Skip to comments.Earnings, Europe, China
Posted on 10/19/2011 12:57:16 PM PDT by Kaslin
There are three distinct factors that are driving these markets right now: earnings, Europe and China. Lets break it down, shall we?
Earnings. Ive talked a lot about the lowering of expectations for corporate earnings and how they might have gotten too low over the course of the last couple of months. I also said that we could see some upside surprises. Financials, which everyone expected to be absolutely horrible, arent looking quite as bad as we thought. In addition to Citi, Bank of America, of which Im a fan, came out ahead. Goldman Sachs missedand not as closely as Wells Fargobut lo and behold, Goldman is trading higher as I write this. The market seems to think that even a negative report isnt as negative as it could have been. Lets see if that has any traction.
Europe. The debt-crisis game has not come to a conclusion, but I do believe were entering the late stages of this processand the market seems to agree. In fact, for the first time in a long time, it feels as though the market is able to look beyond every hiccup and headline that comes from across the pond. Germany, of course, threw a wrench in the works yesterday when they stood pat that the world would not see any instant gratificationbut the selloff we saw was less a reaction to that and more of a healthy correction after that 11% rise over the last two weeks.
China. After talking about Europe for what seems like forever, its nice to shift the focus back to the story that will continue to be the story for the next 20 years. I told you last week about how slowing growth and inflation numbers would signal an end to the tightening weve seen in China, and yet, as I watch financial TV, I see no one talking about this story. But make no mistake, as things begin to kick up over there as their economy comes back online, this will be the thing that everyones scrambling to get a piece of. I dont want to talk about what was; I want to talk about what is and what will be. Right now, I believe China is helping to lay the foundation for a very nice time to be in equities, and as an investor, its critical to see these ebbs and flows before everyone else.
PPI came in a little hotter than expected. Remember: we want to maintain a certain spread between PPI and CPI, which comes out tomorrowwe want to know whether producers can maintain their operating margins. I know I bring this up every month, but this is something that all the insiders watch and it can be a very good indicator as far as equities are concerned.
Housing numbers tomorrow, right at the same time as CPI. Im very curious to see where starts and permits are. Jobs and housing are the two things that have been killing our economy for the last few years, and those numbers will help us see whether theres any light at the end of the tunnel.
Special thanks to Jay Pestrichelli, co-author of Buy and Hedge: The 5 Iron Rules for Investing over the Long Term and co-founder of ZEGA Financial, LLC, for coming on The Jack B. Show this morning. If theres one thing I come back to time and time again, its the importance of portfolio protection, so Jay was preaching directly to the choir with his views on managing risk and taking advantage of volatility. Excellent stuff.
For all you folks down there in Florida, dont forget: Biz 880 Miami Money Expo, November 3 at the Mayfair Hotel in Coconut Grove. There are only a few hundred spots available and theyre filling up fast, so be sure and send me an email if youd like to learn what the pros are doing right now and how you can learn to navigate your investments in uncertain times. The event is FREE, folksyou dont want to miss this!