As we get more and more bad economic data that is spun in a way to get higher equity prices, one can say that the trend is your friend. Sure, global equities are rolling right now, but is this sustainable? We have the ever important employment report for July on Friday, what will this report look like? On the surface people are forecasting 9.7% unemployment, if the figure comes in at 9.644, will they just round off to 9.6 and call it a great report and further evidence that employment has stabilized? From what we have seen, don't underestimate Media, Government, and the biggest villains in this tragedy - Wall Street themselves to once again paint a rosy picture, when all there is is sludge on the canvas.
I can see the futures already gapping 10 points after 8:30am on Friday. I am flat at this moment, should be long this market as I know what the scam currently is, but ethical and moral hazards prohibit me from hitting the buy button. I know Silly Rabbit. I know.
Earnings have basically sucked for the exception of Goldman (Master Of Universe) Sachs, Intel (Inventory Rebuild), IBM (Cost Cutting). Microsoft badly missed its number, Amazon missed, Exxon missed, Google report wasn't great, GE missed, BOFA, Wells, and Citigroup all had smoke and Mirrors quarters, Schlumberger missed, Dell sucked, Disney sucked, Capital One/Amex had horrible credit trends, McDonalds wasn't great, etc, etc.
What is shocking is that CNBC and other media outlets are glowing over these horrible reports. Its downright misrepresentation of the facts.
The real skinny is this:
Earnings and revenues are down 33.4% and 17.4% quarter over quarter. This rally has been all about the following:
1- Wall Street High Frequency Trading that moves stock prices in one direction.
2- Wall Street and Government Spin Cycle Machine.
3-Technical Driven Short/Arb/Safety Trade Unwinding.
4- Ludicrous and somewhat deviant multiple expansion.
5- Crude Oil/China Demand
I can understand buying the market ahead of a broader economic recovery, but where is it? Just because you exit the recession, does that mean that housing goes back to 2005-2006 values? Unemployment shrinks back down below 6%? Credit creation comes back on line? HELOC/Auto/Credit Card delinquencies disappear? Consumer exits pay back debt mode and goes back to buying 80 inch plasma's?
Even while earnings are now supposed to increase by 115% in two quarters (Increase off a low base) by snorting up green shoots, where is the incremental revenue growth? How much more cost cutting can be done? Now many more jobs can be cut? Business's will have to adjust for slower consumer spending.
I am very positive that we will see better earnings comparisons going into 2ND half 2009, but if anyone held a gun to my head to indicate when disappointment with guidance/earnings/analyst expectations finally set in, I would have to say 1st Quarter 2010.
They always say the market trades 6 months ahead, well it has already done that.
When the misses on the bottom and top line keep coming, it will demonstrate truly what a joke this entire rally really was, but by that time, the executives would have sold all of their stock to Jane Doe and John Q Public.
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