"Why" indeed...

A monthly columnist and "financial consultant" from a "respected" financial publication wrote the following:

"Volatility makes people nervous, and when they are nervous they think about recession. Here's a heretical observation: The basic economy is doing better than most reports, and pockets of the stock market are sensing that. We keep hearing that the consumer is under pressure. Meanwhile, stock in Wal-Mart, where America shops, continues to hold firm in the $50 area. If we truly are mired in a recession, then why are Caterpillar (up 5% this year) and IBM (up 10%) doing so well?"

Why indeed. Again, my position going forward should be clear enough by now, but to answer this man's question, could it be that these (and most of the S&P 500) derive a significant amount of their revenue from foreign sources (or wholly-owned foreign subsidiaries)? Could this fact be augmented by the decrease in interest rates, and therefore the discount rate (or cost of capital) used to evaluate the future cash flows from these companies?

Think about that. A company is earning more while paying less.

Once again, the dangers of stringing together disparate facts and searching for confirmation (rather than falsification) rears its ugly head.