IBM and AAPL reported yesterday after the market close.
AAPL reported fiscal Q4 revenue of $20.34B vs. estimates of $18.9B and EPS of $4.64 vs. expectations of $4.08. The company however did not sell as many iPad's as analysts predicted and its margins and guidance disappointed. AAPL is down $15.83 or 5% to $302.17 in pre-market trading.
IBM reported Q3 EPS of $2.82/share vs. $2.75 expected on revenue of $24.3B vs. $24.1B expected. The outsourcing business did not perform as well as expected, but the company did raise its earnings forecast for the rest of the year. IBM is down $4.84 to $137.88 pre-market.
BAC reported this morning before the open. The banking giant lost $7.65B or $0.77/share in the 3Q due to a charge related to credit and debit card reform legislation passed over the summer. Excluding the one-time charge, BAC earned $3.1B or $0.27/share vs. $0.16 expected. A lower provision (see JPM and C earnings) was a main driver of the beat, coming in at a $5.4B addition vs. $11.71B in 3Q09. Credit improved as NCOs were $2.4B lower than 2Q10. Capital levels also improved and TBV moved to $12.91.
GS will also report earnings this morning.
Futures are down with the Dow posting a 31 pt drop, Nasdaq down 24, and the S&P down 6. There is no POMO scheduled for today, but there is one tomorrow. Timothy Geithner said yesterday that the US would not pursue a weak dollar position and said we must work hard to ensure the strength of the USD. Shorts are covering and the dollar is up for the 3rd session in a row. This is also particularly bad for technology companies, so we could be in for a sizable sell-off today unless Goldman's numbers are really impressive.
On the economic front, we will have housing start and building permit reports today.
UPDATE: GS beat on both the top and bottom line as reported revenue came in at $8.9B vs. $7.9B expected ($12.37B in 3Q09) and EPS of $2.98/share beat the $2.32 expected and $5.25 for 3Q09. TBV increased about 3% to $116.23.
The futures are showing no improvement based on GS' earnings just yet...The weaker dollar, Geithner's comments, disappointing AAPL guidance, and the IMF warning of potential bubbles and slowing growth in East Asia seem to be enough for the market to take a breather this morning. We could firm up going into the close however, as another POMO is scheduled for Wednesday and earnings after the bell should look ok.
Tuesday, October 19, 2010
Monday, October 18, 2010
Despite the industrial production and capacity utilization declines (both large red flags regarding the state of the recovery), the Dow is up 40+ pts and the Nasdaq and S&P 500 each currently sport a small gain. One must assume this is the result of a demand for stocks ahead of AAPL's earnings release after the market close today, and also a belief that worsening economic data virtually guarantees Fed action.
The US dollar is up 0.3% this morning from a 10 month low against a basket of currencies after Fed Chairman Bernanke's comments on Friday softened views re: the possible size and implementation of QE2.
Citigroup (C) reported $0.07/share vs. $0.06 expected this morning. Citi was just a bit light on the top line, coming in at $20.7B vs. the $21B consensus expectation. Much of this bottom line beat is attributable to a $1.99B drop in provisions for loan losses.
Industrial production fell 0.2% in September which was the first time IP fell since the 'recession ended'. This seems to confirm the thesis that much of the ramped production over the past year or so was not being absorbed by consumers.
Capacity utilization came in at 74.7% in September, down 0.1% from August. This is also the first decline in utilization since June 2009.
NAHB issues October housing market index at 7 am PST. 14 is expected vs. 13 in September.
"This multicultural approach, saying that we simply live side by side and live happily with each other has failed. Utterly failed," Angela Merkel said regarding Turks and other immigrants living in Germany. It's both unfortunate and frightening to see xenophobia on the rise around the globe.
China's new five-year plan has been issued, but will await final approval early next year. The Chinese economy is forecast to grow 50% in the next five years to $7.5T. A key focus of the Plan will be to shrink the income gap by improving the distribution of the national income in order to drive long term domestic consumer demand for goods and services. "Expanding domestic demand is the guiding long-term strategy of our country's economic and social development," said Zhang Ping, head of the National Development and Reform Commission. Meanwhile a NYT article from this weekend entitled, "Income Inequality: Too Big to Ignore" states, "The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent." When will US policy makers and economists address the rising income gap in the U.S.?
AAPL and IBM report after the close.
The US dollar is up 0.3% this morning from a 10 month low against a basket of currencies after Fed Chairman Bernanke's comments on Friday softened views re: the possible size and implementation of QE2.
Citigroup (C) reported $0.07/share vs. $0.06 expected this morning. Citi was just a bit light on the top line, coming in at $20.7B vs. the $21B consensus expectation. Much of this bottom line beat is attributable to a $1.99B drop in provisions for loan losses.
Industrial production fell 0.2% in September which was the first time IP fell since the 'recession ended'. This seems to confirm the thesis that much of the ramped production over the past year or so was not being absorbed by consumers.
Capacity utilization came in at 74.7% in September, down 0.1% from August. This is also the first decline in utilization since June 2009.
NAHB issues October housing market index at 7 am PST. 14 is expected vs. 13 in September.
"This multicultural approach, saying that we simply live side by side and live happily with each other has failed. Utterly failed," Angela Merkel said regarding Turks and other immigrants living in Germany. It's both unfortunate and frightening to see xenophobia on the rise around the globe.
China's new five-year plan has been issued, but will await final approval early next year. The Chinese economy is forecast to grow 50% in the next five years to $7.5T. A key focus of the Plan will be to shrink the income gap by improving the distribution of the national income in order to drive long term domestic consumer demand for goods and services. "Expanding domestic demand is the guiding long-term strategy of our country's economic and social development," said Zhang Ping, head of the National Development and Reform Commission. Meanwhile a NYT article from this weekend entitled, "Income Inequality: Too Big to Ignore" states, "The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent." When will US policy makers and economists address the rising income gap in the U.S.?
AAPL and IBM report after the close.
Friday, October 15, 2010
Bernanke Speech Spooks Market, Brian Sack Rides to the Rescue
The Dow is down 50 points, S&P down 3, and the Nasdaq is, of course, showing a gain of 8. This afterall being a POMO day, you didn't think that a GE top and bottom line miss or Bernanke throwing cool water on QE2 expectations could actually take down AAPL...did you? No, no. The primary dealers are busy using taxpayer dollars to bid up makers of hyper-discretionary electronic gadgets. Anyone who believes we need a formal QE2 announcement to continue this charade is being fooled. As long as the prospect is on the table and POMO actions inject liquidity into the PDs, the market will remain buoyant.
The real unwind in this Fed driven environment of coerced malinvestment would need to come from:
1) An external shock, such as military aggressions between sovereign nations. The flight to quality into the dollar would likely occur faster than anyone anticipates (given how oversold the dollar is ahead of a QE2 expectation) and would likely destroy risk appetite (at least in the short term.)
2) The couple of days sell-off we'd have with no QE2 announcement in November. In my opinion, it would likely give short-biased funds the opportunity to pick up some return before the end of the year, but then the mentality of, 'well if not now, then in Dec' will likely prevail and the market will resume its run higher.
3) A unexpected rise in the risk premium that indirect buyers of Treasury securities demand given the now universal understanding that the Fed intends to monetize US debt. If the 10 year started to march higher despite POMO/QE2, etc then we'd likely see a big unwind in risk as the Fed would lose both international credibility and domestic confidence in its ability to control all aspects of a globally interconnected market.
Things that will not, and have not taken the market down:
1) The technically overbought nature of the market.
2) The very high concentration of investors who are bullish.
3) The sub 20 VIX.
4) The rapidly weakening economic fundamentals.
5) The uncertain outcomes of FX wars and Smoot Hawley style protectionism.
6) European Sovereign Debt Crisis. Afterall, the ECB has stepped in to ensure that every bond auction coming out of the PIIGS gets filled.
7) The uncertainty surrounding US elections. If we have stalemate in Congress, then we obviously don't get any more of the fiscal stimulus (the job creating kind of stimulus, not the crush the middle class monetary kind...). But this fact doesn't seem to give anyone pause for thought.
8) Foreclosuregate. The financials are getting crushed this morning on heightened uncertainty surrounding liabilities related to fradulent foreclosure activity. The financials led us down in Fall 2008 and took us higher in spring 2009. Will we be back down in Fall 2010 on concerns over Financials? They tend to lead the market, and BAC, JPM, C, etc are down 5% this morning. No matter. Have no fear, Mr. Sack is here!
All of the above being said, it should be understood that the sheer size and type of challenges currently facing not just the US, but also pretty much the entire planet, virtually guarantee that:
1) No one is smart enough to reasonably handicapp all possible known unknowns and unknown unknowns. The world is awash in excess risk appetite right now. If you get one of the tails wrong, you could get slaughtered unless you are the first out the door...unlikely...
2) Policy decisions, decisions of the electorate, decisions of foreign dictators, decisions of buyers of assets and sellers of assets, etc are all the emotionally driven decisions of human beings. History has proved that human beings are falible and also at times irrational, self-destructive, short tempered, etc. When the 'fog' and confusion reaches these types of levels, people are bound to panic or do irrational things that they wouldn't do otherwise. The survivor is one who keeps a clear head when the shooting starts. Unfortunately it is very difficult to predict when the shooting will start or what will be the catalyst. It is because of this that it seems now that the most rational decision is to hold cash and wait for absolute home-runs. If we have a Black Monday (tues, whatever) then maybe its time to deploy some cash in blue chip dividend paying equities. If the S&P rises to 1350 on sustained expectation of a QE2 announcement that just isn't coming (the ultimate communication strategy...The Great Bernanke Bluff) then maybe its time to purchase a boatload of SPY puts. If gold pulls back sharply on a dollar run, then maybe its time to portfolio some of the shiny (non-cash-flowing-impossible-to-determine-appropriate- valuation) metal. If the EUR/USD goes to 1.50 maybe its time to buy the EUO. You get the point. But otherwise, unless certain special situations arise, why gamble in a HFT driven, volume-lite, government produced rally while your super ego screams for you to pay heed to reality?
In the meantime, enjoy the show.
The real unwind in this Fed driven environment of coerced malinvestment would need to come from:
1) An external shock, such as military aggressions between sovereign nations. The flight to quality into the dollar would likely occur faster than anyone anticipates (given how oversold the dollar is ahead of a QE2 expectation) and would likely destroy risk appetite (at least in the short term.)
2) The couple of days sell-off we'd have with no QE2 announcement in November. In my opinion, it would likely give short-biased funds the opportunity to pick up some return before the end of the year, but then the mentality of, 'well if not now, then in Dec' will likely prevail and the market will resume its run higher.
3) A unexpected rise in the risk premium that indirect buyers of Treasury securities demand given the now universal understanding that the Fed intends to monetize US debt. If the 10 year started to march higher despite POMO/QE2, etc then we'd likely see a big unwind in risk as the Fed would lose both international credibility and domestic confidence in its ability to control all aspects of a globally interconnected market.
Things that will not, and have not taken the market down:
1) The technically overbought nature of the market.
2) The very high concentration of investors who are bullish.
3) The sub 20 VIX.
4) The rapidly weakening economic fundamentals.
5) The uncertain outcomes of FX wars and Smoot Hawley style protectionism.
6) European Sovereign Debt Crisis. Afterall, the ECB has stepped in to ensure that every bond auction coming out of the PIIGS gets filled.
7) The uncertainty surrounding US elections. If we have stalemate in Congress, then we obviously don't get any more of the fiscal stimulus (the job creating kind of stimulus, not the crush the middle class monetary kind...). But this fact doesn't seem to give anyone pause for thought.
8) Foreclosuregate. The financials are getting crushed this morning on heightened uncertainty surrounding liabilities related to fradulent foreclosure activity. The financials led us down in Fall 2008 and took us higher in spring 2009. Will we be back down in Fall 2010 on concerns over Financials? They tend to lead the market, and BAC, JPM, C, etc are down 5% this morning. No matter. Have no fear, Mr. Sack is here!
All of the above being said, it should be understood that the sheer size and type of challenges currently facing not just the US, but also pretty much the entire planet, virtually guarantee that:
1) No one is smart enough to reasonably handicapp all possible known unknowns and unknown unknowns. The world is awash in excess risk appetite right now. If you get one of the tails wrong, you could get slaughtered unless you are the first out the door...unlikely...
2) Policy decisions, decisions of the electorate, decisions of foreign dictators, decisions of buyers of assets and sellers of assets, etc are all the emotionally driven decisions of human beings. History has proved that human beings are falible and also at times irrational, self-destructive, short tempered, etc. When the 'fog' and confusion reaches these types of levels, people are bound to panic or do irrational things that they wouldn't do otherwise. The survivor is one who keeps a clear head when the shooting starts. Unfortunately it is very difficult to predict when the shooting will start or what will be the catalyst. It is because of this that it seems now that the most rational decision is to hold cash and wait for absolute home-runs. If we have a Black Monday (tues, whatever) then maybe its time to deploy some cash in blue chip dividend paying equities. If the S&P rises to 1350 on sustained expectation of a QE2 announcement that just isn't coming (the ultimate communication strategy...The Great Bernanke Bluff) then maybe its time to purchase a boatload of SPY puts. If gold pulls back sharply on a dollar run, then maybe its time to portfolio some of the shiny (non-cash-flowing-impossible-to-determine-appropriate- valuation) metal. If the EUR/USD goes to 1.50 maybe its time to buy the EUO. You get the point. But otherwise, unless certain special situations arise, why gamble in a HFT driven, volume-lite, government produced rally while your super ego screams for you to pay heed to reality?
In the meantime, enjoy the show.
Thursday, October 14, 2010
Market Update
The market is treading water this morning, for while the economic data was not what you might call 'encouraging', we have our first installment of the next round of POMO tomorrow. Thus anyone thinking of shorting or taking a profit has come to the conclusion that today is not the day. Volume is extremely light and gold continues to climb higher. The VIX is higher this morning in the mid 19's. I have postulated since last Spring that if the VIX goes sub-17 then one should look to buy long dated calls (22's, 23's, etc) and prepare for a market pullback. Complacency is definitely on the rise. 'The market will go up forever, because the economic data will improve or Ben Bernanke will drop a trillion dollars out of a helicopter...' While it may be wishful thinking on my part, something tells me that such arrogance almost always gets punished by the market. Stay tuned.
On to the day's economic data.
Initial claims rose for the first time in 3 weeks to 462K vs. 450K expected and 449K prior (revised up from 445K). Continuing claims fell to 4399K from 4511K prior (up from 4462K) and 4450K expected. As the figures are still hovering around the 450K mark, this doesn't come as too much of a surprise. Its obviously still bad, but not outrageously so versus the running average.
PPI came in at 0.4% vs. 0.2% exp'd and 0.4% prior. Core PPI was in-line at 0.1% vs. 0.1% prior and expected. The non-core PPI was higher due to increased prices for food and fuel. It would appear that Bernanke's inflationary regime is working...to at least drive up prices on consumer non-discretionaries. It doesn't take a genius to understand that this is a strong negative for the health of the American consumer.
The trade deficit widened to $46.3B in August, with the deficit with China at an all-time high. The deficit is running at an annual rate of $502.B, up 34% from last year's $374.9B, which of course was much lower than usual due to the ongoing recession. The higher than expected trade deficit suggests an even lower 3Q GDP and more rhetoric surrounding a revaluation of the remnimbi.
Nothing in the above comments should be taken as a recommendation to buy or sell any security.
On to the day's economic data.
Initial claims rose for the first time in 3 weeks to 462K vs. 450K expected and 449K prior (revised up from 445K). Continuing claims fell to 4399K from 4511K prior (up from 4462K) and 4450K expected. As the figures are still hovering around the 450K mark, this doesn't come as too much of a surprise. Its obviously still bad, but not outrageously so versus the running average.
PPI came in at 0.4% vs. 0.2% exp'd and 0.4% prior. Core PPI was in-line at 0.1% vs. 0.1% prior and expected. The non-core PPI was higher due to increased prices for food and fuel. It would appear that Bernanke's inflationary regime is working...to at least drive up prices on consumer non-discretionaries. It doesn't take a genius to understand that this is a strong negative for the health of the American consumer.
The trade deficit widened to $46.3B in August, with the deficit with China at an all-time high. The deficit is running at an annual rate of $502.B, up 34% from last year's $374.9B, which of course was much lower than usual due to the ongoing recession. The higher than expected trade deficit suggests an even lower 3Q GDP and more rhetoric surrounding a revaluation of the remnimbi.
Nothing in the above comments should be taken as a recommendation to buy or sell any security.
POMO Schedule: $32B through Nov 8th
Tentative Outright Treasury Operation Schedule
Across all operations in the schedule listed below, the Desk plans to purchase approximately $32 billion. This is the amount of principal payments from agency debt and agency MBS expected to be received between mid-October and mid-November.
October 15, 2010 Outright Treasury Coupon Purchase
October 18, 2010 Outright Treasury Coupon Purchase
October 20, 2010 Outright TIPS Purchase
October 22, 2010 Outright Treasury Coupon Purchase
October 26, 2010 Outright Treasury Coupon Purchase
October 28, 2010 Outright Treasury Coupon Purchase
November 1, 2010 Outright Treasury Coupon Purchase
November 4, 2010 Outright Treasury Coupon Purchase
November 8, 2010 Outright Treasury Coupon Purchase
Across all operations in the schedule listed below, the Desk plans to purchase approximately $32 billion. This is the amount of principal payments from agency debt and agency MBS expected to be received between mid-October and mid-November.
October 15, 2010 Outright Treasury Coupon Purchase
October 18, 2010 Outright Treasury Coupon Purchase
October 20, 2010 Outright TIPS Purchase
October 22, 2010 Outright Treasury Coupon Purchase
October 26, 2010 Outright Treasury Coupon Purchase
October 28, 2010 Outright Treasury Coupon Purchase
November 1, 2010 Outright Treasury Coupon Purchase
November 4, 2010 Outright Treasury Coupon Purchase
November 8, 2010 Outright Treasury Coupon Purchase
Wednesday, October 13, 2010
Market Update
JPM 3Q results came in at $1.01 vs. $0.90 consensus on lower provision in both the mortgage and credit card portfolios. Revenue missed at $24.3B vs. $24.6B expected which is 15.4% less than 3Q09. Loan losses remain high but are no longer growing at the pace they did during the recession. Provision remains high at 5.1%. Retail banking and credit card business improved, while investment banking and trading softened. Looking up this morning pre-market.
Intel beat forecasts on both the top and bottom lines. INTC had warned of a slowdown in PC sales in August, but the numbers looked strong and the fears of a slowdown are off the table from now. I find this all very curious. Did they sandbag the quarter on purpose?
The FOMC minutes released yesterday supported market speculation that a second round of QE will be coming soon. As expected, the committee cut its growth expectations for the remainder of 2010 and 2011. The minutes did indicate however that a return to recession is viewed as unlikely by the committee members (...why the stimulus then???)
The economic calendar is a bit light today. We have MBA Mortage Applications, Import/Export Prices, Treasury Budget, a speech from Bernanke after the close, and a speech by Lacker this evening.
Dow Futures are up 74 points and S&P is looking up 8.75 points.
Lastly, a reminder that we will get the POMO schedule for the next four weeks at 11 am PST today.
Intel beat forecasts on both the top and bottom lines. INTC had warned of a slowdown in PC sales in August, but the numbers looked strong and the fears of a slowdown are off the table from now. I find this all very curious. Did they sandbag the quarter on purpose?
The FOMC minutes released yesterday supported market speculation that a second round of QE will be coming soon. As expected, the committee cut its growth expectations for the remainder of 2010 and 2011. The minutes did indicate however that a return to recession is viewed as unlikely by the committee members (...why the stimulus then???)
The economic calendar is a bit light today. We have MBA Mortage Applications, Import/Export Prices, Treasury Budget, a speech from Bernanke after the close, and a speech by Lacker this evening.
Dow Futures are up 74 points and S&P is looking up 8.75 points.
Lastly, a reminder that we will get the POMO schedule for the next four weeks at 11 am PST today.
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