A Tug of War

Today we had two earnings reports that paint different picture of the state of the economy and its future direction. Earnings results from Yum and Intel pulls the economy in opposing directions. Yum, an end consumer oriented company, posted second quarter results that were below expectations. But the more telling numbers are those of its forecast for the rest of the year. Those projections tell a story of a retrenching consumer that will be a drag on the recovery (see my post about the consumer psyche published on 5/8/10). Intel on the other hand reported great results and increased its year- end forecast. But Intel's success may be short lived because Intel's results are more a sign of IT spending by corporations. In other words it is the result of an inventory build up cycle which may have ended with the second quarter (see my post about inventory recovery published on 5/18/10). For the recovery to be sustained we have to see the Intel products make their way to the end consumer. I just can't see this happening yet because , among other reasons, of the lack of credit available to the consumer and the unwillingness of that consumer to pile on more debt at this time. So the tug of war goes on for now with a bias in favor of Yum's directions. The full impact of this war may be felt in few weeks following the end of earnings season.



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