Are Oil and Gold Anticipating QE3?

Earnings season has been a success so far, with roughly 70% of the S&P
500 companies that have reported so far beating expectations. But the last
couple of days have sure made it seem like earnings are terrible.

First, there was IBM (NYSE:IBM) and 3M
missing expectations and getting smacked. But those
declines were nothing compared to what happened to Netflix
yesterday and Amazon (Nasdaq:AMZN)

Netflix was off an amazing 35%, or $41.50 yesterday after it missed
earnings and reported a loss of 800,000 subscribers. And Amazon looks
poised to lose at least 15% off its stock price after its miss last

Not only that, but leading solar company First Solar
got whacked for 25% when it was reported that its
CEO was leaving. It would appear that the CEO’s decision to expand
manufacturing capacity at a time when sales were falling is the cause of
his ouster. No investor, or Board member, can be happy with the stock’s
fall from $175 back in February to the recent lows of $52.

But this latest news has knocked the stock down even further, to $43 and

So the question is: are these companies being treated unfairly? Or rather,
do these sharp declines represent buying opportunities? Perhaps they do.
But there’s a bigger point here, one that concerns the old “catch a falling
knife” analogy.

When bad things happen to a stock, it’s likely that more bad things will
happen. When Netflix fell from above $200 to the $125 range, well, that was
only the first shoe to fall. As it turns out, the situation was even worse
than investors thought. Same goes for First Solar.

Things can always get worse, and in some weird application of Murphy’s Law,
they usually do. When a stock is broken, it usually takes a long time for
the damage to heal.

Today is the day we’re supposed to hear from the EU. But it doesn’t look
like we’re going to get any concrete plans. Italy is apparently the new
roadblock. The EU wants Italy to agree to budget plans to reduce its
deficit before it makes a firm commitment on the ESFS bailout fund.

It’s pretty clear the EU is worried that once Greek gets debt forgiveness,
Italy will be next in line. By forcing austerity on Italy, the EU is likely
hoping that Italy won’t attempt to tap bailout funds.

Bottom line though, is that it’s the same old problem with Europe. Getting
member nations to agree is like herding cats.

Still, some aspects of the debt situation will happen, regardless of
whether the EU comes to any agreement. Greece will default. And Euro-banks
will have to deal with the fallout. It would seem the damage would be less
if these events can be managed.

Oil prices ramped again, and gold prices really took off, closing above
$1,700 an ounce. There is speculation that these moves are related to the
potential for QE3 to be announced by the Fed.

I watched the movie “Margin Call” last night. It’s the story of a Wall
Street firm that suddenly realizes it’s over its head in mortgage
securities. It’s a pretty good re-telling of what happened in 2008, worth
the watch.

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