Forget the Economy; These Companies
Are Still Earning Big Money

We’ll be surprised at how well corporate America will fare the remainder of this year even as the U.S. economy continues to deteriorate.Alcoa, Inc. (NYSE/AA), the first stock in the Dow Jones Industrial Average to report third-quarter earnings, missed analyst expectations. The Street was hoping Alcoa would earn about $0.20 a share. The company earned $0.15 a share. But let’s look closer.

Alcoa’s net income in the third quarter of this year more than doubled to $172 million from only $61.0 million last year; nothing to sneeze at.

And if we look even closer, we see that the world’s largest aluminum company is reflective of other large American companies. Alcoa, after posting consecutive quarterly losses in late 2008 and into 2009, slashed 20,000 jobs and closed non-profitable smelters. It cut costs, focused on profitability. And the profits started to roll in.

What the market wants is fast, big growth. We had that in 2009 and 2010. Company profits across the 30 large Dow Jones components have been very strong over the past two years.

Analysts are expecting the S&P 500 companies to report a 14% increase in third-quarter profits. Sure, that’s the slowest pace since late 2009 and a lot lower than the 19% growth in the earnings these companies experienced in the second quarter of 2001, but again, nothing to sneeze at. I think it’s steady and healthy earnings growth.

Corporate America has $2.0 trillion socked away in their coffers. That number will grow as these companies continue to post double-digit earnings growth. We’ll be surprised at how well corporate America will fare the remainder of this year even as the U.S. economy continues to deteriorate.

Michael’s Personal Notes:

September 2011 was the worst month for gold bullion prices in about three years. Gold was down 10% in price in September, which equates to almost $200.00 an ounce.

I want my readers to know that a 10% correction in gold bullion prices is not a big deal…and that a healthier correction would have been in the 15% to 20% range. Such a decline in gold prices would serve to drive speculators and “weak hands” from the gold bull market that started in 2001.

Is the price correction in the ongoing bull market in gold over? I hope so. But I wouldn’t be surprised to see some back-filling…some more downside before gold bullion makes a serious attempt to break through the $2,000 an ounce mark.

I would have been more comfortable if gold bullion prices broke down towards $1,500 an ounce in the recent correction—the metal only reached a low of $1,598 per ounce on September 26, 2011, before moving back up.

My message: I wouldn’t be surprised to see gold prices pull back again. I’m not convinced the correction is over.

Where the Market Stands, Where it’s Headed:

In October of 2007, after a 20-plus year bull market, a bear market was born. Phase I of that bear market brought stocks to a 12-year low on March 9, 2009. On that date, we entered Phase II of the bear market, a period in which stocks rise as the bear attempts to lure investors back into the stock market. This is where we are.

Phase II of secular bear markets tend to last years. With the 1934-1937 bear market rally, the duration was 35 months. So far, we’ve been in this Phase II bear market for 31 months. I believe that stock prices will mover higher before this Phase II bear market rally is over.

Phase III of the bear market will see stock prices approach their March 2009 level, possibly breaking below them and creating new multi-year price lows.

What He Said:

“Any way you look at it, the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second, and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.” Michael Lombardi in PROFIT CONFIDENTIAL, August 27, 2007. “As for the stock market, it continues along its merry way, oblivious to what is happening to homebuyers’ wealth. (Since 2005, I have been writing about how the real estate bust would be bigger than the boom.) In 1927, the real estate market crashed and the stock market, even back then, carried along its merry way for two more years until it eventually crashed. History has a way of repeating itself.” Michael Lombardi in PROFIT CONFIDENTIAL, November 21, 2007. Dire predictions that came true.