Gabelli says there’s reason to worry about earnings

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: Slower consumer spending may drag down profit at US companies next year and overshadow growing demand from developing markets, investor Mario Gabelli said. “The concern over the earnings outlook for 2009 is well founded,” Gabelli, who oversees $28.3 billion as the chief executive officer of Gamco Investors Inc, said in an interview in New York. “The US consumer is greater than China, Russia, India and Brazil in terms of the impact. As we’re slowing down, we’re slowing down the world. The consumer has been in a recession since November of 2007.”

The 66-year-old investor said Congress may need to boost the economy with additional tax rebates after sending checks for $117 billion earlier this year. The government must take over Fannie Mae and Freddie Mac, the largest US mortgage financiers, before the housing market can recover from its worst period since the Great Depression, Gabelli added.

The Standard & Poor’s 500 Index has lost 16% in 2008, as subprime-related losses at banks topped $500 billion worldwide and the US economy teetered on the brink of a recession. This week’s retreat pared the rebound in the benchmark stock index to 1.8% from an almost three-year low set on July 15. Trading in stock-index futures today indicate the S&P 500 may sink to a new low.

Earnings estimates

Companies in the S&P 500 will report a 1.7% drop in profit during 2008, before posting a 24% increase next year, according to the average of analyst estimates in a Bloomberg survey.

The US lost more jobs than forecast in August and the unemployment rate climbed to a five-year high of 6.1%, heightening the risk that the economic slowdown will worsen. The Labor Department said that payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months.

Grain prices will probably retreat as economies outside the US slow, Gabelli said. The S&P 500 pulled ahead of benchmark indexes in Brazil, Russia, India and China last month for the first time in 2008, spurred by the Federal Reserve’s efforts to cut borrowing costs even as the biggest developing countries are raising theirs.

Gabelli also said he’s opening a hedge fund to invest in “green” companies that benefit the environment.

“We think there’s money in alternative energy,” he said.

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