The Best of Kass

I never view consensus forecasts as meaningful -- they are crafted by investor relations departments, and beating them is much like Monty Python's Twit of the Year contest (easily jumped over). Moreover, despite the earnings "beats," 65% of the top-line sales forecasts missed.

Revenues Lead, Profits Lag!

Earnings beats and sales misses are what one would expect in a balance-sheet recession. Companies are not hiring or spending, so costs are in control (for now) in a sluggish economic setting. There is no reason to expect things to get better in the third quarter, as you can't shrink your way to higher profits indefinitely. At some point, profits flatten out.

We're seeing a deepening crisis in Europe, a continued slowdown in China and India, coupled with a near-15% rise in the Commodities Research Bureau Index (grains and oil ++) since early June. All of these likely signal worsening profits, threatened margins and moderating personal consumption expenditures in the second half.

Meanwhile, equities have ramped up to the higher end of my projected trading range, and many are turning more upbeat.

Expanded Short Exposure

As a consequence of the above, during the market strength from Tuesday to Thursday, I expanded my net short exposure to the second highest level of the year. I took on short hedges in SPDR S&P 500(SPY) , PowerShares QQQ(QQQ) and iShares Russell 2000 Index(IWM) (IWM). (Substantially my largest hedge is on the Russell Index -- the worst-performing of the indices).

Here are my approximate cost basis of the recent index shorts, with current market price in parentheses:

In terms of individual equity positions, after seven straight sessions of rising crude oil prices I profitably exited my Market Vectors Oil Services ETF(OIH) long rental late Thursday and eliminated my longs in Ensco(ESV) and Schlumberger(SLB) for profits throughout the week. (Crude is down by about $1 this morning).

I expanded my for-profit education shorts this week -- NBC's Brian Williams talked about the poor value proposition of for-profit on "Rock Center" last night. My favorite short in the group is Grand Canyon Education(LOPE) .