Gabelli Says There's Reason to Worry About Earnings

By Eric Martin and Carol Massar

Sept. 5 (Bloomberg) -- Slower consumer spending may drag down profit at U.S. 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 a Bloomberg Television interview in New York today. ``The U.S. 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 U.S. 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 percent in 2008 as subprime-related losses at banks topped $500 billion worldwide and the U.S. economy teetered on the brink of a recession. This week's retreat pared the rebound in the benchmark stock index to 1.8 percent 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 percent drop in profit during 2008, before posting a 24 percent increase next year, according to the average of analyst estimates in a Bloomberg survey.

The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five-year high of 6.1 percent, heightening the risk that the economic slowdown will worsen. The Labor Department said today 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 U.S. 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.

More Than Goldman

Gabelli received $70.9 million in compensation for 2007, more than the head of Wall Street's most-profitable securities firm, Goldman Sachs Group Inc. He didn't get a fixed salary or bonus, the Rye, New York-based money manager said in an April regulatory filing. His compensation was based on a portion of Gamco's pretax profits and portfolio-management fees, according to the filing.

Gamco's CEO made less than hedge-fund managers such as John Paulson, founder of New York-based Paulson & Co., who was paid an estimated $3.7 billion last year, according to Institutional Investor's Alpha Magazine. George Soros was paid about $2.9 billion, while James Simons made an estimated $2.8 billion.

Last month, Gabelli called for Cablevision Systems Corp.'s founding Dolan family to break up the company, threatening a proxy fight. The Dolans have come under criticism from Cablevision investors, who rejected their bid to buy the company for $36.26 a share last year. Cablevision dropped 4.1 percent to $30.26 in New York Stock Exchange composite trading yesterday.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Carol Massar in New York at cmassar@bloomberg.net.