If U.S. Equities are doing so well why is the U.S. Economy struggling? Part 1

Despite the fact that the Dow Jones 30 and S&P500 have both broken records recently and have surpassed their previous highs, there are still worries about the US economy.
Why is this? Well, one thing is the way things are calculated. Without doubt, the US real US GDP has been slowing down significantly so far this year even thought the major indices have been on the up and up and companies continue to report good growth in earnings and revenues.
This weird situation is, as stated above, down to the way that things are figured out. However, there are other things to consider as well. To begin with GDP is usually measured in real terms (i.e. volume) but on top of this headline inflation of around three percent must be added to work out what the revenue growth actually is.
Also, one has to consider the fact that the Dow and S&P have a completely different mix of companies that have seen a better growth than the rest of the economy; for example, the S&P is heavily weighted to energy and technology whilst at the same time having little to do with government and housing. This means that they have benefited from the surge in equities and also having nothing to do with the property problems that have been so prevalent - especially recently. Finally, the revenues from US operations that have an international arm have expanded greatly over the last couple of years but these are excluded from the GDP.
Many forecasters predict that the S&P will continue to do well - even when inflation has been taken into account. However, they also predict that things will not be as good for the US equity market over the coming year BUT that IF there is good growth on a global scale then the continuing weakness of the USD should help overseas sales to remain good and compensate the poor performance of the US economy.
Let’s look at this in more detail. The problems mentioned above can be further exacerbated by the differences between macro-economic and micro-economic outlooks. With regards to the former, at least as far as the equity markets are concerned, information can occasionally give conflicting reports about the latter’s outlook for a company and its shares. This can be seen by what happened a year ago. Even though US growth suffered from a major slowdown, the S&P500 showed a revenue growth that stayed at nearly 12% for the rest of the year. Hardly the situation that leads to a cataclysmic meltdown. So, why are the macro people worried and the micro analysts seemingly unperturbed by what is going on? Well, as mentioned previously, the main thing is the definition of what makes up the statistics. Long term readers of this column will know that one of my favourite quotes is that there are “lies, damned lies and statistics”. However, we do have to start somewhere.
Let’s study what goes into the figures that make up these statistics and who defines what. A reasonable definition of company revenue is total worldwide sales based in USD. However, GDP is shown as only value added and not revenue. For instance, a company that sells a computer for USD1,000 with USD500 of components from suppliers would only create USD500 of value added. Also, a large supply chain will give a lot more sales than value added will do. Another thing is inflation needs to be added to real GDP, which shows the volume of activity in an economy, when being compared to revenue. Finally, GDP is based on production and not turnover so that any accumulation in inventory counts for GDP but not company revenues.
Along with this it must be remembered that GDP only refers to items produced in the USA. Therefore, if anything has been produced for an American company overseas it is not included in GDP but it is for that company’s revenue stream. So, whilst a large company in the Dow or S&P may be seen to be doing well the USA is not.
The GDP is derived from ALL the companies in the US whilst the S&P500 is taken from only a small range of companies that are not a full representation of ALL the business and industry that goes to make up an economy. The Dow and S&P also discard companies that are not doing well - GDP does not have this luxury.
This can be seen from how to compare the figures over the last three years. The US Government says that Real GDP is just over 3% per annum whereas the S&P shows it to slightly over 10% p.a. The 7% difference comes from inflation, international sales, industry mix and other factors including inventory changes, index selection favouritism, etc. The latter accounts for less than one percent but let’s take a look at the others.
Inflation - the indices revenue growth is derived from actual revenues whereas real GDP is from the output of the economy. Thus the higher the rate of inflation is then the bigger the difference there is between the two sets of statistics.
International Sales - Companies from the US are taking advantage of excellent growth outside of the US which helps revenue and a weak dollar, which means that revenues from overseas are worth more in USD when brought back to the USA. Non-USA sales have grown by over 13% per annum over the last five years and now account for more than 33% of the sales for the companies in the S&P that report them.
Industry mix - There is not an equal split of business in the major indices. Certain industries will not be as prevalent as others. For example, manufacturing will have a much larger slice of the market than an industry such as waste services. Different performances in different economic sectors can lead to a large misrepresentation of figures when given as growth measured by the markets and by the economy. Over the last couple of years this can be best seen by how the energy companies have had a positive effect and the property ones have had exactly the opposite effect.
To be continued…

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]@mbmg-international.com.com

Snap Shots: by Harry Flashman

Using shadow for mystery

When you first start in photography there is a tendency to want to show all the detail that is in front of the camera lens. The best way, the novice feels, is to do this is to flood the picture with light. Be that sunlight or from the super-Mecablitz flash or whatever. Unfortunately, this is not the best way to show shape, form or evoke an air of mystery.
Undoubtedly the subject will now be well lit, but you have also removed shape and form from the photograph. You see, the way to convey shape is by showing the shadow the object casts. No shadow and it looks flat. Incorporate shadow and “Hey Presto!” you have invented 3D.
Shadow has another benefit - it gives an air of mystery to any picture. Dark shadows allow the viewer to imagine what is being hidden. Your photograph “hints” at something and the viewer’s mind does the rest from there. This is used in ‘glamour’ photography (as opposed to pornography, by the way).
Here is an exercise for this weekend. Let’s put some shadows into your photographs. Let’s do a portrait to incorporate shadow. And let’s do this indoors and without flash guns or any fancy equipment, and get a ‘professional’ look to the outcome, no matter what kind of camera you own.
Find the largest window in your house or condominium and put a chair about one meter away from it. The chair should be parallel to the window, not facing it.
Place your sitter in the chair and position another chair facing the sitter. This one is yours, as you will take the photo sitting down. Reason? This way you keep the camera at the same level as your subject’s face and you will get a more pleasing portrait. If you photograph from a position below the subject you tend to give them “piggy” nostrils and it shortens the look of the nose. In a country where ‘big noses’ are considered desirable, this is not the effect wanted.
Now, make sure that your auto flash is turned off. This is important with point and shooters that can fire off as soon as light levels are lower than usual. Look through the viewfinder and position yourself so that the sitter’s face is almost filling the frame. Notice that the side of the face away from the window light source is now in shadow. If you have the ability to meter from the lit side of the face, then do so. But if not, just blast off a couple of frames on auto and let the camera do the worrying.
Now here is a super trick to do if you have an SLR. Turn the film speed dial from the ASA of the film you are using to the next highest film speed. For example, if you are shooting 100 ASA go to 200 ASA. If you have used 200 ASA then bump it up to 400 ASA. What you are doing is effectively reducing the amount of light falling on to the film by 50 percent. This way you should “fool” the camera’s meter and make sure you get some good shadows.
You should also slightly angle the sitter’s chair so that one shoulder is closer to the camera and get the subject to turn their head to face the camera again. Try angling in both directions so you will get a choice of shots.
Another variation to try is to place a thin voile net over the window, or draw any transparent curtains. This will soften the light and is particularly effective when taking shots of women. Again go through the variations, including the change of ASA rate.
For a portrait study such as this it is worth using a complete roll of film, or many digital shots. Remember that you are not doing 36 identical shots - you are making variations in pose, lighting and exposure. There are also facial expressions to change - laughing, smiling, serious or sad. It is very easy to end up with 36 different shots.
Try it, you will be amazed at the professional result.

Modern Medicine: by Dr. Iain Corness, Consultant

Getting fitter the (relatively) easy way

I have spent many column inches (oops, showing my age - column centimetres) over the past few years writing about how to avoid debilitating diseases and how to make sure your cholesterol stays low and similar concepts, and the advisability of annual check-ups. All these articles have been designed to make sure you stay as healthy as possible. However, this does not mean to say you are then “fit”.
Every so often it does become necessary to take stock of your physical self, and I am no different. The possession of medical degrees and diplomas does not automatically mean you have been given the secret of eternal youth (or life), more’s the pity.
In the quest for the holy grail of fitness, I have recently lost some weight. This has been intentional, as I was getting a little “paunchy” - the result of some regular beer intake (aided and abetted by one only Kim Fletcher of Jameson’s - though the final responsibility I must take myself)! I now take alcohol less than three days a week, with the intervening days on the soda water. My weight is now 78 kg and the belly has disappeared dramatically. But this does not mean to say I am “fit”. It just means that I am no longer overweight.
One of my old mates has taken to going to the gymnasium three times a week. His muscles are definitely stronger, but his exercise regime does not make him generally fit. It just makes him stronger. There’s a big difference.
Another old mate, Alan, is one of those fitness “fanatics” (in my book) who walks for an hour every morning. He is fit. He radiates fitness (damn him) and has been on at me for some time to join him on these early morning marches. I have steadfastly refused, mainly because I do not have the luxury of a spare hour every morning, and I do not intend getting up before the sun does and marching with a miners helmet on complete with built in headlight.
So what do you do in these circumstances? Well, I remembered a very old book I had on the bookshelves - The 5 BX and 10 BX plan. You remember it too, I am sure. It was all the rage twenty odd years ago (when I was fit). Strange that you buy these things when you don’t need them! However, I still had my copy, now discoloured and frayed around the edges (like me). This book promised to get you fit at the expense of 11 minutes a day. That was more like it. 11 minutes I have, 60 I do not have.
Re-reading the slim volume, I marvelled at the simplicity of it all. There was a graduated scale of different exercises, designed to keep the muscles in trim, as well as giving the heart a little exercise as well. The varying levels began from one called D minus, which I found to be very easily attained, even at my age. As you get fitter, you progress through the alphabet to A plus - but still carrying out the regimen in 11 minutes.
I had thought that when I did the parachute jump, that was the last on my list of “must do’s” but I was incorrect. I have been enjoying life so much that I have added “live to be 100” to the list (at my wife’s insistence, I should add. I have assured her that I will indeed attain the century, or die in the attempt!). This does mean, however, that I want to be able to get around and continue to “do things” at that age. I will need to be fit. It is not too late for me - or for you. Think about it.

Learn to Live to Learn: with Andrew Watson

How far would you have gone?

There was a favourite joke that my friends and I used to play, which before it descended into monotony, was quite amusing. You’d say “goodbye” to someone and they would start to leave. You’d wait until they were almost out of sight and then call them back. They would inquire, “Yes, what is it?” and then you’d say, “How far would you have got if I hadn’t called you back?” You can see why it had a limited life span.
Sometimes I think that innovative curricula are a bit like that; they are just about to get somewhere interesting until some clown drags it back to the place recently vacated. In my view, one of the greatest impediments to absorbing modern theories about learning into a curriculum designed to prepare students for the twenty first century, remains the nation state, which seems to retain a narrow and often parochial level of control over its educational system due to (understandable but not always excusable) political reasons of self-preservation.
Like politics, it appears that much of education ‘on the ground’ is concerned with what Paul Rogers, (2006) calls ‘lidism’, measures aimed not to address the underlying issues but to keep the lid on.
One of the consequences of ‘lidism’ can be seen in instinctive knee-jerk and inherently short term reactions by governments to cyclical popular outcries over socio-economic events. For example, in the United Kingdom, there is recurring reference to “values” (by Thatcher), going “back to basics” (by Major) in a “stakeholder society” (Blair). It is as if national boundaries define the ecology of enterprise and management. I perceive paradoxical dynamics, whereby the institution, in educational terms the school, which exists to produce results on and in society is in thrall to government, which remains reactive rather than proactive. It seems that the choice and pace of learning and curriculum is directed by and is the preserve of, nation states. They control the “politics of knowledge”.
Whilst the pace of global change may increase, without a global political body (notwithstanding the United Nations) to redefine paradigms or an organisation to chart and enforce a particular direction, iniquitous differentiation between rich and poor countries and populations and cultural groups within countries, seems destined to remain. Whilst the impact of poverty, racism and alienation and other manifestations of social inequality on the mental growth of “child victims” might be well documented and globally observable, Bruner’s assertion that, “Their plight is not a visitation of fate but a remediable condition” whilst morally and ethically correct, is easier said than done. Especially in a world still dominated by pragmatism (Braslavsky, 2003) and politics on one hand and cultural divides on the other.
For example, any attempt to mediate the condition of the lower caste groups in India, would be expected to be resisted by all caste groups. It could be argued that such rigorous adherence to cultural identities is mirrored in the (arguably well founded) fear of developing countries in particular, who are concerned that they will remain at what A.K. Jalaluddin referred to as the “receiving end in the redefinition of political power structures with globalization”.
Our understanding of learning and the curriculum seems to require a global perspective of education. Perhaps there is a need to consider education as an inherently philosophical or even spiritual pursuit?
My great friend and mentor Chris Wright said, “Education encompasses the whole of life. When it is true to itself it awakens the soul of each person caught up in it to a celebration of life in all its rich diversity. Its purpose is to help its students to mature into fully compassionate human beings”.
It appears to me that education without a spiritual dimension can result in people without humanity, summed up in the following poem: (anonymous, 1953)
Dear Teacher,
I am a survivor of a concentration camp.
My eyes saw what no man should witness:
Gas chambers built by learned engineers
Children poisoned by educated physicians,
Infants killed by trained nurses,
Women and babies shot and burned by high school and college graduates.
So I am suspicious of education.
My request is – help your students become human.
Your efforts must never produce learned monsters, skilled psychopaths, educated Eichmanns.
Reading, writing, arithmetic are important only if they serve to make our children more human.
Ideology generates educational philosophy, which in turn impacts upon curriculum models. The IBO mission statement has the huge advantage of being free of the shackles of any national political agenda and the organisation is thus able to concentrate on the implementation of its ideology, and focus on the maintenance of standards across its organisation. Perhaps the greatest challenges facing the IBO are the possible dilution of the mission statement amidst huge growth and stagnation from bureaucratic overstretch.
Currently, the IBO curriculum areas enjoy a constant cycle of five-year reviews, the process of reflection, review and modification being at the heart of what the IBO considers best pedagogical practice. Further, the curriculum is reviewed by teachers in a process which gathers feedback from practitioners around the world. It is an incredibly powerful method for self-improvement and evolution at the heart of which lies commitment to the ideology.
Reacting to perceptions of western humanist bias, the IBO wish to widen language access to their programmes, despite the potential bureaucratic weight of their adoption. Perceptions of elitism, in so far as access to their programmes in many countries is mostly by expensive private schooling, have also been refuted in the rhetoric of the IBO, backed up by figures which show that in some countries as much as 90% of IB authorised schools are state schools. Indeed, if you really want to go ‘all the way’ then as George Walker (2000) points out, “the simple logic of numbers tells you that if you want to change the world you will have to do it through state education.”
Andrew Watson is a Management Consultant for Garden International Schools in Thailand. [email protected]
All proceeds from this column are donated to the Esther Benjamins Trust. www.ebtrust.org.uk email: [email protected]
Next week: What happens in the classroom?