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Tickers in this Article: C, WB, AGO, AAPL, AXP, TXN, UPS
So far this earnings season, Wall Street has been severely let down by many companies including Assured Guaranty (NYSE:AGO), Wachovia (NYSE:WB), Citigroup (NYSE:C), Apple (NYSE:AAPL), American Express (NYSE:AXP) and Texas Instruments (NYSE:TXN) and UPS (NYSE:UPS), just to name a few.

The real deal here is that the economy continues to suffer from poor credit conditions, dismal employment, weakened GDP growth, higher oil and food prices, the beat up U.S. dollar and depressed real estate. Now investors are wondering whether we're in for even more downside, or whether we're sitting near lows. While there's still plenty of risk outstanding, there's hope, too, as you're about to see.

It's the Journey, Not the Destination
It's clear the bulk of Wall Street isn't Buddhist as seen in the never ending eye on the horizon and tomorrow. Wall Street hates today, unless of course, it's about bad news. We focus on losses today and expectations tomorrow. While this isn't a poor mindset by any means, the overall message is often one of the major catalysts in an "exuberance bubble" type situation.

What it comes down to is this: Every business (even economies) run in cycles and eventually, times of contraction must occur for long-term health. Even people have to sleep sometime. What happens, though, is that Wall Street's (and the general investing public's) relentless expectations for constant growth eventually paves the way for disappointment. Case in point, American Express made money in the second quarter, the company simply made less than analysts had predicted, while also having to state that it may not be able to hit 4-6% growth in 2008. (For more on analyst expectations read Analyst Forecasts Spell Disaster For Some Stocks.)

When we look at American Express' second quarter earnings, we see that the company made $653 million for the quarter. That's over half a billion dollars, and yet the stock has been beat up! The never-ending greed based hyper-expectations of analysts, investors and Wall Street on the whole only make the entire picture that much more difficult for companies to recover when times turn south. The simple fact of the matter is unrealistic expectations are often met with exuberance, which then turns to many people losing their shirts... and then moaning about it.

With American media constantly promoting fear to sell stories, fear equals revenue for the media, just like greed equals revenue for analysts and brokers. At the end of the day, if the "pump and dumpers" of the world stopped hyping earnings growth expectations, we'd likely not be in the present continued mess on Wall Street.

Fear and Greed Rule Wall Street
The same issues can be found as catalysts for the overall credit issues worldwide. Hyped real estate returns by investors led to greedy irresponsible loans by corporations, which led to a "toppy real estate market", whereby the media stepped in full throttle with fear. Now, the fear headlines are still selling as companies have to admit lower expectations.

You're heard it before: Wall Street comes down to greed and fear. But here's the twist, the truth is the real equation comes down to expectations for the future, and the fear of losing your shirt today. For so many in the market, if we are to take a step back and consider what's really happening in the economy, nation, world, fear-based revenue driven media headlines and within ourselves, we may just very well stand the chance of not only stopping ourselves from jumping on the greed-expectant bandwagon, but also remain calm when the world begins losing its shirt today. (For related reading, check out When Fear And Greed Take Over and Neuroeconomics And The Science Of Investing Fear.)

The Silver Lining

While things certainly look gloomy, it's quite likely that we're nearing the bottom. The IMF just increased - yes increased - 2008 GDP growth from 0.5% released in April to the present 1.3%. Housing prices are absolutely wretched, while oil remains at highs. Likely we are in the "eye" of capitulation. What's more, America is now in the fourth quarter of "financial shock", providing evidence that the present dismal conditions have been long and hard for almost everyone. However, much like the 2000-2001 turnaround, when GDP revisions start leaping up, the bottom is near. Case in point, the presently mentioned IMF outlook change.

The kicker though, could be the U.S. dollar, which may be on the eve of a reversal. With the European Central Bank having kept interest rates high at 4.25%, while the FOMC has dropped rates to 2.0%, liquidity in America should be more abundant. The effort by the FOMC is slowly buoying the U.S., while the ECB's hawkishness has hurt GDP growth in the Euro Area. Likely, the third quarter will not be kind to the Euro Area at all. As the ECB begins lowering rates, while the U.S. raises its rates, the U.S. dollar will rally against the euro. The U.S. Dollar Index is 58% composed of the euro, so the index will rally heavily too. Finally, because oil is traded in U.S. dollars, as the greenback gains, oil could cool, an event that would be good for the U.S. economy and stocks.

To learn more, be sure to check out our related article The Importance Of Inflation And GDP.

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