Keeping Score

We shot a 97 on a par-64 municipal track this week. Like Mark Twain’s assessment of Wagner, It was better than it sounds. Really.

In fact, we cut 10 strokes off that in a later round – the first time we have broken 90 – by somehow eliminating enough three-, four- and, yes, even five-putts. Mirabile dictu! It's true! Drive for show and putt for dough.

Likewise, the U.S. economy's game won't be mistaken for one of Bubba Watson's Homeric drives, but the advance estimate of first-quarter gross domestic product showed that efficient work by the 14^th club in the bag kept e pluribus unum in the hunt.

The Commerce Department reported Thursday that real GDP advanced at a seasonally adjusted annual rate of 2.2% in the first three months of 2012, down from a 3.0% rate in the fourth quarter of 2011. Business investment and inventories were the big subtracting factors. But the big dog, the consumer, overcame those drags. Final consumption charged ahead at a 2.9% rate, adding two points to growth, up from 2.1% in the fourth quarter. It was the biggest contribution to expansion since the final months of 2010.

In all, the data buttressed our view that the U.S. has reached escape velocity and won't veer into a double-dip recession, like Europe appears to be doing. Indeed, the U.S. is once again the hope of the world. The American consumer is crucial to Europe and Asia, lands that depend on America's appetite for goods ranging from German cars to Chinese T-shirts. The increase in consumption should also translate into more investment and inventory building on these shores in the months to come.

The stock market responded, shrugging off the headline number, helped, obviously, by sterling earnings reports from Apple and Ford. Fully 71% of companies comprising the S&P 500 that have so far reported first-quarter results beat analysts' mean estimates, according to Bloomberg News.

Barring unforecastable cataclysms, we expect the rally to continue. The S&P 500 is trading at a trailing 12-months price-to-earnings ratio of about 16, compared with a historical mean of about 15, according to the Wall Street Journal. We expect the “P” to grow as the “E” keeps swelling in a growing economy. As in our historic breaching of the 90 threshold, momentum is serious scorecard medicine.

Apocalypse (Not) Now

Dare we say it? Those “green shoots” (a false spring in 2009) appear to be sprouting again in the United States, while foreign fields remain fallow. We argue that this dichotomy is seed corn for global economic expansion that can be wrecked only by the four horsemen of the Apocalypse – war, famine, pestilence, death, the latter of which comes to all of us in the long run, as Keynes famously said. We cannot reasonably forecast the other three, so we will stipulate, for the sake of our analysis, they will remain sidelined. This premise is, of course, a bit of a stretch given the apocalyptic tenor of the times, but assume it we must if we are to proceed down this primrose path.

Our first stop is the land of e pluribus unum. Times being what they were, Americans took the jobs, some 200,000 of them a month for a while, according to the Bureau of Labor Statistics. But no, from out of nowhere (as that famous economist Howard Cosell used to intone), job growth slipped in March – a late frost that threatened to wither those ephemeral seedlings seen sprouting. Another month of lackluster job growth could prove fatal to the outlook for the American spring, particularly if hourly wages remain stagnant.

We remain sanguine, though. For one, oil prices have yet to choke and they have likely peaked. We don’t expect one of our four horsemen, war with Iran, to ride again for some time, and the latest American Petroleum Institute data show inventories on the rise. What’s more, economic growth, though far from boiling, should maintain escape velocity with the latest trade data forcing economists to up their forecasts for first quarter expansion toward the 3% annual rate that offers enough momentum to prevent a stall.

No, the US is probably OK until January, when across-the-board federal spending cuts are slated to kick in. Far be it from us to forecast political outcomes, but it’s hard to believe there won’t be some dickering to soften the fiscal blow no matter who is President or which party controls Congress.

Surely what matters now lies elsewhere in the world, specifically the European Union (our pestilential horseman) and the People’s Republic of China (saddling the famine entry). The former is the biggest worry. Contagion is … well, contagious. Recall, the US financial mess that spread abroad and so artfully ameliorated by Bernanke and company. Expect further selloffs in US equities if Spain’s bond auction goes poorly this week. The EU’s German-dominated direction is perversely aimed at austerity when only growth can save the day. But we think it’s more or less baked in the cake.

Strangely, alarm bells are ringing over the famine nag, the world apparently scared that an undernourished China signals a dearth of demand in the western world. China recently reported another slowdown in growth, but lost in the story is that this outcome is exactly what the Chinese authorities planned – slower growth to prevent overheating and achieve the elusive soft landing of which central bankers’ dreams are made.

For those as optimistic as we are, buy the S&P 500 on weakness. Specifically, we like Ford (F) and Riverbed Technology (RVBD). The former is confident enough to have begun paying a dividend again. We like the latter’s prospects in wide-area network optimization as global growth maintains momentum.

For the more faint of heart, tried and true makers of products that cater to our vices should withstand economic turmoil. In this vein, we like Altria (MO), purveyor of the iconic American cigarette for which we and a host of others have a weakness.

However, we don’t think the Marlboro man need ride to the rescue. He can remain dismounted along with the horsemen of end time.