We know there's much to worry about and have covered some of this before: weak job market, weak real estate market, uncertainty over government regulation, mounting fiscal debt and deficits, higher taxes that will squeeze citizens and corporations alike, and on, and on, and on.....
With the possible exception of recent regulatory changes, ALL of these concerns aren't new news, but the Market wants to fixate on them at present and countless pundits perpetuate a wall of worry. The shifting sentiment reminds us of something Wilbur Ross said in a Fortune interview back in March (note title: "Mr. Distress is Ready to Buy"):
- "For example, people suddenly decide Greece is the problem, and whack, the market is down 10%. If weeks from now people decide California is the problem, markets will move again. Everyone has known for over a year that both places are troubled. Why do we care now? How do we know that the problems of Greece or rescuing that country will make a difference in the economic landscape one way or the other?"
- Stocks Tumble as Optimism Fades - A double dose of discouraging numbers from corporate earnings and a consumer-sentiment gauge pushed the Dow down 261.41 points, or 2.5%, to 10097.90.
Alright, despite Citigroup beating earnings expectations, seeing fewer charge-offs, and reducing loss reserves (see this WSJ article), maybe the banks are wrestling with a slow/no growth environment (partially on more stringent, self-imposed lending practices = good thing). Actually sounds pretty positive; could be worse.
As for Bank of America, we'll forget about the following Dow Jones headline from 7:42 am Friday morning:
- "GE's economic environment continues to improve," GE Chairman and CEO Jeff Immelt said, citing growth in orders, margins and earnings amid other encouraging signs in the quarter. "Equipment orders increased 17%, including 20% growth in the Energy Infrastructure segment and 14% at Technology Infrastructure. Oil & Gas and Healthcare orders were particular bright spots and helped hold total company orders backlog roughly flat, excluding the impact of foreign exchange.
- Just at the outset, I'd say I think the GE team had a really great quarter. Our environment continues to improve, media buying was strong, rail loadings were positive, revenue passenger miles were positive, losses have declined and credit demand is up, and equipment orders were positive. But we are still cautious in a few areas. We are working through a difficult commercial real estate cycle. After many quarters of decline, demand for electricity finally rebounded in the second quarter and we think that's encouraging. And as many people have written, we think this is a multi-speed recovery. So it's going to – the economy is going to strengthen at different paces around the world.
- We have a very strong balance sheet with consolidated cash of $74 billion. You go down the walk, you see lots of free cash flow, which is a big part of the GE business model. It's just lots of cash available for capital allocation as we look at the year. So we continue to build the cash balance. We are on track for CFOA for the year. And I think the cash story and the balance sheet strengthening story is a very positive story for GE and our investors.
- As Keith said, we had a lot of chance to talk to people. I would say while governments are adjusting, the companies are partners that we work with across Europe are all continuing to invest. Lot of them has export franchises. And so there just seems to be a little bit of a disconnect between what has to happen broadly from a macro standpoint and where the individual companies are that we are working with. So as Keith said, we just don't see a big systemic issue coming out of Europe given what we see today.
- Positive bias: Gannett (GCI), Schwab (SCHW), Daimler, Sony Ericsson, Europe Earnings, J.P. Morgan (JPM), AMD (AMD), J.B. Hunt (JBHT), Novartis (NVS)
- Mixed: Mattel (MAT), GE, banks (including J.P. Morgan), IBM (IBM - tbd Monday)
- Negative bias: none.