Who Cares What Wall Street Thinks?

• ByTim Melvin, RealMoney.com Contributor
• On 11:00 am EDT, Friday October 16, 2009

We need to stop playing the expectations game. It seems like every day we hear that some report was better than expected. Since Wall Street analysts and economists make weathermen look like paragons of forecasting accuracy, why on earth do we care what they think? We need to start focusing on what is happening without comparing it to what someone thought was going to happen.

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Symbol	Price	Change
ACTS	2.40	0.00
AVTR	16.27	0.00
CRE	8.34	0.00
HOG	27.84	0.00
JPM	42.46	0.00

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Take a look at what is going on in the economy. I don't care what a survey of economists thought was going to happen, losing over 500,000 jobs is not a good thing. There is no way to put a positive spin on that number. The four-week average claims number dropping is meaningless. It just means that we are losing an incredible number of jobs on a weekly basis. Try to sell the less-bad theory of prosperity to one of the 531,000 people losing their jobs each week, and see how it goes over.

Everybody seems to have a theory on housing. An awful lot of people think we are bottoming. Again, try selling the theory to one of the 3.5 million property owners who will face foreclosure this year. Housing prices are still falling pretty much across the board. Your estimate for sales is meaningless, since a huge volume of transactions are distressed properties and the shadow inventory is still building. Analysts downplay commercial real estate, even as bank regulators tell us that it is the biggest hurdle facing most banks over the rest of the year.

We play this game with individual stock reports as well. JPMorgan Chase was better than expected. Does the fact that the company made trading profits using a combination of depositor and taxpayer money mean anything for the economy or broader market? The fact that the company lost $7 billion on bad loans is much more telling, in my opinion. Yesterday, traders were bidding up shares of Safeway because the company beat expectations. The reality is that earnings were down 35%, with a sales decline of 7%. Management said that the company had to use specials and discounts to drive traffic as the economy remained weak.

Even more stunning was the pop in shares of Harley-Davidson yesterday. The company reported earnings that were down more than 80%, and sales were down 21% year over year. The finance unit alone lost over $31 million in the quarter. Although the stock fell initially at one point, the buy-the-dip crowd had the shares up a little over 1%.

At this point, someone will tell me that the stock market is all-knowing and anticipates the turning points. Since the market has not anticipated a single thing that has happened in the past three years, however, I find that argument suspect. I think it would be more accurate to say that the market projects its hopes and dreams several months ahead.

If we totally ignore all the forecasts and predictions and instead focus on what is actually happening, here is what I see:

• Revenue and earnings are below year-ago levels.
• Profit is being produced by cost-cutting and layoffs, not by selling more products.
• Unemployment is rising, real estate is falling, and consumers are scared.
• Bank balance sheets are vulnerable, and we are facing a lot more bank failures in the months ahead. Loan losses are rising in every category. Even the executives of the banks say that there is no end in sight, but the analysts tell us that it is getting better.