News Analysis for the Investor on July 26, 2012

Millionaire Confidence Index drops to lowest point in nine months

Spectrem Group’s Millionaire Investor Confidence Index dropped to its lowest reading in 9 months due to concerns over Stock Market Conditions and the Economic Environment.  Drops in Millionaire Confidence are particularly disturbing because generally Millionaire households are more positive about economic conditions than others.  The biggest concerns for investors when reviewing their own household’s outlook were the Economy and Company Health.  Similarly, the Spectrem Affluent Investor Confidence Index, which measures the outlook of households with $500,000 of assets, dropped to a -10.  That is the lowest reading in the Neutral category.  A lower rating would place investors into a bearish mode.

Europe’s debt crisis impacts corporate earning in US

Europe’s economic crisis is impacting the earnings of corporations worldwide.  According to the Wall Street Journal, the 27 countries of the European Union are the largest economy in the world.  About 60 percent of the 195 companies that make up the Standard and Poor’s 500 have missed their second quarter earnings targets.  Yet while earnings were down, profits were up 13.6 percent due to cost cutting by corporations.  Companies are concerned about government austerity measures which will cause households to reduce spending which will lower tax receipts and lead to more austerity.  Despite the negative news, the Dow was up 58 points on Wednesday, to close at 12,676.  Asian markets were mixed on Thursday and European markets are up.

Drought could cost $12 billion, most since 1988

Experts predict that the drought scorching the central US will cost at least $12 billion, making it the most costly since 1988. According to USA Today, about 64 percent of the US is in a drought condition.  The losses suffered in 1988 were $40 billion and in 1980 $20 billion.  Adjusted for inflation, those amounts would be $78 and $56 billion respectively. While it is too early to predict the exact impact of the drought, food prices are expected to increase by 4-5 percent.

Toymaker sues Lady Gago over doll deal

Toymaker MGA Entertainment, maker of the Bratz dolls, is suing Lady Gaga for a $1 million advance paid and a contract to make a doll of the popular singer.  According to USA Today, the company expects $28 million in revenues from the fall shipping season and failure to approve the doll is holding up shipping orders.  Gaga’s representatives indicate that the suit is baseless and that Gaga’s world tour has delayed the timing.

JC Penney changes tactics again

JC Penney will make deep cuts across much of its merchandise in an effort to draw shoppers back into its stores, according to the Wall Street Journal.  The company recently announced that it will get rid of monthlong specials and mark down items permanently instead.  While a turnaround for the stores will take time, investors are impatient and the stock is down 40 percent since the beginning of the year.  It is anticipated that the stores will be laid out in a series of mini-boutiques.  To speed that buildout, Penney is looking to unload $500 million in noncore assets this year.  Vendors have seen much smaller orders this year, however, the 1100 stores represent an opportunity that is too large for most to ignore.

US birthrate impacted by recession

The US birthrate is at its lowest point in 25 years as twenty-somethings put off having babies because of the poor economy.  According to USA Today, the average number of births per woman fell 12 percent from a peak of 2.12 in 2007.  The rate is expected to hit 1.87 in 2012 and 1.86 in 2013, the lowest since 1987.  This has been the most severe downturn since the Great Depression. Traditionally the US birthrate was an envy of the developed world because at 2.1, the replacement rate is appropriate to provide younger workers to support older individuals.