Your Lying Eyes

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31 July 2009

The Amazing Stock Rally

I'd say the poster child for this amazing stock market rally of the past 3 weeks is Motorola. Motorola issued it's results yesterday, and the stock is up over 9% (and as high as 16% at one point yesterday) on the strength of a small profit which nevertheless significantly exceeded expectations. But its revenues - an actual measure of real business activity - dropped 32% from a year ago. But that has been the pattern this earnings round - stocks rising on unexpected profits realized via brutal cost cutting and the anticipation of greater profits when the economy recovers.

It seems each company has reported large revenue reductions from last year. The best cases seem to be revenue drops a bit less than 10% (Disney revenues dropped 7%) and many in the 20 - 30% range. But Obama pretty much leaked today's GDP report, saying the economy contracted but that there's a "significant slowing down of the contraction." I personally remain pessimistic as I keep hearing about increasing commercial real estate foreclosures, delayed domestic foreclosures, the Alt-A mess ahead, credit card defaults, etc. If you can, invest with caution.


Anonymous robert61 said...

Is this a leading indicator of inflation? The Fed is vastly increasing the money supply. We're not seeing any inflation yet because nobody wants the money. Since there are no investors, the banks are sitting on it instead of leveraging it to the skies. In the meantime, they have to put it somewhere, so why not the market?

This is a just-so story I'm telling myself; I haven't checked whether it matches the numbers, and I'm not sure how you would.

July 31, 2009 10:20 AM  
Blogger ziel said...

Yes, this rally could just be another bubble soaking up extra liquidity.

July 31, 2009 11:21 AM  

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