Chronicle of the Conspiracy
Saturday, July 25, 2009STOCKS RALLY ON DEATH OF HEALTH CARE REFORM Here's my column from SmartMoney.com on Friday, followed by the full text, unedited, from among an avalanche of emails I received on this. I wonder what hard-left blog linked to this column, and instructed its hate-bots to send me nasty emails questioning my humanity just because I don't support government-rationed tax-financed health insurance. Well, here they are. It's amazing how hateful the advocates of charity can be. Or is it? This isn't really charity we're talking about. It's coercion, pure and simple.
It looks like we can chalk up a victory for the good guys. Stocks soared this week, as Congress gave up trying to enact so-called health-care reform — and the massive new taxes to pay for it — until after their August recess. That means it’s dead.
Last week I wrote that if “it gets rejected, then stocks could move a lot higher once they see that it’s still possible for the government of this country to do the right thing every once in a while.” That’s just what has happened.
Let me remind you what’s a stake here. It’s even worse than I wrote about last week. I said that the “surcharge” tax to finance this government takeover of private medicine would raise the top income tax rate to 45%. That’s bad enough, but what I didn’t mention is that the “surcharge” would affect capital gains taxes, too. The rate on long-term capital gains is now 15%. If Obama’s plan is enacted, it would jump to 25.6%.
I can’t think of a surer way to destroy the stock market — what’s left of it — than to raise taxes on capital gains. Isn’t it already hard enough to make money in stocks?
So don’t be surprised that stocks have taken off on the good news that this particular piece of political madness has been consigned to the dustbin of history where it belongs.
It’s especially good news because there’s more and more evidence that the economy really is coming back to life. It would be a shame to snatch defeat from the jaws of victory.
Most important this week, earnings season is shaping up to be absolutely terrific. Forty percent of the companies that are going to report this season have now done so. On average, earnings have surprised on the upside by 11%. That makes this, at least so far, the best earnings season in more than two years — by a substantial margin.
Let’s take a closer look at this earnings season — what’s hot and what’s not.
The biggest winner is the consumer discretionary sector — 120% above expectations on average, thanks to Ford’s huge upside surprise. To be fair, it was really only a smaller-than-expected loss for Ford. But it was still a surprise in the right direction. And the dollars involved — a $997 million improvement — are quite significant.
In second place is the basic materials sector — with an average upside surprise of 56% above expectations. Here the leader is the mighty Freeport-McMoRan. And this one is a legit double. Earnings — positive earnings, not a smaller-than-expected loss — came in twice as high as was expected.
A perhaps surprising laggard is the financial sector. It’s in dead last place, with an average upside surprise of only 4%. Yes, there were some spectacular individual surprises in the sector. In fact, Wells Fargo’s 71% surprise, worth a tidy $1.176 billion, is so far the biggest single surprise of the season. JPMorgan Chase, General Electric and Goldman Sachs also delivered big wins.
But the problem with the sector is that there were big losers there, too. Citigroup was a disaster, a $2.197 billion flop that was a loss three times worse than expected. Morgan Stanley and Zions Bancorp were also huge losers in the sector.
OK, so the brain-dead banking sector didn’t do so well. Which, by the way, is really only to say that it came in, on average, just as expected. And in a funny way, for the banks that’s actually a wonderful thing. The big problem with the sector over the last two years have been that no one has had any idea what to expect. Their problems were so complex and so enormous, how could a mere securities analyst ever figure it out? Well, apparently this quarter they did. At least on average, the analysts expected exactly what they got.
One element of this earnings season kind of worries me. While earnings outside the financial sector have delivered a nice upside surprise, revenues have not. On average, revenues have come in almost precisely as expected — about 1% lower, actually.
The problem with that is that a company’s profits are a fraction of its revenues. If profits are growing when revenues are not, that means the gains are coming from cost-cutting, not a true expansion of the business. What we really want to see is revenues expanding, so that a company can earn a larger slice of a larger pie. Sadly, that’s not what we’re seeing.
So where do we go from here? The matter of so-called health care “reform” is settled for a while. And earnings season has settled in with a nice upside tone. So what is there that could drive stocks higher at this point?
I don’t really see any fundamentals that can do it. But there is one technical factor. There are a lot of hedge funds that are still on the sidelines, that made a lot of money all the way down in the bear market but failed to call the turn at the bottom in March. They might be getting scared here.
There are lots of retail investors who are out of the market, too. They got shaken out in the horrific bottoms last November, and this January and March. They’re not feeling the kind of performance anxiety that a hedge fund manager is feeling, but they’ve got to be getting a little angry watching the stocks they sold at the bottoms recover so significantly. Maybe they’ll want back in.
So in the short term, stocks might have a little more upside. But my guess is that the rest of the summer will be fairly quiet. We need to digest the considerable gains off the March bottom.
After all we’ve been through the last year or two, quiet might be the best thing. I like it when stocks go up — don’t get me wrong. But getting a little rest here wouldn’t be so bad, either. We deserve it.
What an a-hole you are!!! I suppose you have a nice fat private health care package that keeps you and your family sleeping comfortably at night!!
I just wanted to tell you how disgusted I was with your article. You are what is wrong with our country. I hope you don't bother celebrating such things as the Fourth of July and Memorial Day when we remember the sacrifices that were made on behalf of us all and reflect on our commitment to each other. Your article displays only intense greed at the expense of anyone who stands in your way. It is unfortunate that you seem not to have had any money invested with Mr. Madoff. I can't imagine how that happened.
Incredible how so many in this country are driven by personal greed, and shortsighted greed at that. That your entire focus on the healthcare issue is related to your ability to make money in the stock market, and not on the desperate need for americans to have access to healthcare.
It is pathetic and shameful. AT least you have the courage to show your true colors.
The government was trying to do the right thing. Since when is healthcare for all wrong? Considering financial "geniuses" like you are the reason the market tanked, do you really think you should be the judge of things right and wrong? So keep cashing in on us "working" americans, but when you fall don't look to us for help.
Spread your fear hate monger, I just don't give a sh*t anymore!
Update... Intelligent life discovered! Reader Paul Mathieu writes,
To Anonymous: Your labeling of Mr. Luskin is improperly placed, The representatives in Washington you so much admire fit your so nicely made label. I currently use an HSA with a small premium per month for my health care for a family of four. I sleep well because of my choice of health care. Depend and expect nothing from your Government when it concerns Utopia.
Posted by Donald L. Luskin at 8:42 PM | link
Wednesday, July 22, 2009SORRY FOR NOT POSTING THIS WEEK Really heavy travel schedule... back on the job next week!
Posted by Donald L. Luskin at 11:27 PM | link
Monday, July 20, 2009SIGNS OF WEAKNESS... THANK GOD... My DC-insider friend "Mick Danger" reports from the front:
Here’s a sign that at least one member of Team Obama is cracking up, pleading for opponents to wait until after it’s over before suggesting changes (all clips courtesy of the Politico’s Pulse column, a daily must-read):Update... Reader Jim Thomason responds to Mick:AP overnight, 'Official: 5 plans revamp health care, none final,' by Philip Elliott: 'President Barack Obama's advisers are urging critics of their health care overhaul to wait for Congress to finish writing legislation before issuing verdicts. They also signaled they are willing to wait longer than their White House-imposed August deadline for action if it means they can sway wary lawmakers. The White House spent Sunday defending Obama's health care proposals and stressing that Congress has not yet written the final draft of legislation that would dramatically reshape how Americans receive health care. Instead, they said, Republicans - and even some Democrats - should wait until a final bill takes form. 'There are basically five different plans in Congress right now and there are a variety of ways,' Health and Human Services Secretary Kathleen Sebelius said, trying to calm nervous lawmakers whose re-elections could hinge on the legislation.'Now let’s see how out of step Kathleen Sebelius is with her former colleagues, the Governors from both parties.PEAR-WATCH: GOVS SKEPTICAL OF REFORM reports NYT's Kevin Sack and Robert Pear from Biloxi, Miss.: 'The nation's governors, Democrats as well as Republicans, voiced deep concern Sunday about the shape of the health care plan emerging from Congress, fearing that Washington was about to hand them expensive new Medicaid obligations without money to pay for them. The role of the states in a restructured health care system dominated the summer meeting of the National Governors Association here this weekend - with bipartisan animosity voiced against the plan during a closed-door luncheon on Saturday and in a private meeting on Sunday with the health and human services secretary, Kathleen Sebelius.Now, compare this purposeful, impactful quote (below) by a real player, Mike Ross (D-AR) with that ineffective, self-immolation “Waterloo” line from Senator DeMint (R-SC), which I referred to yesterday. Ross goes up against Waxman over the next two weeks. Wish him well.
Two points on that "Waterloo" quote from DeMint: 1. DeMint was speaking on a "conservative conference call", not giving an interview to a reporter. He was just throwing some red meat to his supporters, in other words. "Mick Danger" can bite me.Update 2... Reader Greg Evans adds,
This may not need anybody to actually say it, but one thing I'd like to point out about the White House desire for people to wait until the bill is written before it gets criticized is that they force votes as soon as it is written so there is no time to criticize.
Posted by Donald L. Luskin at 8:39 AM | link
WHAT ALL THE BEST DRESSED DISSIDENTS ARE WEARING You can get one too!
Posted by Donald L. Luskin at 12:49 AM | link
Sunday, July 19, 2009HOW TO MAKE AN ARGUMENT FROM PRINCIPLE Who, today, can do what Ronald Reagan did here in 1961 to argue against socialized medicine? Today the opponents of it are all too eager to compromise, or cite pragmatic or economic counter-arguments. Reagan comes straight from principle, rather than pragmatism. He starts with the idea that freedom is the first priority, and rejects any claim of “need” that compromises freedom.
Posted by Donald L. Luskin at 12:23 PM | link