Hard Rain Gonna Fall?

It's been ages. Hope all is well with everyone. The rest of the summer was pretty good. Golf was spotty but plentiful, the house is in general order, and I'm oh so close to hanging my own shingle.

I've got a lot on the plate at the moment, but I did want to write a brief, brief update as I think that it's of importance timing-wise. In my mind, the market is top heavy and is close to pulling back in a potentially meaningful way. The quick and dirty is as follows:

1) Revenues are not following earnings, and I don't expect them to for some time. We can't cost cut our way to prosperity, and while earnnings results have looked good on the surface, revenue growth has not gone along for the ride. The optimists will say that they will eventually, and they're right. However, when "eventually" might be is the question. While in hindsight it was logical that investors gave companies a pass last quarter (revenue growth will most always lag earnings growth early in a recovery), in order to move higher (or not move lower) I think that the bar has been raised.....and many companies aren't likely to clear it. The big multi-nationals might be in better shape than anyone in this regard, but I believe that the market has pulled the time-line of revenue growth well ahead of reality, epecially given the state of the consumer.

2) Valuations are now looking rich vs. what will likely be anemic earnings growth post the '10 pop (off of EXTREMELY easy compares).
The market is trading at around 20x operating earnings (i.e. ex the BS). While I realize that folks want to look ahead and base valuations off of what earnings will be 12-18 months in the future, I think that the earnings picture is going to get more cloudy vs. less over the next 6 months as we move away from the initial recovery stage.

3) Trading volumes and stock market action have started to diverge.
The most recent up-leg in the broader market has been accompanied by declining volume levels. This is not what a healthy rally is supposed to look like. History shows that this is not likely to last, and my bet is that the market follows the volume.

I think that we have to question whether the inventory re-stock has run it's course here in the absence of job creation and real demand. Expect the holiday season to be weak (perhaps even weaker than the recent predictions indicate). In my opinion, the market is pricing in a more positive trajectory than is logical. Some of the charts are beginning to flash red. It's time to say "thank you" and take $ off of the table.

TRB