Like kissing your sister …

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Quotable

2010 World Cup edition…

I am a member of a team, and I rely on the team, I defer to it and sacrifice for it, because the team, not the individual, is the ultimate champion.

                           Mia Hamm

To say that these men paid their shillings to watch twenty-two hirelings kick a ball is merely to say that a violin is wood and catgut, that Hamlet is so much paper and ink.

                           J.B. Priestly

The goalkeeper is the jewel in the crown and getting at him should be almost impossible. It’s the biggest sin in football to make him do any work.

                           George Graham

The rest of the world loves soccer. Surely we must be missing something. Uh, isn’t that what the Russians told us about communism? There’s a good reason why you don’t care about soccer – it’s because you are an American and hating soccer is more American than mom’s apple pie, driving a pick-up and spending Saturday afternoon channel-surfing with the remote control.

                           Tom Weir

FX Trading – Like kissing your sister …

I heard about the World Cup opener between South Africa and Mexico and have seen two other “matches” since; all three have resulted in ties. Both Jack and my father-in-law respond the same way – it’s like kissing your sister.

And it really is.

Even if you’re a fan, even if you try your hardest to appreciate the athleticism and endurance of the players, you just feeling like hitting yourself in the face after sitting through ninety minutes and the final score is 1-1 … or worse, 0-0.

(That’s not to mention the patented ankle-grab-and-roll-whilst-wincing-in-pain maneuver that’s been perfected and is too often implemented after an opposing player throws an elbow or brushes across the subject’s personal space. Whatever you’ve got to do to get those sorry refs to blow their whistle, right? The fans should be the ones in agony watching these athletes/actors/_________.)

We’d been getting a lot of emails, and I’d read a lot of articles recently, recommending getting money out of the markets and moving into cash.

Sure, there are benefits to being in cash … but really it’s mostly like kissing your sister, right?

I guess the biggest proponents of moving to cash during times of uncertainty and volatility are those who strictly look to play equities only when they’re going up.

Did I mention that the off-sides rule is very collectivist?

Anyway, as I dug into some reading yesterday, it almost seemed as if market sentiment had shifted on a dime away from the uncertainty (and need to be in cash) and towards risk-taking. The driver all of a sudden became optimism on economic growth numbers and an upbeat earnings season.

A bit schizophrenic, almost.

So when I read an article discussing the growth in corporate profits and the strength in stocks markets we’ll see emerge when second quarter earnings season kicks off, I couldn’t help but think: this could get ugly.

And it could get ugly because there’s a decent chance that company earnings – good, bad, or ugly – aren’t going to make a difference … even if the positive expectations do suck investors in. The reason there’s been so much talk about moving into cash is because investors fear sovereign debt problems and European bank contagion, among other things.

It’s hard to deny that corporate profits and earnings have been improving. And they could still further improve.

US Corporate Profits

US Corporate Profits, percent change yoy

US Employment Cost Index, percent change yoy

US Labor Productivity, output non-farm (black) and manufacturing (blue)

But after recession, corporate profits are typically the indicator that improves first as companies cut costs, increase productivity, etc. But this doesn’t mean that the rest of the economy is following right behind.

Indeed, on the list of worries, though not as important to analysts and investors lately, is the unemployment situation. I showed this chart, among several others last Thursday, making the point that there’s been an attitude change among US consumers that could last a while.

US Labor Productivity, output non-farm (black) and manufacturing (blue)

Check out where the unemployment rate peaked after the 2001 recession took hold. And now look at where this rate currently sits.

Combined with global growth pressures and trade flow, this figure is going to dictate government policy, growth expectations — you name it — for some time to come. Be careful acting on the optimism surrounding earnings season and similar growth numbers. But to be sure, I don’t advocate kissing your sister.

Just be ready to sell commodity dollars and euros soon.

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