Kashkari: PIMCO doesn’t expect margin pressure
I thought I should present the somewhat bullish view of the margin issue we have been discussing here. PIMCO’s Neel Kashkari is out with a note that underscores what the bulls are thinking about the issue:
Key Points:
- Today many equity investors are asking whether corporate profit margins can stay strong.
- Stock prices today are anchored on strong profits, hence investors’ intense focus on the sustainability of those profits. If they fall, stock prices are likely to follow.
- No doubt individual companies and individual sectors will face margin pressure. But for the equity market as a whole, our central scenario is for corporate margins to remain strong in the near future.
- As always, we are buying individual companies we like based on our analysis of their own fundamentals in the context of the economic environment they are operating in, and we are keeping one eye focused on managing downside risks.
This seems to jibe with what Bill Gross is saying right?
The whole firm is of the belief that the Fed has to continue easing, continued easing props up income margins, similar to what Montier at GMO went through a few weeks ago.
“corporate margins to remain strong in the near future”
When he qualifies that statement with “in the near future,” he’s not saying much IMO.
Agree with you here. Tactically, it sounds like he is saying that things look fine for the near future but that this may change. This is however a departure from what other analysts are saying. They are saying that the margin pressure has already begun and that earnings estimates are being cut and that this will pressure stocks in the near term as well.