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| Adrian Mastracci, president
of "fee-only" KCM Wealth Management,
says "In my view, a robust business
confidence outlook will play a significant
role in the recovery of global markets." |
For Immediate Release
Vancouver, BC (April 2,
2003): Adrian Mastracci,
president & investment
counsel at “fee-only” Vancouver
based KCM Wealth Management comments on the
state of the all important business confidence.
The state of business confidence does not
receive the same attention as consumer sentiment.
However, it is very important to the health
of global economies. Especially, to our US
neighbour.
Let us overview what is happening. Just speak
to sales executives. The majority say that
booking the next dollar of revenue is harder
than ever. Businesses have little wiggle room
to raise their prices. This makes it difficult
to grow profits and forces them to keep costs
low.
As an example, earlier this year Intel announced
that it would spend 400-600 million less during
2003. This cutback has adverse rippling effects
for all companies who supply Intel. Now multiply
that by the number of companies who are pursuing
a course similar to Intel’s. The jobless
recovery in the US lives on.
The lowest interest rates in 40 years are
not sufficient to make companies spend. The
war is another worry. The new earnings season
misses are about to begin. Consumers are showing
some strain from the crushing load of accumulated
debts.
Government deficits are in our face again.
Unfunded pension liabilities will reduce the
precious earnings that companies are able to
muster.
The March 2003 Manufacturing ISM Report was
very clear. Production and new orders declined.
Employment and inventories declined. Supplier
deliveries slowed.
Soon you may be able to buy one car and get
one free if the incentives keep getting any
sweeter!
In my view, a robust business confidence outlook
will play a significant role in the recovery
of global markets. Nevertheless, how can we
know when business confidence turns the corner
in a sustainable way?
It is far from an exact science. However,
business confidence gives rise to more jobs,
more wages and salaries, a brighter outlook
for retail sales and higher interest rates
on fixed income investments. I can hear the
retirees shouting hurray.
One economic signal that I look for is for
companies to stop reporting considerable layoffs.
That is a sign that a sense of stability will
return to the marketplace. As a minimum, a
slowdown of layoffs is the early indication
that an upturn is probable. We are not there
yet, but hopefully
closer.
At that point, companies can focus on their
business plans to improve revenues and earnings.
The prospects of returning to positive earnings
and, perhaps, some growth in earnings, will
affect the markets in a very beneficial way.
Companies will have brought their costs substantially
into line when workforce reductions are no
longer on the minds of business executives.
Consequently, investors, consumers and business
leaders will have more confidence about making
long-term commitments.
These commitments are an important part of
sustaining economic and investment expectations.
Everyone will then breathe a little easier.
An improved business outlook will assist investors
realize their expectations. However, investors
should never lose sight that asset mix decisions
have the biggest impact on their portfolio
returns than any other factor.
Therefore, it is important that each investor
follow a prudent strategy designed to attain
the personal goals.
Expect the investment marathon to serve up
some bumpy patches. Keep a firm grip on your
investment policies and a keen watch on the
business confidence signals.
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