Saturday, February 1, 2014

The Politics Of The Market

     As another earnings season on Wall Street whimpers to a close with a majority of companies having reported their earnings for the quarter ending December 31, 2013, the politics of the financial world have never been more in focus. There is of course the financial media beating the drum of a roaring economy by quoting meaningless statistics, like 67% of S&P 500 companies having beaten analysts' estimates. Those estimates being the result of constantly lowered expectations for profit and sales from companies cutting work forces to the bone in order to just tread water.
     Many of the companies that have beaten the pathetically low expectations of analysts have also given guidance (a company's sales and profit estimates for the current quarter just beginning) that is lower than expected. Companies know what the average American knows, which somehow escapes the analysts brilliant minds i.e., the economy is slowing down even from the snails pace it has traveled for the last five years since "The Summer of Recovery" was announced. But the Obama lapdogs in the financial media wet themselves over a pathetic statistic like fourth quarter Gross Domestic Product growth of 3.2%. Which barely equals the average for post-World War II economies, and does not even come close to the 5% or more needed to pull the country out of a recession.
     Even when a meaningless statistic like consumer sentiment takes a beating, the analysts see it as good news because it was not worse. The Thompson Reuters/Michigan University consumer sentiment number for January, that was released Friday morning, was a full five percentage points worse than Decembers. But the analysts and the rest of the financial media did hand stands because it was not as low as they expected. This being analogous to expecting your pay to be cut by 25%, and then considering it a raise when it only gets cut by 24%.
     One of the few bright spots in earnings season was another record-breaking quarter by Apple, which sent its share price tumbling 10% in the days following their earnings release. Conversely, Google missed analysts estimate for earnings and saw an appreciation in their share price of $40. Once again proving that Wall Street runs as much on politics as fundamentals. Google plays the game with the financial media and curries their favor by schmoozing them before, during, and after earnings. Apple has developed a corporate culture that keeps a tight lid on company business, so leaks to the almighty analysts are not as forthcoming as in other companies, ergo, Apple is punished by never meeting the analysts expectations for it.
     One thing is clear from this earnings season, the economy is slowing and companies can not cut anymore from their bottom lines to simulate top line growth. With the Federal Reserve pulling away the candy of quantitative easing, ObamaCare stealing more jobs and wealth from the economy, and a record number of people unemployed in this country than ever before, it is going to be a bumpy ride for the financial markets and for all Americans.

No comments:

Post a Comment