Down down 235! Just the beginning!

Suddenly, Wall Street is worried about earnings! Analysts now expect first-quarter profits in 2015 to show profit growth of 1.9% down from 5.3% on January 1. Earnings growth forecasts have now been slashed are all four quarters this year. Full-year 2015 profit growth is now forecast at 5.7%, down from 8.1% in January 1!Duh! See the Lone Bear Letter below. Lower growth expectations are coming because of the lower oil prices on energy companies and the unexpected strength of the dollar. See the Lone Bear Letter. Earnings of such companies as Caterpillar Procter & Gamble, are all being affected. Duh! A quote from US today money website “Maybe America isn’t immune to the worlds problems after all”. See the Lone Bear Letter below. Stocks today were down more than 390 points, on track for the the worst one-day point drop in three years. But the Dow trends its losses a bit towards the close and was only down 235 points or 1.3%. This is just the beginning, in my opinion!
The other thing that is bothering me, as  stated in the Lone Bear Letter, is the quality behind high yield bonds (soon to be called Junk Bonds). It appears that the automobile loan business is following the bad business decisions, made by the banks when they issued sub prime mortgage bonds. Although these bonds were rated AAA they were made up of sub prime mortgage holders, that eventually crumbled the house of cards. The New York Times yesterday had an editorial about automobile loan companies giving automobile loans to those that cannot afford it. Loans are even given to those who have just had their cars repossessed. This is because there is such a high demand for these high-yielding bonds (yielding above 10%) that the banks  are willing to issue loans to anybody, so they can get their commission. This is very reminiscent of the sub-prime mortgage industry. Although it is not as large, only some $20 billion, it is indicative of my feeling that we have learned nothing from the Great Recession.

Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information.

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