Almost everyone with a voice in the market is chirping about how great earnings season has been. I am one of the few who just doesn’t get it. I keep trying to reconcile the dramatic dumbing down of analyst estimates that took earnings growth from almost 9% at the start of the year to 3.8% at the start of earnings season. Then I throw in the macro environment of slowing economic growth with expectations of more slowdown to come and I am even more disillusioned. For all the years I have been paying attention to earnings estimates, I can never remember a quarter that was so dramatically screwed with. I have to do more work on this topic, but my big question is - “Did the analysts suck so bad or did the companies do so well?”

Whenever anyone quotes the percentage of beats, meets, and misses - I just ignore it. Comparing this earnings season to any other that I can remember just doesn’t seem appropriate. I just was reading some of this crap and saw that 22 of the 30 Dow members have reported, with 16 beating. Beat what? Let me ask you - would they have “beat” the initial estimates that fundamental investors were using in January? If so - great - but would they have still beat when you subtract the shares purchased under a buyback plan?

So here is what I suggest: Evaluate each company in your portfolio and look at what estimates were 90 days ago. When earnings are actually reported, did they beat the original estimate or just the dumbed down current one? If estimates were lowered for reasons that you can clearly understand or if there was some clear downward guidance publicly expressed by the company, then fine. And since EPS can be manipulated relatively easily with share repurchases, how about looking at raw earnings numbers rather than on a per share basis. Lastly, spend a little time looking at top line growth and gross margins. If the company beats estimates but revenue growth is poor and/or gross margins are compressed, please don’t get too excited.

To illustrate this point, I am going to pick on GM (fair or not) because their earnings are reported this week. Here’s a link to their EPS estimate over time. The March 2007 quarter is sitting at 90 cents now but 90 days ago it was at $1.25 (a 28% reduction). Meanwhile, GM’s stock price is within pennies of its value 90 days ago and about 5% higher since the beginning of the year. So when they come out, will they beat 90 cents or $1.25? I know GM has had a lot of weird stuff going on so if you don’t like this example, pick another one.

I am certain that quite a few companies in the S&P beat estimates and lived up to the expectations for revenues and earnings that investors had set at the start of the quarter. However, I am not buying into the hype that this season has been as spectacular as it is being described. Please take a lot of time to evaluate your expectations for each quarter and make sure you know what you are getting. If a company doesn’t hit your personal standards for revenues, margins and earnings, that may not be a reason to sell especially if the stock heads higher. However, it should give you a reason to keep a really close eye on things.

Pointillism is a form of art whereby the painting is started by one dot on the canvas. With each successive point, a picture comes into view and when complete, the subject is not just a bunch of dots, but a composite that is easy to comprehend. The masterpiece at left, “La Parade” is by Georges Seurat, the father of Pointillism and oddly enough, someone who symbolizes my perspective on stocks.

Many people look at the market by first evaluating the indices and taking a look at the charts of the Dow, Nasdaq and S&P 500. In my opinion, that view is very limiting and once those images are established, your ability to see the fine details and contrast becomes very difficult.

Every week, I look at over 4000 individual stock and ETF charts and like Seurat, I start with a blank canvas. One by one, a chart becomes an individual dot - some green, some red, and all the shades that you can make from each. At the end, I look at the resulting picture and that is how I form my opinion of the market.

On its surface, last week’s action seemed very bullish. I’ll give you that. Just throw enough hype at Dow 13,000 and keep saying how wonderful earnings season is going and you might be convinced this upward move is never going to end. Once you take the first look at a Dow chart, the bullish view is etched in your brain and I know it’s tough to avoid that temptation. Just remember that each index is a composite of individual companies, not the monolithic piece that gets all the attention. Sometimes the Pointillist stock market is consistent with the big picture view, and other times it isn’t.

When I started my work this weekend, I confess that I was expecting to see a bullish impression at the end, but that is far from what resulted. Last week, HEDGEfolios had 2367 UP signals and will all the happy talk, you might believe the majority of them advanced from Monday’s open to Friday’s close. In fact, only 51% headed higher and of those, I spent a lot of time analyzing 617 UPs for possible signal changes. Not only is that an extreme number for any week, but it was not consistent with the excessively bullish tone in the media. I saw a lot of the positives reflected in many of the charts - don’t get me wrong - but there was this weakness hidden in the details that I cannot ignore.

Big news from Saudi Arabia and the oil market is not reacting. I guess there were only 172 terrorists plotting to blow stuff up and the authorities caught every single one of them. I am glad this was prevented but taking the approach that this was not a sign of persistent and future trouble is dangerously ignorant.  It will be interesting to see how long it takes to hear Saudi Arabia’s condemnation of terrorism.  That happens whenever an Islamic country is attacked by terrorists like when Jordan was hit in November 2005.  And then shortly thereafter, you don’t hear so much about their hatred of terrorism.   If the vast majority of peace-loving Muslims would speak out and take action against extremism whether it was in their country or not, there might be a chance for peace.  Until that happens, count on more terrorist plots being stopped and more terrorist attacks that could not be stopped.  Today’s actions prevented more fear being priced into oil, but for how long?

That’s what Doug Kass calls our current economic environment and he’s been warning about it for about a year. When Doug used to warn of the dangers of subprime lending, bulls said he didn’t know what he was talking about. They’re doing it again with “Blahflation” (per Kass) or “Stagflation Lite” (per Roubini). But no matter what you call it (I say “Confuflation”), this economy is heavily conflicted by slow growth and growing inflation. Today’s economic data contributed greatly to the Stagflation case and yet, the permabulls are in control so there’s a better chance that it will be denied or attacked rather than seriously considered. I got a kick of the usual suspects on CNBC immediately saying that this is just one data point and we need a lot more proof before we should worry about Stagflation. Excuse me but there has been an abundance of similar data for months. When you are constantly turning away from reality you cannot see it. When you are to busy patting yourself on the back, you cannot reach for it. When you are loudly signing your praises, you cannot hear it. In the end, Stagflation is becoming a much more credible theory but it will not matter to stock prices until investors pay attention.

As I predicted back in February, it was only a matter of time before North Korea screwed around with their agreement to de-nuke themselves. They’ve missed the April 14th deadline and are doing their usual promise and unpromise tactic coupled with the ever-popular maneuver of blaming it on the US. Everytime I hear about this $25 million supposedly locked up in some Macau bank blackhole, I almost laugh at how absurd this is. And then I get real serious because a peaceful Korean peninsula is nothing to laugh about. But at some point, when is someone going to just write them a check? Or how about we just give them back $25 million of the counterfeit dollars they love to pass off as originals? $25 million- with an “m” not $25 BILLION with a “B”. Just give them the damn money so they can move on to the next excuse for not doing what they agree to do. I’ll be really happy to see them get the funds and other goodies. If the North Korean people can get some of the help they desperately need and we can have a better chance at peace, that’s a small price to pay. However, the absurdity of this current holdup indicates to me that the problems are much bigger than a $25 million wire transfer and I am skeptical it will happen.

It’s not a big player on the global economic scene but I think people need to start paying attention to what is going on in Ecuador. President Correa is doing his best Bolivar impression and is once again threatening to default on foreign debt. Today, the World Bank representative in Ecuador was adiosed from his country and I’ll be watching to see how this plays out. Correa has expressed his intentions to free his country from foreign indebtedness and has taken steps to pay other obligations. Like his buddy Prez Chavez, Ecuador’s Correa is not a fan of the International Monetary Fund or its sister organization, the World Bank. Something about the promotion of free trade and limited government involvement in the economy disgusts these guys and the feeling is mutual. I hope Ecuador pays off their debt and the World Bank can move forward with countries that actually want their help. On the other hand, if there is a default, it will be interesting to analyze the credit default swaps and effect on emerging market debt.

Russian President Putin decided to ramp up rhetoric Thursday with complaints about NATO and the US creating an anti-missile system in Eastern Europe. Here’s a good summary of the current situation written by the BBC. The decision to renege on the Conventional Forces in Europe Treaty is his to make and it’s unfortunate that things have evolved to the point where the US feels the need to do what it is doing and for Putin to respond. This is not a step forward to a better world. But then again…we have our own history with missiles in neighboring countries (Cuba) so it shouldn’t be too tough to understand why he might feel threatened. By the way, I am not a fan of Putin, but then again, he is not my President. I can only imagine how many people in Russia and much of the rest of the world don’t care for President Bush - so fair is fair.

Over the past several months there have been several odd comments from Putin about the US bringing back the Cold War. However, none of the comments were more revealing to me than this one uttered today:

“There is a growth in the flow of money from abroad for direct interference in our internal affairs,” he said. “There are those who, skillfully using pseudo-democratic rhetoric, would like to return to the recent past — some to loot the country’s national riches, to rob the people and the state; others to strip us of economic and political independence.”

Democracy interfering with politics - think about that. For all their advancements towards democracy and capitalism, something about that comment really got me. In the US (and I guess most democratic and capitalistic societies) we view the threat of politics invading capitalism and eroding democracy as a primary concern. For the leader of Russia, it appears that politics is supreme. I am not saying his view is wrong. It’s different. One of the great failings of our country in my opinion is our desire to hold other countries, cultures, economies, etc. to our standards. That habit has contributed to the tensions we are battling today and I fear it will continue.

Russia is a significant economic power with great natural resources and a wealth of well-educated and intellectually-talented people. All of which are wonderful reasons to invest there and I am sure Russians benefited from the capital injections and technology transfers that were made during their initial transition. Now that oil revenues are high and the economy is standing well on its own, Russia (or at least Putin) doesn’t think they need it anymore. Comments like the one I have highlighted should be taken as a warning sign for foreign investment in Russia. And along with that threat comes the risk of instability in the Russian markets. But this isn’t just about Russia, we have our own bunch of politicians throwing around protectionist ideas. In the previous Cold War, both sides made mistakes. We are doing it again.

When it comes to currency issues, I pay attention to Axel Merk. I’ve mentioned him before and hopefully you’ve had a chance to see his Bloomberg and CNBC appearances. Forex is an extremely complex issue and I’ve encouraged everyone to evaluate expert fund management like Axel provides rather than the do-it-yourself approach with the numerous forex trading platforms. Today, Axel posted a great piece on his website called “Dollar Myths” (click here) and I strongly encourage that you read it.

Apple came out with very good earnings tonight.  In light of my recent DOWN signal and unflattering comments about the stock, I thought it would be appropriate to give them some credit.  Mac and iPod sales were strong and gross margins were awesome.  I am looking forward to some reviews of guidance and its plan for iPhone revenue recognition, but overall, it was a great quarter.

I don’t know if I am more disappointed by first quarter earnings and their poor top line numbers or investors who believe that earnings are great. We didn’t skip a beat from bragging about 14 consecutive quarters of double-digit earnings growth to bragging about 5%. It’s quite impressive actually but not in a positive way. It reminds me of someone who takes a test, gets a 50% and receives a curve-adjusted A grade.

I know we needed to lower the bar to make everyone feel great about numbers that would have made us puke last quarter, but this is pathetic. You don’t need to fantasize about a soft-landing - you are getting a huge earnings soft-landing right now. In a world that relies heavily on meeting estimates, corporate execs must have let out a collective huge sigh of relief when analysts whacked their estimates. If nothing else, it saved them from having to buy back a ton of their “cheap” shares to manipulate EPS and meet numbers.

But I have to wonder when and where the guidance came from to encourage analysts to cut estimates. At the start of the year, Thomson had estimates at 8.7% growth and by the time AA kicked things off, we were down over 50% off that number to a whopping 3.8%. Did I miss a whole bunch of warnings and guidance at the end of 2006 or during the first quarter? If I did, then I guess everyone else did too because stocks didn’t decline on any such news. Or you can take another view and just believe that all the analysts independently woke up one day and had an inspiration without the companies telling them anything. One other alternative is that Reg FD is not so threatening any more.

Fundamentals supposedly rule the market and theory says that investors are supposed to react negatively to warnings, estimate revisions and the inevitable increase in valuations. That never happened and instead stocks are getting bid up for companies that are meeting or beating these ridiculously low earnings standards. As a former adjunct prof in Finance, I give everyone involved a curve-adjusted “A” grade for the 50% reduction.