected to rise anytime soon. Americans looking to diversify their portfolios, both as a hedge against the U.S. dollar and a play on gold bullion’s price rise, should consider the TSX. Most brokers in the U.S. can buy stock on this exchange.” Michael Lombardi in Profit Confidential, February 8, 2007. The TSX was one of the top-performing stock markets in 2007, up just under 20% for the year.