“Irony is the form of paradox. Paradox is what is good and great at the same time.” ~ Friedrich Schlegel
We could sum it up in two words as to why earnings recession was, is and will be a non-event; Hot Money. However, for some strange reason when it comes to the markets individuals happen to love long explanations even though in most cases the long answers reveal a lot less than the short ones do. So let’s take a look at some of these meaningless statistics.
S&P 500 companies are going to report what will turn out to be the 6th consecutive quarter of lower earnings. This is one of the longest earning slumps in over a decade and logic dictates that the markets should have been trending lower, but the opposite is taking place.
An investor following the old paradigm could not be faulted for making this statement “well then there is no way stocks can keep rising” or how long can they grow in such an environment
To get the right answer, you need to ask the right question.Such questions are irrelevant in today’s environment, and answering such questions is not going to provide you with any insights on how to play this market. One person will state it cannot rise because of the negative factors listed above. The other penguin will say it can rise because inflation is low, unemployment is low, gas prices are low and a host of other rubbish.
It would be far better to focus on trying come up with the right questions. For example:
When will central banks stop flooding the markets with money?
When hell freezes over is the answer; this means that this market will rise for much longer than most naysayers can stay solvent.
An even better question would be “what side of the market are the masses on.”
Now we are getting somewhere; the masses are decidedly negative, and that means until they embrace this market, it will not crash.
So there you have it. However, even this is not enough for many individuals. So let’s look at a few more meaningless reasons as to why earnings might be dropping.
Energy and other commodity based companies have seen their profits dive, and that is why these sectors have been the worst performing sectors for over 18 months. U.S. firms in the aggregate have reported lower earnings because energy, commodity and basic materials companies have seen their profits decimated by lower prices. The energy sector will once again lead the way with massive losses.
A strong dollar; the dollar has been in an uptrend, and this affects multinationals profits. This is simple to understand as we in the midst of a massive currency war; a strong dollar is not okay for multinationals and vice versa.
It also affects our exports as it makes our products more expensive overseas.
Conclusion
The only two things you need to pay attention to are; We have an extremely accommodative Fed and secondly the masses refuse to embrace this market. Both developments are extremely bullish for this market.
Data that is readily available to everyone is like news; the moment you hear it is no longer news but Gossip.
“A taste for irony has kept more hearts from breaking than a sense of humor for it takes irony to appreciate the joke which is on oneself.” ~ Jessamyn West
….however by Jack Crooks:
