Forget the seasonal strength in the housing numbers. Jobless claims slightly better than expected? Who cares. UPS reported their earnings today. That’s all you should care about. UPS and FedEx are, in my opinion, the two best barometers of economic growth in the world. While the market rips higher on “better than expected” earnings and the strong housing numbers they are completely overlooking the fact that UPS sees no signs of recovery. As a middle man in almost every transaction it is nearly impossible to see a sharp recovery that UPS is not involved in. CFO Kurt Kuehn had these comments on the call this morning:
“Our trends so far in July show no material uptick in growth, We don’t have any confidence that either demand or activity is going to pick up substantially.”
And directly from the earnings release:
“The economic environment continues to be difficult. Declines in both our domestic and international businesses appear to be stabilizing but volumes will remain significantly below last year’s levels,” said Kurt Kuehn, UPS’s chief financial officer.
“Although declines in economic indicators are less dramatic than earlier in the year, questions remain as to when business activity will begin to strengthen,” he continued. “The business environment in the third quarter should be similar to the second quarter.
Meanwhile, on the other side of the pond Deutsche Post DHL is reporting similar sentiment. CEO Frank Appel says:
“We still don’t have a clear view of . . .further economic development. Though economic conditions haven’t worsened – with new business bustling and our strong market position in Asia – we are not yet seeing any substantial improvement.”
So, the stock market is now getting very euphoric while the underlying fundamentals still show no real sign of a strong recovery. I’m making a list and checking it twice. Although my S&P 1,000 call is still intact, it’s time to start planning for a tactical short position in this environment. The fundamentals don’t rhyme with this market action in the last few weeks.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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