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Marketplace Scratch Pad

Bustin’ out

Paddy Hirsch Jul 23, 2009

The Dow pumped up about 9000 this morning, thanks to a bunch of good earnings numbers. Ford, AT&T and EBay all look better than expected. Throw in some good home resales data and an apparently encouraging weekly jobs figure and the corks are popping all over Wall Street. Well, all over CNBC, anyhow.

To be fair to our cousins in Fort Lee, the news of the Dow’s rise did raise a cheer at the Marketplace morning meeting (although I did detect some irony there – everyone still in bonds?). But it sparked a discussion about the psychological effect of numbers on investors.

Take those earnings numbers, for example. “Better than expected.” Better, in other words, than analysts had predicted. But the last few quarters have been so brutal that most analysts have been particularly pessimistic when evaluating companies. That’s the gist of what Juli Neimann of Smith, Moore and Company told Steve Chiotakis on the Morning Report earlier this week. And then there’s the fact that most companies have been “managing investor expectations” aggressively. Letting them know early on that the numbers won’t look good, in other words.

This means that when the earnings per share number arrives, it looks a lot better than the number predicted by the analyst. But that doesn’t necessarily mean it’s good.

Now what about those jobs numbers? The number of newly laid-off workers seeking jobless benefits rose last week to 554,000. Bad news. But here’s a thing about those weekly jobs numbers. The government tweaks them to account for seasonal auto plant layoffs. Because of all the troubles in the auto sector, those tweaks have skewed the picture this time, making the number meaningless.

Some bankers are focusing on the the four-week average of claims, which smooths out fluctuations. It dropped, to 566,000, its lowest level since January. And the total jobless benefit rolls also fell – more than expected 88,000 to 6.2 million, the lowest level since mid-April.

So, good news, right?

Well, maybe. Unemployment’s at 9.5 percent nationally, and economists still say it’s still rising. Now, having digested all that jobs data – is it good or bad news? I still haven’t worked it out myself. Certainly not to the point where I’d place a bet in the market.

As for those housing numbers, Bloomberg reports they were spurred by tax incentives, lower borrowing costs and foreclosure-driven declines in prices. But then there’s this report, also from Bloomberg, that mortgage rates rose for the first time in four weeks.

So much for cheap money. Unless those borrowing costs come down, that increase in purchases is likely to fizzle.

So, short or long?

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