The Day Ahead: What Mother Earth Is Telling Investors
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Underneath the headlines of "financial death by fiscal cliff," and consumers fretting that they can't charge for a bundle of plastic quick enough, is good ol' Mother Earth -- the blue, brown, and white mass comprising particles that make up people and "stuff." (I'm no chemist, so tread easy with the molecular questions here.)
Earnings misses and warnings are still irrelevant to the broader market, but sonny...Start recognizing an undercurrent of negativity could be building beneath the surface of calm waters. I count at least five companies that have yelled "fire" in a crowded, comfortable room, via earnings misses and warnings: FedEx (FDX), Intel (INTC), Texas Instruments (TXN), Norfolk Southern (NSC) and Bed Bath & Beyond (BBBY). If you're aware of others -- and I hope you do, as this ain't no game, man, it's life -- please do add to the list. In view of this batch, Mother Earth has offered these talking points reserved for public settings.
- There is severe disconnect between a European Union plan that has not even been put into functional action yet, and central demand trends in Southern Europe and in what's perceived as the safer Northern Europe. That disconnect means greater risk to multinational valuations and estimates.
- In an economy that is notching downward revisions to disappointing headline employment figures, a supposed "best in show" retailer such as Bed Bath & Beyond will be forced to mail more coupons in order to bring in traffic. Further, there is no guarantee that rising home values will get customers to buy pricier merchandise -- a shift to lower-margin items is in full effect.
- When a company such as Norfolk Southern states volumes are declining in "certain markets," it captures the essence of the bear argument -- as if its massive chop to third-quarter earnings expectations weren't disturbing in and of itself. Note that this earnings haircut will be tougher to swallow than was the original FedEx warning weeks ago.