Date: 07/27/09
The stock market in the last two weeks has made most technical analysts feel embarrassed – when the Dow Jones Industrial Index was about to crack below 8,250 and complete the so-called “head-and-shoulder” top,” the index made a sharp U-turn to thrust upward to cross above the 9,000 level. In about two weeks, Dow Jones Industrial Index gained almost 9% despite the pathetic trading volumes.
All of a sudden, almost all analysts turned bullish. According to those analysts, the rally in the last two weeks was mainly due to the “better-than-expected” financial results from most companies. However, what they did not mention was that those companies made money by layoffs but not by increasing the revenues. Some analysts (I bet they’d better keep their names anonymous for their safety) even praised those companies for being “financially flexible” and “more operationally effective” by putting more workers on the waiting line for unemployment claims.
But were those financial results just announced last week really positive? Take the financial result of Caterpillar from the latest quarter as an example. According to those analysts, the company exceeded the analysts’ expectations by losing “only” 66% of profit. But keep in mind that the expectation was previously dramatically revised downward and this 66% profit drop was considered as a “pleasant surprise.” It is like you have a bad son who got only 50% from his English class in the first term, 30% in the second term and 25% in the latest term; since your kid only failed 5% more compared to the second term, a 5% drop vs. 20% drop from last time, you celebrate for your kid’s improvement as an “achievement.”
But why did the Caterpillar’s latest financial results bother me so much? If you still remember President Obama’s “Yes, we can” rhetoric, he claimed that his $800 billion economic stimulus plan is going to create 2.5 million jobs by investing mostly in infrastructures. Infrastructures need heavy construction equipments, which are exactly what Caterpillar produces. With the $800 billion already pumped to the infrastructure projects 6 months ago, why Caterpillar is still losing 66% profit? What does it imply? Either the money was never there, or, the $800 billion is still not enough to revive Caterpillar’s core business and the
Moreover, as the CEO of Caterpillar already mentioned in the conference call, most profit was generated by laying 22,000 people off in the last quarter. And speaking of Obama, I don’t see any 2.5 million new jobs created since he took over the White House. What I see is the States have been losing jobs at the speed of about 500,000 people every month.
Oscar Wilde once said, quote, “When one is in love, one always begins by deceiving one’s self, and one always ends by deceiving others. That is what the world calls romance.” All the companies are saying that they are doing great and keep telling investors that the economy is on its way to “Green Shoot Recovery.” I am very much skeptical about it. But why did the stock market keep going up in the last two weeks? I have a theory about it but I will leave the discussion for next time.
Every one wants to make money in the stock market. However, I have never seen anyone who can make money by consistently saying “Yes, we can” without solid and substantiated bullish economic facts. I may have missed the boat but don’t want to lose my shirt.
