The Spin (stock) Market Alive & Well Last Week

The action of the spin (stock) market last week ended July 17^th was very disconcerting.  In my 32 years in the stock market I can-not recall any time in which the major indices were completely driven by media spin on the announcements and news reports that they took out of context.  Those who relied on such spin to make investment decisions last week will be sorry.   

The week started out on Monday with Meredith Whitney’s initiation of a buy recommendation on Goldman Sachs.  The media used the fact that Whitney, who had previously not had any buy recommendations, was putting a buy on Goldman as a clear signal that she had capitulated her bearish position and was now a bull.  This resulted in a 200 plus point rally for the Dow 30 Industrials. 

I watched Whitney make her recommendation on CNBC and heard her say that she was still a long term bear on the financials and on the economy.  Whitney went on to say that she only recommended Goldman because they stand to benefit from the Tsunami of public financings that will need to be underwritten to cover the budget deficits for the States and Municipalities.  Whitney said that the banks will ultimately have great difficulties because she is predicting that unemployment could get to 13%.   Mad Money’s James Cramer took what Whitney said out of context and proclaimed on his show that Whitney had capitulated and was now a bull.

On Tuesday the major indices were buoyed on Goldman Sachs beating of its earnings estimates and after the close Intel reported earnings that handily beat the forecasts of the Wall Street analysts.   

On Wednesday the media pundits used Intel’s better than expected earnings announcement to take the opportunity to declare that the worst was over for the U.S. economy.  There was little mention of the fact that Intel’s revenue was down more than 15% and that a lot of its revenue was generated from China’s $500 Billion stimulus package that included incentives for the purchases of consumer electronics which greatly benefited the world’s largest chip maker.  The market rallied by another 200 plus points.

On Thursday the market rallied by over 90 points after it was reported that Nouriel Roubini, a major bear had announced that the recession was over.  After the close of trading CNBC reported that Roubini had issued a press release that stated that his comments were taken out of context and that he was still a bear and very negative on the economy.  Despite the press release by Roubini, CNBC’s Larry Kudlow pronounced on his show later that evening that Roubini had also converted to a bull from a bear. 

Also, on Thursday after the close of the market IBM announced earnings that were way above what Wall Street had expected. 

On Friday morning CNBC’s headline read “IBM Blows the Street Away” http://www.cnbc.com/id/31948835.  In reading the story one would have thought that all was groovy for IBM and the economy.  Yet, if one had read the fine print they would have discovered that IBM’s revenue for its second quarter ended June 30, 2009 fell by 13%.  IBM’s stellar quarter of earnings, up 18% when compared to the year earlier quarter, were led by orders that it received from the government.  Finally, that IBM, was able to report double digit increases in earnings on a double digit decline in revenue is a bad sign for the U.S. economy.  It underscores the reduction in costs that IBM has been able to achieve by laying off U.S. workers and moving programming offshore to India.  earnings by 49% for its second quarter ended June 30, 2009.  GE reported it quarterly financials on Friday morning.  GE’s earnings were down by 49% and its revenue was down by 17%.  GE revenue came in about $3 billion below its forecasted revenue for the quarter.  The Dow moved up by another 32 points. 

In a week full of positive spin on events and announcements that should have been construed as cautionary the Dow Jones Industrials composite index was up by more than seven percent.  Even GE shares were up by seven percent for the week even though it handily missed estimates.  Its unlikely that last weeks’ fun and games will be repeated in the coming weeks for the following reasons.   (1) GE’s significant decline in revenue does not bode well for the industrial sector of the U.S. economy and the many industrial companies, which have not yet reported.  (2) Most of the rest of the financials who will be reporting are regional banks that do not have trading operations that the big banks have to bail out their bad loans.  (3) Trading volume for the week was on the light side.  Finally, how long can IBM continue to increase its earnings while its revenue continues to fall? 

Instead of sugar coating or ignoring the significant revenue declines in the earnings announcements the media spin monsters should have been exuding caution.  The declining double-digit revenue percentage declines for IBM and GE and for most of the other members of the Dow 30 is unprecedented over the 32 years that I have been analyzing them.   To think that such declines are not going to have a significant impact on the economy and the rest of the stock market is ludicrous.