Lots of room for disappointment on Wall Street as storm approaches
Posted on 11 January 2011 with 4 comments from readers
This is the week of reckoning when the fourth quarter financial results are published. Wall Street is taking a deep breath. Mother nature is sending one heck of a snow storm. What have the markets got to surprise us?
For the S&P 500 the consensus forecast is $96, ahead of its 2006 record. Looking forward the upcoming quarter has the pack calling for a 29 per cent hike in earnings against the same period last year. Is this simply too optimistic?
Storm coming?
We will very soon know, and that will shock the market out of its post-New Year sloth. The way insider sellers have recently out-numbered buyers by a factor of more than a thousand-fold tends to argue that insiders know a different reality to Wall Street.
It was ever thus. Markets tend to over-shoot on the upside, and over-correct to the downside. Analysts end up competing with themselves to make more and more optimistic forecasts until they become well, too optimistic.
At the same time the street is clever at dragging the thundering herd of retail investors with them. Indeed, all the evidence is that this time cheap money from the Fed has been used directly by the investment banks to not only prop up the market but to drive it forward.
This sounds corrupt but it is actually only the inevitable impact of artificially low interest rates and an arbitrage between asset classes and lower investment yields to a common level. The risk, of course comes when interest rates start to head back up.
Interest rates rising
That is surely what is happening globally now with the euro zone sovereign debt crisis. Just as low interest rates have an impact on the price of all asset classes, so the rise of rates in one country begins to have a contagion effect on other nations.
You also have the more obvious impact on commodity prices. Low interest rates are driving speculation in commodities and pushing prices up. This is inflation at its root cause. Higher inflation in turn demands higher returns for investors and that means higher interest rates.
We are already caught in an inflationary spiral, and one in which companies will increasingly find their profit margins squeezed this year. That leaves a lot of scope for profit disappointments on Wall Street going forward, whether or not we see them in the fourth quarter results this week.
4 Comments posted by readers:
While I agree that there’s lots of room for disappointment, the “Thundering Herd of Wall St. investors” [a John Mark phrase!] must somehow be appeased and pampered; otherwise, Wall St. won’t enjoy watching the stampede, as it veers off into a new and unwanted direction .
I would imagine that the auditors, coupled with the aid of our fraudulent financial institutions, will do their very best to help corporate America fudge their numbers.”
NVDA had quite a run on Wall Street this year and many others are having a run as well. NVDA is getting $1.2 Billion from Intel over the next 5 years which accounts to roughly $240 million per year or roughly $60 million per quarter in extra profits and that does not include all those mobile video processors that they will now be selling due to the new demand in mobile video cards. This year will be very very good for NVDA.
Apple has growing sales internationally so their stock will rise as well. Oil prices are rising so companies like Occidental and BP will rise because profits will rise. Profits due to car sales in China are rising so stocks like GM and F will rise.
We are headed to DOW 12000 for sure and depending on how we we clear the 12000 Mark will tell if we are headed to DOW 14000 after. As much of a Bear as I am on the inside one would have to be quite stupid to fight the trend as their accounts will get taken to the cleaners. We can thank good old POMO for that one lol..
@ Andy:
Good commentary.
While I’m also a Bear, there’s a strong argument that can be made for Dow 12000, and you’ve cited several of them. Over the next 3 weeks, the FED will have POMO actions on almost every trading day except one; this a tremendous amount of money that continues to flow into US equities.
And then there’s the “political” dimension to the stock market. The Obama administration is under great pressure to “show something tangible” from their policies and decisions; to date, the only achievement that they can claim is that they’ve manipulated the stock market successfully.
What it also points to, is that this systemic evidence of “greed and carrot” architecture, is as predictable as the path the carrot led the nationwide set of American zombies over the cliff of.
So, predictably, what is a knee-jerk, conditioned response in the American investor psyche (and other fractals), is unfolding and rolling across a different sea of finance, but the winds that drive it are the same, another fractal.
This will equal [cyclic changes, which aggregate into an overall structural overhaul], and [collections of isolated occurrences which will equal an overall systemic pathology] synergizing into one massive, multiple impact, crash as the destination of the whole, as it tumbles down a century old mountain apparently built for this purpose.
The only thing that keeps this thing from being widely detected, is a collective zombification, antiquated analysis techniques and telescopic blur.
1. Political Dementia: Micro-focused distraction equaling “band-aid design” for obvious financial decapitation (as seen in, as one example set, American and other philosophical political debate quagmire and quicksand of the American media talking heads, politicians and “intelligentsia”).
This means the “experts” are only guiding the followers, into the same blackhole.
2. Academic and Analytical Retardation: Old linear modeling attempting to be projected one an enormous, multi-level, multi chaotic system dynamism, which is simply beyond 99% of the supposed “experts”, who could barely analyze the past, at 1/100th of this magnitude, from hindsight, much less the future of a true multi-dimensional storm system. (Now, imagine this accidental idiocay passed down the ranks to the average American investor, etc – The carrot’s main appeal salad masters)
This means the “experts” are only guiding the followers, into the same blackhole.
3. Closed Information System: Guarded storehouses of the real telling data. Obviously, aside from let’s say global, US directed (or other) military intelligence systems, the international finance intelligence system, is a database you won’t find many poking around in, creating reports of this and that, whipping up Excel pivot tables just for the fun of it. So, the data Real capital Analytics this, and Realpoint that, and Fitch this, and Bloomberg that, are all merely reselling pay per view analytics, which have been prepared, cooked, seasoned to the order of the international system power, NOT the poor blokes surrounding Wall Street and other financial projectionists basing the future, on data that, if you have not access to in whole, accurate, and real-time (or close), is as good as worthl;ess to base any real decisions upon. This also shows why this intelligence system, is not going to be openly distributed, doubted as to whether it actually exists, and only for the use of a limited number, who do know what it points to, and this information, is what is meant, when information, from accurate sources, with the power of affecting it, can be used for.
Add it all up, and it will just be Gypsy forecasting, or close to, because the data, and intuition, will have limited reliability, unless you could tap the actual whole, and status dimension.