Corporate Earnings Will Be the Ball Game For Stocks

The headwinds in the stock market are rising. Government accommodation in major parts of the world is being dialed back. China is raising interest rates to cool growing inflation and a runaway economy. The Euro bloc is raising interest rates to combat inflation, in spite of a slow growing economy. Brazil is growing, but will have to battle serious inflation. Oil prices keep rising; $4 a gallon gas is a reality in most of the U.S., even if statistical averages haven't quite gotten there.

Black swans fill the air. Arab unrest has a whack-a-mole quality to it. No matter what is done to calm things down, eruptions get bigger and more widespread. Libya has stalemated, putting pressure on Western nations to join the ground war. Japan just elevated its nuclear crisis to Chernobyl status. And that's just the part the Japanese government has told us about. Considering that it hasn't been a paragon of transparency, one can only wonder what we don't know. Japan keeps having aftershocks that would qualify as big earthquakes anywhere else. Things aren't settling down there.

Portugal has just gone to the EU, hat in hand, to ask for a loan in the range of 80 billion Euros plus, following the path paved by Greece and Ireland. The Euro crisis is sliding downhill more or less as predicted. (Watercooler gossip has it that Spain will be next in line for a bailout.) As France takes the lead to spend Germany's money bailing out weaker EU nations, the markets snooze in the belief that creditors will be paid 100 cents on the Euro. Some day that won't be true. If you look at the Euro bloc as a whole, it's awash in debt. We have the lesson from the U.S. and other real estate markets that too much mortgage debt leads to bad things. That will also be true for sovereign debt.

The U.S. Federal Reserve is keeping its monetary printing press going 24/7. A majority of governors say they don't see any inflation, but would welcome it if it happened. That way, they can keep paying the print shop staff overtime no matter what. Meanwhile, back at the ranch, the poor consumer, whose wages aren't rising now or any time soon, is cutting back on driving while trying really hard to believe that beans and franks make a fine meal. Walmart just announced a return to every day low prices. That, as much as anything, tells you the consumer is under pressure. Since the U.S. economy is two-thirds consumption, the economy will soon be under pressure, too.

Stocks have more than doubled since their 2009 lows. Just about the only thing that can keep the bull running would be glowing corporate earnings. Alcoa was at the top of the order today, and whiffed. It reported greater earnings but disappointing revenues. Its stock is off about 3% in afterhours trading. Not a good beginning to the earnings season. If other companies follow Alcoa's lead, well . . . just tell yourself that beans and franks make a fine meal.