Is This a Good Thing or a Bad Thing?

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Published on Thursday, 16 August 2012 15:01

Written by Sara Nunnally, Editor, Inside Investing Daily

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Used to be you could gauge the health of the economy on the earnings reports of Wal-Mart (WMT:NYSE) and McDonald's (MCD:NYSE). If the rest of retail were doing poorly and these guys hit their marks, the economy was in trickle-down mode...

(That's when luxury buyers step down to lower-priced retailers and middle-class buyers start shopping at Wal-Mart and the Dollar Tree while eating at McDonald's, instead of a sit-down restaurant.)

But what does it say when both Wal-Mart and McDonald's are missing earnings?

WMT reported that its total revenue climbed only 4.5% for the second quarter. Analysts expected revenues of $115.8 billion, while the actual figure came in at $114.3 billion.

MCD's reported earnings per share were down 2% in its second quarter. Operating income fell 2%, and net income fell 4%. Earnings per share fell to $1.32 from $1.35 a year ago. Analysts had been expecting EPS of $1.38.

Does this mean our economy is really in the crapper? Or are customers climbing back up the retail ladder?

I think it's the first. Tiffany & Co. (TIF:NYSE) has missed earnings for the past two quarters. Saks (SKS:NYSE) lost 5 cents per share in its last quarter.

But here's the real point.

It seems as if all our old economic indicators were getting reshuffled. And the more solid ones -- like GDP and employment -- can't be trusted.

Let me give you an example of what I'm talking about from my state, Wisconsin.

You may have heard the brouhaha about our governor "manipulating" jobs numbers coming from the Bureau of Labor and Statistics. Under one gauge, the number of people employed in Wisconsin since the beginning of the year showed a sizable dip -- putting us last in the nation for job creation.

Under another gauge, it showed we actually created jobs (though still not as many as any other states, but hey, somebody's gotta be last, right?).

The difference was in the questions that were asked, and who they were asking. The first method called up employers and asked how many people they've hired. The second method called people's homes and asked how many people were employed.

The second method didn't specify where those folks were employed, however, and some detractors from the governor argued that some of those respondents could have actually been employed across state lines in Illinois or Minnesota.

Both numbers were right, but which would you use to gauge the health of Wisconsin's economy?

Hard to tell, right?

That's the problem, and it's just a mild one, compared with the actual manipulation of traditional economic indicators. How many times has our GDP figure been revised after it was announced? Same thing for unemployment... CPI... the list goes on and on.

I'm knee-deep in economic data that I think could change the way we look at a country's economy. I'm looking at things that are a bit more difficult to fudge, like corporate tax rates and foreign reserves, how much each country spends on education and how much each market has been moving.

I'm on a mission to find a better indicator, and I've got four more weeks to crack the code.

In a month, I'll present my findings at an exclusive conference in Las Vegas called the Roadmap of the New America. But here's a peak at what I've been doing.

I'm sure you all have heard of the Heritage Foundation. Every year, it puts out a list of countries ranked by economic freedom. It tracks things like property rights, corruption, trade, debt and a host of other data.

The most recent ranking has Hong Kong in the top spot, followed by Singapore and Australia. This was a starting point.

I took what the Heritage Foundation found and added some data of my own.

I'm not going to give away all of my secrets here, or I might not see you in Vegas this September... but the goal is this: to find real growth.

And not just economic growth. I'm looking for the best places to grow your wealth.

To no one's great surprise, the U.S. is not the best place. It may be safe and easy to put your money into U.S. equities, but hardly anyone gets rich off safe and easy.

I know these are important qualities, and I'm not discounting them. I get it... the last four years have been incredibly rough.

My goal is to shift investing from safe and easy to safe and easy and profitable.

And believe me, there are a lot of opportunities out there that are simple and accessible and that are probably off your radar.

I'm following the data and the money to pinpoint exactly where these opportunities are.

Come find them in Las Vegas in four weeks. See you there.

Happy Investing,

Sara