Stocks & Equities

Nine Takeaways From Earnings Season

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Posted by Zerohedge.com

on Saturday, 05 May 2012 09:28

With earnings season now virtually over, it is time to ask why, despite a majority of the companies beating expectations, is the S&P inline with where it was when earnings season started. There are two main reasons why the market has not been impressed: the percentage of "beaters" is nothing spectacular on a historical basis as was shown previously, especially in the aftermath of aggressive cuts to Q1 top and bottom line forecasts heading into earnings reports; more importantly, even with Q1 earning coming out as they did, the bulk of the legwork still remains in the "hockeystick" boost to the bottom line that is completely Q4 2012 loaded, as bottom up consensus revisions to the rest of 2012 are negative despite Q1 beats. As Goldman summarizes: "1Q 2012 will establish a new earnings peak of $98 on a trailing-four-quarter basis. With 88% of S&P 500 market cap reported, 1Q EPS is tracking at $24.10, 1% above consensus estimates at the start of reporting season and reflecting 7% year/year growth." So far, so good. And yet, "Despite the positive surprises, full-year 2012 EPS estimates are unchanged relative to the start of earnings season, and currently stand at $105 vs. our top-down forecast of $100. Over half of consensus 2012 earnings growth is attributed to 4Q. Margins at 8.8% have hovered near peak levels for a year, but consensus expects a sudden jump in 4Q to a new peak of 9.1%. We forecast a further decline to 8.7%."

As a reminder Q4 is when all the unanswered questions are expected to clash violently: to NEW QE or not to NEW QE, the "5% of GDP" fiscal cliff, US elections and the 18th National Congress of China, the debt ceiling, and not to mention Europe which will be there all along. And let's not forget Apple: "Apple is likely to be the top contributor to S&P 500 EPS this
quarter. Exxon (XOM) had been the top S&P 500 EPS contributor since
2003, but Apple surpassed it last quarter." If something happens to the coolness factor of AAPL, watch out below. Hopefully margins will somehow find a way to boost themselves to all time records among all this uncertainty.

Going back to Goldman, here are the firm's nine takeaways from Earnings Season:

A total of 421 firms in the S&P 500 have now released 1Q 2012 results representing 88% of the equity cap. Below we highlight 9 takeaways:

1. More surprises than average. The percentage of firms beating consensus EPS expectations by more than one standard deviation (our definition of a positive surprise) exceeds the historical average. The number of firms missing by more than one standard deviation is in-line with the average. Of the 421 firms that have announced results this quarter, 42% of firms beat expectations and 13% have missed. The ten year historical average of beat and misses equals 40% and 13%, respectively (see Exhibit 1).

2. Earnings above expectations. 1Q EPS is tracking 1% above the consensus estimate at the start of reporting season, $24.10 vs. $23.88 (see Exhibit 2). The median surprise over the past ten years has been 1.8%. The 1Q estimate fell by 3% between the start of the 4Q 2011 reporting season in mid-January and the start of the 1Q 2012 season in early April, which aided the level of surprise. Accounting differences between adjusted and operating results for PRU and PFE reduced aggregate earnings level.


Goldman Earnings 1


Stocks & Equities

Juniors vs. Senior Mining Stocks

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Posted by P Radomski

on Friday, 04 May 2012 10:38

One of the questions that we receive on a regular basis is whether one should invest in junior or senior mining stocks. The answer is that diversification is the way to go, but that's not the full reply as weights in the diversified portfolio can still favor either juniors or senior stocks.

The reply to this question depends on when the question is asked - there are times when juniors outperform and there are times when they underperform the senior mining stocks. Before providing you with a chart of the junior-senior ratio, let's take a closer look at the situation in the general stock market, ale the latter is highly correlated with juniors in the long term (charts courtesy by http://stockcharts.com.)

$SPX (S&P 500 Large Cap Index) INDX

25315 a

In the long-term S&P 500 Index chart, we have much the same outlook as we saw last week. The recent correction appears quite similar to the one of 2010 and the consolidation seen in RSI levels is also similar. Back then, prices rose nearly 15% in about three months following the small correction. Self-similar patterns (like this one) are quite reliable, so at this point, stocks appear ready to move higher.



Stocks & Equities

Seek a Black Swan, and ye shall find? Nah – no worries ...

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Posted by Jack Crooks

on Thursday, 03 May 2012 08:45

“Instead of looking for opportunities to invest in real products, Wall Street awaits the minutes of each Federal Open Market Committee meeting with bated breath, hoping that QE3 and QE4 are just around the corner.”

-          Ron Paul

There have been bouts of risk aversion over the last few years – some sustained, most not; but all unquestionably due.

We understand that the final arbiter is price, regardless of what the fundamentals suggest about an investment or underlying economy. But it’s hard to maintain such necessary agnosticism when the news is so consistently bad.

And therein lays the problem – consistency.

One might instead use the term "mindless recitation," but the steady -- consistent -- dose of 'bad' has rarely spooked investors (those still playing, anyway). Sure, a confluence of 'bad' has served to ruffle feathers periodically, but, ultimately, the markets continue chugging along because we always know ‘just how bad’ or ‘just how good.’ For as long as everyone knows what’s going on, the cause for worry is diminished. Why? Because investors rationalize their above average, selective stock-picking ability and fabricate a false sense of security (trading bias) which, in a self-reinforcing sort of way, creates the apparent absence of uncertainty.

Bringing the black swan concept into this, analysts have sought to uncover potential risks that would bring on massive shocks to the markets; it’s become a well-tred path to popularity and influence in the investment world since 2008. But, by definition, predicting a black swan event is impossible.

As we move further and further away from the credit crisis of 2008, and as we are further desensitized to the words ‘bad’ and ‘worse’ by government and central bank officials’ action, investors seek out risky investments because they have not found a black swan (and, because of the low interest rate background, nothing else pays.)




Stocks & Equities

Rick Rule on Contrarian Speculation

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Posted by Rick Rule Interviewed by Louis James

on Wednesday, 02 May 2012 13:49

Dear Readers,

We are just back from the Recovery Reality Check Summit, which was very informative as well as thought-provoking. We took some time while there to chat with a few of our speakers after their presentations and will be sharing them here over the next few weeks.

Our first conversation is with Rick Rule, the legendary resource speculator. He gives us a powerful primer on being a contrarian speculator, which may help bolster some discipline in the current market climate. We hope you enjoy this presentation.


Louis James, Senior Metals Investment Strategist
Casey Research

[Rick was one of 31 esteemed financial experts featured at the Casey Research Recovery Reality Check Summit, where attendees heard three days' worth of illuminating takes on the economy, spirited debate over where it's headed, and a wealth of actionable investment advice. Even if you couldn't make it, you can still hear every recorded session with our soon-to-be released Summit Audio Collection.]

(Interviewed by Louis James, Editor, Casey International Speculator)

Louis James: Ladies and gentlemen, welcome. Thank you very much for tuning in. We are at the Casey Research Summit – the reality check on the recovery of the economy. One of our luminary speakers who is always at our events, Rick Rule, is with us here now. We'd like you to give us the quick tour of your talk today and we'll go from there.

Rick Rule: Sure. My role here wasn't to do economics; that's not what I am. I am a speculator, and so I talked about where we are in the context of where people are with their own portfolios – in particular portfolios that are junior-resource centric – which is what I think most of your audience was interested in.

Louis: Right.

Rick: And my point was that there were some good forces in the market: lots of cash on the sidelines; some good work being done; and basically a good market for resources as a consequence both of population growth and demographic growth at the bottom of the economic pyramid, and in terms of historical supply constraints. And there were some bad factors in the market: excessive debt in the system; way too much government interference; very large social takes on a global basis, beginning to impact extractive industries. And there were some truly ugly factors – the ugly factors in particular being poor corporate as opposed to share market performance, and the unfortunate truth that probably 80% of the junior resource stocks on a global basis are valueless. So the sector itself is in perma-decline. Although the performance – as you know from being affiliated with Casey – of the top 10% of the sector can be extraordinary. It often serves merely to focus attention on the worst companies in the sector. And then I went on to say: "This is the set of circumstances that exists, now what can we do with this?"

The fact that the market has fallen, by some estimates, by half suggests by other estimates that the market is approximately half as risky as it used to be. Price has taken care of some of the risk that existed in the market before.

The second factor that we need to take into account on a going-forward basis is the fact that the industry itself didn't finance as aggressively last year as they did the year before, but although they didn't raise new capital, they didn't stop spending. I call this financial roulette. The issuers are engaged in this rather circular exercise, which is very risky: They're spending money to attempt to get results, to generate excitement, to raise their share price, to raise money. So they're spending money to raise money, which is a very, very risky strategy.

Most of the issuers will need to come back to market this year, and they're coming into a market that's in total disarray. The buyers that existed for the last 10 years – the small hedge funds and the open-ended hedge funds – are facing massive redemptions as we speak, so rather than being a source of new capital, they're a source of the selling that you see weighing down the market. We are going to have to, as investors, invest with a view to a different buyer on a going-forward basis, and the companies who are issuing equity are going to have to find a different class of buyer for the new financing. So we're in a time of real change and real turmoil – and hence a time of real opportunity.

My suspicion is that with so many issuers having to access the market and so few market participants that have the capability of differentiating between good and bad issuers, that just as the bad issuers were swept up with the good issuers in 2010, the good issuers are being swept out with the bad issuers in 2012. It's my supposition that for investors who are willing to work hard, take advice, and segregate viciously in terms of allocation of capital, that this will be the best private-placement investment period that we have enjoyed since 2002.

To Read More or Watch the Video CLICK HERE



Stocks & Equities

U.S. Consumers: Still Key to the Outlook

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Posted by John Mauldin

on Tuesday, 01 May 2012 11:24

What I like most about Gary Shilling's economic analysis is that it's thorough. In the piece that follows – an excerpt from Gary's monthly INSIGHT – he ranges from the importance of US consumer spending and the unemployment rate, to the actions of the Fed, to business cost cutting and productivity, to the housing crisis and household debt, to state and local government fiscal issues, to US exports – Etc.! So by time he gets ready to deliver conclusions, you know they're well-supported. And Gary's overall conclusion here, regarding the rest of 2012, is a strong one and maybe not quite what you'd expect.

As part of the deal with Gary to send you his material, he has asked me to offer you the chance to subscribe to his letter. If you like his work as much as I do, I suggest you consider it. Outside the Box readers can subscribe to INSIGHT for the special rate of $275, and you'll receive 13 reports instead of the normal 12, plus a free 10-page Special Report outlining Gary Shilling's investment strategies for 2012. (This offer is available to NEW subscribers only.) To subscribe, call them at 1-888-346-7444 or 973-467-0070, and be sure to mention Outside the Box to receive your special rate and free report.

Your home at last but not for long analyst,

John Mauldin, Editor
Outside the Box


U.S. Consumers: Still Key to the Outlook

(Excerpted from the April 2012 edition of A. Gary Shilling's INSIGHT)

In the Dec. 2011 issue of my Insight newsletter, I wrote: "In the U.S., major new fiscal stimulus is on hold, and monetary policy is impotent. State and local spending, housing, inventory investment, capital equipment investment and commercial construction are likely to remain subdued. U.S. exports are curtailed by sluggish foreign economies. So U.S. growth in 2012 will be decided by consumer spending, 71% of GDP. With declining real wages and incomes and low confidence, continuing strength in outlays is unlikely. A 2012 U.S. recession is probable, but milder than the 2007-2009 nosedive, unless another financial crisis unfolds."
Four Months Later

Well, here we are, four months later. Do the economy and financial markets in the ensuing times substantiate our forecast? The chorus of bullish investors bellows, "No!" as they point to the 29% rise in the S&P 500 index from its October 2011 low (Chart 1). They even believe that a continued sluggish economy is good news.




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