Thursday, April 30, 2009
(Cont'd from above)...

Jim (cont'd):   

[Jim then showed a clip of President Obama speaking... ]

Obama the bears… bulls I stand with you… we have been adamant that the new Obama, the President who is worried about your 401K, not the original President Obama… the one fingering greedy Wall Streeter’s, has helped this rally immensely… we do not want to see any backsliding to this guy… we do not want to see any backsliding into capitalist bashing… it will make investors reluctant to put money to work if they know that they could be punished for sticking up for themselves like the Chrysler bond guys.

But his momentary class cynicism has given us a dynamite chance to get into these cost cutting beauties… because we are going to get lower prices than we deserve… today, like every other day since this earnings report card season began, you heard a lot of analysts and commentators and anchors and reporters talking about… are you ready… better than expected earnings… today more than any other day we heard about some huge better than expected earnings… many in total household names… many in stocks that even I have been too negative on… and you know since 6500, it is hard to typify me as negative.

You need to know that in almost every case these companies beat estimates because business is better… not because sales are better… but because they axed a huge number of people… and they cut out a lot of accumulated fat… the fat that was accumulated during good times… in fact, the only company today that actually managed to beat estimates the old fashioned way… thru terrific sales growth that fell to the bottom line… which was First Solar, which reported a magnificent quarter… one that I know that I did not expect… because sales held up well and the cost of production fell… that means better sales and better gross margins… only companies as blessed as Amazon, Apple, Research In Motion, and Google have had those combinations in this hard economic environment… no wonder FSL rallied 36 points.

But right now on Wall Street buyers do not care if the beat, that means if the profit report exceeds what we thought a company could do, happened just because tons of people were axed… does not matter… case in point, two real ax men… Starbucks and NYSE Euronext… both of these companies not only reported better than expected earnings at the bottom line, the profit line as opposed to the top line the sales line, which was meager at best… but they also said that cost cuts were running ahead of expectations… the positive stock action of these two companies mattered to you, as an object lesson… and this is what I want to teach tonight.

Neither Starbucks or NYSE Euronext is actually doing well… doing well in the ways that you might think… business is not so hot… but the amount of profit made from the business is up huge… and is going to get even bigger because of the cost cuts in place… even if business stays exactly the same… why is that enough to move these two stocks up… because the buyers of these stocks sense that when sales finally turn around the companies will make much more money than anyone thought… no where is it more stark than with two companies that I have to eat crow tonight… yep, I have to eat crow on Dow Chemical… and I have to eat crow on Owens Illinois… Owens Illinois tastes particularly bad… while I did say that I thought that when the Dow got to the single digits, that is when Dow Chemical got to the single digits it was too low to sell… remember, Dow went all the way from the $30’s to the low single digits, to $9... I did not recommend buying it.

Why didn’t I… because I did not think that Andrew Liveris, the CEO who overpaid for Rohm & Haas (ROH), could execute on his promises of cost savings… while I have been right in telling you to avoid the stock in the $30’s, now I should have told you to buy it at $9... instead of saying, no it is not done going down… because then you could have caught a move back to $16, where it landed today… worst of all… I told you that I thought that there was no profit to be had in going green with glass maker Owens Illinois… I got this one totally wrong… OI took out costs so aggressively that the earnings leapt to levels that I did not think they could possibly have on such a low level of sales… I apologize to all… I just am shocked that the cost cutting could boost the earnings as much as it did… obviously, others were too… Owens Illinois up huge.

Here is the bottom line…

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The Bottom Line!:     If President Obama had just left out his criticism of hedge funds and investment firms… I am confident that we would have been up huge today… instead of down 18 on the Dow and down 1 point on the S&P… but the reason has nothing to do whatsoever with business getting better… yet… it has to do with getting a lot more lemonade out of a lot fewer lemons… something that has made corporate America in the midst of the worst downturn since the Depression a heck of a lot more profitable than I certainly thought was possible just a few months ago...    Companies are figuring out ways to do more with less & be profitable - hats off to them...   The Dow was down 18... the S&P was down 1... President Obama bashed Wall Street… obscured by all of that was fabulous cost cutting that has made lemonade out of very few lemons and has made us very profitable.

[verbatim recap]

[verbatim recap]

[end of segment]

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