TALKING DOWN

The term talking down has different meanings to different people. If you talk down an opponent it can come back to haunt you. If you manage a big corporation it can put big bucks in your coffer. 

As most investors are aware 'tis the season for earnings reports. On a basically dull day yesterday investors took what the market gave them--individual company earnings reports for the second quarter. 

Of stocks in the S&P 500, according to a WSJ report, earnings are expected to register a little over 1% gain over the same period in 2012, a number that is well below what analysts had predicted in March. How much below? Try 1.1% versus 4.3%. 

Back in the tech heydays of early 2000 one major S&P 500 darling beat management's projected earning by one penny for 14 straight quarters. Investors ate it up, pushing the stock price ever higher. It was a great gig if you were Wall Street connected. Names like Henry Blodget should come to mind here.

Managements sell more than just their main service or product. Call it reverse psychology or whatever. In the business it's known as talking down earnings expectations so you can surprise to the upside.

Truth be told, absent financial companies, corporate earnings would otherwise be negative. 
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LOW HANGING INTEREST RATES

They call it the low hanging fruit for a reason.

In the bond market it's low, lower and the lowest interest rates. 

Unless there is some huge, nasty event causing a big economic downturn, it's been picked. It's, as they say, history. And as the WSJ noted today those low rates impact many things not the least of which are housing and corporate profit margins.

Sure, there's what Japanese prime minister Shinzo Abe is doing, a Ben Bernanke encore. But some see that leading to inflation and higher rates. According to many, gold prices soared on the news of his recent political success.

Debt has to be serviced. Low interest rates make that a less painful experience. The average cost for corporations servicing their debt if they took advantage of Bernanke's largesse dropped considerably during Big Ben's low hanging fruit days. And that difference was no small matter.

Down the road corporate profit margins may take an unexpected whack when they have to choose higher hanging fruit to finance their debt.
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BERNANKE'S GOLD

Fed Chairman Big Ben Bernanke recently asked about gold claimed nobody really understands the yellow metal's pricing including him. 

Coming from the most powerful bank chairman on the planet, Bernanke clearly understands the value of a strong dollar. 
http://www.resourceinvestor.com/2013/07/22/what-ben-bernanke-knows-about-gold?eNL=51ed82e6fc746ff54300002c&utm_source=DailyENL&utm_medium=eNL&utm_campaign=RI_eNL&_LID=485386
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WHAT'S THE TREND?

As they say the trend is supposed to be your friend.

So what's the trend? Well, when things are weak and the future uncertain, retail investors lean toward larger, so-called safer equities many of which offer some income. As the economic malaise tends to disappear, they start moving into smaller, more risky bets like small and mid-cap stocks.

So what's going on now and how does this compare with what retailers versus the often referred to smart money? The bear market started in 2007 and ended by most accounts in 2009 just about the time the retail crowd, believing their pain threshold was exhausted, started exiting mutual funds.

US households are the largest owners of mutual funds.  In other words they were selling near the bottom. They did not return to the market until the bull was well out of the gate. According to one recent report, and there are several others, the so-called smart money got in much earlier and started getting out earlier this year, even before Bernanke notoriously misspoke. 

That trend, the reports say, has continued with corporate insiders. Again, according to recent data, the Russell 2000 and Nasdaq have of late been the hottest benefactors from inflowing money. As one market observer recently noted, the smart money tends to buy in and sell out earlier while the retail crowd does just the opposite. 

And whether one is talking mutual funds or individual securities the data tend to support the above. 

Go figure.

ANOTHER ROUTE

A couple of days ago we wrote about looking for a route.

We were referring then for the most part to emerging market equities that have been hit by Big Ben Bernanke and his so-called misspeaks about the imminent end of QE.

Well, here's a link to see what another route looks like, this time in the largest gold mining companies.

http://ycharts.com/analysis/story/gold_mining_stocks_guess_how_low_yeartodate?utm_medium=email&utm_campaign=YCharts+Analysis+Digest+RHHBY+PFE+NVS+MRK+SNY+INTC+QCOM+TSM+-+Non-Pro+-+DIGEST&utm_content=YCharts+Analysis+Digest+RHHBY+PFE+NVS+MRK+SNY+INTC+QCOM+TSM+-+Non-Pro+-+DIGEST+CID_c8d0a1fc215aadf8a4fa865809ff5c8d&utm_source=email&utm_term=Gold%20Mining%20Stocks%20Guess%20How%20Low%20Year-To-Date

SO WHAT NOW

So what now for the US dollar?

With the slow down in China, the EU mess and emerging markets touted to retrench, what now for the dollar becomes an interesting question. Higher interest rates could spike the dollar higher. Hot money looking for a stout place to hide could also push up the greenback.

And then there's oil, denominated in dollars. Could oil prices surprise nearly everyone and keep going up? Like most things in life, opinions are mixed. Here's one that thinks the almighty US dollar has seen its better days for this run and will soon, if it hasn't already, be topping out.

http://www.resourceinvestor.com/2013/07/15/is-the-inflationary-phase-finally-here?eNL=51e42973fc746fd1640000e9&utm_source=DailyENL&utm_medium=eNL&utm_campaign=RI_eNL&_LID=485386&t=precious-metals&page=
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LOOK FOR A ROUT.

Instead of a rainbow with a pot of gold at the end, look for a rout.

That might be one of the best pieces of investment advice one will ever hear. The most recent rout is taking place in emerging market country. You know the names and there are plenty to go around. The International Monetary Fund recently lowered it growth outlook for next year for EMs. 

Like most things in life, however, not everyone agrees. Some followers think there's still more downside out there. They say opportunity is one thing. Waiting for it to materialize once you're invested another.

So do your homework.
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WHAT'S UP

What's up with the recent price of oil?

There's a lot of talk in the media today about fracking, US energy independence, an energy glut and the like.

Sure, there's the trouble in Egypt. Some think it's tacked on a $5 or $10 a barrel risk premium. After pulling back on Thursday to $104.91, it recovered Friday to close at $106.25. Just a few weeks ago oil traded well below $100. 

Some analysts believe $100 a barrel oil is the new norm. At that price oil is still quite a bit above it's 52-week low last November of $84.44. We' ll spare you the spread talk about Brent versus West Texas Intermediate.

Brent crude, so the thinking goes, symbolizes world events while WTI more domestic happenings. At this point the market doesn't view Egypt's internal turmoil a major threat. Could the real message be that despite all the ballyhoo about new domestic supplies and the technological wonders of fracking the market smells something the cheerleaders don't want the rest of us to know?

With the EU economic mess not expected to be repaired anytime soon, a predicted drop off in emerging market growth and the well-publicized China slowdown, one would think it might impact demand.
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WEEKEND BRIEFS

An article in today's Barron's, "Trickle Down Economics," paints a fairly bleak picture for China and the EU.

Citing a just-released study from Stratefor, a geopolitical research firm, the article claims unemployment in periphery EU is now around 27%, even higher than that of the 1930s Depression era. In short, there's much trouble in what once was thought to be the brainchild of EU economic paradise.

Bad news: Serious defaults in EU just ahead and a more repressive dictatorship in China.

Good news: US may be beneficiary.
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                              THE SHILL FACTOR

Webster's defines shill as someone who poses as a customer to influence others to participate in an activity.

When Big Ben Bernanke mid-week rolled out his financial boomerang act, letting God and everyone else know QE's imminent demise has been greatly exaggerated, most major stock indices did a 180 and turned skyward.

And the US greenback, Treasury yields, emerging market equities and even gold turned upward. Some analyst say the move is for real, others aren't buying the turn around. So, to borrow an over-used line from one media popular blowhard: What say you? It's only your money.
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BRIEFS

Some came away bruised. In this case big bond fund gurus, many of whom were caught off  guard when Big Ben spoke a while back about easing off the QE party. But not all of these big boys got hammered.

http://online.wsj.com/article/SB10001424127887324694904578599900117934728.html
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                                                         SURPRISE?
In case you have not been paying attention, with the exception of yesterday, the price of crude is on a run, up 10 of the last 12 days. Global oil demand and higher interest rates should lead to higher future prices. Sure more supply is expected owing to increased discoveries and more fracking.

Both, however, remain subject to uncertainties, trouble in the middle-East and environmental nonsense. OPEC's clout appears on the wane. Global oil flows may soon switch directions,flowing West to East, hardly an insignificant change in more ways than just geopolitical.

Hot money is another. Oil is denominated in dollars. Speculators love it. Higher interest rate usually go with a stronger currency. That could make oil more expensive to many countries, something those EU politicians most likely don't want. Any expected recovery in the US and elsewhere will add to the demand. 

Biofuels as in diluting gasoline may be facing further political pressure as the fuel versus food debate continues to heat up and ethanol additive requirements and transportation costs in the US have led to higher food prices and dealers exporting more energy overseas.   

EU politicians recently voted to curtail the percentage of biofuel required in autos and trucks, a blow to the clean air freaks like Greenpeace and others. The point here is the market and many investors are gearing for one thing with all the excessive energy talk. 

What they get may just be another. Clean air versus economic recovery could prove to be a hard choice for professional bureaucrats and politicos around the world.
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                                  SICKENING 
Jobs are and have been front page MSM stuff for a long while.
Given the shortage of them one would think those who have one would be more grateful. Not so according to this report.

http://blogs.wsj.com/economics/2013/07/10/work-makes-people-miserable/?KEYWORDS=work+makes


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