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Wednesday I shared with you my concern that the first batch of earnings reports were possibly not as good as advertised. Thursday night we got an unadulterated, HUGE surprise from Google (NASDAQ:GOOG) with shares up 7-8% afterhours.

Unfortunately, the value of the Google report is not as far reaching as others because they are not a bellwether for that many other companies. (They are a unique animal with few real peers). So we need a good earnings report by someone with more meaningful results for other companies. A perfect example is General Electric (NYSE:GE) who reports on Friday. They are in so many different businesses that their report gives a decent sense of overall economic activity. So let’s hope that’s in the plus column and we can start stretching above Dow 11,000.

One more piece of news from Thursday to report on. The Producers Price Index showed a pickup in the rate of inflation. This is good news for those fearing deflation or double dip recession. If this keeps up, then perhaps the Fed will not have to embark on a second round of quantitative easing.

Pulling back to the big picture. Here is why I am nearly 100% long the market.

If earnings season is neutral to positive then the market may quickly push to the recent highs of Dow 11,300 given it’s still attractive relative value to bonds (based upon the earnings yield math I have shared in the past). When the market makes it to the old highs the media will make a big deal of it. This will reawaken many individual investors, who have been mostly on the sidelines because they got scared out by all the volatility.

Given human nature, investors will start chasing stocks as they will feel that once again "they are missing out". This new rush of money into the market may take us as high as Dow 12,000 which is probably too much too soon given the fundamentals of the market. And then we get a pretty hefty correction (10’ish percent).

That is the theory I am working with right now. Again, the key is the quality of earnings season which I think is looking like it will at least be neutral. Maybe a notch better which is all that’s needed here. And that is why I didn’t mind adding more to my long positions today. In fact, I am up to 89.5% long the market. I haven’t been this long in a while.

Just to be clear. I have a healthy combination of core holdings with large dividends to go with some hand selected growth plays. Overall I would call this a moderately aggressive or cautiously optimistic portfolio. My plan is to ride this up to around 12,000 and then trim profits. As always, we make plans and God laughs. So if the winds of fortune change, I will make the appropriate moves to get more defensive in a hurry.

My Two Cents

(Yesterday I read many other investment articles of interest. Here are links to some new ones with my 2 cents added underneath).

Google Q3 Net Income Jumps 32%

Last quarter GOOG beat the revenue estimate by 2% and yet fell short on earnings estimate by 1%. The stock was thoroughly punished for the earnings miss.

So how did it beat on the much tougher revenue line and fall short on profits? Because they have been aggressively making investments in new ventures with payoffs down the road.

To those with patience who saw through last quarters blip and kept shares on hand, I say congrats. Your reward is not over yet.

Bond Market Bubble?

Whiffs of some inflation in the PPI starting to prick the bond bubble today. Lets see if we have some follow through instead of all the previous false starts on higher rates. If yes, then time to load up on TBF and TBT.

2 Education Stocks Priced to Buy

Don't let the Apollo (NASDAQ:APOL) announcement throw you off the scent of these stocks. They are so ridiculously underpriced that it's hard to imagine a patient investor not winning on DV, STRA or others 2-3 years down the road. Load up the truck if you have not already.

Disclosure: I have a healthy combination of core holdings with large dividends to go with some hand selected growth plays.

Source: Why I’m Getting Closer to 100% Long