A New Earnings Season: What Will The Stock Market Do Next.
We are coming up to a new earnings season and what will we expect?
From our perspective: good sound earnings and even higher earnings. Look at the following graph and see yourself how corporate profits dipped in the year 2008/2009,by the melt down of the subprime mortgage crisis and now are back up, higher than ever.
Let us simplify the earnings statement of corporate America into: Sales – Costs – Depreciation = Earnings and we clearly see that the fall in corporate earnings was majorly driven by Depreciations of overstated earnings made in the years 2005 to 2008. Surely in the aftermath we all felt a slowing economy which meant less sales, but America restructured and coped with the challenge and now is back to lead the world in earnings.
What happened?
Sales stayed about the same and there were no more depreciations and costs: labor. got adjusted. As a result, corporate America makes more money than ever.
America got more efficient the productivity per capita employed went up tremendously. But this also means that we might need to live with a 10% unemployment rate as it is a given for 30 years in Europe for example.
Now corporate America shifted employment to the government and the government has the issue of how to finance the major shift of employment to unemployment.
When we look at the Federal or State balance sheet we simplify into: Taxes – Costs = Available Budget. With more unemployment the factor cost increased over proportionately. So far all stimulus programs did not work to reduce unemployment and with that the cost factor and a potential restructuring of the taxation system to produce more income might be needed.
This sure will create an outcry, but read me right, I am not saying that I want higher taxes, I am saying that the budgets do not hold, because of the increase of unemployment costs and the government will come to a point where printing more money for deficit spending has to come to an end.
So what will come next? Let us take a look at Europe, most of their countries are used to deal with unemployment rates of 10-12% for the last 30 years and what programs they have in place to survive:
Government funded general healthcare is a given: rich countries care about the health of their people. To administer such Europeans regulate the earnings of healthcare providers and in average they come up as 1/3 of what America pays with little to no difference in service. This for sure is a huge political issue, but would it not be a shame if the richest country in the world people have to die if they have no insurance? Sure, I know the argument that they should find a job, but if there is no job to be found, what to do?
Another wildfire, America might need a restructuring of the taxation system to make more income to cover the government spending. in a short comparison:
- Federal Tax: About the same in Europe.
- State Tax: Europeans usually have one federal tax and allocate state taxes.
- Municipal Taxes: The do not exist and when I am looking at the North-East of the United States, a lot of money is brought in and wasted.
- Value Added Tax: Europeans charge about 12% more and fund municipalities and states from the local accrued value added tax.
What does all that mean for the financial markets?
We will have great earnings reports one day and depressing jobless claims the next and by that we assume for the next – hold on to a rail – 5 to 10 YEARS we predict ping pong financial market, with short spikes up and down till the issues above are solved. The market drivers are:
Corporate America is back, and it's more profitable than ever. You might not believe the graph above, but these are actual earnings and not planned profits. When those earnings reports come out the market will: spike up.
The Government has its biggest deficit problem ever and every time they will touch one of the instruments to solve the issue, the stock market will go berserk and fall out of the skies. For now the Fed’s only choice is to print more money to be able to make it into the next election period which will put some short term pressure on the US-Dollar, make the Euro and the stock market rise for short.
If the government makes it to the next election period: Imagine a regulated health care program which would put the second biggest sector in the S&P 500 (Health Care) under pressure in earnings – and the markets will do like Humpty Dumpty.
Another hot potato, Restructuring of taxes with higher corporate and capital gain taxes. All sectors and in particular the Financial sector will make a real slump.
Corporate America is not the world for granted and will deal splendidly with all those changes and come back to make even more earnings to allow for relief and spikes up. On the other side, the short term sentiment usually runs the financial markets into the grounds and each time another depressing unemployment report comes out, we are there again.
In the turbulent times ahead of us, we can only recommend for people who want to achieve a positive outcome for their lives, to learn to be a FINANCIAL MARKET INVESTOR which entails:
- Forget buy and hold
- Learn how to leverage and protect your assets
NeverLossTrading.com is prepared to teach you to deal your money in up-, down- or sideways markets. Our key slogan is:
3 days to financial freedom - and we mean it.
Learn the instruments and investment methods that will keep you above water in the turbulent times ahead of us. You sure do not want to put 60% of your hard earned retirement money at risk.
Why do we tell here forget buy and hold? Isn’t the whole 401 (k) and our retirement build on it?
Yes, but it will not work anymore and here is the reason why: The S&P 500 (500 biggest companies by market capitalization) did not grow in the last 10 years and mostly will not do much in the next 10 years. Let us pick an example of one of the most recognized and well know companies out of the S&P 500: MSFT – Microsoft Corp. Had we invested since the year 2000 a monthly amount of $100 into Microsoft shares we would own 473 Shares today and their today’s value would be: $11,011 while we had invested: $12,658. This is a minus 13% return on our investment over 10 years and not the doubling of investments in 7 years that were anticipated.
We want to help people to get out of this financial trap.
For now we only teach small groups of people (up to 20 and by appointment only) so we can get our message across, even though we should talk to a filled Madison Square Garden to make obvious that it is our individual responsibility to obtain financial market knowledge that gets us into financially safe future.
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