Thursday, March 12, 2015

Earnings season will be ugly.

I know everyone has moved on from that whole port shutdown, but I bet companies have not. For the next couple of months we get to see the real damage. The shutdown was costing 2 billion dollars a day here in California. Perishables, perished. I know the media is blaming cold weather for horrid retail sales. Which could be true. But those bad sales could also be a result of a complete port shutdown. Next month will show the true story. If the sales numbers stay low, this is troubling because this is the time of year people spend their tax refunds.

Currency issues are a big deal though. A super big deal. This cuts into companies profits. Things played out almost exactly like this in 2009. But Europe is much weaker this time. I don't agree with it, but I think we will eventually be forced to print because all other currencies have become so weak relative to the dollar. But I also concede that the inflation rubber band is getting stretched pretty tightly. The too few products and services part of inflation is starting to come into play. Especially in housing where it looks like we are already entering a shortage phase. It's been 7 years now of recession level building. The longest amount of time I think in history. But don't quote me. I'll have to look the chart back up. But as I recall the longest stretch previously was 3 years.

Deflation is a very rare occurrence. It wont last forever.

Also, interest rates are split evenly between being in the 3.8%-ish range, to the 4.3%-ish range. Good luck Fed in raising rates. Even a quarter basis point will put us over the cliff of 4.50%. When rates hit that last time they started falling for the next almost year. There is obviously a barrier there.

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