Economic Outlook: Fourth Quarter 2013

The economy is expected to continue its path of slow growth in the coming quarters with an 11.3 percent chance of negative growth in the current quarter. Unemployment is expected to remain relatively high this year and next, with inflation and interest rates remaining low.

The stock market appears pretty fully valued at the present time. Caution is urged when making stock purchases to start a new stock portfolio or add to an existing one.

You can access our full report on the economy and the stock market by going to the Economic Outlook section of the Intrinsic Value Wealth ReportTM. Click here to access the full report.

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Updated Aruoba-Diebold-Scotti Business Conditions Index

The updated Aruoba-Diebold-Scotti Business Conditions Index, which is designed to track real business conditions at high frequency, has been posted to the Economic Outlook section of the Intrinsic Value Wealth Report. Click here to view the updated index.

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NOTES FROM THE FIELD: Funding Matrix Updated

We have updated our popular Funding Matrix.

The Funding Matrix contains the major categories of financing. It is a very comprehensive list that goes beyond the categories that one normally thinks of when considering financing options. Use this spreadsheet to build your own, personalized financing list (we have several hundred names in our list). To see the Funding Matrix, click here.

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Updated Aruoba-Diebold-Scotti Business Conditions Index

The updated Aruoba-Diebold-Scotti Business Conditions Index, which is designed to track real business conditions at high frequency, has been posted to the Economic Outlook section of the Intrinsic Value Wealth Report. Click here to view the updated index.

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NOTES FROM THE FIELD: Rebirth of the “Intrinsic Value Wealth Report” and Introduction of the Handbook on Enterprise Value Creation and Investment, “Think Strategically, Think Value”

NEW ORLEANS – As I write these Notes from the Field, I am in the wonderful city of New Orleans. New Orleans has undergone a tremendous rebirth from the ravages of Hurricane Katrina. This is my second time in New Orleans since Katrina. Much progress in rebuilding the city has been made since my last visit.

Intrinsic Value Wealth ReportTM

As I reflect on the rebirth and rebuilding of New Orleans, I am also reflecting on the rebirth and rebuilding of the Intrinsic Value Wealth ReportTM. The Intrinsic Value Wealth ReportTM was started about a year and a half ago to be a forum for the study, research, education, and discussion of value creation and investment in business, non-profit, and governmental enterprises. The format of the Intrinsic Value Wealth ReportTM is an online newsletter. It can be accessed by clicking here.

The Intrinsic Value Wealth ReportTM was fairly actively updated through August 2012, when it was decided to focus on the development of the handbook, Think Strategically, Think Value: The Complete Handbook for Creating, Sustaining, Analyzing, and Investing in Enterprise ValueTM. After a little more than a year in development, the handbook is now available for download and we are refocusing on the Intrinsic Value Wealth ReportTM.

As a part of the re-launch of the Intrinsic Value Wealth ReportTM, new sections have been added and existing sections have been updated and revised. This is an ongoing process that, by intention, will never be complete. One of the main benefits to having the Intrinsic Value Wealth ReportTM in an online newsletter format is that it can be continuously updated. The next section discusses the handbook, Think Strategically, Think Value: The Complete Handbook for Creating, Sustaining, Analyzing, and Investing in Enterprise ValueTM,  which has been added as a new section of the Intrinsic Value Wealth ReportTM .

Think Strategically, Think ValueTM (the “Handbook”)TM

Think Strategically, Think Value: The Complete Handbook for Creating, Sustaining, Analyzing, and Investing in Enterprise ValueTM  is a dynamic eBook that is planned to always be in development. It is currently about 80% complete, which means that most of the important content that has been developed to date is included in the handbook. The goal is to get it to 85% completion, which means that in addition to having the important content included, the formatting will be completed and some of the “rough edges” of the handbook will be cleaned up. In other words, it has the content – it just doesn’t look that good in places! It was decided to release the handbook in this incomplete state because many people have been asking for the information and there was no good reason to make them wait just to get it looking “pretty”. With this release, we are also changing the description of Think Strategically, Think Value: The Complete Handbook for Creating, Sustaining, Analyzing, and Investing in Enterprise ValueTM from a “workbook” to a “handbook” to reflect the current stage of development.

To get to 95% completion on the handbook may take several more years. 95% completion means that new material will be added as value driver theory is developed further from its current state. It also means that sections will be added that address concepts in business and finance that, while not new or unique to value driver theory and the value creation process, will make the handbook more complete as a reference book on value driver theory and the process of value creation. For example, it will contain material that can be found in standard books on finance and business, such as more complete discussions of the time value of money, valuation calculations, etc. For now, one will have to refer to other books on business and finance to study these concepts if not currently familiar with the subjects. The handbook does give references to useful publications to learn these other concepts.

At the present time, the handbook is free for member subscribers to the Intrinsic Value Wealth ReportTM. Member subscribership is also currently free. So, you can currently have access to all of this information at no cost or obligation. You can access the handbook from the Intrinsic Value Wealth ReportTM website by clicking here. Once on the website, sign up for the free membership and then go to the tab labeled, Think Strategically, Think Value. Follow the directions on this tab to access the contents of the handbook and learn how to navigate and use the contents of the handbook.

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NOTES FROM THE FIELD: Focus, Concentration, Boldness, and Thinking Beyond the Problem

Focus, concentration, boldness, and thinking beyond the problem. These are four critical factors for a successful business strategy. A useful analogy for how this works can be found in the martial arts. Martial artists can do seemingly amazing things, like breaking concrete blocks with their bare hands. But with proper training and the correct mental attitude, anyone can accomplish this feat. The secret to breaking concrete blocks is to think about an inch or so beyond the target. Most people, including many black belts, have trouble at first breaking the concrete blocks because they are afraid of breaking their hands. Accordingly, their minds, and therefore their hands, stop short of the target (hands do, in fact, get broken this way!). Once they learn to focus, concentrate, and project through the target, they are able to break the concrete blocks without injury. It is the same in business – you need to think beyond the problem and think well into the future. In short, to effectively carry out your business strategy, don’t stop short of your target; focus and concentrate on your strategy and avoid distractions; don’t worry about getting hurt; and go boldly forward!

Viewpoint: There are “three types of ‘opinions’ – thoughtful, thoughtless, emotional” – Humphrey B. Neill

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Economic Outlook

OVERVIEW

Our view of the outlook for the U.S. economy is based on our analysis of the economy using the Simple and Effective Economic Forecasting Model developed by our firm. Accordingly, the analysis looks at the four components of the expenditure approach to the measurement of gross domestic product (GDP). Our analysis is also based on forecasts that are derived from a proprietary model that weights and adjusts forecasts made by professional economists in various periodic surveys including the Survey of Professional Forecasters, published by the Federal Reserve Bank of Philadelphia (www.philadelphiafed.org).

CONSUMPTION

Overall, stronger conditions are expected in the labor market as reflected in lower unemployment numbers. Recent improvements in the labor market, as represented by a downward trend in initial jobless claims, contributed to a slight uptick in the leading economic indicators in the week just ended. This suggests possible moderately strong economic growth in coming months – but that is far from conclusive.

Forecasters in the latest Survey of Professional Forecasters are projecting employment gains in three out of the next four quarters.

There are expectations of some minor declines in housing prices in 2012 with a rise in 2013. Confirming this, the latest data out this week shows signs of stalling in the housing market.

Consumer spending is expected to remain subdued and to increase below trend in 2012.

High energy prices will probably weigh on consumer spending. On a positive note, however, consumers are less in debt than they were a year ago.

BUSINESS INVESTMENT

Business spending is expected to increase in the coming months with corporate profits expected to increase moderately in 2012 and 2013.

GOVERNMENT

The federal deficit is expected to increase before declining and GDP growth looks to be more cyclical than structural.

NET EXPORTS

U.S. export growth expectations have weakened.

Global economic growth prospects are still weak.

THE BOTTOM LINE ON GDP GROWTH

According to the Survey of Professional Forecasters, there is only a 9.5% chance of a negative quarter in real GDP in the current quarter. This estimate is down from 16.6% in last survey. The chance of a contraction in the next four quarters was also revised downward.

Productivity growth is expected to average only 1.85% (estimate down from 2.00 % in the last survey), according to the Survey of Professional Forecasters.

Our firm is expecting real GDP growth of 2.3% in 2012, with stronger growth in the second half of 2012 than in the first half.

With this being an election year, much of the outlook for the economy will depend on the outcome of the elections.

Please see the accompanying tables and graphs listed that detail our expectations and outlook for the economy.

Economic Forecasts

Aruoba-Diebold-Scotti business conditions index

A Simple and Effective Economic Forecasting Model White Paper

Results of the Simple and Effective Economic Forecasting Model

 

 

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New Sections and New Content Added

New content has been added to the Economic Outlook, Investments, and Track Record sections.

Additionally, two new sections have been added: (1) The Cassandra Stock Selection Model; and (2) The VDI Investment Club.

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New Investment Section Added

We have added a new section to the website entitled, Investments. Click Investments to check out a description of our unique Intrinsic Value Style of Investment Management approach.

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A Simple and Effective Economic Forecasting Model

Please click this link, Simple and Effective Economic Forecasting Model,  for my article entitled, A Simple and Effective Economic Forecasting Model. This is a free download. To get this download, please sign up for a free membership.

This economic forecasting model will make it easy for you to track current economic events and enable you to make an informed judgement on the state of and future direction of the economy.

Best,

Paul

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