Out Fox The $treet

As corporate profits continue to hit all time highs, thought it was time again to review market valuations. While most investors expect higher year end stock valuations, most only expect modest gains from current levels because the market has run to fast since the March 2009 lows. As we've said on the this blog for the last couple of years, its not wise to use that panic low as a basis for historical measurements and average returns. The market collapsed like never before and should also rebound in a like manner. The SP500 is still considerably below its October 2007 high even though corporate profits have already surpassed those levels. Of course, valuing a market in the vacuum of a single data point can be dangerous. This is why the capitalized profits model factors in the 10-year Treasury Yield to calculate the estimated market valuation. Naturally lower rates should mean higher valuations as stocks become more attractive then bonds. Ironically from the chart below, the SP50...

Does the Dow trading at 15,000 sound crazy? That's probably the general consensus in the market these days. The Dow currently trades at 11,201 at the close today.  A 3,800 point jump to get to 15,000 amounts to a 34% gain. What's interesting about he concept of the market currently being worth X amount higher or the future value hitting X in a year is that the market commentary is almost completely void of future predictions with the market higher. It's very bullish to turn on the TV or pull up a blog and see the latest prediction of the SP500 plunging to 900 or 600 or even lower. After a decade of the market being basically flat (ok it was very volatile in that period), most market pundits seem fixated that the market won't ever go higher. Corporate earnings have peaked if you listen to them. Heck, if you had listened to the pundits corporate profits would've never rebounded so sharply. This brings us to one of our favorite economists, Brian Westbury at First T...

Brian Westbury from First Trust appeared on Fox Business Network's Varney & Co. this morning and defended his optimistic view of the economy. I'll be the first to admit that Brian has been a little too positive, but to me his main flaw is that he hasn't accounted for the negativity of the media. Varney and his gang are so negative that they even question who is going to get consumers spending when they themselves have just scared everybody into hiding. Even though as Brian points out consumer spending in Q2 was up 4% to an all time record high. Though Varney is right to point out that Brian might be too optimistic, he himself claims that 1% growth is no growth. That 90K private jobs a month equuals no jobs. Come on Fox Business, its less then desirable. Its less then optimum, but isn't 'NO' growth. Your not helping by spinning everything more negative then the reality. Watch the latest video at video.foxbusiness.com

One thing explaining the meltup in March is that some analysts are now expecting 300K+ jobs during March. This isn't really a future stat for this week, but its a crucial future stat. Its also likely the first major jobs gain in what could be the start of dozens of months of gains. Brian Westbury from First Trust has a nice video about the expectations for March jobs and more specifically his estimate that we'll report 300K. Now what will that mean to the stock market? Hard to tell as we've had a huge run since mid-Feb. In general though, I still see lots of stocks trading below intrinsic values. Hartford Financial (HIG) trading way below book. AerCap (AER) trading at 5.5x 2010 earnings. Puda Coal (PUDA) trading below 10x their low end guidance of $1.10. Those are just a few examples of how cheap the market remains.

With all the doom and gloom in the markets today (SP500 dropped 3.1%), it's easy to think that the global economic recovery is about to turn into a double dip recession. After all the jobless claims came in higher then expected at 480K and surely that means growth has stalled? Possibly but Brian Westbury - Chief Economist at First Trust - has a different twist on the numbers reported today. Specifically that the productivity numbers are not only making companies more profitable but those profits are going to lead to expansion and more hours worked. Clearly the job creation spiget hasn't been turned on yet, but we're on the tip of the iceberg as corporate profits are soaring. Job growth likely depends on whether the government will get out of the way or instead force the US to crash into the iceberg. Last night Cisco (CSCO) talked about boom times ahead with record profits and the hiring of 2-3K employees in the next few quarters. The market wants to move a head and it cle...

Back in early May we reported on how Brian Westbury was calling an end to the recession. At that time we thought the recession was more likely to end around July. On Monday, Brian wrote a market update that confirms his view that in spite of the weak June jobs report that the recovery was still on track. Several metrics reported below in fact typically only take place when the economy is recovering while the jobs report can continue to sputter. And when jobs do sputter it's likely because corporations are reaping huge profits from less employee expenses and higher productivity. The overall ISM Manufacturing index hit 44.8 in June while the production index hit 52.5.The economy is almost always growing when these indexes are at those levels. the four-week moving average for initial claims for unemployment insurance isdown 43,500 (or 7.1%), in the past 2½ months, again something that almost never happens unless the economy is expanding. In addition, personal consumption, new orders...

Just seemed like yesterday that the US economy was headed to a 2nd Depression, but now some people including Brian Westbury in this Forbes article think the Recession will possibly end this month. Its hard to argue his points though logic and the current media makes it difficult to believe that the Recession could really be over so soon. Didn't the financial system just about collapse? Hasn't our favorite professors talked over and over about zombie banks? Brian is also forecasting a V shaped recovery which is clearly not of the norm. Even Bernanke spent today talking about a slow recovery of only 2% in 2010. That little growth a year after a major Recession ends sure doesn't sound like a V shaped recovery. Lets explore some of his claims: New claims for unemployment insurance are probably the very best single indicator of the end of a recession. The monthly average for claims normally peaks one or two months before the economy bottoms--and it appears to have peaked in Mar...