{"id":80413,"date":"2015-11-02T04:15:47","date_gmt":"2015-11-02T09:15:47","guid":{"rendered":"http:\/\/countingpips.com\/?p=80413"},"modified":"2015-11-02T13:11:14","modified_gmt":"2015-11-02T18:11:14","slug":"beware-the-industrial-recession-and-conflicted-strategists","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/11\/beware-the-industrial-recession-and-conflicted-strategists\/","title":{"rendered":"Beware the Industrial Recession\u2026 and Conflicted Strategists"},"content":{"rendered":"
November 2, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Beware<\/p>\n

By Alan Gula<\/a>, Chief Income Analyst <\/em><\/p>\n

\u201cThe industrial environment is in a recession \u2013 I don\u2019t care what anybody says, because nobody knows that market better than we do,\u201d stated Daniel Florness, Chief Financial Officer of Fastenal Co.<\/strong> (FAST<\/a>), on the company\u2019s third-quarter conference call.<\/p>\n

The man was adamant, and he had reason to be.<\/p>\n

Fastenal doesn\u2019t just sell nuts and bolts to local hardware stores. It provides a wide variety of industrial and construction supplies including power tools, packaging materials, electrical connectors, chemicals, HVAC components, and hydraulic systems.<\/p>\n

Fastenal serves non-residential construction companies, manufacturers, farmers, railroads<\/a>, mining companies, and the energy sector<\/a>.<\/p>

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So, if Fastenal is seeing extreme weakness in its customers\u2019 spending rates, then there\u2019s good reason to believe that the United States is, in fact, suffering an industrial and manufacturing recession.<\/p>\n

Of course, others who basically have to be bullish on stocks are saying, \u201cNot so fast.\u201d<\/p>\n

To Bias or Not to Bias?<\/h2>\n

Tobias Levkovich, Chief Equity Strategist at Citigroup Inc.<\/strong> (C<\/a>), dismissed industrial sector worries on Bloomberg Television last week.<\/p>\n

Levkovich noted, \u201cEven if you look at durable goods orders, they have not plummeted 20% to 30% like they\u2019ve done in previous recessions, so every time I hear the words \u2018industrial recession,\u2019 I cringe.\u201d<\/p>\n

However, we should be wary of his commentary.<\/p>\n

Like economists at investment banks, equity strategists basically get paid to tell clients what they want to hear. Their clients own a boatload of equities, so these financial pundits tend to dismiss any and all risks.<\/p>\n

For example, heading into 2008, Levkovich was bullish on financials and had an end-of-year S&P 500 price target of 1675 (equivalent to a 14% gain). The S&P actually lost<\/em> 38%, and 2008 was the worst year for financials since the Savings and Loan Crisis.<\/p>\n

Needless to say, if someone failed to warn about the worst recession since the Great Depression, they\u2019re either biased by conflicts of interest or can\u2019t see the big picture (and it\u2019s probably both).<\/p>\n

Currently, the market seems to be listening to utterly conflicted bank strategists rather than heeding the warnings of company executives with boots on the ground.<\/p>\n

Heavy-Duty Risk<\/h2>\n

It\u2019s scary that industrial stocks don\u2019t seem to be \u201cpricing in\u201d even the possibility<\/em> of an industrial recession, let alone evidence that one has already started.<\/p>\n

The price-to-sales ratio (P\/S) for the S&P 500 Industrials Index is 1.56 times, as can be seen in the chart below.<\/p>\n

\"What<\/p>\n

At a time when many industrial companies are struggling to grow revenues \u2013 as Fastenal can attest \u2013 the P\/S ratio for this sector is well above its 10-year average.<\/p>\n

In the latter part of 2011, recession fears brought the Index\u2019s P\/S ratio down to around 1.0 times, but we\u2019re currently nowhere near that valuation level.<\/p>\n

Be mindful of your exposure to industrial stocks.<\/p>\n

And be wary of the opinions you hear in the financial media. Most \u201canalysts\u201d aren\u2019t trying to get things right. They\u2019re simply sticking to the script that was formulated by a committee within their firm.<\/p>\n

Safe (and high-yield) investing,<\/p>\n

Alan Gula, CFA<\/p>\n

The post Beware the Industrial Recession\u2026 and Conflicted Strategists<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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By WallStreetDaily.com By Alan Gula, Chief Income Analyst \u201cThe industrial environment is in a recession \u2013 I don\u2019t care what anybody says, because nobody knows that market better than we do,\u201d stated Daniel Florness, Chief Financial Officer of Fastenal Co. (FAST), on the company\u2019s third-quarter conference call. The man was adamant, and he had reason […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-80413","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/80413","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=80413"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/80413\/revisions"}],"predecessor-version":[{"id":80442,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/80413\/revisions\/80442"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=80413"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=80413"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=80413"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}