American Economy Is Tortoise Not Hare: Kelly

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July 09 (Bloomberg) -- In today's "The Call," David Kelly, Chief Global Strategist at JPMorgan Funds, discusses the outlook for the U.S. economy and his subsequent investing strategy. He speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Saying?

It is not just the data.

This american economy is a tortoise moving forward.

The labor market is gradually tightening.

We are seeing the unemployment rate gradually come down.

If the economy is normalizing, long rates will normalize and real interest rates need to be 1%-of1.5% higher than they are now.

You are saying that we should be at 3% on the 10-year note?

More than that, 3.5% to 4.5%. you also believe the earnings season will surprise on the upside.

Dominic chu, you are looking at the earnings season.

There is optimism.

L: the estimates, -- alcoa beat estimates, so that could be a good sign.

I want to show you something interesting, something that is perhaps more bearish on earnings season -- the ratio of the number of companies coming out with negative preannounced earnings versus positive preannounced earnings.

It is up to 6.8, nearly 7 companies negatively announcing earnings.

That means a lot more companies are trying to manage down expectations for earnings season.

I could be something to watch for -- maybe these companies are preparing us for negative news going forward.

David, what do you make of that?

I think most companies will surprise to the upside.

I think they dampen down expectations so that they can beat them, but having said that, the dollar is higher year-over- year, a sluggish economy -- it does not help.

I think over the next two years operating earnings will go up above 5%, which should support a stock market, particularly if multiples are moving up.

This is not a great season but we think the second half of the year growth will pick up in the united states and around the world.

It is not that we are that optimistic about the economy, but as the federal reserve feels the need to push out of quantitative easing it will push long rates higher.

We were speaking with an analyst yesterday who said they thought they would see better profit margin but they do not understand how that is happening as revenue across the board is slowing down for most companies.

How is that happening?

Revenue is rising, just slowly.

You expected to rise up the pace of nominal gdp here in the united states and around the world.

Revenue is going up slowly.

Margins are held at relatively high levels because of low wage growth and interest rates.

I feel ok about margins.

Generally, at this stage, be on the few years of expansion, earnings girl at the same pace as revenue.

Margins do not collapse or expand.

That will be the next message until the next recession.

One of the silver linings of the expansion is a could be a long expansion.

They have a long way to run because we are not at full employment or normal levels of housing starts or vehicle sales.

It could be a long expansion and expect earnings to grow at the same pace as revenue.

David kelly, on the call, thank you.

This text has been automatically generated. It may not be 100% accurate.

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