[Futurework] Are we fried?

[Ray Evans Harrell]

Interesting take on things.   I wonder what the list thinks of this?   REH     Eric Fry in New York... - A tech wreck on Wall Street yesterday caused serious injury to the major stock averages. Stocks fell for a third straight day, as IBM, Nokia and a bevy of other technology companies reported disappointing earnings. The tech-heavy Nasdaq dropped nearly 3% to 1,698 and the Dow dipped 44 points to 9,051. - Meanwhile, the bond market resumed its skid after a one- day reprieve. A batch of mildly favorable economic reports, while failing to inspire the stock buyers, seemed to inspire the bond sellers. The 10-year Treasury note slipped 10/32, as its yield inched up towards the 4% level at 3.96%. Gold for August delivery climbed by $1.10 to close at $344.30 an ounce. - The Philly Fed business activity index climbed to 8.3 in July from 4.0 in June - the index's best showing since January. Maybe business activity is picking up in Philadelphia, but it is still pretty sluggish up in Armonk, New York, the home of IBM headquarters. Big Blue's chief financial officer, John Joyce, cautioned investors that business is "good, but not robust," and that many of its customers are delaying major technology purchases. Outside the tech sector, General Motors reported a bittersweet quarter. The sweet part was that the company handily beat the consensus earnings estimate. Unfortunately, however, General Motors can't seem to make a buck selling cars anymore. - The automaker posted a second-quarter profit that topped expectations, but only because its booming finance unit produced a record result. For the quarter, GM reported overall earnings of $901 million, as the profits from its worldwide automotive operations collapsed by nearly $1 billion to a mere $140 million. By contrast, profit from the finance division almost doubled to $834 million. Astonishingly, therefore, GM's finance arm generated nearly all of the company's entire net profit for the quarter. "How much money did GM's mortgage operations kick down to the bottom line?" your New York editor asked Apogee Research's Robert Tracy. - "You're not gonna believe it," Tracy replied. "GM's mortgage operations produced a breathtaking $415 million in net profits, or about three times more than the profit from the company's vast, worldwide auto operations. Another way of looking at it," Tracy explained, "is that mortgage financing produced nearly half of GM's entire net profit." - "So what happens to this so-called car company," your New York editor inquired, "when interest rates rise and the mortgage refinance market dries up?" - "The so-called car company makes a lot less money," Tracy replied, "unless it can start making money selling cars again." - So if the New Economy companies are seeing little sign of economic growth and the old economy companies are changing themselves into banks-in-disguise in order to make a dollar, what hope is there for a stock market that is selling for more than 30 times earnings? What new financial phenomenon will emerge to carry share prices to the next new plateau of ever-more-ridiculous valuations? - Or, to phrase the question differently, what financial phenomenon could prevent the stock market from succumbing to the forces of economic gravity? Surely the bulls could provide a hopeful answer. We cannot. - Based on its dividend yield, the stock market is at least two times overvalued. Currently, stocks yield about 1.6%. By contrast, at the market top in 1966, the dividend yield averaged 3.39%. And stocks were about two and a half times higher than the last bear market bottom in 1974, when it averaged about 4.5%. - The Dow Jones Industrial Average must decline below 3,000 to get its dividend yield back to the levels of 1974 and 1982. But that could never happen... right?