The Game Doesn't Start Until the 4th Quarter

Don't be confused by these not quite as bad as expected earnings. I mean, Wachovia just lost $24 billion in one quarter, but this should've been expected, right? We've seen this ugly pattern over the last year now where earnings have been horrible, but on occasion, slightly better than the lowest possible projections, so they've been viewed in a positive light. Remember when earnings were supposed to grow? Now we're getting excited by $3 billion quarterly losses. Step back and think for a moment if that makes any sense.



Keep in mind, the peak of the credit crunch occurred as most companies were winding down their 3rd quarter, not throughout. Ditto the Lehman collapse. Ditto the impending layoffs at Best Buy, GM, Merrill, Yahoo, on and on. So don't think all of the dire news is "baked in" to stock prices already as the MSM would have you believe. As a matter of fact, it's going to get much worse....



Let's review. 30-year mortgages went up to 6.75% last week, the highest in years despite all of our government's interference. Wal-Mart announced yesterday that the "paycheck cycle" has become even more pronounced in the twice-monthly buying cycle. "In a "disturbing" trend, Castro-Wright (president and chief executive of the Wal-Mart's U.S. operations) said Wal-Mart for the first time is seeing a paycheck-related spike in sales of baby formula, suggesting consumers are rushing to buy such necessities as soon as they have the cash." Furthermore, "he said credit used as a form of payment at Wal-Mart is falling and that the decline is expected to reach into the double digits this year." If people don't have credit to use at Wal-Mart, do you think they'll have any to use elsewhere? How does that bode for retailers and holiday shopping? Ouch.



Even companies such as Colgate have had price-increase strategies backfire on them as consumers have rapidly shifted to generic brands. This trend will only continue on a grander scale.



As credit diminishes and consumers save (imagine that, Americans saving), this will only increase the recessionary effect. ``If we did have a quick cut in spending, it could turn a pretty nasty recession into possibly the worst downturn we've seen in the postwar period,'' says Michael Feroli, a former Federal Reserve official now at JPMorgan Chase & Co. in New York. Even without a collapse of consumer spending, Feroli expects the economy to contract by 2 percent in both this quarter and the next."



Those hedge fund redemptions we talked about? You haven't seen the full power yet, but it's coming. "Hedge funds saw a record $210 billion drop in assets under management during the third quarter as investors redeemed an unprecedented amount of money from the industry after poor performance." So before you rush into those long-term plays, wait for the next leg down. Todd Harrison of Minyanville, who also reserves the right to change his mind frequently, did note, "Of the 36 times the S&P has rallied 6% in a single session over the last eighty years, 32 occurred between 1929 and 1933. History doesn't always repeat but we would be wise to remember the prevailing trend during those daunting years." Keep that in mind when trying to decide if an 11% upday was "capitulation" and if that's something that even matters.....



http://www.marketwatch.com/news/story/hedge-funds-assets-off-210/story.aspx?guid=%7BB179F492%2D7C5E%2D429C%2D8C5B%2DC589DE5DCA60%7D



http://www.bloomberg.com/apps/news?pid=20601109&sid=axsUMrc.liiE&refer=home



http://www.reuters.com/article/ousiv/idUSTRE49K94K20081021



http://www.marketwatch.com/news/story/bear-trap-other-side-trade/story.aspx?guid=%7B325F9E10%2D8FA2%2D4367%2D8841%2DDA9E7BD9ABAB%7D