The Monday Edition- US Economy & Opportunities In Turkey

By Yaser Anwar, CSC of Equity Investment Ideas

In this week’s Monday Edition I plan to talk about 1) US Economic Outlook 2) Images- ‘Insider Activity Sector Wise’ and widely held Growth & Value stocks 3) Opportunities In Turkey.

Economic View

  • Evidence continues to suggest that the US economy is easing into a soft landing that will allow Fed policy makers to refrain from raising the fed funds rate any further. So far economists are saying that despite likely subpar growth this quarter, the US economy’s growth rate should return to trend, noninflationary growth by early next year.
  • They need to realize that even though the GDP growth was revised higher the data does not boost prospects for the 4th Q, which will still suffer a more than 20% annualized drop in residential investment, and will likely post a similar growth number as 3rd Q. Nevertheless inflation looking forward is likely to remain tame, supporting real consumer demand.
  • The effects of the downturns caused by inventory imbalances in housing and automobiles do not appear to be spilling over into broader parts of the economy. Evident by the fact that shipments and production of manufactured technology goods are improving alongside inventories which are well aligned with sales.
  • So far consumption has remained fairly robust, as lower energy prices and rising equity markets removed some of the sting from weaker housing. Real short-term interest rates are not particularly high relative to historical trends. Evident by the fact that inflation adjusted real fed funds rate is presently at 2.75% vs 4%–6% level that is has been typical at the end of past tightening cycles. Evidence of this can also be gleamed in the readily available access to credit today, which has fueled a record 06 for M&A activity.
  • Lower interest rates, higher real incomes and improving affordability all suggest the housing market has bottomed but it is unlikely that the sector will be a major contributor to economic growth in much of the 1st and possibly 2nd half of 07.
  • The end of housing downturn doesn’t mean that the US economy will return to above trend growth. Nonresidential investment has risen little in absolute level in this expansion, reflecting deep declines of 2001 and 2002.
  • On another note- Thanks to the Thomson Financial access at school I was able to get some good images indicating insider activity in different sectors alongside stocks owned by funds under the growth and value criteria

Global Macro- Turkey

  • Implemented after the 01 financial crisis, the IMF-backed reforms introduced wide-ranging structural changes, including cuts in government spending, acceleration of privatization, and introduction of corporate tax cuts.
  • According to MS- Turkish labor productivity has risen by 40%+ and business investment spending has soared by 120%. What’s remarkable is that Turkey’s record growth has been achieved against tight monetary policy, with real interest rates substantially higher than in other OECD countries.
  • Over the past two years Turkey has enjoyed an unprecedented inflow of FDI. The $10 billion that poured in during 2005 was more than during all of the years of the previous decade combined. This is set to double, with $22.1 billion of FDI expected in 06 & $27 billion in 07. High-profile deals this year include Citigroup’s $3.1 billion acquisition of a 20% stake in Akbank, the country’s largest privately-owned bank.
  • The cons to Turkey are currency and EU troubles. Out of all the currencies and countries I follow Turkish Lira susceptible to a lot volatility. Also- The EU complains that Turkey is backsliding on reforms in freedom of expression.
  • That being said- The FDI inflows tell me that foreign investors are optimistic that Turkey is set for a sustained period of economic growth and structural reform.

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