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Earnings season begins today with Alcoa reporting after the close. In general, earnings have been revised downward giving much easier targets to hit. At the end of the third quarter last year, S&P 500 companies were expected to earn over 14% on average for the 4th quarter. That hurdle has been lowered to just over 6%. This allows the headline to read that a company exceeded their expectation causing widespread elation in the markets, while in reality, they were well under their expectation less than three months ago.
The U.S. economy is the bright spot in world news. I guess it is all relative. European leaders are planning a new get together this month. It seems the financial grease allocated to Greece isn't stopping the squeaking. Gemany and France are placing more warnings telling the problem child to stop crying and shape up - or else. European banks are arguing as to whether the write downs they will be foreced to take can be covered by the insurance they took out on them (Credit Default Swaps). Without going into a full dissertation, these CDS's are probably going to be the domino that brings the other dominos down. I wrote a month or two ago about the CDS problem. Banks write this insurance for other banks. The same banks that have 1 dollar of assets for the 40 dollars of debt. If these banks have to start paying out insurance claims on sovereign debt losses, the cookie may begin to crumble. We will be watching the earnings season closely and adjusting portfolios accordingly. Please read this week'sbreifing to keep up to date with our views on the market.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Monday, January 9, 2012
Let The Earnings Begin
Moderately Aggressive Model
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