Ow, ow and ow!
Those were some hurting earnings reports last night! On a percentage basis, the misses are few and far between but when you get downside guidance from Apple (NASDAQ:AAPL), SanDisk (SNDK), Texas Instruments (NYSE:TXN) and American Express (NYSE:AXP) along with misses from KeyCorp (NYSE:KEY), Ericsson (NASDAQ:ERIC) and Wachovia (NASDAQ:WB) this morning, it’s no surprise that we are looking at a 100-point pre-market drop (8 am). This one is severe enough for Paulson to be on TV this morning looking to calm the market as the dollar heads back below 72.
I find it funny that Paulson says we can expect problems "until the housing market stabilizes" yet the administration has done nothing concrete to help the housing market. Bailing out banks who made inadvisable loans to people who couldn’t afford the homes doesn’t help the people who can’t afford their homes. You can point your finger at the homeowner and say they should have known better and read subsection A of paragraph 4 on page 11 of the mortgage contract, which clearly indicated that everything the broker said was BS and they would not be able to easily refinance their loan after the "teaser rate" expired but perhaps we should reflect upon what kind of industry is proud of using a "teaser" to generate business in the first place.
We need to help the homeowners, the people who are losing their homes at a rate of 7,000 families a day and have been for over a year now. That’s 35,000 homes a week, it’s like wiping another American town off the map every single week while the administration hems and haws around the issue, showering untold Billions of dollars on the lenders that peddled these loans while allowing the people who they were sold to fall into pits of despair.
As we discussed last week, the only way to properly address the mortgage and housing crisis is to help PEOPLE stay in their homes. How did we ever let CNBC and Fox (and Murdoch’s Wall Street Journal) convince us this was un-American? What ever happened to this country where we are willing to spend $1Tn "nation building" in Iraq and Afghanistan when just $200Bn spent at home could stop half the foreclosures from happening this year (more than 2.5M).
The math is very easy: If you help a family make their $3,000 monthly mortgage payment, say by somehow helping make 1/2 the payment for 3 years to get back on their feet, that will cost $1,500 X 36 months or $54,000. If we don’t help the people stay in their homes, we lose a consuming family from the community, the town loses a taxpayer and the vacated home loses value (dragging down the community’s values) and we end up giving the bank $400,000 for the home they wrote off their books, which they also declare as a tax loss and fail to remit 35% of that $400,000 to the government in taxes. How is this efficient???
The more we throw billions at the banks, the further we devalue the dollar, which is what the average consumer uses to buy things with, which further reduces their spending power and forces another 7,000 families a day into foreclosure as rising unemployment (due to all those towns worth of homes being wiped out) makes it impossible for them to demand wages that keep up with inflation. This is basic economics folks, can it really be possible that this is all "unintended consequences"?
I’m still bullish on the markets because I see a lot of things happening in Congress that should actually begin to address these problems and I think the run-up in oil yesterday was nothing more than more desperate pumping by traders who stand to lose their shirts if oil continues to drop at a rate of $10 a week, which can’t be fast enough as it only gets us to $80 by September, which will be still too high if we don’t have either a hurricane or an exchange of nukes with Iran.
That does not mean that it’s a good time to buy stocks unless you have a long-term horizon. Things are cheap right now but, as AXP said yesterday, you can’t give guidance until this economy turns around and the economy can’t turn around until we FIX oil and housing, and fixing does not mean showering cash on people so they can keep paying outrageous oil prices and bailing out banks so they can continue to ignore the suffering of the people they wrote "liar loans" to (the banks term for them, not the borrower’s) because it doesn’t, in the end, affect them when Paulson and Bernanke come calling with bags of cash to wash it all away.
Interestingly, it was the Financials that led the NIkkei to a 3% gain last night, pushing them right back over 13,000 but mainly in one big move at the close, so we’ll have to watch that one closely tomorrow. The Hang Seng and the Shanghai were flat and that is great after watching the US markets melt down after hours. India was positive despite the fact that the government is in chaos over a bribery scandal. Europe is taking our news far less well this morning as ERIC reported a 70% drop in net profit and Vodafone (NASDAQ:VOD) guided down.
I don’t want to be a cheerleader because we have some very serious problems but we need to keep a little perspective as the misses by WB (which was awful), RF, PTEC, ERIC, GNTX, FCX, DPZ and ARB this morning just seem to me to be slightly offset by beats by AKS, AXE, ALV, AVY, BHI, BIIB, BJS, CP, BEAT, CSL, CAT, CNC, CME, CPO, DD, FITB, FCFS, FMER, FRX, ICLR, IMN, JEC, JEF, JBLU (yes, an airline!), JRN, KVHI, LXK, LMT, NEOG, NVR, PCAR, PNR, PAS, PCP,DGX, RYN, ROK, STI, SVU, TLAB, UAUA (another airline), UNH, LCC, USG, WAB, WAT, WBS, WU, XMSR and XTO.
Companies do miss, you know, but 50 beats, 7 misses and 5 in-lines is hardly a reason to dump our portfolios. What I am seeing is that a beat isn’t enough to get a stock moving and that gives us some very interesting buying possibilities, so let’s keep our eyes open for opportunities.