Earnings and the Dollar

Earnings season really gets moving this week as we hear from
heavyweights Bank of America (NYSE:
Apple (Nasdaq:
AAPL), Goldman
(NYSE:GS), Yahoo (Nasdaq:
YHOO), Johnson & Johnson (NYSE:JNJ), Morgan Stanley (NYSE:MS), Wells Fargo
WFC), and eBay

Citigroup (NYSE:C) reported this morning, and its earnings
news was similar to JP Morgan’s (NYSE:
JPM): both companies beat expectations by a few
pennies a share, but much of the improvement was due to smaller loan loss
reserves, rather than strong improvement in operations.

Citi reduced loan loss reserves by $1.99 billion in the
Third Quarter. Net income was $2.17 billion. Clearly, improvement in loan
quality is largely responsible for Citi’s turnaround.

Some investors may not be impressed with Citi’s earnings.
And it’s true that for Citi, its earnings were more a function of less bad
news (in the form of bad loans) than they were the result of growth for the

For me, Citi’s earnings are another milepost on the road to
de-leveraging. And that’s a good thing. Also, Citi may be only 2 or 3
quarters from declaring a dividend again.

I expect we’ll hear
similar earnings news from Bank of America (NYSE:
BAC) tomorrow morning.

Bank of America has been knocked below tangible asset value
of approximately $12.60 after a hedge fund released a report suggesting that
BofA could be facing as much as $70 billion in losses as a result of the
foreclosure problems.

In my opinion, this report is just an attempt to drive the
stock lower.

As we’ve discussed,
stocks have been moving higher the Fed’s promise/threat to do more
quantitative easing and the subsequent weakening dollar. But now, earnings
may become the driver between now and when the FOMC meets November

Let’s not forget that the economy slowed at the end of the
second quarter. As a result, analysts lowered earnings estimates. But so far,
headline earnings have beaten expectations. The only significant exception
has been GE (NYSE:GE).

I see no reason that trend won’t continue. And with the U.S.
dollar starting to show some signs that it might bounce, a positive trend for
earnings would be timely.

If Apple
had been added to the Dow Industrials, that index would be
over 12,000 right now. That sounds like a big missed opportunity for the Dow
Jones Company.

But let’s not forget that the Dow is the least significant
index. Investors pay attention to it because it’s a big number, that’s about

And speaking of Apple, it reports 3Q earnings after the bell

Of course, I’d like to hear your thoughts. I’ll even print
them. Write me here: [email protected]

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