The Earnings Miss Heard Around the World

Posted by Ray on September 24, 2009 under Main | Be the First to Comment

Cramer Fav RIMM misses its earnings and warns on 3Q09 earnings because higher cost handsets are “delayed” (too expensive for cash strapped consumers) until later in the quarter. While the mobile internet tsunami is real, yet very old news, it is also the least important item on the consumers mind at the moment as mortgage payments and food are front and center. This earnings miss is a warning about all of 3Q09 earnings, the top lines will be light, very light because profits are driven by cost cutting, firings actually.

This miss and warning shot has led to the international markets to open lower tonight, much lower. The Nikkei, Hang Seng, and Titans are down 2.7$, 2.5% and 2%, respectively which is probably how the European and US markets will open tomorrow. Frankly, it is looking pretty ugly and I believe this is the beginning of my long awaited selloff that should have come some 3 months ago, but has not. The only thing that has supported the market has been Dennis Kneale’s hope and huge amounts of liquidity and record low yields. For example of the irrational exuberance look at high yield bonds have had record defaults, but they continue to be bid up so clearly the risk/reward button in peoples head was broken, but it is about to be fixed.

As I have pointed out several times the S&P 500 is trading at 133 time’s current earnings and at a 26 forward p/e, which is very rich. Basically, earnings need to show actual top line revenue growth and GDP had to show a solid 4% growth rate, neither one was going to happen. While I missed a few points of growth I jumped out of the S&P 500, officially, at about 1015, or about August 7th and moved to TIPS and 2 yr treasuries. I did not do too bad, but even the TIPS and treasuries performance made me wonder what was going on, not all investment assets go up at the same time.

So, now we get our selloff and the only question is how big will it be? I have no idea, frankly. It could be as little as 3% or it could be as much as a 50% decline on the S&P, frankly the economic data is not really that good if you take an honest look at it, it is better, but not V shape recovery good. I do believe in the 3Q09 positive GDP number somewhere in the area of 2-3% area, all of which from government spending, but 4Q09 and 1Q10 will be flat to negative as the drugs wear off unless they drug us up again. Unfortunately we will need to hold on to our shorts because it will be a wild ride.

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Asian Markets

Posted by Ray on October 26, 2008 under Main | Be the First to Comment

The Asian markets were mixed with the Nikkei trading flat, but China and Hong Kong are down about 3 and 4% respectively. The US futures are volatile, which is not uncommon in overnight trading, but showing a small loss at the open for the US.

Korea did cut interest rates by .75% which is a first emergency cut since 9/11/01. This shows continued world wide efforts to try and stop the pending global recession. These efforts will have some impact, but will not stop a recession.

As stated before, Asia is an indicator of how deep the recession could be as they are our manufacturing center. With the Nikkei at 26 year lows there is major pain heading our way. While the events we have right now are unprecedented and the emergency measures may stem much of the pain it is clear that only time will tell whether these efforts will have worked or not.

The times we live in right now are historic. We staved off the complete insolvency of the world banking system, which was a very real situation on 10/10/08. The world almost went bankrupt, it was that severe. However, the governments have stopped a potential major depression, but we still face the toughest recession, borderline mini-depression, is still on the horizon.

In the meantime, we expect, obviously, choppy trading in the AM and a relief rally by the end of the day. Of course, this is speculation, but indicators point to some strength in the markets, for a change. We could see a dramatic rally in the near future, perhaps spectacular like the 900+ point rally on the 13th. We recommend selling into that strength when it happens as you will be able to buy stocks cheaper soon after that potential rally.

These are the times when variable annuity living benefits are earning their “high” cost. All the pundits who said they are too expensive and recommended index funds instead should all be fired. They are flat out wrong, unless 40% declines in portfolios are a good thing…

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