Investors are inherently forward-looking -- and with good reason -- but in truth, we can know little about where we're going without first knowing where we are. By extension, the paradox emerges that to see the road ahead, one needs first to map the road behind.
How keen is your memory of where we've been as investors during this wild ride called the global financial crisis? Have you locked those pre-rally days of panicked uncertainty into a shadowy box of avoidance, or do you force yourself to reflect upon the events that transpired in order to embrace the lessons learned?
How investors answer these questions will no doubt vary across personality types and investment styles, but I pose them as a reminder that we have only just recently witnessed a financial shockwave of arguably unprecedented proportions. When I look to earnings from such a critical bellwether stock as USG (NYSE: USG), for example, and seek to glean insight into the status of a high-stakes road to sustainable economic recovery; I find my gaze returning to the past to find reference points for our present location.
Where we stand today
Wallboard manufacturer USG inserted an observation of "modest improvement in wallboard demand" into its release of first-quarter results this week, but before we dance a celebratory jig, this is one instance where historical context is indispensible for understanding the present. Fools will recall that stocks exposed to residential construction markets were among the first to initiate a decline in what we can now discern as a warning shot over the head of the entire global economy.
Shares of homebuilder Pulte Homes (NYSE: PHM) plummeted 67% in 2007, while those of competitors Toll Brothers (NYSE: TOL) and D.R. Horton (NYSE: DHI) each shed more than a third of their value. The impact of a severe and sudden downturn in housing was evident on the retail side, with The Home Depot (NYSE: HD) investors eyeing a 30% decline in 2007. In late 2008, I urged Fools to run as fast as they could from the entire sector, and I have yet to reverse that call.
As impaired as the housing market already was by the end of 2007, USG lost only $28 million in the fourth quarter of that year on net sales of $1.2 billion. By the time the broader equity markets approached the height of their pre-rally panic during the first quarter of 2009, USG's net sales had eroded steadily to $864 million, with an associated net loss of $42 million. Fast-forwarding to the present day, we find first-quarter 2010 net sales down another 17% to $716 million. Offsetting improvement in the Canadian housing market, net sales for the U.S. wallboard unit specifically fell 18%. The latest consolidated net loss of $110 million is 162% larger than the prior-year mark.
I am delighted that so many investors feel encouraged by the number of relative economic indicators that are at least pointing in the right direction after that tumultuous period that we would all love to forget. I do not wish to rain on anyone's recovery parade. All I suggest is that investors retain a wide eye focused upon the relevant historical context for each sequential improvement. Thank you in advance for voting in our poll, and for sharing your own views in the comments section below.
