Economic Analysis: The FedEx Chill

Michael gives you his view on FedEx Corp. (NYSE/FDX), a company that economists and analysts often look to as a gauge of future business activity.FedEx Corp. (NYSE/FDX), which runs the world’s biggest cargo airline, is a company that economists and analysts often look to as a gauge of future business activity.

Last week, FedEx stock hit a two-year low. Yes, you can buy the stock of this excellently run company today for the same price it sold for in mid-2009. Why? FedEx reported last week that it would earn less this year than previously estimated, as FedEx saw its U.S. shipments fall for the second quarter in a row. The stock of United Parcel Service Inc. (NYSE/UPS), FedEx’s main competitor, is close to a two-year low as well.

All in all, FedEx’s recent earnings results and earnings forecast for the entire year are better than expected. FedEx is reporting U.S. shipments declined on three percent in its latest quarter.

Given the continued conservatism of businesses, the backlash from the delayed increase in the government spending limit by Congress, the economic woes in Europe, and general pessimism amongst American consumers, FedEx’s business activity report is actually encouraging.


No, I wouldn’t run out and buy this stock. At a dividend yield of less than one percent and a price/earnings multiple of over 15, this stock is still too expensive for me.

But what’s encouraging is that this bellwether company is telling us that the U.S. economy isn’t crashing. What I can tell from FedEx’s reports is that there is no economic growth in the U.S. and that business is slowly deteriorating, not collapsing.

Based on FedEx’s forecasted earnings, retail sales in the U.S. will not crash this year. More than likely, retail sales in the U.S. will pull back this holiday season below last year’s numbers. Hence, I wouldn’t be rushing out to buy any retail stocks either.

The bottom line in this economic analysis: the economy is not crashing as last week’s stock market mini-crash indicated. On the other hand, despite the trillions thrown at the economy by the government, economic activity is slowly declining, as opposed to improving.

Michael’s Personal Notes:

Since President Obama took office, the sales of firearms have soared in America.

Gun sales have hit record numbers each year Obama has been President; this year on track for 15 million guns to be sold for the first time (Source: Bloomberg 9/11/11).

Why is this happening?

There are three possible reasons gun sales are soaring. First, gun enthusiasts fear that the poor economy will set off more crime. Second, citizens could fear political upheaval or riots over possible austerity measures that may be introduced eventually (like in Greece and other European countries). Finally, some believe President Obama may move to ban the sale of more aggressive guns (like assault weapons) to citizens.

Ironically, the soaring gun sales in America, extremely low consumer confidence levels, and surveys that show a high percentage of American expect us to enter a depression within the next 12 months bode well for the bear market rally. The stock market loves nothing more than to climb a wall of worry when all expect it to fall. Pessimism is reaching record high levels.

Where the Market Stands; Where it’s Headed:

As I had been writing, the stock market was oversold and ready for a rebound, and that’s exactly what we got. Since the Dow Jones Industrial’s big one-day sell-off last Thursday, the Dow Jones has bounced back about 5.6%. It’s been quite a seesaw summer for stocks and we’re not that far away from breakeven for 2011.

I’m making a bold prediction: stocks will end this year higher than they started 2011. Why? Because there is too much bearish consensus around; because the Fed and the government remain very accommodative; because there are not many alternatives to stocks.

Yes, we’re still in a bear market rally…and this could be the final year for that rally. But don’t underestimate the strength of this rally. The bear would like nothing better than to take more investors into the market before turning south again.

What He Said:

“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi in PROFIT CONFIDENTIAL, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.