The litmus test for stocks begins

[qcomer]

Today will start the 3rd quarter earnings season for wall street. The reported earnings and the earnings forecast are very important and will probably be an indciator to what will happen to markets for the rest of the year. Right now, everyone is asking, can the markets keep slugging for the rest of the year? The earnings and forecasts will be the real litmus test.

Alcoa reported an increase of 86% profits yoy but missed target. It is down AH by about 7-8%. If more bellweathers kept reporting bad earnings and more importantly lowered forecast then the reality of an economic slowdown may hit investors. Analysts maybe trying to help the stocks as seen today with homebuilders that got major upgrades despite bad news about slaes and cancellations. The next 3 weeks will be interesting.

Assuming earnings are down and investors do flee the markets, Can anyone guess, where they would possibly put the money? The North Korean nuclear test indciated a flight to dollar instead of gold and I think the main reason is the volatility shown by gold doesn’t justify its “safe haven” tag. Any comments or suggestions will be welcome in this regard.

[powayseller]

REad the just published book America’s Bubble Economy. One of the authors is ERic Janszen, founder of iTulip.com. He lays out a good case for the bursting bubbles in housing and the dollar, making gold the ultimate winner.

[Anonymous]

Keep us apprised, qc.

Yep, quarterly earnings and Q3 GDP on Oct. 29, you're right, it will be an interesting few weeks. 

http://www.marketwatch.com/news/economy/economic_calendar.asp?siteId=

[qcomer]

Costco stock jumped 8% today though it just modestly beat earnings estimates by 2 cents (reported 75c, expected 73c). Forecast was inline for next quarter. McD same store sales jumped and is the main mover for markets up today. Pepsi topped estimates by 2 cents (88c reported, 86c expected) but fell as forecast was lower by a penny for next quarter. Yum brands (fast food chain) though blew off estimates based on higher sales in China and Asia.

Untill now, earnings reports have been mixed. I am still waiting to see the really bad earnings that will throw the markets off.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Almost too bazaar for words, I personally don’t know anyone wanting to put a lot of money in stocks right now, or who thinks the economy to going to shoot to the moon (even the fed says growth is slowing) so whats up !!!

Very weird I tell you.

Almost like (hurry) you got to get another bubble going before the current one collapses, wonder where all the money is comming from ???

[powayseller]

The money is coming probably from foreign investors. The bigger our trade deficit, the more foreigners are investing dollars. To keep their currency from appreciating, they must reinvest every dollar we send them. The more we consume, the more money comes back here to rally our bonds and stocks and Tnotes. With oil prices so high this summer, oil money is finding its way back here, so we could just be seeing the Saudis in the stock market. However, as soon as they start to lose their confidence in our stock market or economy, or anticipate a recession , or can get better or less risky returns elsewhere, the money will start leaving, and the rally in stocks/bonds/Tbills will end. Again, it’s amazing how long a bubble ran go on. I’m hoping I did not buy my bear funds too early.

[powayseller]

From today’s Bill Fleckenstein rap:

” Turning to the economy, I’d like to share some data from the always-insightful Liscio Report. For those who don’t know, Liscio monitors (among other statistics) sales-tax receipts by state around the country, as that’s obviously a good barometer for expenditures. Here are some quotes from their weekly commentary:
“State sales-tax collections continue to fall, relative to budgetary projections. In September, just 37% of the states in our survey met their forecasted sales-tax collections, down from 51% in August. . . . [There is] “a growing weakening in consumer spending. . . . The slide that began in January has continued since, and our contacts believe it’s real.”
Liscio attributes the slowdown in consumer spending to the weakened housing market. (The report includes an informative chart that shows the continuing decline in the rate of equity extraction.) According to Liscio, people are walking away from downpayments, and some of those who’d like to put their homes for sale cannot do so, because they’d have to “bring a check to the closing.”
Sunny Skies, Sullen Realtors
Continuing on, Liscio quotes one of its contacts in formerly hot South Florida: “The market has evaporated. Even the affordable stuff can’t be given away. Desperation among developers, bankers, and speculators is palpable.” As to those folks pointing to the recent uptick in mortgage financing generically, Liscio says that it’s related to people trying to “avoid painful resets on kinky mortgages, and not to monetize depreciating equity (as equity seems not to be appreciating anymore).”
The report sums up: “We’ve noted in the past that this expansion was the most consumption-intensive in modern U.S. economic history. . . . That’s changing, and dramatically. . . .Retail sales are clearly in a slowing trend.” So, for those folks who think that the stock market rally means the economy is on the mend (before it has even really weakened), I offer up the Liscio Report as food for thought.”

[Anonymous]

PS, very helpful.

Great idea of folks to track sales tax receipts.

1. Quick turnaround: it's only the 12th day past month end.

2. Broad barometer: earnings and sales from 'leading indicator companies' such as Alcoa and GM/Ford are very helpful, but so is having a quick read on retail sales, broadly, seems to me.

But, it appears that retail sales may be, per economists, only anecdotally useful, as they're not a component of the leading indicators index:

http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

People have a little more money after they fill up on gas, so they splurge on a happy meal ????

Sorry could not help it, RT sales down in this mornings report, maybe Roubini’s got it right.

[qcomer]

It looks like corporate earnings are more or less good and though some corporates have missed but overall indexes are doing well as corporate earnings have flat out blown estimates. Also forecasts have been good and as per wall street estimates with profits growing at 12-15%. Until now, I haven’t seen anything to take money out of market and so I am staying in the market. The GDP number on 29th is coming out and if it does come out around 1.5% as Roubini said then it may force me to pull my hand out of the market. Until then, there is no point betting against such strong momentum.

[Anonymous]

Sounds like a good approach, qc.

I’m wondering, maybe there is something to be said for this market timing stuff, given that it’s taking so long for the wheels to come off the wagon.

May you Piggingtonian market timers make a mint!

[cabinboy]

The money has to go somewhere.

I have said it before on this board, and I’ll say it again…there is a lot of excess capital out there, and now that even morons understand that residential RE has clearly peaked, the money is getting plowed into the markets instead of housing. And there’s still plenty of room for more plowing. To quote a statement made in the flimsy Q3 report from one of my mutual funds:

“The U.S. consumer has a record $5.8 trillion sitting in money market funds and savings deposits. This is 50% higher than 5 years ago – at the peak of the last boom.”

Note that since the NYSE and Nasdaq have a combined capitalization hovering around $25 trillion, $5.8 trillion is not an insigificant amount of capital.

I worry that all the doom and gloomers are going to continue getting a lesson in the power of this money supply. The reason Wall Street gets excited by the interest rate pause is that it keeps fixed investments from being too attractive, promoting the flow of this capital into the stock market. If inflation and the dollar behave themselves, the FED won’t have to raise rates further, and stocks will continue to look attractive (even if the housing sector stinks). If rates go up further, all bets are off, since a fixed return that beats inflation starts to look too good to Mr. and Mrs. Risk Averse.

My prediction: The U.S. stock market will continue to do well over the next two quarters, unless interest rates are raised unexpectedly.

Why? With all the upward pressure from available capital, I don’t see a big drop in the U.S markets until corporate earnings stink it up. Earnings were good this time around, and it’s not likely they will be poor over the next two quarters given that oil and gas will be cheaper y-o-y.

Pretty simple explanation. Hopefully I’ll be like Eddie Murphy in Trading Places and get it right…:)

[qcomer]

cabinboy & jg,
I don’t label folks as doom and gloom or perma bulls as we are all here to make money. However, I think bulls and bears both tend to emotionally tie themselves to their opinions or reputation of a bull or bear and forget that the prime objective is not to prove to others that you were right but to make money. BTW, did you notice that foreign investment in 3Q has been around $67 billion, where as expected was around 37 or so? This may have helped the markets.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

But there is no theme, Usually there is some theme to the rally.

Internet , Housing etc…

Just kidding sort of.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Best Quote I seen in a while:

Suffice it to say that even if the market was to advance further by 10% or more (which I view as improbable), the lilelihood of investors actually retaining the gain would be fairly negligible. We’ll accept those risks that are appropriate, but there’s no sense running off to juggle dynamite with the other kids, just because they’re having fun right now.

[Author]

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