{"id":337,"date":"2015-03-24T21:43:31","date_gmt":"2015-03-25T04:43:31","guid":{"rendered":"http:\/\/smallcapdiscoveries.com\/?p=337"},"modified":"2022-01-11T12:47:21","modified_gmt":"2022-01-11T20:47:21","slug":"why-its-the-2009-bull-market-all-over-again","status":"publish","type":"post","link":"https:\/\/smallcapdiscoveries.com\/articles\/why-its-the-2009-bull-market-all-over-again\/","title":{"rendered":"Why It\u2019s The 2009 Bull Market All Over Again"},"content":{"rendered":"

Why It\u2019s The 2009 Bull Market All Over Again<\/h2>

Corporate profits for US companies\u2014especially small caps\u2014could be set to soar 20% in the first half of 2015.<\/p>\n

That\u2019s what happens when the CPI\u2014the Consumer Price Index\u2014breaks up and away from the PPI\u2014the Producer Price Index.<\/p>\n

The chart below (courtesy of\u00a0 Unit Economics in Boston) shows that the Consumer Price Index has only moved slightly negative (only 0.1%) in its most recent measurement:<\/p>\n

\"chart<\/a><\/p>\n

But the move down in the Producer Price Index has been much larger at 3.1%:<\/p>\n

\"chart<\/a><\/p>\n

Corporate profits are the difference between the revenue a company generates (related to CPI) and how much it has to spend to generate that revenue (related to PPI).\u00a0 Watching the relationship between the CPI and PPI can provide direct insight into how corporate profits are tracking.<\/p>\n

The CPI measures the retail prices of goods and services purchased by U.S. consumers.\u00a0 These are the prices that consumers are paying\u2014and therefore the prices that corporations are receiving.<\/p>\n

The CPI tells us what is happening to the top lines (revenue) of corporations.\u00a0 If it drops, revenue drops.<\/em><\/p>\n

The PPI meanwhile measures the prices that producers of domestic goods and services are receiving.\u00a0 These are the wholesale prices that corporations are paying and are therefore a good indication of how their input costs are trending.<\/p>\n

The PPI tells us what is happening to the expense lines of corporations.\u00a0 If it drops, expenses drop.<\/em><\/p>\n

If the CPI stays flat and the PPI rises, corporate margins are going to be squeezed.\u00a0 On the other hand if the CPI stays flat and the PPI drops corporate margins are going to expand. While the CPI has trended down marginally on the back of lower energy costs, the PPI has plunged.<\/p>\n

The above two charts indicate the US should experience a rapid expansion in US corporate profits as companies SELL their products at CPI-linked prices, but have production costs linked to the Producer Price Index (PPI) \u2013 which is absolutely plunging.<\/p>\n

With the market sour on corporate profitability\u2013because of the high and rising US dollar\u2013this creates the recipe for positive earnings surprises that will drive stock prices higher.<\/p>\n

The chart below tracks how US corporate profits move with the CPI-PPI relationship.\u00a0 The white line is the CPI minus the PPI (-.01 minus -3.1 = 3). Whenever the white line spikes up\u2013like it is now and like it did in 2009\u2013corporate profits (the yellow line) are quick to follow.<\/p>\n

\"chart<\/a><\/p>\n

Source: Unit Economics, Boston MA<\/em><\/p>\n

Unit Economics estimates that this 3% expansion in margins will translate to nearly a 20% increase in overall profit growth.\u00a0 They believe that there will be roughly a two month lag<\/em>between the numbers that show up in the CPI\/PPI and the timing of U.S. corporate profit growth.\u00a0\u00a0 That should make for a good Q1 for US small caps (which will benefit in March) and a blow-out Q2.<\/p>\n

This idea of a surge in corporate profits is against market consensus now, which is focused on weak international GDP growth and also the stronger US dollar.<\/p>\n

That\u2019s potentially true, but it misses the fact that not all companies face those challenges equally.\u00a0 Large caps doing a lot of business internationally will face big headwinds in 2015 even with the CPI\/PPI margin expansion.<\/p>\n

On the other hand small caps that are focused only on US consumers avoid those headwinds AND have a strong tailwind from the margin expansion that the CPI\/PPI trends have identified.<\/p>\n

That should set the stage for significant outperformance for small cap US focused companies in 2015.<\/p>\n

EDITORS NOTE:<\/strong>\u00a0We\u00a0spend all their time doing bottom-up research on individual small and micro-cap companies with a US focus.\u00a0 Paul Andreola and Brandon Mackie go through quarterly financials of publicly traded small caps every night<\/b><\/em> as they are posted to SEDAR and EDGAR, the regulatory websites for pubco financials in Canada and the US.<\/p>\n

They look for orphaned stocks with positive cash flow, partway into a big growth curve.\u00a0 They search for the stocks that are going to go up 2, 3 or even 10 times over a period of 2-5 years.<\/p>\n

They look in the corners of the market that are ignored by the big institutional investors.\u00a0 When you combine their stock picking with the tailwind of the surging corporate profits that are coming in 2015 the results can become truly exceptional.<\/p>\n

Paul and Brandon are issuing a new stock pick on Monday March 30 after market close at 4 pm Eastern Daylight Time.\u00a0 The subscription page will re-open for only the next 7 days\u2013until they release the 12 page report on this fast growing American micro-cap.\u00a0 To join our exclusive small community\u2013and our new Subscriber Chat Forum\u2013CLICK HERE<\/a>.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>\n","protected":false},"excerpt":{"rendered":"Why It\u2019s The 2009 Bull Market All Over AgainCorporate profits for US companies\u2014especially small caps\u2014could be set to soar 20% in the first half of 2015. That\u2019s what happens when the CPI\u2014the Consumer Price Index\u2014breaks up and away from the PPI\u2014the Producer Price Index. The chart below (courtesy of\u00a0 Unit Economics in Boston) shows that...","protected":false},"author":1,"featured_media":70,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[],"_links":{"self":[{"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/posts\/337"}],"collection":[{"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/comments?post=337"}],"version-history":[{"count":1,"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/posts\/337\/revisions"}],"predecessor-version":[{"id":1488,"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/posts\/337\/revisions\/1488"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/media\/70"}],"wp:attachment":[{"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/media?parent=337"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/categories?post=337"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/smallcapdiscoveries.com\/wp-json\/wp\/v2\/tags?post=337"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}