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The US consumers are back!

Thursday, April 29, 2010

There is a saying: "old habits die hard". This is why I always say what we see happening in the global economy is not just a function of economics and politics, it is also a function of culture. For any culture to change their practices, it would usually take an entire generation and the will to change has to be forceful.  Usually, this means that reality must have shifted so much as to burn an indelible mark in the psyche of its people.

Thus, we saw the Americans saving more when it looked as if their country was plunging into a bottomless pit in the midst of the global financial crisis (which, by the way, originated in the USA).  A worsening of the crisis was averted by the decisive actions of the US government.  With the spectre of prolonged hardship receding, it seems that the American consumers are back at what they do best.  This is a double edged sword, I do not doubt.  However, it is good news for the economy while it lasts.

Visa 2Q profit jumps as consumer spending rebounds

Visa posts 33 percent jump in 2nd-quarter profit as consumer spending gains strength
Eileen Aj Connelly, AP Business Writer, On Wednesday April 28, 2010, 6:49 pm EDT

SAN FRANCISCO (AP) -- Revived consumer spending drove Visa Inc.'s fiscal second-quarter profit up 33 percent and the credit and debit card processor forecast strong revenue growth for the full year.

Visa's growth continued to lean heavily on surging debit card usage as customers still prefer paying with checking account funds rather than with credit cards. The increased fees that Visa is collecting from merchants for processing customers' payments echoes the improved sales results many companies have reported in recent weeks as consumers appear to be more confident about spending.

In the U.S., Visa said 19 percent more transactions were made with debit cards and the size of those purchases in dollars rose 18 percent. In foreign markets, 20 percent more transactions were made with debit cards and the value of those transactions in dollars surged 33 percent.

Chairman and CEO Joseph Saunders noted that volume growth fueled the earnings gains, but said the company is "increasingly optimistic that economic growth will gradually improve."

Read full article here.
 
The Bears are Wrong: "The Consumer Is RE-leveraging," Jon Markman Says
Posted Apr 26, 2010 09:34am EDT by Peter Gorenstein
 
The recent data is convincing; The U.S. consumer is making a comeback. New home sales jumped 27% percent in March, rising to a seasonally adjusted annual pace of 411,000, the Commerce Department said Friday. Meanwhile, durable goods orders (large manufactured products) rose the most since the 'great recession' began.

As sure as buying low and selling high is a winning formula, an American with money will purchase goods, says Marketwatch columnist and author Jon Markman. "Anybody who's bet against the American consumer over the long term has gone broke," he tells Aaron in this clip.



Related posts:
New global economic leadership.
Real estate as a hedge against inflation.

2 comments:

Anonymous said...

Hi AK,

Would like your advice with regards to CH Offshore if you have knowledge about this counter.

This counter is said to be undervalued and acquisition will do more justice to the value. Recently, Scomi marine sold abt 29% to Falcon energy gp. The price of this stock did not react to this acquisition and sort of fell. Now it is trading at around 0.66. I have 5 lots bought at quite a high price and thinking whether it is worth accumulating since the price has dropped.

Thanks always,
Naomi

AK71 said...

Hi Naomi,

If I remember correctly, another reader asked about CH Offshore recently too. I have never done any analysis of this counter before.

I would share my methodology here with you:
Before I decide whether to add to an investment, I will ask myself if the original reason for buying into the company is still valid. If the reason is still valid, look at the numbers. If the company is financially healthy and now trading at below what it is worth, I would look at accumulating. I would then look at the charts to find a fair entry price and load up. I hope this is helpful in your decision making process. :)

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