Well, for the most part, earnings are being treated as disappointing. Today alone its IBM, GE, and MCD all selling down after quarterly results. IBM in particularly was a huge ugly revenue miss. For a long time, IBM has been a no organic revenue growth, cost cutting and share repurchase story. Yup, a no growth tech stock the street analysts just adored. Maybe time for a change there?
Speaking of Big Blue, I recall some investment firm researching IBM stock reaction to the quarter versus the stock market performance in general. And it was highly correlated according to the story. So the dirty little secret of the IBM tell suggests trimming back some equity exposure. Unless of course, the Bernank put comes into play to counter act the natural market tendencies to correct.
Who knows what the Fed will do with even the smallest of corrections. Clearly the Bernank has determined the equity markets are a policy tool to manage the real economy. And since Main Street is still suffering, he believes jamming Wall Street higher will help. So we rich folk, the owners of capital get paid over and over again, while the Providers of Labor are lucky to squeeze out 2% raises.
When will the Fed get it? Buying bonds and pumping up stocks doesn’t create jobs. It creates an artificial economy, one which all participants realize is unsustainable. And that creates huge uncertainty which restricts investments from businesses and buying decisions from the temporarily inflated paper wealthy. One can even argue that the bubble economy hurts job creation, now that everyone sees it for what it is, rather than helping jobs.
But forgetting about the Fed’s misguided attempt to help Main Street via a bubble in financial assets, it appears that the rally spell has been broken. Reality broke the cyclicals. Europe, China, and most of the ROW helped do that. Too many themes and too many growth rates are now broken. As are too many charts. Money losing long trades are all around, in domestic cyclicals, in commodities, in foreign stocks, and in gold. Trust me. Investors are relearning the concept of risk.
The only two themes left are stable yield and maybe domestic housing. And those crowded trades are long in the tooth. First, the domestic cyclicals are hitting the wall on bad domestic micro. Safe yield is just so overbought and expensive it needs a pause. Compare the p/e ratios to revenue growth rates. These things are trading 3-4x’s their meager revenue growth. I cant pay 16-20x’s peak margin profits for 3% revenue growers. No way, no how. And especially when the talking heads are relentlessly pumping them on bubblevision.
So maybe its time to harvest some of the markets gains. Or just pause to catch your breath if you missed the move. I know cash ain’t fun here. And the Bernank has decided “crisis level” short rates are here to stay. So man up and just accept this aspect of the NEW ARTIFICIAL NORMAL. But, 0% is better than losing dough. And the market always seems to have a correction per annum that spanks the hack out of shares.
In summary, we have the Fed fighting the fundamentals. QEi and the new artificial normal versus expensive stocks and deteriorating global macro. It will be an interesting battle. Heretofore QEi and liquidity dominated.. Now, in Q1 earnings seasons, investors are rethinking their commitment to many assets. You see that in the price charts of gold, German shares, and Caterpillar. When will the last long trade standing, the expensive, high yielders capitulate? IBM stock suggests shortly.
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