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Posts Tagged ‘earnings reports’

A client of mine forwards me an e-mail from time to time that he receives from another financial advisor.  These e-mails are typically very positive on the state of the market.  I also find that they are filled with what I would refer to as market myths.  I thought I would share some of these with you.

(1)  Companies are showing strong profit reports – thus we are definitely in a strong recovery

Companies have slashed their expenses (and people) to the core.  It doesn’t take much to report strong earnings when you drastically cut your expenses.  Much of what is reported has nothing to do with actual profit growth and has more to do with the ability to cut expenses. 

(2)      Weekly jobless claims have been falling – that is a good sign

Every Thursday the government reports how many new people filed for unemployment benefits.  Over the course of the last few months those weekly numbers have marginally improved.   Does that mean that things are getting better in the job market?  I don’t think that the weekly number means much of anything at this point.  First, they should be decreasing just because companies have cut employment back just about as aggressively as they can afford to and still run a business.   Second, I would argue that the unemployment claims numbers still running this high is a negative.  As I pointed out, they should be on the decline.   Recovery in the jobs market comes as soon as companies start aggressively hiring.  This is something that we are not seeing.

(3)    The Price of Gold is signaling that we are heading for inflation

This is not necessarily true when there is nothing there to produce inflation.  Yes, we are printing money by the truckloads in this country.  However, that money is not being used to boost consumer purchases or being put together as new consumer loans.  All of that printed money is being used to absorb massive losses that would ordinarily not be there.  Remember that gold is a psychologically driven investment.  It does not have any value nor does it produce anything.  It is not a currency.  It goes up or down because people think that it should.  There is nothing to back up the price of gold.  The price of gold didn’t start going up until the dollar started having problems.  Ultimately, the government will do whatever it has to do to shore up the dollar.  However, longer-term, the dollar is in real trouble.

Economists declare that the recession is over – When the majority of economists thing one way, typically the minority is right.  Economists as a collective body rarely make the right forecast. 

This Week

It is all about earning, earnings, and more earnings.  It is very hard to predict how the market will react to earnings reports.  My guess is that companies will need flawless reports and near perfect outlooks for the near-term. Anything other than a show of strength might be tough for the market.  The stock market has very large expectations right now.   One thing for sure – this should make for an interesting week.

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