In Run-Up To Election, Markets Remain Shaky

As outlined in yesterday's post, US stock indices have been down since the beginning of August, presaging to the positive for the challenger party in the presidential election race.

While the outcome of a Trump victory is far from certain, what is clear is that traders and speculators are taking note of the fragile condition of the US and global economies, both of which have been side-stepping into the future since the crash of 2008-09.

Markets function largely on faith and hope, despair and confusion, greed and fear, and there seems to be ample supplies of all emotions all around. Puzzling analysts is how exactly a Clinton presidency would benefit markets, if only to keep the controlling interests in charge for another four years.

That may not be the best of circumstances, as Mr. Trump points out, because the global condition is quite completely on edge politically and likely over the edge financially. Nation-states are overburdened in debt, which has found its way back to the minions, a cause for unrest and potentially explosive social events.

With all that in the marco view, US companies, in the midst of third quarter earnings season, are, as has been the case for the past three years, struggling to find profits and any reason to be upbeat for the remainder of 2016 and into 2017.

There seems to be a dull thud re-occurring in the offices of CFOs and CEOs, that being the repeating sound of falling EPS and missed revenue figures, a double whammy for investors, though not many have fled the market as of this writing.

Thursday represents perhaps the biggest day of earnings season. Alphabet (GOOG), Amazon.com (AMZN), LinkedIn (LNKD) and Baidu (BIDU) are among companies set to report after the bell. Colgate-Palmolive (CL), Bristol-Meyers Squibb (BMY), Ford (F) and UPS (UPS) all report prior to the opening bell.

These results and some economic data (durable goods, pending home sales) will shape the day's trading. With just two days left in October, there's a slim chance that markets could rally back to positive for the past three months, which would be a good omen for the Hillary camp, but it is unlikely to happen unless some major news breaks that would spur a buying panic. It's happened before, but expect more oddities prior to election day next week.

Wednesday's Final Score:
Dow Jones Industrial Average
18,199.33, +30.06 (0.17%)

NASDAQ
5,250.27, -33.13 (-0.63%)

S&P 500
2,139.43, -3.73 (-0.17%)

NYSE Composite
10,528.19, -22.00 (-0.21%)

US Stocks Reverse Early Losses; How Buy-Backs Distort Corporate Earnings; John Cleese Plays Merchant Banker

After yesterday's Fed comments, overnight, Japan got whipsawed, with the Nikkei down more than 7% on the session. Markets in Europe also tanked, but here in America, where any news is regarded as good, markets erased massive losses garnered out of the gate (Dow was down 127 points early in the session) and finished nearly flat, though the major indices finished in the red (not enough POMO, one assumes).

What a horrible joke this market continues to be. It is amazing and disgusting at the same time. No matter what, however, it will never go down until the big players deem it is time to do so, and, obviously, today was not that time.

Today brings more information about how the rally in equities has been manufactured by corporations buying back record amounts of stock and thusly skewing earnings reports, making them appear positive when they are nothing but figments of creative accounting.

For simplicity purposes, when a company buys back its own stock, it takes it out of circulation, lowering the number of shares by which earnings are gauged, i.e., EPS or "earnings per share."

So, if Corporation A has 1000 shares outstanding, and profits of $2000, their EPS is calculated thus, $2000 (earnings) divided by 1000 (shares) = $2.00 earnings per share.

When corporation A buys back 100 shares and actually does a little worse, with profits of $1900, this looks positive because EPS is up, because $1900 in earnings is now divided by just 900 shares, not 1000, so the resultant EPS is now $2.11, even though the company is actually shrinking.

This will only become a huge problem when people en masse realize that most corporate profits these days are nothing more than financial trickery, though that could be a long time coming, considering how 95% of America is financially illiterate.

Bottom line, this will eventually be a great thing for America, when the fraud and rot is finally rooted out, because most of these giant corporations will be nothing but hollowed out shells and real Americans can begin rebuilding a real economy.

Max Keiser has the rundown in today's edition of the Keiser Report:

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Here's a a comment from ZH, that explains a simple philosophy of life (with a few edits) in response to a comment to this article:

Having wasted the time it took to read most of this article, I found your example to be most profound and gave you the second up arrow. If I could somehow bestow more "ups" I would, but the point is that the article bases the plight of an entire generation - X, in this case - on luck, timing and the evils of the "system."

The article, like most presented by CHS, is more socialist bullcrap and your comment proves him 100% wrong. Anyone with initiative and a little bit of smarts and some skills can become self-sufficient and perhapes even "wealthy" or prosperous, as is the ongoing discussion with MachoMan.

Here's how I define prosperous (for myself, and I think I'm the richest guy in the world): No debt, paid-in-full domicile, with enough land to grow enough food for 1/2 a year for self or family. Steady income stream, few, or no employees. Obviously, I run my own business.

There are many ways to make more money - and keep almost all of it out of the hands of the government leeches - than having a "job." A job or career is like a yoke around one's neck; one is forever tied to that particular skill set. When that skill set becomes antiquated or overtaken by technology, one immediately becomes lost. Those who do for themselves almost never reach this state; instead, they find new ways to do things, are constantly in search of better ways to escape the tyranny of the system. Stay in the system and your life gets ruled by it. You become a slave to debt, government or keeping up with your peers, any one of which will suck the life out of you.

Stop measuring success by money and you'll find a richness of life right in your own back yard. I strongly recommend reading anything by Gene Langsdon, but especially the Contrary Farmer's Invitation to Gardening. Lots of insight on life, living and growing stuff you can EAT.

As an aside, I broke up with a gal eight months ago who was totally materialistic, to whom nothing mattered except how much one made, how new one's car was and how many cool gadgets you had. Life is so much richer since I began reading Langsdon (last year) and left that simple-minded troll behind. (And, no, I'm not bitter. I am justified.)

Bottom line, ditch that dead-end job and become your own boss. Take some responsibility for your own life and stop whining. You'll feel better and might just thrive on your own.

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Since it's only Thursday and the major indices are already staring at losses for the week, a bit of humor at the expense of bankers seems most appropriate, as in the clip below wherein Monty Python's John Cleese plays Merchant Banker.



Dow 15,294.50, -12.67 (0.08%)
NASDAQ 3,459.42, -3.88 (0.11%)
S&P 500 1,650.51, -4.84 (0.29%)
NYSE Composite 9,466.81, -41.24 (0.43%)
NASDAQ Volume 1,720,003,000
NYSE Volume 4,272,195,500
Combined NYSE & NASDAQ Advance - Decline: 2807-3659
Combined NYSE & NASDAQ New highs - New lows: 85-59
WTI crude oil: 94.25, -0.03
Gold: 1,391.80, +24.40
Silver: 22.51, 0.036