Earnings are moving right on up, and I don't see any serious diminishment of the earnings projections. It looks like we are going to do 10 to 15 profit growth in 2006. That is what is pushing stock prices higher.
The probability of a substantial upward revision is quite high. Then growth should rebound in the first quarter back into the region of 4 percent.
For five years I worked at the Commerce Department and did econometric modeling, and you could never get these numbers to load into consumption numbers. They're not leading indicators or coincident indicators. They don't tell you a lot.
There's not a big inflation problem. Under those circumstances, you get a benign yield-curve inversion.
I look at that as really good news for the market you want something right in the sweet spot. We're just in a nice, smooth acceleration, and now people are starting to think that's likely to be sustained.
It reminds me of PIO, or pilot induced oscillation, a lag in the plane's response to a pilot moving the stick, ... You push the stick down and the plane doesn't go down right away, so you push it down more, and then it really starts to fall. The same thing happens in monetary policy if you have gradualism in interest rates.
We're just going through people having some concern about earnings.
There seems to be a lot of concern out there about earnings, which seems to be misplaced. When you add them all up, they're doing as good or better than the consensus expectations.
Dell report obviously hurt the company. But it has yet to be seen if it's just the case of one company being conservative with its guidance or if it is an indication for the whole sector.
I think this will be more of a company-led expansion instead of one led by consumers.
That makes it definitely worth watching how bonds are trading. When there are problems at a company, the institutional bond investors tend to figure it out before the rest of the retail market and dump their bonds.
The biggest thing that would help the markets right now would be a sustained drop in crude oil, but I'm not holding my breath for that. It's drawing attention away from third-quarter numbers that, despite GM, are really pretty good.
The stock market really focused on this attack ....
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