Consumers Not Too Confident

The famed University of Michigan index of consumer sentiment declined to 63.2 from 66 in July. While up from the three-decade low of 55.3 it set in November, the index was supposed to rise to 69 according to economists. Economists must be absolutely shocked that consumers still get bummed out about things like not having a job, being upside down on their mortgages, and having their credit cards cancelled by AmEx. But isn't the stock market up 50% from the lows? Shouldn't they be feeling better? Sure, they've stepped back from the ledge, but still, economic conditions are tough for the majority of Americans. It might take some time before everyone has a bounce in their step again, regardless of whether Wall Street is already handing out record bonuses or Bill Gross is buying a $23 million tear-down in Newport Beach.

Speaking of the market, it is taking a bit of a beating today, with all of the averages down about 1.5% so far. The market seems to finally have stalled out after staging a spectacular rally for the past several months. As investors stop to catch their breaths, many must be asking if they've gotten ahead of themselves. But earnings have been great right? I mean, they've beaten all of those expectations that analysts slashed right before earnings were announced. Right? A very interesting piece in the FT yesterday, written by Chief Investment Officer of Lombard Odier, Paul Marson, questioned the quality of earnings and pointed out the jarring difference between reported earnings per share and earnings on an adjusted operating basis. So far reported earnings per share for the S&P 500 companies is $7.20 per share, down 91% from the 2007 peak. On an adjusted operating basis (which excludes all of those "one time items" that often don't wind up being one-time only), earnings are $61.2, down 34% from the 2007 peak. This $54 gap between reported and adjusted operating earnings is apparently a record. Something to mull over before you dive in and buy more stocks on the dip.