As this is a blog I am exercising my right to randomly throw down my thoughts as I go through some of my readings this weekend so don’t expect any particular point to this article…
Bad Data: Corporate earnings are not up as much as we think. The 12% increase in earnings that has been headlined was inflated by $456Bn in share buybacks, fueled by the 0ne-time repatriation of hundreds of Billions of dollars under yet another tax cut. According to Barron’s, operating earnings were up just 7.8% last year, the smallest gain in three years.
As I said last week, this is not a very good rally – here’s a chart that proves it! http://www.chartoftheday.com/20060113.htm?T What does this mean? Well, we are 800 days into a rally, making it one of the 6 longest in 105 years, yet we have gained only 50%, making it one of the 4 weakest in that same time period.
Big Data week coming up. Earnings from IBM, AAPL, AMD, Intel and several Banks along with the CPI on Wednesday. Wednesday also brings us the Housing Index setting us up for Thursday’s huge builder day with Housing Starts and Building Permits being reported on the same day as earnings from BZH and DHI. Both of these companies have told people things are not bad so look out below if they are!
YHOO has earnings Tuesday and I consider the pullback to $40 to be a potential gift but I will wait until the results are in to buy as good news will move the stock up for days while bad news (or the perception of it) will present a great long-term buying opportunity at around $37.
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It looks like the oil market can’t shake the Iran thing and Brent Crude hit $63 today, that makes $65 almost certain tomorrow. On 12/6 in “Gold Rush” we talked about the macro impact of 6M people per year entering the “middle class” around the world. Mario Gabrlli of Gamco Inverstors goes me a few factors better by discussing the 3Bn people who are in what he calls “takeoff stage.”
You need to think of these people as adolescents just getting their first jobs. Think of what you did with your precious money when you were just entering the work force. While they themselves may not be running out to buy cars, the radios, shoes, watches, lamps, fans, etc. that they do buy will cause someone to buy some raw materials, especially oil.
For every American that thinks he is being a patriotic energy saver by turning off the dog’s television set, there are 100 African families turning on their first light bulb. While auto sales are down in the US, they are booming in Asia and we are not even going to discuss the global air conditioning boom.
According to Marc Faber Ltd: “China’s yearly per-capita consumption of oil is 1.7 barrels. U.S. per capita consumption is 27 barrels. Korea’s and Japan’s are 17 barrels. The U.S. has 740 vehicles per 1,000 people. In China there are three, and in India there’s one. Demand is going up, and prices will be much, much higher than they are today.”
So oil this year, off to a significantly higher (+$15) start compared to last year which is 50% more than the 2004 average price of $42/bbl, will be giving us another strong investment area that, unfortunately, holds back the rest of the market.
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Barron’s says that internet usage grew 12.6% last year with a 30% increase in broadband users to 88M and a 26% decline in narrow bands to 44M. This is a stunning rate of adoption that should really scare traditional broadcast networks. This may translate into an upside for Ebay and Yahoo next week which could lead the Nasdaq all the way up to 2,400. Ebay is looking cheap at $47 compared to last year’s open at $59.
Tomorrow should be a real fun day, earnings will dominate for the rest of the month and that means anything can happen!
