Posts Tagged ‘corporate earnings’

Will We Hold It Wednesday – Strong Bounce Edition

What an amazing recovery!  

Just one week ago the World was coming to and end and now everyone has their rally caps back on.  Investors really are sheep – except I think sheep have better memories…  We're still right on plan of dropping 10% and then bouncing 4% (strong bounces) by Wednesday (today) that was initiated on October 6th by our friends at the Fed (see yesterday's post for the summary).  For those of you keeping score, our strong bounce predictions for today were:

  • Dow 16,466 (weak) and 16,632 (strong).
  • S&P 1,878 (weak) and 1,903 (strong).
  • Nasdaq 4,280 (weak) and 4,360 (strong).
  • NYSE 10,360 (weak) and 10,540 (strong).  
  • Russell 1,104 (weak) and 1,128 (strong).

INDU WEEKLYThe Dow is just 17 points away from our goal and we'll just need the NYSE and the Russell to confirm their bounce lines and THEN we can get bullish again.  Meanwhile, we actually got a bit more bearish in our Short-Term Portfolio (also in yesterday's post) as our Long-Term Portfolio popped right back to up 18.1% for the year so we wanted to lock those gains in with the STP, which finished the day up 81.8%, down from 92% in the morning as the markets rocketed.  

If the rally is real, the Dow should have no problem at all popping our 16,632 line – after all, it jumped 234 points yesterday but stopped dead right at our strong bounce line.  The…
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Thrilling Thursday – Dow Hits Record Highs on Lower Earnings!

Why should we worry?

The Dow is at 16,580 so all must be well, right?  The fact that we're up here on low volume and even lower earnings is just one of those nit-picky things that won't matter a year from now, when TA people use the movement to draw new, bullish trend lines.

That's what the Fed is controlling, they are painting charts in broad strokes to keep things moving along – even when they aren't.  

Sure the US economy is only growing at a 0.1% annual pace and sure that's down shockingly from 2.6% last quarter but, hey, we EXPECTED to only grow at 1% – so it's ONLY a 90% miss – what, us worry?

The Fed says it's just bad weather slowing us down and, whether or not you believe that, they also promise to continue to stimulate the economy long after it is necessary.  The Fed is like Santa Claus, only they don't have to put in any effort to make their toys, so Christmas comes 365 days a year for the top 0.01%.  For the bottom 99.99% – well, it's 0.1% growth on the "trickle down" effect.  

4-30-2014 6-22-17 PM Corp CashIn fact, if you take out the Banksters, who are piling up the Fed's free money in their vaults and using it to manipulate the stock and commodity markets (and higher costs for Energy, Food and Health Care were the only reason our GDP wasn't -1% instead of +0.1%), then you can see that those companies not protected by the Fed are in big trouble

Not since 1999 has there been less cash relative to debt in Corporate America.  Yes, money is cheap, so why not borrow some but that money isn't being used to invest in plants, equipment or, God forbid, hiring and training more people – it's being used to buy back stock and pay out dividends to give the ILLUSION that earnings are improving, when it's actually only the share count that's being reduced.  

As you can see from this chart of the S&P, earnings are up just 25% from where they were in 2009, when the market…
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WHY AREN’T EQUITIES SELLING OFF MORE SIGNIFICANTLY?

WHY AREN’T EQUITIES SELLING OFF MORE SIGNIFICANTLY?

Courtesy of The Pragmatic Capitalist 

The deterioration in the economy has been clear in recent months, but the equity markets have confounded many investors.  Stocks are just 10.6% off their highs and have shown some remarkable resilience, particularly in the last few weeks. There’s a great tug-of-war going on underneath what appears like a potentially frightening macro picture.

A closer look shows that what we’ve primarily seen is deterioration in the macro outlook and not so much in specific corporate outlooks. Despite the persistently weak economy, earnings aren’t falling out of bed.  Without a sharp decline in earnings there is unlikely to be a sharp decline in the equity markets (outside of some exogenous event such as a sovereign default).

The most distinct characteristic I can recall from the the 2007/2008 market downturn was the persistent deterioration in earnings.  Like dominoes we saw the various industries go down one by one: housing, then banks, then consumer discretionary and on down the line.  While the macro picture has deteriorated recently we haven’t seen the same sort of deterioration in earnings that we saw in 2007 and 2008.

In a recent strategy note JP Morgan elaborated on the divergence between the macro outlook and the earnings outlook:

“What matters for equities is earnings and not GDP growth. US GDP growth projections are being cut, but earnings projections have been little affected so far. Investors and analysts are hoping that, to the extent the soft patch in US GDP growth lasts for only a few quarters and does not spillover to the rest of the world, US companies will be able to protect their revenues and profits. Indeed, this is what happened during 2Q, when US companies were able to deliver strong top line and EPS growth even as US GDP grew at only a 1% pace.

It is a prolonged soft patch that poses the greater threat for corporate earnings and equity markets as it raises the specter of deflation and profit margin contraction. Why is deflation bad for corporate profitability? When nominal interest rates are bounded at zero, a fall in expected inflation causes a rise in real interest rates and the cost of capital, hurting corporate profitability. In addition, nominal wage rigidities mean that deflation reduces output prices by more than input prices putting pressure on corporate profitability. Indeed, the


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An Avoidable Depression

An Avoidable Depression

Great DepressionCourtesy of MIKE WHITNEY at CounterPunch

The economy has gone from bad to worse. On Friday the Commerce Department reported that GDP had slipped from 3.7% to 2.4% in one quarter. Now that depleted stockpiles have been rebuilt and fiscal stimulus is running out, activity will continue to sputter increasing the likelihood of a double dip recession. Consumer credit and spending have taken a sharp downturn and data released on Tuesday show that the personal savings rate has soared to 6.4%. Mushrooming savings indicate that household deleveraging is ongoing which will reduce spending and further exacerbate the second-half slowdown. The jobs situation is equally grim; 8 million jobs have been lost since the beginning of the recession, but policymakers on Capital Hill and at the Fed refuse to initiate government programs or provide funding that will put the country back to work. Long-term "structural" unemployment is here to stay.

The stock market has continued its highwire act due to corporate earnings reports that surprised to the upside. 75% of S&P companies beat analysts estimates which helped send shares higher on low volume. Corporate profits increased but revenues fell; companies laid off workers and trimmed expenses to fatten the bottom line. Profitability has been maintained even though the overall size of the pie has shrunk. Stocks rallied on what is essentially bad news.

This is from ABC News:

"Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high….The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls…It’s in effect the death zone for consumer sentiment."

Consumer confidence has plunged due to persistent high unemployment, flat-lining personal incomes, and falling home prices. Ordinary working people do not care about the budget deficits; that’s a myth propagated by the right wing think tanks. They care about jobs, wages, and providing for their families. Congress’s unwillingness to address the problems that face the middle class has led to an erosion of confidence in government. This is from the Wall Street Journal:

"The lackluster job market continued to weigh on confidence. The share of


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Rosenberg’s View For 2010 “A Return Of Volatility”

Courtesy of Tyler Durden

For those strapped for time, here is a comprehensive 4 minute Bloomberg TV interview with David Rosenberg which recaps some of the recent trends the Gluskin Sheff Strategist has been discussing, including the sovereign debt crisis, corporate earnings, and small business performance.

 

For those wishing to dig deeper into the observations, below is the key take home from today’s Breakfast with Dave (full piece here).

In several of my recent musings, I put forward the idea that economic, political and market trends are likely to continue the pattern of alternating direction from one year to the next. In other words, what worked in 2010 is not likely going to work in 2009 any more than what worked in 2008 did not work in 2009; in a nutshell, we are still on this post-bubble roller-coaster ride. If you go back to the initial bounce off the depressed bottom in the early 1930s, what we had for a decade off the bungee-jump was intense volatility. The same holds true for Japan in the early 1990s, and ever since. Considering the volatile, alternating character of the financial markets over the last three years there should be no need to back away from an overall cautious investment strategy that involves capital preservation and income generation, notwithstanding the sharp but inevitably fleeting market rallies that are typical in a post-bubble credit collapse.

From my lens, it now looks like the global economy is going to weaken after a few quarters of bounce-back that was caused principally by massive government intervention and stimulus. For illustrative purposes, we ran some simulations and found that absent the massive amount of monetary, fiscal and bailout stimulus last year, real GDP in the U.S. would have likely contracted as much as 4% in 2009 instead of the posted 2.4% decline; the third quarter would have contracted 1% (not gained 2.2%) and Q4 would have been down 1.5% (not the ripping 5.7% jump that is destined to be revised in any event).

The stimulus we experienced in 2009 is unlikely to be repeated in 2010 for a number of practical and political reasons. Scott Brown’s recent victory in the U.S. Senate race was a message for the government to go easy on the public purse, among other things like socialized health care. In addition, economic growth will be increasingly burdened by…
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The Great Disconnect Between Stocks and Jobs

Robert Reich presents his view of the economy, stock market run-up, job losses, and corporate earnings, which reflect cutting employees rather than growth in production. Given that we have a consumer-driven economy, with consumers being the ones losing jobs, and perhaps their houses, logically, it makes sense that the stock market is at risk for another meeting with value based-pricing some time in the future. Being long now is a bet on liquidity driven gains continuing, regardless of the actual state of the economy.  - Ilene

The Great Disconnect Between Stocks and Jobs

Robert ReichCourtesy of Robert Reich at Robert Reich’s Blog

How can the stock market hit new highs at the same time unemployment is hitting new highs? Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise.

In the old-fashioned kind of recession decades ago, big companies laid off people with the expectation of rehiring them when the economy turned up. Then a few recessions back, companies started laying off people for good, never rehiring them even when the economy recovered.

In the Great Recession of 2008-2009, companies are going a step further. They’re using this sharp downturn to cut payrolls even below where they were when times were good. Outsourcing abroad, setting up shop in China and elsewhere, contracting out, replacing people with software and automated machines – they’re doing whatever it takes to get payrolls down so earnings bounce up.

Caterpillar earned $404 million in the third quarter, or 64 cents a share. Analysts had expected only 5 cents. Caterpillar’s stock is up 165 percent since March. How did Caterpillar do it? Not by selling more bulldozers. It did it by cutting over 37,000 jobs.

The result, overall, is an asset-based recovery, not a Main Street recovery. Yes, the economy is growing again, but the surge in productivity is a mirage. Worker output per hour is skyrocketing because companies are generating almost as much output with fewer workers and fewer hours.

The Fed, meanwhile, has become an enabler to all this, making it as cheap as possible for companies to axe their employees. Money costs so little these days it’s easy


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Phil's Favorites

US-China trade deal: 3 fundamental issues remain unresolved

 

US-China trade deal: 3 fundamental issues remain unresolved

The game is far from over. rawf8/Shutterstock.com

Courtesy of Penelope B. Prime, Georgia State University

The U.S. and China have reportedly reached a so-called phase one deal in their ongoing trade war.

While few details have been disclosed, the agreement principally seems to involve the U.S. calling off a new round of tariffs that were slated to take effect on Dec. 15 and removing others already in place in exchange for more Chinese purchases of U.S. farm products.

Good n...



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Kimble Charting Solutions

Euro Breakout In Play? Gold Bulls Sure Hope So!

Courtesy of Chris Kimble

The Euro has spent much of the past 2 years trading in a down-trend.

Though precious metals like Gold have fared well, this has been a bit of a headwind because it means that the US Dollar has remained firm.

Big Test In Play for the Euro

The Euro is testing a confluence of important support just as the downtrend is narrowing and ready for a “break”. That support includes lower falling wedge support and the Euro’s long term up-trend support line (see points 1 and 2).

If the Euro can succeed in breaking out at (3), it would be bullis...



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Zero Hedge

China Refuses To Confirm Trade Deal As Local Media Stays Dead Silent

Courtesy of ZeroHedge View original post here.

Markets are closed in Beijing, the workday is over, and there no official reports in local media of an actual trade deal, that is because, as we explained on Thursday night, the language of the deal will never be made public and there would be no signing event between President Trump and President Xi. One may ask if there is even a "deal"?

As the ...



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Insider Scoop

8 Healthcare Stocks Moving In Friday's Pre-Market Session

Courtesy of Benzinga

Gainers
  • Sarepta Therapeutics, Inc. (NASDAQ: SRPT) stock surged 36.4% to $137.00 during Friday's pre-market session. The market value of their outstanding shares is at $6.1 billion. The most recent rating by Janney Capital, on December 13, is at Buy, with a price target of $175.00.
  • GlaxoSmithKline, Inc. (NYSE: GSK) shares surged 1.1% to $46.44. The market value of their outstanding shares is at $112.9 billion. According to the most recent rating by UBS, on November 21, the current rating is at Buy.
  • AstraZeneca, Inc. (NYSE: ...


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Digital Currencies

Three Men Arrested In NJ For Running Alleged $722 Million Crypto Ponzi Scheme

Courtesy of ZeroHedge View original post here.

Authored by Kollen Post via CoinTelegraph.com,

United States authorities in New Jersey have announced the arrest of three men who are accused of defrauding investors of over $722 million as part of alleged crypto ponzie scheme BitClub Network, per a Dec. 10 announcement from the Dep...



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Lee's Free Thinking

Chart Shows the Fed Ramping Up Not QE - Funding Almost All Treasury Issuance

 

Chart Shows the Fed Ramping Up Not QE – Funding Almost All Treasury Issuance

Courtesy of Lee Adler, Wall Street Examiner 

The Fed is ramping up “Not QE” .

The Fed bought $2.2 billion in notes today in its POMO, “not QE,” operations. Actually $2.15 billion because they sold back a whole $50 million. Must have been a little glitch in the force.

This brings the Fed’s total outright purchases of Treasuries to $170 billion since it started Not QE, on September 17.

It also did $107 billion in gross new repo loans to Primary Dealers to buy Tre...



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Chart School

Silver stock taking the sector higher

Courtesy of Read the Ticker

As the US economy begins to show late cycle characteristics like: GDP slowing, higher inflation, higher wage costs, CEO confidence slump. 
Previous Post: Gold Stocks Review

The big players in the market are looking for the next swing off good value lows. This means more money is finding it way into the gold and silver sector, and it is said gold and silver stocks actually lead the metal prices. The cycle below shows prices are ready to move in the months ahead (older chart re posted).




 

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Members' Corner

Sacha Baron Cohen Uses ADL Speech to Tear Apart Mark Zuckerberg and Facebook

 

Sacha Baron Cohen Uses ADL Speech to Tear Apart Mark Zuckerberg and Facebook

By Matt Wilstein

Excerpt:

Sacha Baron Cohen accepted the International Leadership Award at the Anti-Defamation League’s Never is Now summit on anti-Semitism and hate Thursday. And the comedian and actor used his keynote speech to single out the one Jewish-American who he believes is doing the most to facilitate “hate and violence” in America: Facebook founder and CEO Mark Zuckerberg.

He began with a joke at the Trump administration’s expense. “Thank you, ADL, for this recognition and your work in fighting racism, hate and bigotry,” Baron Cohen said, according to his prepared...



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The Technical Traders

VIX Warns Of Imminent Market Correction

Courtesy of Technical Traders

The VIX is warning that a market peak may be setting up in the global markets and that investors should be cautious of the extremely low price in the VIX. These extremely low prices in the VIX are typically followed by some type of increased volatility in the markets.

The US Federal Reserve continues to push an easy money policy and has recently begun acquiring more dept allowing a deeper move towards a Quantitative Easing stance. This move, along with investor confidence in the US markets, has prompted early warning signs that the market has reached near extreme levels/peaks. 

Vix Value Drops Before Monthly Expiration

When the VIX falls to levels below 12~13, this typically v...



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Biotech

Why telling people with diabetes to use Walmart insulin can be dangerous advice

Reminder: We are available to chat with Members, comments are found below each post.

 

Why telling people with diabetes to use Walmart insulin can be dangerous advice

A vial of insulin. Prices for the drug, crucial for those with diabetes, have soared in recent years. Oleksandr Nagaiets/Shutterstock.com

Courtesy of Jeffrey Bennett, Vanderbilt University

About 7.4 million people ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Promotions

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In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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