Last week U.K. scientists determined which came first: the chicken or the egg? They claim it was the chicken. But the Wall Street version is which comes first Sales or Jobs is still open. Consumers don’t want to spend because they don’t feel comfortable about the future, specifically the economy and their job; companies won’t expand – add to plants, spend on capital expenditure, hire workers (full or part time, even extending hours) until their sales pick up. From the company’s viewpoint, why invest to produce more when you aren’t even selling everything you are making now, especially if their earnings are doing well (not to mention they have more cash on hand then at anytime in history). From the consumer’s side, even those who feel secure with their job are watching their bottom line, and money remains tight (and don’t even look at your retirement holdings or benefits). So how do you break the downward cycle of ‘I won’t spend’ therefore ‘I won’t build’? For starters there were the jump start stimulus programs. But here we are trillions later and no jobs. Maybe it would have been worse, maybe we just need more stimuli or maybe we’re just feeding a junkie. Pick a theory, stand at Broad and Wall and preach it. But whatever we’re doing, wherever we are in the process, it hasn’t worked yet, and Americans aren’t known for their patience. So if we don’t start to see some actual improvements soon the tie goes to the down side, and time is not on our side. I’m not looking for a home run, just someone on base would be nice – something to root for.

The above commentary is mine of course, and not part of my earnings review below, but the two do appear to be blending. Maybe I need to step back and look for bias in my reporting, or maybe a 38% increase in earnings isn’t the whole story.

As of last night we had 24.9% of the Q2 earnings reported. So far, the Q2 2010 earnings results are encouraging at first glance. Based on the issues that have actually reported, earnings are 14.5% ahead of estimates, with 65.8% of the issues beating their estimate. Sales, however, are a different story. While 73.4% of the issues have beaten their sales estimate, the “beat” is only slight, with the overall aggregate sales coming in 4.4% ahead of estimates – far less than the 14.5% for earnings. The earning growth over last year’s Q2 2009 is equally impressive, with earnings 38.4% ahead (excluding Citigroup which had a massive loss last year), but sales are a disappointing 6.7% ahead. Anyway you cut it – sales just aren’t cutting it.

I believe comparisons should focus on quarter-over-quarter results to determine the recovery’s progress, as well as the underlying momentum of the economy. And since I believe jobs are number one, and given that companies are generally in good financial shape with excess cash so they can ride out any short term disruption, I look to sales as a future indicator. On this basis, earnings are running ahead of Q1 2010, but sales are flat, and that’s the problem. It’s great that companies have improving earnings, but those improvements are due to high margins, which were the product of cost cuts – specifically job reductions, the very thing that we need to improve now. Until companies and consumers start to spend more, the job front will not get better, but they won’t spend more until they believe things are getting better. The stimulus programs were suppose to jump start the economy and break the downward cycle by convincing both groups that better times were here. But so far we’re not seeing the sales or the jobs; but earnings are good, at least for now.

Original source for this article: Business Week

The market opened the week with little action and sectors trading on their own merits. Tuesday, however, is when the turmoil began, and grew as the week progressed. The accumulating concerns over growth, currencies and debt, combined with current statistics on jobs, the impact of the falling Euro, and new potential financial regulation, to over whelm investors, institutions and hedge funds. In comparison to the Flash Crash, selling was controlled, but the lack of both new money stepping in to buy and little bottom fishing, was no match for the selling, with the market declining 3.90% on Thursday. Friday saw the market open lower, but quickly reversed itself within the first hour and half, as some buyers came back into the market, and the day ending with a 1.50% gain. It was an encouraging close, given that investors typically close out positions over the weekend, and therefore depress prices near the close, but in this case the last half-hour of trading saw the market go up. The damage however was done, and the week ended off 4.23%, with only 39 issues advancing. The loss of 10.65% from the April 23 high now classifies this as the first official correction of the current Bull market, which began on March 9, 2009 (a correction is defined as a 10% decline from the previous high, based on the close). The expected slower growth and stronger US Dollar continued to push down oil, which closed at US $70, a 20% decline from the $87 April month-end close. The lower oil cost will help keep US inflation low, and keep product costs lower (especially for imported Euro component parts), as well as keep gasoline prices down for consumers. Gold, one of the traditional alternatives in declining markets, pulled back to 1178, after running up to 1231 last week, as U.S. Treasures emerged as the flight-to-safety preference. Other news served more as background items, sometimes sparking market reactions, including a poor first-time jobs claim report, an FDIC report that 10% of U.S. banks are classified as troubled, an escalated estimate of the Gulf of Mexico oil spill’s economic and ecological damage, and the likelihood of additional regulatory limits on banking activities. There were positive items as equity analysts increased their 2010 earnings estimates, corporate capital expenditures picked up, and surveys showed that more companies planned to hire this year. Uncertainty, appreciation for risk, and protecting profits, however, ruled the market this week, and most likely will continue to do so for a while.

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Original source for this article: Business Week

Andrew Snyder (Today’s Financial News):

Get ready for Stimulus Version 2.0. With unemployment in double-digit territory, credit still tight and consumers refusing to part with their cash, it’s obvious Washington’s first bailout did nothing but put the nation even further in debt and give China an even larger stake of the country’s financial future.

Instead of stepping back and searching for a viable solution (if there is any), Obama is jumping right back into the stimulus game.

But of course, the word stimulus is nowhere to be found. This is a jobs program.

Sure, it contains another $50 billion for roads, bridges and water projects… just like the first version.

Sure, green energy and “weatherization” is a strategic focus… just like the first version.

And of course, it promises to boost hiring across the country… just like the first version.

Unfortunately, we all know Stimulus Version 1.0 was a big, fat flop. It cost the nation nearly a trillion dollars, has put our triple-A credit rating at risk and, worst of all, was managed worse than the Detroit Lions.

Now, they want to do it again.

Well, Mr. President, when it comes to my hard-earned tax dollars, you don’t get a mulligan. There are no do-overs in the world of global economics. You do or you die.

The fact that $200 billion worth of TARP money is at stake is what scares me the most. It portrays this government’s reckless abandonment of the law. (Never mind the fact that some two-thirds of the original stimulus is still warming in some apparently forgotten account).

Lest we forget what TARP stands for: Troubled Asset Relief Program, not give a penny, take a penny.

Finally… the dollar. After a couple of weeks of doing his best to reassure China and other lenders that our national debt was not spiraling out of control, Obama is talking out the other side of his mouth today.

In his speech earlier today, the President said, “We are going to have to spend our way out of this recession.”

In the same speech he promised tax cuts for small businesses, an elimination of loan fees and – I can’t believe I am going to write this – the creation of a “Cash for Caulkers” program.

That can’t be good news for the dollar’s recent rally.

But really, the dollar story comes down to one thing, and it has nothing to do with politics or government programs. We all know the economy will naturally heal itself. Much of the progress Obama is claiming as his own is a result of this natural process.

If you think the American economy will strengthen on its own over the next year, you’re a dollar bull. If you think Obama’s spending will outweigh any economic growth, you’re a bear.

As for me, I’m a fan of the cycle. The hot-air machine in Washington can do whatever it can get away with and the natural economy won’t sway in one direction or the other.

We’re in a cyclical recovery and that’s good for the dollar. Unfortunately, as I said on Friday, that’s not good for the equities market.

It’s times like these it pays to be a contrarian.

Original source for this article: Contrarian Profits