Q2 Earnings Season Starts Today

When it comes to conspiracy theories, and the theorists who theorize them, I definitely fall into the armchair variety. Sure, conspiracy theories can be fun (like The Da Vinci Code), and sometimes there may even be a little meat in the conspiracy bone. For instance, there’s no evidence to say that former Treasury Secretary Henry Paulson let Lehman Brothers fail because he didn’t like CEO Richard Fuld. But after engineering a buyout for Bear Stearns, I feel strongly that Paulson got personal.

And we can’t be sure that the Chicago Merc raised margin requirements on silver to protect big banks short positions. But it makes some sense…

So, I couldn’t help but get a little conspiratorial after Friday’s dismal jobs numbers. Not one economist got even close to the real number (18K). And after the ADP Payroll number came out, estimates for the government’s NonFarm payrolls went up.

Now, we know pretty much any government statistic is suspect. They are usually calculated to give a rosy picture. And the NonFarm Payroll number is especially variable because, as a Bloomberg article notes:

The Labor Department, which houses the Bureau of Labor Statistics, adjusts the employment figures each month to account for things like teachers falling off school payrolls in June and workers finding temporary employment with retailers during the December holiday season.

"There was a big adjustment this month," Labor Department Chief Economist Betsey Stevenson said on a conference call with reporters. "It’s an art and a science doing seasonal adjustments and it’s really hard to predict."

At a time when we’ve already seen weak economic data for a couple months, wouldn’t it be a good time to be less aggressive with seasonal adjustments? Or does the weak employment number support the Obama administrations budget battles in Congress? It seems to me that austerity is a tougher sell when it could easily push the economy into recession.

For instance, The New York Times is reporting that 20% of American income is coming from the government in the form of unemployment benefits, food stamps, Social Security and disability. And $37 billion in unemployment benefits are due to expire this year.

Overall, total government payments rose to $2.3 trillion in 2010, from $1.7 trillion in 2007, an increase of about 35 percent.

The EU needs to get its act together. A year and a half after Greece’s debt problems surfaced, and they still haven’t agreed on a solution. And now, rumors are swirling that the current European bailout fund isn’t big enough to cover Italy.

Needless to say, the uncertainty is crushing the euro. It’s down sharply against the U.S. dollar. And as we know, a stronger U.S. dollar means weaker commodity and stock prices.

If the dollar was rallying on strong U.S. economic numbers, then we could see a situation where stocks and commodities could rise, too. But of course, that’s not what’s happening. The dollar is strengthening because it’s simply the best alternative to the euro (and yen).

Stocks are down in the early going. Maybe it’s because of Europe. Maybe it’s the 6.4% inflation reading China just released. Or maybe, stocks are down because they’ve just rallied for 8 straight days and earnings season starts this evening with Alcoa (NYSE:AA).

If I had to guess, I’d say Alcoa will beat earnings by a penny, but fall just short on revenues. That’s been the pattern for the last couple of quarters, why stop now?

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