Optimistic CEO Upside Surprises
It turns out its not just the wealthy who are feeling more optimistic. According to a Bloomberg analysis, more companies are raising earnings forecasts versus those who are cutting them. The gap between the two is as large as its been since Bloomberg began tracking the data.
More U.S. executives than ever are increasing earnings forecasts compared with those lowering them, helped by almost $2 trillion of Federal Reserve spending and a recovery in the global economy.
EBay, UPS, and 196 other companies raised profit estimates above analysts’ projections versus 130 firms that cut them. This is the biggest gap since Bloomberg began tracking the data in 1999.
Companies are raising the outlook for U.S. profits at the same time the Fed is trying to prevent deflation and reduce unemployment by purchasing an additional $600 billion in Treasuries. The last time executives were this optimistic, stocks climbed 39% over the next 3 1/2 years, data compiled by Bloomberg show . . .
Rising international demand for everything from transportation services to tobacco and power tools is helping drive profits at companies such as UPS, Philip Morris International Inc. and Danaher Corp. While forecasts for U.S. gross domestic product in 2011 have fallen to 2.4 percent from 2.9 percent in July, the biggest emerging markets are expected to expand at least twice as fast, based on economist estimates and International Monetary Fund forecasts compiled by Bloomberg.”
Adding to the improved earnings expectations: Consumer borrowing in the U.S. rose in September by the most in two years. Driven by non-revolving credit (i.e., college loans and auto financing).
In fact, the Morgan Stanley Cyclical Index — those businesses most tied to the economy — is up 27% since July 2 versus 20% for the broader S&P500.
The economy continues to slowly improve, much to the consternation of the recessionistas . . .
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Source:
CEOs Most Optimistic on U.S. Profits in Bull Signal
Lynn Thomasson and Whitney Kisling
Bloomberg, Nov. 8 2010
http://noir.bloomberg.com/apps/news?pid=20601109&sid=azIjiOrQyWpw&
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November 8th, 2010 at 7:10 am
What got me off the bench was QE2 and the amounts involved with a firm start and end date, combined with many Fed governors plus BB stating how much they support asset prices as a matter of monetarily policy. This took the tin foil hat off of what many firmly believed but many, including this blog’s host, regarded as only a mere coincidence. Without the Fed openly providing support, it would be easy for them to remove what they never admitted to providing in the first place. Plus, holding back on this open secret made the market an insider’s game and limited full participation due to a reasonable desire for caution.
Agreed that a floor appears to be forming in the real economy and the Fed induced asset inflation is likely to be supported by real value eventually in a build from the bottom process. If no Fed support was available during the recent past, the S&P would probably be charting like 2003 at this time. And yes, there will be another bubble burst eventually.
November 8th, 2010 at 7:35 am
>>The economy continues to slowly improve, much to the consternation of the recessionistas . . .>>
Yep, recent surges in employment should bring unemployment down to normal levels within 10 or 20 years.
I’m sure the promised govt shutdown, if not default, will really held the economy.
November 8th, 2010 at 7:54 am
If you want real depression, read Mish.
Some folks are winning, look at me. I got a part time job that almost pays the mortgage. Green Shoots everywhere.
November 8th, 2010 at 8:12 am
There is something a miss here. If, CEO’S are so optimistic and raising earnings estimates then, why are insiders selling their company shares at a rate that has never been seen before. The gap between CEO’S raising earnings than those that are lowering earnings has not been this wide since 1999 does not sound comforting. If you look back at 1999 you will notice that the market peaked in March of 2000
November 8th, 2010 at 8:44 am
By recessionistas, I am referencing those in the investing community who have denied any chance of economic recovery, thereby mssing a huge 82% rally.
I have written extensively on the dangers of an activist Fed. But now, I am referencing the market reaction to oodles of liquiduty. That, despite the protestations of the amateur polcy wonk corps, is why stocks have blasted off.
November 8th, 2010 at 8:53 am
Barry Ritholtz Says:
November 8th, 2010 at 8:44 am
By recessionistas, I am referencing those in the investing community who have denied any chance of economic recovery, thereby mssing a huge 82% rally.
reply:
————–
Oh, come on. The Fed was part of the same group of massive incompetents who worked hard to blow up the financial world. Pardon us if those of us who aren’t commission based asset managers using OPM waited a bit in order to minimize the chance of losing our life savings due to a bet on an erratic and formerly unstated Fed policy to set a floor in the markets. Plus, a real floor in the economy has probably been formed and is being used as a base of growth. It’s easy to be aggressive and arrogant with OPM.
November 8th, 2010 at 9:14 am
Continued,
There’s also a ton of money yet to be made over the next few years. If my prognostications bear out, I plan to make a bundle over the next 2 or 3 years, convert 90% to cash permanently to live off of (well) until my eventual demise from old age, and keep a reasonably useful (much more than pizza money) hobby acct active thereafter just for grins.
November 8th, 2010 at 9:15 am
recessionistas: One problem is that we don’t know what expectations are built into market prices. If the market expects the apocalypse and gets the merely tragic, it will soar.
Oodles of liquidity can certainly help. Unless the market expects it to lead to bad things. The inflationistas are still out in full force.
In theory, stocks are worth the discounted present value of future cash flows. Lower interest rates means higher present value.
November 8th, 2010 at 9:19 am
“That, despite the protestations of the amateur polcy wonk corps, is why stocks have blasted off.”
––––––––––––––––––––––
Hmmmmm . . . in a corporatocracy, whose financial interests are favored? Earnings are going up? Not from a middle class revenue source they’re not. Not for long, anyway.
Irrational exuberance rears it’s misshapen hydrocephalic head, once again. Talk about flaws in the wetware. The 82% rally could go even higher, but it’s pure gambling for non insiders, at this point (BTW, insiders will take their money off the table and run before the whip comes down). It’s a debt-fueled bubble. Getting in, especially at the bottom, is never a problem. Getting out is going to be another thing altogether.
Remember way back in the olden days in ’o5, ’06, when people used to pity the fools who had missed the housing bubble? Any moron could see that fundamentals no longer mattered.
November 8th, 2010 at 9:27 am
@Barry
“Adding to the improved earnings expectations: Consumer borrowing in the U.S. rose in September by the most in two years. Driven by non-revolving credit (i.e., college loans and auto financing).”
So you now consider an increase in “college loans” as good for the economy. Has it ever occurred to you that this may from many of the unemployed that due to the lack of prospects have decided to go back to school as a way that perhaps they will qualified in the future for something outside their current skills?
Also if CEOs are so optimistic how is it that insiders selling is so high?
November 8th, 2010 at 9:44 am
BR is right. This particular commentary is about the market, not the economy. My 401k performance is based on the stocks I hold, not the U6 rate, foreclosures, or CRE. I’ve been able to boost my 401k to above the pre-recession level because I buy stocks that are poised to make gains. (I come here to help my thinking along those lines.) If I were investing based on U6, I’d be 90% cash and 10% bonds.
November 8th, 2010 at 9:46 am
Excuse me, BR, but how is this any different than the fraudulent housing bubble? If I recall correctly, you constantly excoriated those people who constantly blew smoke up everyone’s ass about it, including the NAR. Do I detect a blind spot in your reasoning as well?
November 8th, 2010 at 9:52 am
I think “recessionistas” don’t want to accept the “recovery” because it vindicates Fed’s and government’s policy actions of the past two years. Who wants to accept the fact that losses can be papered over and our economy drink itself sober?
November 8th, 2010 at 10:14 am
@Mannwich Says:
November 8th, 2010 at 9:46 am
“Excuse me, BR, but how is this any different than the fraudulent housing bubble? ”
He has more money on this. That is what is different… Don’t blame him, however, since one is always to play with the hand given. I wish, however, that he will stop using “make me feel good” reasons for the stock rally and would call it for waht it really is: A FED engineered rally every other “reason” is just BS
November 8th, 2010 at 10:14 am
@tradeking13: I think many of us have accepted by now that the Fed’s been somewhat “successful”, at least temporarily, in their kick-the-can-at-all-costs reflation efforts, but that we’re only creating a bigger problem or problems down the road and probably not that far down that road.
November 8th, 2010 at 10:21 am
Oh, Thank God, consumer borrowing is up! After paying off 3% of their total, consumers are set to borrow some more. So where’s the Commercial lending that creates jobs?
November 8th, 2010 at 10:38 am
What happened to fraudclosure? I was expecting a much bigger mess out of all this than what has played out over the past month.
I second others that the insider selling doesn’t jive with the enthusiasm. Does anyone really believe the Fed can time it right THIS go around?
I’m fine sitting this out – wake me up if/when S&P is around 1,000.
November 8th, 2010 at 11:32 am
I am referencing those in the investing community who have denied any chance of economic recovery, thereby mssing a huge 82% rally.
BR- why weren’t you flipping houses during the housing boom?
Oh- that’s right- it was all fraudulent and was bound to come tumbling down.
November 8th, 2010 at 11:56 am
The NY Fed report issued today shows that the consumer continues to deleverage and not just because of defaults.
NY Fed: Continued Decline in Consumer Debt [CalculatedRisk]
November 8th, 2010 at 11:57 am
BR:
Aren’t a stock market recovery and a economic recovery two different things? And what about those two Republican soon-to-be Governors that killed rail projects in their state(Not to mention Chris Christie’s stupidity, of course)?
November 8th, 2010 at 12:29 pm
Agreed. It is troubling to me that the press equates the Dow or S&P to the “economy.”
This has been going on for a while, abetted by the Wall Street PR departments who churn out press releases on a daily basis and manage the torrent of talking heads for the financial entertainment on cable. I’m not suggesting this is some sort of conspiracy. The firms want press exposure and to control the message and the shows need content. They love and need each other.
Sad for the U.S. though. We see the results: the Fed announces that the economy is so out of control that the only thing it can do is mimic Robert Mugabe and print money to artificially inflate asset prices, and the press reports that it must be a good thing because the Dow went up.
We’re doomed. However, I will agree with BR that if the Fed is going to artificially inflate asset prices, then it makes sense to buy those assets. If Rome is burning, then let’s all be Nero and get some marshmallows and hot dogs.
November 8th, 2010 at 2:04 pm
Interesting read from Hussman — I agree with his analysis, be very careful out there and the FED is definitely out of control and operating outside of its charter and the law…
November 8, 2010
Bubble, Crash, Bubble, Crash, Bubble…
John P. Hussman
http://www.hussmanfunds.com/wmc/wmc101108.htm
November 8th, 2010 at 2:11 pm
slowly improving economy , NOT, slowly improving market , yes.
The bias shows through, the economy is not the market for 90% of peeps.
Even if it is, slowly improving, it will never , at this rate, outrun the next crash.
You can’t have dead real wage growth for 10 years or more and think that is an improving economy.
November 8th, 2010 at 2:13 pm
By the way, if all these CEO types are so wild on the bull , where the hell is the new PRIVATE investment/rd??????? I don’t see it.
November 8th, 2010 at 2:18 pm
[...] Companies continue to raise earnings expectations. (Bloomberg, Big Picture) [...]
November 8th, 2010 at 3:22 pm
The recessionnistas, depressionnistas and their genuflecters in the APWC (amateur policy wonk corps) are learning, like Jerry Jones learned in Green Bay last night, that their belief system doesn’t model the world properly…
…”the Cowboys will be in the Super Bowl” is like “America is a failed financial state.”
APWCers, all that Texas confidence doesn’t amount to a hill of beans in the real world. GOP advertising has fooled you: Insider selling! Rampant inflation! We don’t buy energy and food?! The REAL unemployment rate! House prices down because of Fannie and Freddie! The Evil Fed! Obama’s TARP! Apologist-in-Chief! Socialist! Muslim! Spending millions on a vacation to India!!!
Y’all are Fox News’ emotional bitches.
November 9th, 2010 at 2:30 am
Barry,
The CEO ‘confidence’ doesn’t correlate with decreasing market volume. Can you seriously believe a welfare junkie like a broker/bank rhat gets a shot in the arm (POMO) to jack up the market and pocket some HFT loot is good for the 99% of the economy that most of us live in? You need a vacation. You are starting to believe you can ride this bubble the fed is desperately inflating and get out in time.
I predict that this market is going crash worse than it did back in 2008. Most small investors have left because, as many posters observe here, only the big boys are allowed to play with the monopoly fed bubble money.
Be prudent, Barry. Losing your ass is painful.
Mugabe could pull this shit in Zimbabwe. Bernanke is going to have his ass handed to him for this bullshit that nobody needs and the market addicts/junkies will then have to detox. It’s starting this month.
http://www.oftwominds.com/blog.html
November 9th, 2010 at 3:21 am
Apart from trading decisions — which can be summed up in two nostrums, “Don’t fight the Fed” and “Don’t fight the moving averages” — in my opinion a fascinating, yet woefully ignored story line here is the accelerating balkanization of American society.
Simply put, America is becoming a nation of “winners” and “losers,” with the gap between the two reaching unprecedented levels.
I believe Starbucks recently reported record revenues. I admit to the occasional $4.00 venti nonfat latte, and the line is usually long when I go for one. The folks who can keep SBUX humming along represent the winners, or at least winners mixed in with folks on the brink but still maintaining access to cash.
At the same time, you have a whole American underclass whose plight is silent and desperate. These people were never really a major part of the spending equation so Wall Street never really cared about them. Their growing pain is remarkable mainly for its absence in the earnings reports of discretionary indulgence outfits like Chipotle Mexican Grill or LuluLemon Athletica.
And yet that pain is real, and it is growing. My god, look at what QE2 has already done to commodities. Talk about a hit discretionary income hit for the financially strapped (who can’t opt out of gas and groceries). Talk about margin compression at the lower levels.
Then look at that graphic BR recently posted on corporations avoiding tax hits through the “double Irish,” a perfect foil for this phenomenon. Even as America’s invisible and ignored poor are being screwed on the cost side by QE, rich corporations are making hay and buying back stock and selling bonds at 1%… and doing it all at a tax rate comparable to what minimum wage earners pay.
I’m a trader, not a populist. And speaking as such I’m happy to get out there and ride these trends. But still, doesn’t it just make sense to step back for a second and say “My god, what the hell is happening to our country?” I mean how can this go on?
Speaking as a capitalist, I say making money via legal means is all well and good. But as a citizen, I can’t help marvel at the utter destruction unfolding before us.
In the movie “Ransom,” Gary Sinise plays the psychotic cop who kidnaps Mel Gibson’s kid. At one point Sinise gives a class-themed speech to the rich mogul Gibson about the “Morlocks and the Eloi” from the H.G. Wells story. Morlocks are sub-humanoid creatures forced to live underground, while the Eloi live aboveground. Every once in a while a Morlock comes up and grabs an Eloi for dinner.
I can’t help but think that, with the encouragement of Wall Street and the complicity of Washington, America is turning into a country of Morlocks and Eloi. Tens of millions of people are being railroaded into a futureless wasteland, marked by government subistence, lack of hope, and lack of dignity, and yet nobody really gives a shit because these people are invisible — below grounders, like the Morlocks — and don’t show up in the earnings reports or the indexes.