Posted At : October 8, 2009 12:36 PM
Earnings season kicks off with what many are calling the most important one in recent memory…all the way back to last quarter. Nobody is expecting this quarter’s #’s to be very good, so they have probably already been discounted. Alcoa’s earning’s announcement proves that, as expectations were so horrendous that a positive surprise was unavoidable barring a report that aluminum now causes some new debilitating disease. However, if we don’t start to see some top line growth (i.e. increased sales) and not just profits from cost cutting, investors will get impatient which could be the lynchpin for the end of the rally.
The real news was the report that U.S. consumers reduced their borrowing for the seventh straight month in August, as households worked to pay off debt and banks reduced credit card limits. Americans are saving more and borrowing less as widespread job losses, stagnant wages, dwindling home values and the natural demographic trends of our aging society where people naturally spend less and save more as they age, have spurred a move to what I like to call the new “mentality of Frugality” While that seems like a positive trend in the long run, it will only keep the fledgling recovery a pipe dream as consumer spending powers about 70 percent of the economy. As you see below, not only are banks not lending, there are few left who actually want to borrow that are worthy enough to lend to.
And as credit goes, so goes the consumer and thus the economy!
Regards -Keith Springer