The New Mantra...The economy doesn't matter

DJIA 10209 +10.97 VIX 24.52 -.46 Mikey Overbought/oversold index
Overbought/Oversold (1-100, 20<=oversold, >80=overbought) 62
Gold 1199.10 -10.70 Oil 74.15 -.95 US Dollar 84.44 +.29

I said in my July 7th blog if the news is bad and you need a rally just make something up. This is what they made up:

Many Americans are still waiting for an economic recovery. But for corporate America, a recovery of sorts is already at hand.

The corporate earnings season, that quarterly rite of Wall Street, begins in earnest on Monday, and investors are hoping for some good news. Major corporations are expected to report some of their strongest profits in years.

“It has been one of the strongest profits recoveries ever,” said David S. Bianco, chief United States equity strategist for Bank of America Merrill Lynch. “You have got to go back to the Depression to find a profits recovery that outpaces this one.”

The question on many economists’ minds is whether this corporate recovery will last — and if it does, when it will yield jobs for recession-weary Americans.

This week, corporate bellwethers like Alcoa [AA 10.85 -0.09 (-0.82%) ], Google [GOOG 476.98 9.49 (+2.03%) ], JPMorgan Chase [JPM 39.212 0.362 (+0.93%) ] and Intel [INTC 20.5675 0.3275 (+1.62%) ] are scheduled to report second-quarter results. While earnings will vary by company and industry, economists say that, taken together, the reports will point to some bright spots for the economy, as well as to some enduring obstacles.

Since profits plunged in late 2008, along with the economy, earnings have been increasing fairly steadily for many companies, partly because they have been coming off such a low base.

For the second quarter, earnings per share for companies whose stocks are included in the Standard and Poor’s 500-stock index are expected to have expanded 25 to 30 percent from the same period a year earlier. If the results beat analysts’ expectations, they could add fuel to the nascent rally in the stock market, bolster the pace of the economic recovery and possibly hint at what many Americans hope for the most: a return to hiring.

But analysts say they also believe that now, perhaps more than at any other time since 2008, the numbers will be only part of the story. Many investors will comb the results for clues about where corporate executives think their businesses, and by extension, the broader economy, will go from here.

How will companies weather the expiration of the federal stimulus program and tax cuts? How will they deal with the running financial crisis in Europe? What about exports and the looming midterm elections?

For now, the view from the corner office looks quite different than the view from the street corner.

“You are going to hear outlooks from companies that are more upbeat than the sentiments you are going to get from workers and households,” Mr. Bianco said.

So far, the rebound in corporate profits has not translated into a rebound in jobs. Many companies have cut costs and increased productivity. Manufacturers have mothballed plants and equipment. Consumers remain anxious.

With earnings reports looming, the stock market rose for the fourth consecutive day on Friday, rounding out its strongest week this year.

Economists said many investors would examine the business outlooks that companies provide even more than those companies’ income statements. The question is whether companies expect to expand and hire, or instead seem to be bracing for a double-dip recession.

“Investors look through the front window more than the rearview windows,” said David A. Rosenberg, the chief economist for Gluskin Sheff.


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What they are saying is don't pay attention to the economic numbers look at the corporate earnings and the outlook. They say that the rest will take care of itself. They are saying trust us we know what we are doing. Like I said in my last blog the economy is good if your earnings are good. The heck with the rest of you.

I am starting my version of an overbought/oversold index. Generally, when that index is 80 or higher and is falls below 65 I will be looking to add on shorts. When the index is 20 or lower and rises above 35 I will be looking for longs or covering shorts.

Mikey