Jul

23

An interesting query is "given that x% of the companies reporting to date have beaten estimates in earnings report season, what is the expectation to open from various paths?"

To date according to Bloomberg, 136 of 500 sp500 companies have reported and the market cap weighted change is -7%, 104 of 136 were positive surprises, 8% were exactly on target, and 15% were below target. Out of the 136 reporting , the estimate was within 2 cents of report on 38 of 136 occasions. (That 28% are so close is very good as an aside and belies the canard that earnings estimates are wildly off mark).

James Lackey writes about his trading experiences:

The expected change to open is exactly the spread or vig from the bookies. Never since I began as a stock day trader have stocks been as clear cut and dry as now: too many on one side of the book. Years ago I made fun of my best friend as he had some "inside tip" that IBM's earnings were going to be worse than expected. The day before I said "hey buddy, I dunno what you think can happen but IBM already preannounced bad earnings". The stock gapped up, went strait up and killed him.

IBM went strait up again this quarter, and Google strait down. You want to blame it on guidance? Then look no further than YHOO: bad outlook, gap down and strait up.

If we really look close at the ecosystem and food chain, AAPL can't possibly outperform, even if they always sandbag… Boom …Wow!, "what a great company", they managed to sell thru and manage a higher cost of short supply flash.. everyone knows flash prices are up here, comes SNDK up big on the month after hours up to down on "outlook" which of course is good as the 3 trillion cell phones that Nokia and MOT can't give away for free as everyone wants a smart phone loaded with flash… but of course the semi industry has so much idle capacity ready to come on line at a moments notice… the SNDK or TXN don't have a chance after a rally into earnings.

Not that anyone is ready to spend 300 for a notebook, 800 to 2k for a new PC loaded with the new and improved 2nd try windows 7… but do not tell that to those who are short INTC… strait up as that is all about margins and inventories and once again AMD is there only to keep the FTC and EU off INTC's back, billions in fines aside.

Just when 7 up days "was enough" for the nazz, HGSI went from 4-14 on a world cure and the bio index went limit up. So many stocks that trade by appointment went up 10% on that day.

One wonders how anyone can ever use the markets in a snapshot for signaling..credit default swaps at the lows were quoted..and markets led by China are quoted today. "CAT and China " can't continue, our biz publication writer notes.. "oh, how well the managers managed, they saw all of this comming after the LEH shutdown of global commerce". They sure did cut costs by shutting down plants, firing 10-20% of work force and holding on to the well trained 80% by 30 hour 4 day work weeks.

I am waiting for the China boss to show up at the US chamber of commerce and argue "we need each other" like the US rep in England after the panic of 1907.

On another subject, twitter is the only available feed from the BMX World Championships in Australia. We have one man from our team racing pro. Another 13 year old from my old town in Fla won 3-3 motos and is now the World Champion.

Over on facebook my brother in Fla, my bmx buddy I race from Australia, and many others are commenting on the quick up loads of pictures and videos from the racers' families. An old pro chimed in with a video we all know, from the movie ET. That's him in the BMX chase scene. Later he founded Haro bicycles and put Murray, Schwinn and almost put Huffy out of Biz before he sold all. Turns out his post was for a lesson in humility. It was a Hot LA day he had to wear a hot outfit and a ski mask for filming. He said he was hot and almost blew it "due to his arrogance as a kid" and all these years later his comment was "thank goodness I didn't blow it".

Meanwhile all these kids that have ideas put pencil to paper, then hire a Chinese firm for production. The profits they generate they spend on what they love, racing over in Australia. Yet somehow, this is bad for the Chinese to sell so much and not consume enough.. and everything is bad for America..because the kids are fat, spoiled and not industrious. Except for the dozens we are all online with all night.

Lord knows how many Americans are online now, with passion pursuing business for pleasure and profit. Americans? Wait how many kids around the world are chatting, thinking, learning, working together on passions and projects that will result in a mutual beneficial exchange of trade. Next time you see that kid on his phone texting, he might be working a deal with China.."these kids today" are working on the future..Meanwhile the old school traders are comparing todays industrial production to 1932, the trillions in unfunded pensions and the end of medical tech advance due to lack of incentives and price controls on Obamacare.

Two quotes come to mind.. (1)Its easier to spot today's problems than tomorrow's innovations.. (2)Predictions are difficult especially when they involve the future. I have always been a blind optimist. However, the problems we face higher taxes and regulations and price controls make it much more difficult than after the crash of 2002 to get back to new highs..So maybe it takes 10 years vs 5 last time..but if we say "never" take a good look at all those kids texting and unable to hold a conversation without a smart phone in hand..They have contacts in China. Do we?


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  1. George Coyle on July 23, 2009 1:11 pm

    A few thoughts on the beats: SPX means ests have decreased by $2.93 in the last month for the 6/09 qtr according to Bloomberg. The current mean is 12.27 so 12.27/15.20=80%. It is a lot easier to beat estimates when the bar has been dropped 20%. Also, the majority of the releases I have seen (I don’t have precise data) were driven by cost reductions and other adjustments below the revenue line of the income statement so the back half of the year will certainly be interesting. Is there enough fat left to cut through Dec to hit estimates? One has to wonder where the tipping point occurs such that cost cuts (leading higher unemployment stats and lower payrolls) will cause more harm than the EPS beats provide. Can growth resume to facilitate real revenue driven beats? Mr. Bernanke sure seemed reluctant to sound the all clear this week and said rates would remain in the basement for a long time. Sustained 0% rates don’t exactly send a message of strong growth on the horizon. More importantly does it even matter since the street could theoretically just drop estimates another 20% to ensure everyone beats? Often their estimates are based on management guidance anyway so another 20% cushion would help. The 9/09 estimates are down $2.50 to $14.77 in the last month and have a ways to go to see the current $12.27 mean. One thing is for sure, the current market (whether bull or bear rally) is certainly climbing the wall of worry with ease.

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