Surprise, Surprise, Surprise: Positive Economic News Everywhere

The immortal words of Gomer Pyle rang out in financial headline after headline this week, "Surprise, Surprise, Surprise!"

First the banking sector became awash in surprisingly good news. Four of the US top banks smashed all earnings estimates and posted collective net profits of $13.6B for the second quarter.

• Bank of America (BAC) posted a profit of $3.2B
• Citigroup(C): $4.3B
• Goldman Sachs (GS): $3.4B
• JP Morgan Chase (JPM): $2.7B

The technology sector followed with Intel's (INTC) surprise. It posted its best quarter over quarter sales increase since 1988. Further, the chip leader formally asserted that this current quarter ending in September, will be significantly stronger than any analysts had even dreamed of. IBM (IBM) also added its vote of Q3 confidence later in the week.

And there was more surprisingly good news in the jobs data Thursday. The number of initial claims in the week ending July 11 fell 47,000 to 522,000 - the lowest level since early January. The data for continuing claims also fell by 642,000 -- the largest drop on record! This huge downward surprise even pulled the four-week moving average of these continuing unemployment claims down by 110,250.

And then on Friday, the housing market chimed in with surprises of its own. Contractors started building single-family homes at the fastest rate in 4-1/2 years. "The bond market was completely caught off guard by the increase in housing starts," said Jane Caron, chief economic strategist at Dwight Asset Management in Burlington VT.

And stocks surprised most strategists as well. Just last week many had forecast stocks to continue their recent declines (or at least continue to move sideways). Q2 earnings jitters dominated the news. But as markets closed on Friday, many traders were left scratching their heads as the Dow rocketed to its best weekly gain since March, closing within easy striking distance of the 9000 mark.

But perhaps the mother of all surprises this week came from the bear of all bears, Doctor Doom, Nouriel Roubini. Just last week the ultra depressing economic prognosticator wrote an article "Brown Manure, Not Green Shoots."

But this week in a significant flip, flop, Roubini actually stated, "the worst of the worst is behind us." (He later of course whined that his words were taken out of context.)

Gomer Pyle frequently exasperated his immediate supervisor Sergeant Carter with the Private's Pollyanna-style demeanor. With positive economic surprises everywhere, it is no surprise that Roubini feels a bit frustrated as well.

Comments

[Jim Hawthorne:]

A word of caution: while I agree that we have seen some positive news and as Bespoke reports, earnings are beating analyst expectations at a high rate, let's pause and look at the much more depressing YoY drops in earnings and sales!!! There is no doubt that this year's rally has been a great ride, but it looks more and more like we are approaching overextended territory here!
We took welcome profits and moved back into cash on Friday in a move that was purely based on capital preservation! At this stage of the rally, we can make up for lost opportunities much more readily than we can make up for lost cash!

Jul 19 10:25 AM

[Warm_Paw:]

Hey - he's called "THE GOOD NEWS ECONOMIST"
He reports good news.
Give 'em a break.

The bad news economist is reporting reality.
"2-4-6-8!"
"BOY DID WE DEPRECIATE!"

Jul 19 10:30 AM

[Davewmart:]

Yeah, the news is so good that execs have pulled around $700 million from their personal shares in companies they manage to take advantage of this head fake rally.
If you like manipulated figures, then there is nothing to worry about.
Goldman Sachs had programs which 'in the wrong hands' could be used to manipulate markets for the fun of it, and to assist them in their public spirited endeavours.

Jul 19 10:33 AM

[Sober Realist:]

Shazam! Look at all them thar green shoots! Be careful not to step on 'em.

Jul 19 11:02 AM

[HardwoodFlo...:]

This is how the game works. They spend years building up the nonsense- hedge funds, private equity drivel and the rest- they tear down great public companies. They tell you the long investing game is for morons and it's the fast money crowd that are the new future. Then they collapse it all.

Now they come back to rebuild everything they have torn down.

It is called wealth transference- it is all going to pay for summer holidays at South Hampton, Nantucket and the Vineyard.

If you weren't in on the trades e.g. last summers trade of sell the dollar down, bid commodities up, short the market as the consumer get's squeezed and manufactured have to deal with higher input costs- then you are not a part of the "smart" money.

The good news is that the world is about to shift back: it will be about public companies again. It will be about truth and transparency. It will be about products and tangible innovation. About IPOs. Hedge funds, everyone sees them for what they are now and no one believes in them anymore. Same with private equity- done.

Now the hedge funds are trying to buy companies getting taken to the wood shed b/c of the banking system. They are trying to steal them. They are trying to cram down on banks and steal performing mortgages.

God save us from these scum bags.

Jul 19 11:46 AM

[The Geoffster:]

Watch GE.

Jul 19 12:09 PM

[Perry B:]

The author is obviously of the Hampton crowd.

Jul 20 08:42 AM

[richjoy403:]

Interesting...the debate goes on...we have many bears here, and only a couple bulls (among retail investors).

It's a good debate...is the economy slowing improving?..or is it a head fake before the ultimate disaster?...are there legitimate investment opportunities?...or are the stock markets a 'manipulated' and rigged 'game' played to benefit only a few hedge funds, as widely claimed here?

As most know, I am in the 'slowly improving' camp. Nonetheless, I do believe one must remain nimble (so I give Hawthorne a +).

Clearly, more and more voices and articles are forecasting that the economy IS improving, and that the recovery will be weaker for longer than in typical past recoveries. I can accept both of those, and want to build positions at attractive prices (when I can find them).

For Hardwood and his bitter ilk...since you have the 'game' all figured out, I assume you are buying what the 'scum bags' are buying, so you too can 'steal' investments that will produce profits.

Davewmart...nice to see you again...Can we agree that $700 million is insignificant, crumbs?. What is the lag time in reporting insider transactions? (up to 90 days?). So are you sure your rant applies to THIS 'head fake' rally?

In my experience, we have had some bad actors on Wall Street for the last 35 years. The names change, but that's about all. Cheats are extremely innovative; every time we finally manage to close a window, they find another. So if you won't invest unless you are certain all the windows are shut, don't invest. If you won't vote unless all politicians are clean, don't vote.

The debate goes on...

Jul 20 08:49 AM

[HunterGVL:]

What is going on with the economy?
Nothing good. I mean that literally. Everything in our economy is doing worse with one exception. Everything is not getting worse at the same rate. Some things are getting worse really fast and some things are getting worse slower because they have already been decimated. There are a very few things getting worse slowly. What is the exception I mentioned above that is doing well in this economy? Companies that do better when things get worse.

Just looking at 4 banks (Goldman Sachs, Citigroup, Bank of America, and JP Morgan), they are currently hiding (In plain sight) over $175 Trillion dollars of paper contracts that are effectively worth nothing. Zero. Not'ta. How can you speak of profits with this common knowledge?

And earnings are up? I guess profits do rise temporarily when you lay off half your employees in a single quarter. Cutting costs to the bone because revenue and subsequently, profits, are falling off a cliff is not positive news.

When the government routinely skews it's statistics, and just blatantly lies when it is 'in our best interest,' to avoid a systemic collapse, how can you believe in any corporation's numbers anymore. Lies upon lies upon lies. Eyes wide open people.

Jul 20 10:40 AM

[ThatGuyInTh...:]

Yes, I'm sure all this good news from the *financial* sector will do away with that silly erosion of our manufacturing base, the US government's need to roll over 2 trillion in debt (bought by...), oil price fluctuations (first way low and then way high), the aggregate 200 trillion dollar derivatives exposure of US banks (especially JP Morgan), and the gradual depletion of oil fields worldwide over the next 20 years.

But hey, *short* term, there's nothing but good times ahead.

And isn't that what America is all about?

Cheers!

Jul 20 10:49 AM

[johnbee:]

My reading of Seeking Alpha has been that the great majority of opinion has been bearish until recently and is still in the majority.
Yet I now see a lot of bragging by those who say they got the March bottom right. Pity they didn't publish their views then. The only person who outstandingly and continually and daily called the market rise was somone called Cetin, and he was widely abused for months by pretty much everyone. Where is he now?
Its clear the market went against all the rules and was manipulated by the Fed and banker pals under duress. Have they re-established confidence? Bank results are meaningless. Its industry where we need see upside regardless of unemployment and the state of inventories will show the way to commodity prices.
Can the $ hold firm. Will interest rates rise or fall. Back to the Fed and what they can achieve. Only the big hitters know which way its going and those who are not and say they do are a waste of time.

Jul 20 12:52 PM

[buoy:]

John--hindsight is 20/20 :)

Jul 20 05:25 PM

[31October:]

You can cherry-pick companies that are doing well. Some of those that did well, do not bode well, because they fired and outsourced large numbers of people.

And to include financials as a good sign? All they did was change their books. GS made a short-term profit front-loading daily markets. You can do that with FAZ, so how does that mean that employment is high?

Until employment sees sustained positive growth (and not just drops off the roles)...
Until Treasury debt drops below $250 trillion in unfunded liabilities...
Until Treasury debt drops below $12 trillion...
Until we have a positive current account in trade...
...then the stock market is just blowing bubbles. You can blow bubble gum if you want; I want meat in my belly.

"Meat" means manufacturing jobs, less unionization, less regulation, lower taxation, and FAR LESS government spending. If you think the future is bullish because of the opposite, read the history of Rome and Weimar. Europe, the UK, and the USA are re-runs of the worst episodes of economic decisions.

The fake, paper profits of the finance sector will increase liquidity. Liquidity could boost business financing. Sounds good, but with all that debt, without a trade surplus (and that will never happen), then we run into inflation. So your happy financial numbers climb and climb, while your buying power falls.

But as long as the numbers are a pretty green, who cares about $8 milk?

Market rallies without sustainable fundamentals are like Jonas Brothers: Bubble gum pop.

I know that next week, next month, and next year, that I will look like a fool, and you will be able to throw the long market rally in my face. But the longer the market climbs, the uglier the collapse will be.

A house without a foundation can be built a dozen stories high, but it will collapse.

Good hunting, and good hedging.

Jul 23 10:24 AM

[ex- bond tr...:]

Did you get belted with green gamma rays good?
Or are you Christine Rohmer's brother?

Jul 25 12:32 AM