Kneejerk Reaction Knocks Out Cyclicals

 | Sep 19, 2011 | 10:57 AM EDT
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The butchery of the cyclicals and the oils always takes your breath away. It's a pattern that shows you there is nothing underneath, nothing whatsoever, when analysts make calls that earnings for 2012 are too high -- see Caterpillar (CAT) and Schlumberger (SLB) -- and the dollar is strong, the commodities are weak, and Europe is, as usual, falling apart.

The kneejerk way these can fall is so out of synch with what can and is happening that you can see why this market keeps having money coming out of it, as a Bloomberg survey showed this morning. (Most out since the dark days of Lehman.)

I get the Caterpillars of the world. People think China isn't done tightening, and there is nothing new in the U.S., so it is possible that numbers are too high. But the Schlumberger oil-is-no-good call? This one is surprising, if only because the commodity oil has done nothing for ages. Brent crude is barely down, and oil is keyed off of that, not West Texas Intermediate. I have not been able to find a single budget for oil companies going down next year, and most are going up.

No matter, this is all about recession again. The off-on-off recession call with strong dollar/weak commodities/down Europe is going to plague this group until we get an end to the tightenings in the emerging markets and some turn in the U.S.

Until then, fundamentals are not as bad as macro, but analysts are bowing to the macro because they can't take the pain.

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