Wednesday, November 18, 2015

Earnings Report & Trading Outlook

- "Failing to prepare is preparing to fail."
- Ben Franklin
Our great founding father would probably say get your money out of the market at this time because there are signs that indicate rough waters ahead.
The new calendar year began in October for the government and it ran a deficit of $136.5B. This is 12.2% higher YOY. They spent $136.5billion dollars that they don't have and they have been doing this year-after-year without consequences. This is our so-called leadership. But hey, they'll tell you that the dollar is strong and it will rise some more if the Fed raises rates in December.
The stock market is down for the year and yet, it is close to all-time highs. This would be a conundrum except we know that the Fed printing cheap money is the sole driver of the market. Many claim the recent decline on the aspect that the Fed might raise interest rates for the first time since June 2006. So, let us look closely at the third quarter earnings report to get some insight into the US economy.
With 88% of S & P companies reporting, earnings are down 3.7% and future guidance says that it will fall again for the fourth quarter at another 3%. If we dig deeper, we see commodity sectors down at recession levels. By the way, the world's third largest economy, Japan is in recession.
of a steel company stated that steel is not only in a recession, but a depression. When steel recovered after the crisis of 2008, it peaked at 2000. Today, it is at 608 and falling. Dr. Copper was healthy in 2011 at 4.25 a pound and now, half that level at 2.16 and falling. King Coal touched 35,000 in 2012 and today, 6,162 and falling. Rail car orders are down 83% and big trucking orders are down 45%. Finally, oil which we all need in one form or another every day. It is down 52% at a little over $40 per barrel and falling due to overcapacity. This tells you that there is no big demand in products that are needed if an economy is growing at home or abroad. Need a second opinion? The CEO of Maersk Group, the largest shipping transportation company in the world says, "He sees a difficult period ahead." This sad outlook is reflected in the Baltic Dry Shipping Index which is at its lowest level, EVER!
You will still hear the talking heads on television and the media calling, "to buy the dips, the market is just off the highs," however the market is manipulated by its indexes. Fact: there is only one company still in existence in the original Dow Jones, GE. The index like all the indexes gets reprogrammed all the time. At present, five companies are responsible for the markets surge.(Apple, Google, Netflix, Amazon and Facebook.) The market is getting less on sales and revenue(see above or below.)
is a perfect reflection of what is really happening. Market value has dropped every year from 2009 at $167B and now, $129B. The company like so many, have used stock buybacks to keep the share price up. Just think, in an age of personal PCs, IBM use to receive over 50% of revenue from hardware and today, just 6%, while at the same time it has gone into debt to fund share buybacks by spending $116B from 2004 to 2013. It now has a debt ratio of 295%. They are not alone as other big names like Walmart and GE and many others have done the same thing. They borrow cheap money from the Fed. In fact, the record of debt of $1.4trillion set in 2014 will soon be broken in 2015.
Take a look at some of the biggest names in retail: Macy's, Dillard's and Nordstrom - all reported lower earnings and a lower future guidance.
Housing is one of the biggest deceivers of all. It gets many government programs at taxpayer's expense to save those who made a serious mistake in the crisis of 2008. In addition, low rates by the Fed has stabilized the sector with prices that are even higher than the collapse of 2008. Yet, home ownership is at levels reached in 1978 - 1978!  There is no entry level housing because wages cannot meet the cost of home ownership and we all are lambs to renting which is off the charts and rising. The government does not call this inflation, it is just appreciation. Manipulation!
Finally, Goldman Sacks reports that US companies will spend a record $608b on buybacks this year which is 10% more than last year, but research and capital expenditures are down, so where is the future growth going to come from? If you listen to the media, you are preparing to fail.