In a replay of the last few years, pundits, prognosticators, and Wall Street universally proclaimed that all was right with the world as a new year commenced. Congress allayed “fiscal cliff” concerns for the time being by postponing discussions of spending cuts in spite of the unsustainability of current deficits, igniting a big equity rally during the year’s first week. Earnings reports were not bad enough to stop the frenzy, especially as Japan began jawboning about its latest and greatest quantitative easing effort.
I am not sure the “talking heads” need much of anything to justify spouting positive views on all matters and ignore or minimalize anything even remotely negative. That disdain for facts and objective reality has been going on for a few years. The commentary (cheerleading) as the fourth quarter played out would have led one to believe we were in a real recovery, not one that even recent St. Louis Fed data depicted as the worst ever. Just look at their graph below to see why.
I admit it was entertaining to listen to the convoluted logic as the mainstream media explained how the just released real GDP number for the fourth quarter (not in above graph) which came in at -0.1% is a good thing….just like the multi-decade high level of long-term unemployment or the near 40% decline in Apple’s stock (we have been short that one). Real GDP would have been even lower had the U.S. Bureau of Economic Analysis (BEA) not monkeyed with the deflator. Of course, the Fed will just do more money printing, which is everyone’s favorite reason why one should buy anything and everything. Therein lies the bulls’ hopes, but additional QE will probably not provide much to change the current doldrums based on past results.
January was replete with fourth quarter earnings reports. Based on how markets reacted, we think we must be looking at different financial statements than the crowd. Revenue and profit growth is very hard to find among the plethora of companies that reported. Numerous cyclical companies are experiencing significant revenue declines and cloudy futures. Overall, the graph below depicts how fourth quarter earnings estimates have moved significantly lower as more companies report.
Nonetheless, stocks raced higher as investors could not seem to get enough. We remain true to our convictions which averted a lot of pain in 2008-09. Emotion is running high, but we strongly favor math, which is the only reliable compass over time.
The views expressed on this blog are the opinions of the authors. This information is not intended as investment advice or to recommend the purchase or sale of securities. More information on Strategic Balance, LLC may be obtained by contacting investor relations.