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Wednesday, October 07, 2009


3q earnings season

via pragmatic capitalist -- expect upside surprises to dominate.

Unit labor costs have come down at an annualized 5.5% pace in the first half of the year. This is the second largest on record and has allowed corporations to cut costs at a rate that is substantially faster than their revenue deterioration. The math here is simple – profit margins are expanding rapidly. The last time the margin divide was this wide was in 1983. Revenues are likely to be largely in-line or worse than expected, but the market is unlikely to punish firms this early in the earnings recovery.

watch technicals following such a huge equity rally, particularly with liquidity concerns afoot -- but the fundamental backdrop here is very positive in spite of steady credit contraction and revenue slides. i have worried about the margin compression in inputs -- but the biggest input cost is labor, and labor is getting much cheaper.

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