Randomly Noted

Hewlett-Packard reported earnings today and while the numbers for the quarter ended January 31 were generally good, investors focused on the tepid outlook. Initial analysis of the results zeroed in on soft PC sales for the recent quarter and the question raised by the company of whether consumers were really opening their wallets. The stock fell 12% in after-hours trading.

There’s another longer-term trend investors should consider when looking at companies that have a lot of exposure to the printer business – will the introduction of tablets like the iPad make printing documents less necessary? Combine that with the green movement and it could spell troubles for companies that make printers.

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Hewlett Packard became the latest tech company to put some of its cash to work today by offering to buy networking gear-maker 3 Com for $2.7 billion. There’s obviously an interesting H-P strategy story in all of this but what is more fascinating to me is what the headline on this blog item asks. Hours before the deal was announced, there was very unusual trading in the stock options of 3 Com. As Newswires reporter Tennille Tracy reports, a days work in 3 Com options results in a few hundred contracts traded daily. Today, there were close to 8,000 traded. What makes this kind of trading even more remarkable is that it happens against the backdrop of a very high profile federal investigation into hedge funds brokering inside information with a network of paid tipseters that seems to be fingering some pretty high profile players. Maybe just a coincidence but it doesn’t seem like it. Even if you innocently heard a rumor today about H-P and 3 Com, would you risk trading on it given what the Feds are up to? The more things change, the more they stay the same…

We have reached a point in the U.S. economic cycle that might be called the “but” phase. Companies report earnings that are lower than a year ago, but above lowered Wall Street expectations. Another but often viewed in corporate earnings reports is this: the quarter is down, but the outlook is stable or even slightly improving.

Hewlett-Packard made those points when it reported earnings after the close of trading. Third-quarter profit dropped 19% but results were just above the company’s May targets. International sales were down but H-P issued a fourth quarter outlook above Street expectations and held to a fiscal year earnings target.

It’s natural for people mired in a deep recession to look for the rays of light, green shoots or whatever you want to call them. Even given the recent pullback in the stock market’s major indexes, clearly the consensus view of investors is that things will get better. Stocks are broadly higher than earlier this year and reflecting some future, significant improvement in earnings and the real economy.

But before things get better, they have to get less worse. So earnings are up when revenues are not. That means cost cutting, which means fewer jobs, which means less consumer spending, which is incompatible with sustained growth. But it’s better than the alternative.

The latest example of it’s good because it’s less bad recently crossed Dow Jones Newswires. The number of global debt issuers rated B- or lower with a negative outlook or on watch for downgrade continued t0 fall as of Aug. 12, the ratings agency Standard & Poor’s said. These so-called weakest links dropped to 278 from 285 in July. They hit a record high of 300 in April. Happy days.