Alcoa is out with earnings and some headlines are proclaiming that it is initiating the current earnings season with a bullish report.
It is that sort of tripe that keeps me comfortable that you can put contrarian stock sentiment measures aside and take a longer view. The media continues to be on the side of the stock promoters. Let's see what's bullish here. Alcoa reported 13 cents a share, supposedly a surprisingly good number compared to alleged consensus of 11 cents. Why was this a "surprise"?
Per Yahoo! Finance, AA's current estimate was 12 cents. One week ago, it was 14 cents. Two months ago, it was 19 cents.
On July 1, 1983, AA sold for half the current price (adjusted for splits). Maybe that's a quadruple after dividends. That comes out to 5 1/4% annualized. In contrast, buying an equivalent grade corporate bond of the same duration would have yielded, say, 14% annually. Turning the arithmetic around, $2.91 invested in a zero coupon 14% bond would have matured at $100 in the same 27 years (excluding tax for all the above).
In further contrast, gold averaged about $420/ounce in 1983 and averaged around that on July 1, 1983. At $1200/ounce today, that's a 3.96% compound rate of return. Some bubble.
The stock market is less expensive than it has been many times in the past 12 years, but the fundamentals of the economy appear worse as well and stocks remain expensive by most historical criteria ("operating earnings" is a meaningless bogus statistic). The public has very recently begun turning against stocks, but for this to have happened despite all the free publicity the "market" has going for it is a meaningful happening. As there was in 1921, 1932-3, 1974 and 1982, there may come a time where stocks are undervalued by multiple objective and historical criteria.
Given an annual production of over $160,000 per family of four, there is no overall problem with a no-growth economy, given that the truly needy are cared for. The current imbalances argue for less and less concern for prices of financial assets such as Alcoa stock and more for a balanced, sustainable financial and economic framework.
Until the country moves a good deal closer to rational debt loads and limits or eliminates speculation in toxic and generally useless financial derivatives, I believe that the overall trend in the economy and the stock market tends toward the bearish. Touts claiming that Alcoa "beat" consensus earnings and thus happy days are here again do us a disservice.
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