Thomas Kee's  Instablog

I will resume our lesson, and address the details of each of our six strategies in Tuesday's email.  Then we will discuss allocation.

This Newsletter is focused on keeping us ahead of the curve.

Immediate concerns exist related to the upcoming earnings season.  This takes center stage.  I too believe this earnings season will be very important.  Unfortunately, I also anticipate disappointment.  Companies will struggle in my opinion.

Cost cutting has made recent results better than feared.  The reactions of many large corporations were swift, and that was a positive sign.  Now, those companies are leaner than they were before, and they are positioned to make money if the economy begins to grow again.  That is where the problem comes in.

According to the Investment Rate, growth will not be robust.  In fact, we are seeing a recovery now, but a recovery is not a growth environment.  Losing less is not a winning strategy, ever.  It might provide signs of hope, but that's all.

Therefore, and this is what makes this earnings season so important, cost cutting is no longer a good way of bettering quarterly earnings results.  Wall Street wants to see real growth.  I do not think they will get it.  As a whole, results will probably be less worse, but they are not likely to show significant growth. 

Fortunately, comparative numbers from 2008 make Q/Q results easy to mock up.  In other words, companies could, and are likely to play on the 12-month improvements, instead of net growth figures.  The reaction of smart money will most likely drive their next steps.

I believe Wall Street will balk at the "no growth" - "losing Less" results that will come this quarter.  That will compel companies to hit it hard in Q4.  If the economy is just in recovery mode, that will be tough.  Without solid economic growth, growing revenues is hard.

Given that, they have two alternatives.  They can increase market share to increase revenues, or increase prices.  I believe both will happen.

After their lackluster results this quarter, I expect to see M&A pick up, and I expect prices to increase.

This sets the stage for the increase in interest rates that I also expect.

This earnings season will be important, because it will force the hand of corporate executives.  Based on the reaction of Smart Money, and the demands of shareholders, companies will need to take action, and improve results in a tangible way.  If they don't, those executives may have a shortened tenure.  Smart money has an air of greed in today's market, and their demands and expectations are high.  That will be the driving force after this round of earnings in my opinion.  It will also cause many problems as we enter Q1/10.

We should not be surprised by what lies ahead.  I have detailed this in the Return to Parity and Grimm Reaper Reports already.  Read them in the Investment Rate section of the members area.

Although I think a good buying opportunity will come again if the Market declines hard in the next couple weeks, we are also setting the stage for an ugly environment after Q1/10.

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