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Excerpt from thestreet.com about excellent corporate earnings this quarter.

“With about 278 companies in the S&P 500 reporting, 76% have beat expectations, 12% have matched, and 13% have fallen short vs. the typical breakdown of 60/20/20, according to John Butters, analyst at Thomson Financial. If the season ends with 76% of company reports beating expectations, the third quarter would mark the highest number of blowouts in 10 years, he says. The oohs and ahhs don’t end here. Companies are beating expectations by 6.1%, much more than the historical average of 3.2%, says Butters. In recent quarters, companies have beat by about 5%. In all, earnings have grown 17% in the third quarter, much more than the 14% estimate before the reporting began, says Butters.”

To me this again dispels the notion that this rally was not broad based and only few companies benefited from it. Tomorrow if the GDP number comes out ok, then this rally will probably carry on for another quarter.

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Chrispy,

Messing up someone else’s add or billboard is simply wrong. If you want to convey a different message to larger audience, spend some money and put a board up yourself. This is just being mean and irresponsible.

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A 1 bed in villa vicenza rents for about $1200. But these so called condos are terrible and the worst place to call home. The HOA is 300 and amenities/securities are good but the condo itself is made of card board (literally). Most of them are now being rented by UCSD students who party all night during weekends. These condos are worth 200K atmost and that also because of the location (UTC). We looked at them when we were looking to rent a place and the building and materials used are just pathetic.

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Wiley,

It’s a very good point. Since 2000 there has been a flood in liquidity that has resulted in boosting home prices, commodity prices, etc. However, the reason this hasn’t made CPI blow through the roof is because of the cheap products that we get from China. The flip side of these cheap products is the higher trade deficit and hence the downward push on dollar or cash savers. However, the same money generated by japanese/chinese exports is re-invested into US equity, US treasuries and the circle continues. However, this imbalance cannot continue forever. I think the ultimate loser is going to be dollar (it already is and has lost 35% against euro).

But despite worries of economists about these imbalances since the beginning of 2004, stock market in general has done well and folks who have sat on their hands have lost great investment opportunities in the US and abroad. I don’t see these imbalances causing global markets in a week. Until, I start to see real signs of economic recession and the market reaction to that, I believe we should stay with the rally (especially with corporates reporting 15% earnings growth).

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Hi PD,

Sometimes generic analogies fit, sometimes they don’t. Your first premise is that a recession or more exactly a stock market melt down is imminent. Unlike the extreme bears around, most of economic community is right now widely divided onto this topic. This maybe the mid term rally folks have talked about here that has better hostroical record than any other historical market trend. Finally, stocks are much easier to dispose then homes so I don’t think it is fair comparison. With the current momentum in markets, it doesn’t make any sense to walk out of the market. If you have good trading practice and have your stop losses set, you can walk out before the market crashes. Just as when buying, you need confirmation whether bottom is in or not (though it means you pay more), similarly with selling one should get confirmation that market has topped.

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A colleague of mine asked me if I know how to calculate his increased payment as his ARM mortgage resets on his rental property. He said, he plans to increase the rent in proportion to the increase in mortgage payment. His argument was that for years, property prices rose and we didn’t increase rent then but now we are merely increasing rents to levels that “reflect” the actual property price. I told him to stop with the excuses. Bottom line is that folks are increasing rent because now they can, as they have more demand.

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PasadenaBroker,

Sorry but I find your posts confusing. Most people who joined this forum were fascinated by research by Rich and the graphs he produced. We crave for real cold hard objective numbers. So excuse us if most people here don’t care for your emotional plea to “not hold our breath”.

Is your whole argument based on the fact that people will always be buying homes? There were people wanting to buy but that shouldn’t have raised prices 200-300% and whehn it did, I didn’t hear you or anyone question that move. Now, there are definitely still people who are buying but their numbers (demand) is low simply because they cannot afford the houses. But supply has jumped with invesntory almost double than last year. So again, why do you think I shouldn’t hold my breath for the bubble to burst?

Finally, I call BS on your claim about emotional attachment of people to their houses. Most homes on market pressuring prices down are by flippers, speculators or people who bought houses beyond their capacity with exotic loans in last 3-4 years and have no emotional attachment to their so called homes. Their only emotional attachment is to the paper money they thought they had and cannot believe they may have screwed it up. Anyone living in a house for 20 years and who has REAL emotional attachment to his home/abode will easily sit out this bubble. Sorry but my emotional attachment is to myself and my experiences and not to the cardboard walls, inside which I had the experience.

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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.

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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.

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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.

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PS,
Good to hear that you know what you are doing and that you are taking a calulated risk and not just convinced 100% about the market move, one way or the other. I am also happy to know that you have just put 10% of your retirement money in Rydex funds. This is because I know people who had been betting on a housing, stocks, dollar decline by buying inverse funds since early 2005 and haven’t done too well. I would always recommend people to hedge some percentage of their money against their major bets, no matter how stupid it seems. Also,don’t fall in love with your opinion or positions and keep updating it as more data comes out like Q3 earnings, etc. This is just my experience of 4 years in trading.

I always chuckle when people think the other inverstors are “clueless or ignornat” about what they are investing in. They either credit their intellect too much or undermine others too much. Small investors don’t move markets one way or other for 3 months and most big institutional investors do their homework.

I don’t think right now is the time to jump into bearish funds for me. I don’t trade until I get strong signals about a trend forming or a wave turning the other way. This is why I am waiting for Q3 earnings and Q4 forecasts before making a move against the markets. Or If I get a CPI report that overshoots expectations or GDP report under 2%, then I am out.

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PS you wrote:
“I’m thrilled that the stock market is going up,”.
I am sorry but I don’t believe you. If you own inverse funds, you would be rather happier if market was going down. It’s natural because the loss that you have incurred is real and the profit you are expecting is thin air no matter how sure you are that it will materialize.

You then wrote: “By next spring, when the Dow is down 30%, my 2005 inverse Dow fund will be up 60%.”
I am amazed by your confidence. I cannot even predict with 100% confidence that Dow will be down in March 2007 rather predict it will be down exactly x percentage. What makes money in markets is skepticism and what loses money in markets is over confidence. Comments like above, if posted on your investment advisory letter, will make investors laugh.

A month or two back, you were almost sure about $100 oil and that COP is cheap at P/E of 6 at $65, right? Also, when this 3 month rally started, you said it wouldn’t last 2 weeks and posted Fleckenstein’s opinion. Let’s face it, we all can be wrong, there are no 100% certainties in markets or life. Sometimes I just wonder how similar your posts in tone are to comments from George W Bush.

PS wrote: “whoever these investors are who are driving up the prices are obviously not aware we are a Bubble Economy ready to pop.”
Poway, I would have said that these investors maybe don’t agree with the theory of a bubble economy and a recession in the next year. But do you really think all investors putting money in markets in last few months are igorant, dumb or lacking in research and just don’t see the dangers the US economy is facing? Do you think it is possible for investors to maybe see the same data that you see but infer different conclusions?

I hate making personal comments about people and only do so when I really feel someone can benefit from it. Right now, I feel you can use some healthy skepticism about your point of view. And I hope you didn’t invest 100% of your money in inverse funds.

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Poway,

With interest rates stalling or possibly coming down next year in the US as well as Eurozone, earning interest on cash is not the best option for me. Also remember that by doing so, you are just keeping up with inflation and not making any real money and we invest to make money not to keep it. You seem to be concerned about preservation of capital but the other side is to make money out of it as well.

With 100% cash, there are lot of ways you can go wrong. In case of soft landing where economy slows causing inflation to come down and so interest rates will come down too. Gold will decline as inflation goes down so your precious metal positions and cash positions will both get a beating.

Now to gold and precious metals. It may have been a good argument to buy precious metals 4 years back because of price stability of gold back then. Now the volatility there is worse than S&P500. Let me ask you, gold today hit the lows of $575. Did you buy some gold via ETFs or bullion? What percentage of your portfoli is in gold right now? Most people I know didn’t buy gold today because they are just scared of volatility. All money is going from high volatility commodities to low volatility blue chip equities.

I think this is not a matter of knowledge or intelligence. This is a matter of perspective and personal risk tolerance that varies from person to person. I try to be balanced in my investment strategies and that is what this thread is all about.

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Hi Colombo,

Any stats, graphs, articles or investigative reports to support the theory of political involvement causing oil to go down or that Bush and Co is selling oil out of strategic reserves? About your comments that few petroleum future traders set the petrol price, you need to check the volume on these futures trades. What did you think caused oil rose to $80 per barrel besides US inventories rising and an imminent economic slow down?

Amarnath lost billions in natural gas trades, it just shows how heavily traders and hege funds were betting on energy sector. When these bets go wrong, the pressure on price to move the opposite way is huge as everyone tries to exit at the same time.

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sduuuuude,

Sorry but this is just a childish thread. This is school boy stuff and though well masked, to some extent shows some personality conflict you may have with PS, by putting her on the spot. Let’s be clear, this an internet blog and nobody is responsible for policing the content posted here but Rich. Sorry if this offends you but it is to make the point that your post was condescending and rude and I hate it when this happens on blogs.

Do you think someone will read Poway’s posts and topics just because it is up there? Do you think someone will not read your topic because it is buried under topics started by PS? If you post a topic that people are interested in, then they will keep that thread alive and this thread is a proof of that. The thread itself is a waste of time with no insight into housing bubble but people are interested and posted (including myself).

Poway and everone else, keep your posts coming and post whatever you want to share.

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