This market has to go backwards

stocksontheblock, I think you are generally misinterpreting the stockmarket for the economy.

kennas said:

stocksontheblock, I think you are generally misinterpreting the stockmarket for the economy.

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Very good post. As many others have said, the stockmarket is more of a forward looking 'prediction' mechanism in the longer term. It prices what it thinks will happen, not what does, or 'should' happen.

The economy is what does happen, but the figures are on ever lagging due to the nature of the reporting.

stocksontheblock said:

I would also suggest that these companies are not, "generate a consistent profit at the new demand level" as you suggested. My whole point about the lastest reporting season is that they have excess cash yet they have not generated or provided a new level of profit based on their products, the 'profit' is based on cost cutting, which is very different. If sales had stayed equal or increased then you would be right, however they have declined - possibly not in line with cost cutting, hence cutting outweights sales and sales - as a headline figure look better than what they are.

I completely agree. Great statement, however are these 'profit reports' really PROFIT's, or just excess cash from cutting/scaling back so much, and not driven by real sales. Thats my whole point in starting this thread, I cant see - with much of the market - how this is a sales driven profit, its a cost cutting driven profit?!?!

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Do you think that instos that pour million after million into the market (and as has been pointed out are the ones that move the market) do not know this?

What you are not taking into account in your lagging view is the room for improved revenue.

Yes, the profits have exceeded expectations mainly on running tighter ships but that is in the past.

The market is clearly looking forward and seeing businesses running leaner and with the possibility of an improvement in economic conditions, as many indicators GLOBALLY are pointing to, as the next expectation for revenue growth.

Aussiest said:

But surely if earnings stay the same for next qtr or two, market keeps going up because results "exceed expectations", we can't keep trading on expectations? In other words, are we creating a bubble by trading on expectations - if earnings do not improve significantly over the next 12 months?

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Yep and perfectly summed up....just look at some of the dividend yields, buying at today's prices...its woeful EG : CSR under 2% TOL under 3.5% MQG under 1%, not to mention most of the real estate stocks that have simply stopped paying them.

This is doing the rounds via email here..

"post the initial crash of 1929-1930 equity rally lasted 147 days and the market was up 46% from it's low before the apocalypse kicked everyone in the teeth and we went to the all time low! Now we're 145 days off the March 6th low this year and the market is up 46%..."

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So_Cynical said:

Yep and perfectly summed up....just look at some of the dividend yields, buying at today's prices...its woeful EG : CSR under 2% TOL under 3.5% MQG under 1%, not to mention most of the real estate stocks that have simply stopped paying them.

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Where did those yields come from? E-trade has MQG with a div yield of 4.3% with 60% franking.

Julia said:

Where did those yields come from? E-trade has MQG with a div yield of 4.3% with 60% franking.

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I'm simply assuming the last dividend will be carried forward....goes for anything in life, your
only ever as good as what u did last.

MQG closed today at 44.02 last divi was 40c...annualized that 80 cents per year for a return
of under 1.9% ~ sorry for the miscalculation...maths is not my strong point.

tech/a said:

Of course it is.
Software has even been developed to attempt to track the big players.
Works well.

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Are you talking about tradeguider?

If so, I think you misunderstand what I am talking about.

Real1ty said:

Do you think that instos that pour million after million into the market (and as has been pointed out are the ones that move the market) do not know this?

What you are not taking into account in your lagging view is the room for improved revenue.

Yes, the profits have exceeded expectations mainly on running tighter ships but that is in the past.

The market is clearly looking forward and seeing businesses running leaner and with the possibility of an improvement in economic conditions, as many indicators GLOBALLY are pointing to, as the next expectation for revenue growth.

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These insto's 'do it' because they have to, or miss out on 'being in the market', not because their research department suddenly puts out a buy rec on a bunch of stocks based on forward revenue projections or fundamentals? It then becomes a self fulfiling positive feedback loop until - it isn't? You want to hope that there isn't another pullback or battle weary investors will give up on equities as an investment for good. Perhaps they could buy property - woops, bubble already happening - all pile in creating momentum and a bubble then wack, interest rates go up! Stevo has as much said this loud and clear last week.

The current rally is based on 2 things - fear of missing out on a rising market after what appears to be the effects of government stimulis packages taking effect in varoius ways? What happens after the ephemeral stimulis runs dry, like the cash for clunckers scheme? Will we be left with a solid productive base or have we only just 'bought-it-forward', bringing forward consumption to the present and leaving a vacuum for the future consumers?

There is evidence that the Japanese are hanging by a thread as to whether companies start sacking idle 'career-for-life' type employees in the hope that in the meantime the economy picks up. This is similar to most economies also waiting on borrowed time (literally!) to see if they can ride through to the other side. The only problem is, because companies so called 'better-than-expected' earnings are based on cost cutting & sackings, and even the odd divestment, they have inflicted collateral damage by eliminating the very consumer base required to buy their products for a sustainable future - a negative fb loop?

Expectation & hope funded by Trillion dollar debt - an interesting experiment if it works, if the new bubbles growing around the globe don't pop first.

Before we had massive private debt - now we have massive private debt AND massive government debt - noyce one humans