What Software, Oil and Purses All Have in Common Now

Stock market newsThis morning, we awake to hear the good news that Microsoft Corporation (NASDAQ/MSFT) reported a 51% jump in its first-quarter profit. The world’s biggest software-maker posted a three-month profit of $5.41 billion, well above analyst expectations. Saleswere up a big 25%.

But there’s more…

Exxon Mobil Corporation (NYSE/XOM), the world’s biggest oil company, said yesterday that it made $7.35 billion in its latest quarter, a 55% surge in profit.

I can keep mentioning companies that reported big earnings yesterday, but that would just get boring, because the money isn’t going in our pockets unless we own the stocks. But to get the point across, yesterday alone, companies reported corporate profits of about $20.0 billion.


Even the retail sector is back in business. Visa Inc. (NYSE/V) said that its latest quarterly income jumped 51% to 774 million dollars. Visa said that it processed 16% more transactions in the latest quarter, which validates my belief that consumers are slowly starting to loosen those purse strings.

And the stock that I watch to see what the high-end buyers are doing…

Coach, Inc. (NYSE/COH), the largest maker of luxury handbags in the U.S., reported a 34% hike in its quarterly profit to 189 million dollars yesterday, also beating analyst expectations. I’ve always followed the price action of Coach shares, because it is a bellwether stock for the luxury market. If Coach stock is rising, the high-end buyers are spending. (As an aside, COH stock is up 231% since March 2009; the stock led the market higher.)

So, what do software, oil, credit cards and purses all have in common? They are all making big money, that’s what they have in common. Looks like we may have to increase our 2010 earnings projects for the Dow Jones Industrial Average (you can see it here on our Profit Confidential website) and looks like the word is getting out…

Stocks are not a bad deal after all.

Michael’s Personal Notes:

If you have a chance, you need to read Bill Gross’ monthly investment outlook posted at http://www.pimco.com/Pages/RunTurkeyRun.aspx. Bill is manager of Pacific Investment Management Co., the world’s biggest bond fund.

Bill’s November 2010 investment outlook basically says that a new round of quantitative easing by the Federal Reserve will result in the end of the 30-year bull market in bonds. He equates the rise in prices of bonds at the cost of lower yields to a Ponzi-type scheme.

I’m of a different opinion. I believe that the bull market in bonds (which started in the early 1980s) actually ended almost two years ago, when the Fed brought interest rates to zero.

What you have today is the fools left buying bonds who don’t understand that: (1) interest rates cycles are 20 to 30 years in duration; (2) bonds decline in value when interest rates go up; and (3) the amount of liquidity the Fed has unleashed upon us is inflationary. Bonds go down when inflation goes up.

Where the Market Stands:

Today’s the last trading day of October and we can breathe easier. The wicked stock market month of October, the one that historically has given us the biggest crashes, will be officially behind us by end of the day.

It’s been quite a rise for the bear market rally, from 6,440 on March 9, 2009, to a close for the Dow Jones Industrial Average yesterday of 11,113, a gain of 73%.

There’s life left in this bear market rally for the simple reason that investors are still shunning stocks and few alternatives to equities exist. Buy a bond? Not me. Buy real estate? Still too early.

One of the greatest thinkers in our history once said, “In life, there is only work and love.” For investors right now, Michael Lombardi (not so famous) says there is only stocks and gold.

What He Said:

“As investors, we need to take a serious look at our investment portfolios and ask, ‘How will my investments be affected by an American grown recession?’ You should take what precautionary steps you can right now to protect yourself from a recession in 2007. Maybe you need to cut your own spending or maybe you need to sell some stocks that will take a beating during a recession. You know what tidying up you need to do. Don’t procrastinate…get to it now. And please remember: Recessions can happen quickly, stock markets don’t go up during recessions, and the longer the boom before the recession, the longer the recession. Just based on my last point, we have plenty to worry about in 2007.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.