A Look Ahead at Earnings This Week

So far, it's relatively quiet out there on the indexes as bulls and bears battle over S&P 875 (line in the sand) and 880 (200 day simple moving average, falling by the day). With volume so light, it should be easy to 'mark this market' up into the close after that "close call" earlier on Friday and keep us from breaking down.

No volume followed the close call, hence I don't see any more damage being done. Never short a dull market, as they say. I continue in the hands-off treatment that has served well the past few weeks - there are times to be aggressive and times to just let the market do its thing; until the market makes a decisive move, no reason to be aggressive.

************

Let's take a quick look ahead at earnings at some companies of note coming early in the week - remember, the game plan is the same as last quarter when we saw many "awful, but better-than-expected results". Chop as many Americans as possible from the payroll, cut back benefits, cut back all sorts of expenses and try to sell as much to China as you can. Have a poor revenue number (which can't be lied about unless you are Enron), and lowball analysts with earnings guidance (which is easily "played with" in American accounting) then "beat it" mostly with the above mentioned expense cuts ... and we all sing green shoots. At the beginning of the earnings season come many of our multinationals, so the weaker dollar in the past quarter should also help them spike the earnings bowl.

With all the favors done to the banks and since we now don't care about balance sheets (old loans) since we've politicized FASB (the accounting board), we only care about current profits. Which again, Sally the 4 year old can now make at any bank as they borrow from the Fed at nearly zero and lend to American consumers at numbers far higher than zero. Plus the bevy of fees now being added to those who bailed them out. We're all winners here.

p.s. Goldman Sachs upgraded a slew of technology names, which basically means the rally in technology is just about over as they get their clients out into the "upgrade" - or at least thats the cynic's view.

Monday

CSX (CSX) - we always like looking at the railroads as economic indicators; companies like this are far better than faulty government reports.

Posco (PKX) - South Korean steel; the hope is for some uptick in the steel market in the "reflation / weak dollar" thesis area. Posco is the first major global steel maker to report.

Tuesday

Goldman Sachs (GS) - what more can be said, Goldman has basically cleared the path to prosperity for another generation or two. All major competitors have been destroyed or weakened measurably... transplants live throughout national government... the world is their oyster. All they need to worry about is insiders apparently taking some of their HAL9000 code and trying to get rich off it.

This could be an epic quarter for Goldman - record breaking issuance of stocks - especially financials, in Q2; massive issuance of bonds as credit markets are re-opened; massive dominance of weekly program trading. They are everywhere and as fewer competitors remained, their spreads (fancy word for profit margins) widened. I expect a monster beat; it is just a matter of "if it's in the stock".

HDFC Bank (HDB) - I like the chart as a short here; we own a tiny long position, but with earnings coming out, I don't like being involved heavily in anything so I'll wait. Major gap to fill in low $80s, and this stock is PRICEY.

Intel (INTC) - I've long since stopped caring about Intel, but it still moves the markets and "semiconductors" are the playbook for 'early recovery,' so it will impact.

Johnson & Johnson (JNJ) - not my cup of tea but one of those stocks you can actually buy and then come back in 10 years and not worry if it's out of business.

Yum Brands (YUM) - it's all about China. My only hope is our culture invades China to the point they become more like us, then we can get back our prominence. Go KFC! (Trojan Horse)

*****

And for something totally unrelated may I present to you a blue lobster

Comments

[Tom Colangelo:]

The market will continue to move sideways based on the numbers and guidance given this week BECAUSE:

1) FIRMS will say nothing or say that the outlook looks better than the recent past. It would be a SELF-FULFILLING PROPHESY if companies with weak Q2 results give negative guidance for Q3. A literal death wish for any firm saying that they won’t improve their numbers even though the economy is beginning to level out and the stimulus is still gaining momentum.

2) The banks will report good numbers because they talk to Geithner EVERY DAY about how they are doing. He is protecting the $1 trillion we have given to banks and financial institutions and for his own sake, must know how the banks are faring. If they were in trouble, we would know about it already because nobody likes surprises.


3) Q2 earnings will be presented as improving month-to-month versus the less favorable Y-O-Y. You will be sold on how things are improving and to forget about t he Y-O-Y because it is not valid in this recession.


The market will meander until Q3 reports. In the mean time, get dividends while you wait for the market to move. Take advantage of this by getting into a strong position in some of the things that we CANNOT DO WITHOUT like:

OIL – BP (Yield = 7.43%), RDSB (Yield = 7.11%), etc.

UTILITIES - ATT (Yield = 7 %), VZ (Yield = 6.4%), VOD (Yield = 6.2%), NGG (Yield = 5.9%), CHL, etc.

FOOD - ADM (Yield = 2.1%), MOO (Total Return = 23.7%)

BANKS - NYB (Yield = 9.3%)

I hold positions in all of the mentioned stocks.

Good Luck.

Jul 13 06:26 AM

[John Galt:]

I'd agree with the earnings playbook, who cares of revenue goes down, slash everything, slash everyone, say you have growth in China and beat those deathly low expecations and you're golden. In fact the CEO should get a bonus!

The rest was informative and hillarious.

"All they need to worry about is insiders apparently taking some of their HAL9000 code and trying to get rich off it."

KFC as the American Trojan horse into china.

Jul 13 08:15 AM

[Old Trader:]

CSX's CEO was interviewed at length on Bloomberg TV about 2 weeks ago, and the message he delivered was NOT an especially happy one, if one's looking for a "V", or even a "U" shaped recovery. I'll be interested in both the numbers and the guidance.

Re: JNJ.....the kind of company that belongs in a retirement portfolio!

Disclosure: Long JNJ...no other positions in any companies mentioned in the srticle.

Jul 13 09:09 AM

[predictorma...:]

It it getting hard to comment on sideways action, especially on light volume.

Earnings will be a yawn (you either think things are going to get better, stay the same, or get worse, and the specifics don't really enter into that thinking.

I have moved into the camp of big drop in the fall.

Why? because that always seems to be when the market falls, and stupid things concepts like that are driving the market these days.

Sell in September, buy back in December.

Until then might as well hang around and maybe we'll get a little rally.

Jul 13 10:31 AM

[TraderMark:]

thanks for that info on CSX, similar comments by AXP CEO last week. The only guys seeing green shoots are government officials and CNBC (hosts and pundits)


On Jul 13 09:09 AM Old Trader wrote:

> CSX's CEO was interviewed at length on Bloomberg TV about 2 weeks
> ago, and the message he delivered was NOT an especially happy one,
> if one's looking for a "V", or even a "U" shaped recovery. I'll be
> interested in both the numbers and the guidance.
>
> Re: JNJ.....the kind of company that belongs in a retirement portfolio!
>
>
> Disclosure: Long JNJ...no other positions in any companies mentioned
> in the srticle.

Jul 13 10:46 AM

[Pat C:]

Sure would be nice if we could get back the $10 billion that Goldman stole from the taxpayers with all this profit they are generating. Yea, I'm still ticked-off, I don't think I am going to get over it for some time if ever. I don't know why everyone continues to give them their business.

Jul 13 11:07 AM

[football frank:]

JNJ is just a real solid company, that should give investors a
nice long term play. Gotta like the dividend growth, and the whole
health care sector going forward. When people are sick, they have
to pay whatever the price of the drugs are. And of course there
is a huge number of baby boomers, that will access the health
care sector. Obama may have the right idea to control costs,
but this process will take decades.

Jul 13 11:30 AM

[stwo1:]

Pat, they already mentioned several times they want to give it back. Quite honestly, they never wanted it in the first place. They need compensation flexibility to hire whom they wish. Can't have the government tell them what to do. Many banks were forced to take ATRP, so the bad/dangerous ones weren't so easy to spot, unless you do your due diligence. Due Diligence is so overrated these days, well fundamentals don't matter much either, so why bother.


On Jul 13 11:07 AM Pat C wrote:

> Sure would be nice if we could get back the $10 billion that Goldman
> stole from the taxpayers with all this profit they are generating.
> Yea, I'm still ticked-off, I don't think I am going to get over it
> for some time if ever. I don't know why everyone continues to give
> them their business.

Jul 13 12:46 PM

[skwestorange:]

Pat C:
Guess you are not current. Goldman already paid back the $10 Billion and more for interest at 5%. Let's hope and pray the same will be case with many of the others who have taken a lot of our taxpayer dough.

Jul 13 04:18 PM

[Pat C:]

Skwestorange&Stow1, I'm referring to the AIG Credit Default Swaps not the TARP money. Did they pay that back?

Jul 13 06:48 PM

[stay strong:]

To HY6e:

You think the recovery is artificial? Well did you ever think that maybe this recession was also manipulated??? It could go both ways

Jul 13 07:02 PM