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Stock Ideas Investors Daily Edge Expectations Verging on the Ridiculous
Stock Ideas Investors Daily Edge Expectations Verging on the Ridiculous 
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By Andrew Gordon Dear Reader, Just a quick look at my Wealth Advantage portfolio confirms the boost overseas markets got from the Fed. Of the six overseas companies in this portfolio, five gained six percent or more, with one of them gaining 12 percent. |
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| Expectations Verging on the Ridiculous |
| Tuesday, 21 October 2008 | ||||||||
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We all know that Wall Street is a buying machine, but this is ridiculous. Analysts are projecting that S&P 500 companies will increase operating profit by 28 percent this quarter (compared to last year’s fourth quarter). How unrealistic is this expectation? It would set a record for earnings – beating the $222 billion S&P companies earned in the second quarter of last year. How unrealistic is this expectation? Operating profits fell last quarter by 7.5 percent. The economy has since worsened. Credit has tightened. Factory orders in August fell the most in two years. Yet profit is going up? How unrealistic is this expectation? The rebound, according to Wall Street, will be led by banks, brokerages and insurers. This is the same sector that is forcing the government to bail it out. And banks still have hundreds of billions of write-downs to go. Then there’s this: How the heck will banks pick up earnings in a slumping economy? While all the government’s efforts have been toward making banks more willing to lend, here’s what nobody is mentioning. The demand for bank loans is way down. Businesses don’t want to borrow for expensive upgrades and expansions when demand is falling off a cliff. Imagine that. The market certainly doesn’t need another downdraft, but that is what it’s getting from Wall Street. When companies fail to meet earnings expectations, their shares usually go down. Any bear rally we get should end by mid-January, when companies report on their fourth quarter earnings. Thanks, Wall Street.
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