The net income is fair…but do you really expect top line growth to be neutral/bad yet be ignored by the markets? I think top line growth needs to be good for stocks to rally once again. For 2 quarters the markets have applauded cost cutting strategies, now for a confirmation of the economy recovering, top line growth will begin to take precedence…Are you going to go full fledge long into the market now and ditch your neutral ‘derivative short’ strategy?
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# 7 October 2009 at 12:12 AM
Julius said:
But why have insiders sold so heavily than?
One question everyone should consider…
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# 7 October 2009 at 3:33 AM
xxxxxL said:
One may be enclined to think that banks are the proxies for corporate profits and overall financial health.
This conflicts with your conclusion in yesterday’s “The Reason for Today’s Buying…”. Will earning be buy the news or did we already have quite a bit of buy the rumor (from S&P 500 980 to 1060) and now we will see some sell the news. Will the primary market driver be earnings or the dollar? i.e. Could we see a stronger market in the face of worse than expected earnings on a weak dollar or would better than expected earnings trump a reversal to a stronger dollar? Would say a weak dollar and strong earnings together (or vice versa) magnify the effect?
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# 7 October 2009 at 6:31 AM
Van said:
My guess is that when the employment #s improve from less bad to actual growth, it will be the sell the news event to begin the next correction.
We may not see a sell the news attitude until later in the season. Remember, banks lead off and they don’t give guidance. All they have to do is beat earnings and give rosy conference call. That will set the tone….
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# 7 October 2009 at 8:54 AM
Tom Turtle said:
It seems like Mr. Market at this point is coming to expect better than expected earnings. Last quarter, better than expected earnings were valuable because they validated that companies had stabilized their profit streams in the aftermath of the crisis. It didn’t matter how profits were stabilized. This quarter, I would anticipate more discounting of what better than expected implies for forward earnings, particularly 2010. Improving top lines and management remarks about improving business conditions should bull things up. Flat to falling top lines with E.P.S. beats due to cost cuts should have a muted if not sell on the news effect compared to last quarter.
Regarding the banks…they seem to operate in an alternate reality to the rest of the economy…
I think we’re too early in the earnings recovery for investors to expect huge top-line growth. I am not implying that firms are recovering or are going to recover, but at this point better than expected and in-line should be just fine. The margin expansion is truly remarkable and if we actually get the revenue recovery investors are not going to want to miss out….
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# 7 October 2009 at 9:47 AM
Matty said:
Hi TPC,
In your post about Rosenberg’s views today, you note that investors will be focused on capitalizing on the momentum trade and better than expected margins during earnings season. What about Rosenberg’s cautionary note about an over-extended market?
“Remember what happened in October 1987. Not that we are predicting a market crash, but recall that the massive setback in the stock market back then took place in a quarter when real GDP was ripping along at a 7% annual rate and corporate profits were accelerating at a — get this — 55% year-over-year pace; and that was the quarter that erased a year’s worth of capital appreciation in what was the steepest decline since 1929.”
I know the economic situation is very different today than 1987, but you don’t seem to be particularly cautious at the moment. To me, it just feels like a pivotal juncture where expectations could turn on a dime and focus on broader concerns than quarterly reports.
What you say about the start of earning season makes sense to me – i.e. with financials reporting first, they’ll make sure it looks good. And Alcoa does indeed seem to be setting the tone, as you say. What about 2-3 weeks from now? For instance, what if negative consumer and housing data coincide with some misses from consumer names, which report later in the cycle, correct? Isn’t there growing anxiety about the state of the consumer and unemployment, etc? Do you think the Expectation Ratio trumps such concerns? Do you imagine becoming worried at all as we get further into earnings season?
Admittedly I’m jumpy, and maybe the momentum and beating expectations is what matters for now…
The net income is fair…but do you really expect top line growth to be neutral/bad yet be ignored by the markets? I think top line growth needs to be good for stocks to rally once again. For 2 quarters the markets have applauded cost cutting strategies, now for a confirmation of the economy recovering, top line growth will begin to take precedence…Are you going to go full fledge long into the market now and ditch your neutral ‘derivative short’ strategy?
But why have insiders sold so heavily than?
One question everyone should consider…
One may be enclined to think that banks are the proxies for corporate profits and overall financial health.
The banking sector must perform better and its profits share in the SP500 back to 32 %?
http://research.stlouisfed.org/fred2/series/LLRNPT?cid=93
http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=101
Employment must be supportive to profits claims?
http://research.stlouisfed.org/fred2/series/CC4WSA?cid=10
TPC,
Your thoughts…
http://finance.yahoo.com/tech-ticker/article/348944/The-%22Real%22-Economy-Is-Dying-Q4-%22Going-to-Be-a-Bloodbath%22-Whalen-Says
TPC,
Another interesting article…
http://www.thedailybeast.com/blogs-and-stories/2009-10-06/obamas-secret-jobs-plan/
TPC,
This conflicts with your conclusion in yesterday’s “The Reason for Today’s Buying…”. Will earning be buy the news or did we already have quite a bit of buy the rumor (from S&P 500 980 to 1060) and now we will see some sell the news. Will the primary market driver be earnings or the dollar? i.e. Could we see a stronger market in the face of worse than expected earnings on a weak dollar or would better than expected earnings trump a reversal to a stronger dollar? Would say a weak dollar and strong earnings together (or vice versa) magnify the effect?
My guess is that when the employment #s improve from less bad to actual growth, it will be the sell the news event to begin the next correction.
Rob,
We may not see a sell the news attitude until later in the season. Remember, banks lead off and they don’t give guidance. All they have to do is beat earnings and give rosy conference call. That will set the tone….
It seems like Mr. Market at this point is coming to expect better than expected earnings. Last quarter, better than expected earnings were valuable because they validated that companies had stabilized their profit streams in the aftermath of the crisis. It didn’t matter how profits were stabilized. This quarter, I would anticipate more discounting of what better than expected implies for forward earnings, particularly 2010. Improving top lines and management remarks about improving business conditions should bull things up. Flat to falling top lines with E.P.S. beats due to cost cuts should have a muted if not sell on the news effect compared to last quarter.
Regarding the banks…they seem to operate in an alternate reality to the rest of the economy…
I think we’re too early in the earnings recovery for investors to expect huge top-line growth. I am not implying that firms are recovering or are going to recover, but at this point better than expected and in-line should be just fine. The margin expansion is truly remarkable and if we actually get the revenue recovery investors are not going to want to miss out….
Hi TPC,
In your post about Rosenberg’s views today, you note that investors will be focused on capitalizing on the momentum trade and better than expected margins during earnings season. What about Rosenberg’s cautionary note about an over-extended market?
“Remember what happened in October 1987. Not that we are predicting a market crash, but recall that the massive setback in the stock market back then took place in a quarter when real GDP was ripping along at a 7% annual rate and corporate profits were accelerating at a — get this — 55% year-over-year pace; and that was the quarter that erased a year’s worth of capital appreciation in what was the steepest decline since 1929.”
I know the economic situation is very different today than 1987, but you don’t seem to be particularly cautious at the moment. To me, it just feels like a pivotal juncture where expectations could turn on a dime and focus on broader concerns than quarterly reports.
What you say about the start of earning season makes sense to me – i.e. with financials reporting first, they’ll make sure it looks good. And Alcoa does indeed seem to be setting the tone, as you say. What about 2-3 weeks from now? For instance, what if negative consumer and housing data coincide with some misses from consumer names, which report later in the cycle, correct? Isn’t there growing anxiety about the state of the consumer and unemployment, etc? Do you think the Expectation Ratio trumps such concerns? Do you imagine becoming worried at all as we get further into earnings season?
Admittedly I’m jumpy, and maybe the momentum and beating expectations is what matters for now…
Thanks.
Never ever trade off of Rosenberg’s research….
Frank Reply:
October 13th, 2009 at 3:23 PM
TC said: “Never ever trade off of Rosenberg’s research….”
Why? The guy is smart. But then, we have to believe your “get long” statement?
TPC Reply:
October 13th, 2009 at 3:25 PM
Ha, I absolutely NEVER recommended that anyone trade off my ideas….
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