Stocktake

Compiled by PRONSIAS O'MAHONY

Earnings season on a high in the US

IT’S shaping up to be a good earnings season in the US. So far, 69 per cent have beaten analyst estimates. That beat rate is well above historical averages, but reduced analyst estimates had lowered the bar somewhat.

Still, the results look strong on an absolute as well as a relative basis. SP’s Howard Silverblatt notes that the earnings reported have been the third highest ever, behind the third and second quarters of 2011 respectively.

But we noted recently that record profit margins look unsustainable, and Silverblatt is concerned that they remain “very high”. The risk remains that margins revert to historical norms. Analysts, however, project that earnings growth will speed up to 17 per cent in the fourth quarter, projections that “appear high”, Silverblatt cautions.

Greenspan forecast worries markets

RUN for the hills! Alan Greenspan said last week that stocks are “very cheap” and likely to rise.

Greenspan’s dismal forecasting record over the past decade is well-known, but it goes back a lot further. “It is very rare that you can be as unqualifiedly bullish as you can be now,” he said in January 1973. Four days later, the Dow peaked and then collapsed by 46 per cent as the US suffered its worst recession since the 1930s.

Between 1976 and 1978, he headed the president’s Council of Economic Advisers. A US senator who studied the council’s interest rate predictions over a 10-year period later told Greenspan that his forecasting errors “broke all records for the entire period”. As market strategist Barry Ritholtz scoffed last week, Greenspan is a “one-man contrary indicator”.

Hendry warns of panic over China

INVESTORS in China’s Shanghai Composite have been cheering bullish advances of late. Up 14 per cent since its January low, the index recently broke above its 200-day moving average for the first time in 228 trading days.

According to Bloomberg, the index’s price-to-earnings ratio was at a record low of 11.4 when it bottomed, and continues to trade at a 12 per cent discount to the MSCI All-Country World Index.

If controversial hedge fund manager Hugh Hendry is right, that discount will widen. In his latest letter, the Scotsman warned that 2012 will be when “panic over Chinese economic growth comes to replace the market’s morbid fascination with the travails of the European continent”.

Uber-bear growls about bubbles in Oz

ANOTHER uber-bear, Société Générale’s inimitable Albert Edwards, is also concerned about China, although he’s even more pessimistic about Australia.

“The biggest bubble in recent history is heading for the mother of all hard landings” is the title of his most recent note, where he warns that Australia is a “credit bubble built upon a commodity boom dependent for its sustenance on an even greater credit bubble in China”. Every Australian centre is ranked “severely unaffordable” in the 2012 Demographia International Housing Affordability Survey, says Edwards. “Of all the bubbles I have seen over the last 30 years in this industry, this one is even more obvious than the rather prominent nose on my increasingly haggard face,” he quips.

Day traders have the last laugh in court

IT’S often lamented that computer-driven high-frequency trading gives the big boys an unfair advantage, but sometimes the little guys can outsmart the algorithms. Two Norwegian day traders did so after working out how an Interactive Brokers algorithm would react to certain trading patterns. They placed thousands of such trades only to be convicted of market manipulation in 2010.

They appealed and the Norwegian Supreme Court last week cleared them of wrongdoing, delighting the local trading community which sees the duo as Robin Hood figures.