Market Overview

Losing Your Money Really Stinks, Right?


Making money in investing is not like pulling dollar bills from the backyard money tree, it's actually a real process that requires real dedication. However, it's uber essential to dedicate precious moments of your existence on this Earth to the RIGHT areas in the investing process. Let's peep this bit of amazingness out regarding third quarter earnings season.

Third quarter 2012 earnings season (or any earnings season) is more than showing mad love to sales and earnings surprise scores and then buying a stock with the smallest amount of research so that it satisfies the learnings from two minutes pondering the surprise scores (think about that for a second, it makes sense chief). Assuming you want to make money, or at the very least keep the shirt being worn clean, remember there has to be a deeper level of understanding. At the moment, there are two items serving as nasty pimples (the root of them is the global macro environment) to corporate financials: unfavorable sales mix and elevated inventory levels. Unfavorable sales mix, as evidenced at Harley Davidson (HOG) and AK Steel (AKS), means less leverage over costs and operating expenses that despite newly formed production methods and layoffs, were still too high as volume and mix underperformed plan. To correct unfavorable sales mix outbreak it takes time and help from the global macro environment, a fancy new product may not do the trick.

As for inventories, this is obviously a byproduct of economic trends that failed to play nice with management's order projections conjured up months in advance (see Caterpillar). Like unfavorable sales mix, excess inventory requires time and help from the global microenvironment to course correct. But, in the meanwhile, as this stale stock is being worked lower, it's at sharper discounted prices, therefore only compounding unfavorable mix and inconsistent volume trends in new product lines and services.

Ya feel me? Mr. Market is not selling off for the sake of selling off, he is currently seeing current and medium-term corporate financials in their purest of state.


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