All Articles Tagged "market"
We’re at a point in the history of this nation where we must dare. Yes, we must dare to go down paths we haven’t traveled before and dare to make choices that involve pain. Robert Frost understood that one difference between man and beast is our sense of adventure and ability to take risks. The monarch butterfly makes the same magnificent migration each year, and they don’t break ranks and do their own thing. Of course, following a regiment and having a high risk tolerance means not making massive mistakes. On Saturday, I was chilling in my backyard listening to some old school R&B and knocking back a Romeo & Juliet with a nice cognac. My yorkies approached with intrigue, but backed away quickly from both cigar and drink.
They will avoid the extra strain on their liver and lungs.
The point is that our economy has been harnessed and corralled through a policy that has displayed zero belief in the abilities of the nation to propel itself back to the right track. The non-stop finger pointing and demonization, coupled with non-stop schemes and spending programs, has actually played a major role in businesses and banks moving further to the sidelines. But, these guys don’t get it. I watched Bill Clinton on two talk shows yesterday gripe about the amount of money banks and businesses were holding, but said it would be a bad idea to reverse rules demanding banks hold more capital. He talked about job openings outpacing job hires, implying something sinister, but not acknowledging many jobs available can’t compete with extended unemployment benefits.
Green jobs aren’t going to propel America out of the throes of this economic situation, and will not change shocking poverty stats unless the government mandates a special wage must be paid to those workers. This would only hasten the move of the industry overseas. I would like to see more manufacturing jobs, too. Here’s the dirty little secret about all those jobs that left America…they don’t pay enough to maintain a basic household. Sure, they did in many instances pay solid wages, but it was artificial, and actually resulted in less competitive products and lower profits. Listening to Bill Clinton urge the White House to keep up the fight on profits and big spending programs I wondered if he’s trying to help or hurt the Administration.
For sure, it is trying to see them hurt the free market and ability of businesses to make decisions based on their own risk tolerance and needs. The renewed saber rattling towards businesses and banks will trigger more acquisitions, share buy backs, and special dividend payments. Very few businesses are going to be bullied into making hires they don’t need. In the meantime, the key is demand, and it’s not going to change with the aura of fear emanating from our biggest leaders. It’s just not the right play. Such a myopic focus on punishing the rich to appease the poor gets it all wrong. We need to applaud the rich and hope their ranks swell. You can call it trickledown economics but it’s more like the coattail effect.
The middle class has gotten the shaft, but I see them as victims of sawing the ladder of success in half, which means the mean or middle is lower than it used to be. We aren’t going to have a nation of big and prosperous middle class people without a mobile upper class. We need risk-takers, we need visionaries, and we need confidence that success isn’t going to be greeted with the butt of a rifle. Mostly, we need to take the harness off and stop trying to domesticate the economy.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.
The market doesn’t look so hot the day after the White House revealed yet another spending plan, this one to fix 150,000 miles of roads, because that’s what’s holding back the economy. Oh, and those evil Republicans, the party of “no.” On this latest scheme, the GOP should be the party of “Hell No” because its $50.0 billion that could be used more efficiently. Then there is $200.0 billion for research and development and capital investments, which are harder to argue against, but not number one in terms of what could turn the economy around.
We don’t need the government to “pull us out of a ditch” as we have the wherewithal to do that ourselves. We just need the government to get out of the way and make it easier for the nation to drive itself out of its current predicament. The economy is spinning its wheels; it’s not out of the ditch but has the horsepower to peel out if the coast was clear. In the meantime, small incremental steps are being made, although I’m not sure if things like an improved shadow inventory are the result of the fact so many people have lost their homes already it can only marginally improve.
The market is also under some pressure from action in Europe, where those great vacation nations (I mean that in so many ways) continue to drag. There is also growing opposition toward austerity programs. The market needed a boost today; it hasn’t come from the latest economic rescue schemes.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.
The day before the biggest economic data release of the month and there is an eerie calm, maybe even budding excitement. Emotions got the week off to a dreadful start, but a glimmer of hope via the ISM manufacturing data got people a bit more excited and off the fence. The pros have tried to downplay it all, but yesterday’s session wasn’t silly even if it proves inconsequential. The economy is in the dumps, there is no other way to describe it without offending some readers. The goal at this point is to stave off the double-dip, a misnomer since I’m sure we didn’t bounce enough to pop the cork anyway. But, there was a rebound in enthusiasm and hope, as many thought, and others hoped, the Administration could pull a rabbit out of their collective hats.
As it turns out, they pulled out a sledgehammer, and continue to pound away on the sensibilities of the nation and its capitalistic foundation. There are still an assortment of schemes, including letting states and local governments bid on foreclosed homes before private investors. Apparently, these governments have been sitting on funds that for 143 local communities have to be used or frozen by HUD within the next month. Housing Secretary Shaun Donovan says the new deal would give the public sector a “leg up” to beat back evil speculators, whose purchases would stop things like housing developments or the ability to give people homes for free. Or, how about the plans to make taxpayers pay for union pension shortfalls. To be sure, there are any numbers of schemes snaking through the system.
So, yes, there is the threat of a major double-dip in hope (a wide swath of the American public is already there) that can only be changed in November. In the meantime, any sign that maybe a bottom is being put in for the economy could make stocks look much more attractive. The economic news was mixed today. On balance, I think the data was more good than bad. Although the market seems to be struggling, the breadth is very positive:
> Advancers: 1798
> Decliners: 1136
Pending Home Sales
Pending home sales came in 5.2% higher month over month, with all four regions experiencing gains. The Street was looking for a flat month so this is a nice surprise, although the bounce comes off the lowest level in history. Moreover, our housing analyst David Urani points out on a non-seasonally adjusted basis the numbers actually decreased 7.2% m/m. Considering how screwed up housing has become with the new homebuyers tax credit, the non-seasonally adjusted number might be more reliable.
The productivity miracle of the last two decades has created opportunities, but underscored what some say is the worst thing about progress. Machines, robots, and computers have taken many a job and made more obsolete. By the same token, they have created jobs and enhanced the quality of life. Right now, it’s probably a good thing productivity seems to have peaked for now while unit labor costs have edged higher. The 1.8% decline in productivity beat consensus of -1.9%.
Hourly compensation is a flat line, but hours has come on strong, up five consecutive quarters.
Anxiety should rule the remainder of the session, which will also see many people bolt for a four day weekend. Tomorrow there could be even fewer traders around because Hurricane Earl will be creeping up the East Coast.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.
As the great bond bubble debate rages, at least among bond players and academics, there are other narratives that must be recognized as well. Americans are pouring money into bond funds, forsaking stocks, and sending several messages. There were two articles on the subject of investors shunning stocks over the weekend. The New York Times and LA Times chronicled the flight of small investors from stocks. Interesting points brought up include the steady decline in appetite for stocks since 2001, especially for those less than 35 years of age. I’m on the frontlines and see that deterioration for stocks, but it’s kind of odd that those with the most time to make mistakes and swing for the fences are most apprehensive.
In an effort to maybe suggest it’s not as bad as it seems, the LA Times did point out previous periods when investors took big chunks of money out of stock funds.
* 1976 to 1979 stock fund withdrawals were an average of 11.0% of all fund assets
* 1988, the year after Black Friday, stock fund withdrawals were 8.5% of all fund assets
* 2008 saw a record $234.0 billion taken out of stock funds, but it was only 3.6% of all assets
Chasing Performance & Instant Gratification
How ironic is it that we are living longer, yet we want things sooner…much sooner. The wild thing is stuff happens much faster than in the past. Andy Warhol had it right, but when he coined the phrase I think he felt people would gain “15 minutes” of fame on local levels. You know, like when the kid at the filling station rescues a cat stranded in a tree and is the toast of a small town. But, these days, Snooki (“Jersey Shore”) can become the toast of nation for doing things that would embarrass a small town and most parents anywhere. In this super-charged world where so many things move so swiftly, you could go from anonymity to the White House in three years. So, it stands to reason people want to make money, and they want to make it right now. Yet, the fast-moving ways of today have only set us back in so many ways.
There was a time when talent, developed over a period of time, was rewarded. There was a time when grace and beauty meant something. There was a time when you had to win a war, lead a state, or have a long record of congressional achievement to ascend to the most powerful job in the nation. There was also a time when strong corporate earnings were reflected in a strong stock market. Maybe the world turned upside down during the irrational exuberance period and has never fully regained equilibrium. But, the fact is Americans want instant money. Before stocks took off on a new paradigm the average holding period was three years. People held stocks an average of three years during periods of very small gains.
Granted, there wasn’t the kind of hair-rising volatility that has become the norm these days. But, one thing really driving all of this is the idea of making money right now! In the last 20-years, we’ve seen this mentality drive baseball card mania, beanie baby mania, the tech bubble, and the housing bubble. That brings us to the bond bubble. It is a bubble in my mind but probably doesn’t burst until a large swath of naysayers become believers. In the meantime, it’s all about chasing performance. Up to August 11, Americans poured $197.5 billion into bond funds while taking a net $7.0 billion out of stocks. I should note stocks didn’t engender confidence after the flash crash as positive inflows to that point became withdrawals of $24.8 billion in May (flash crash was May 6).
This is a theme ignored by too many people, but one that presents a huge threat. Sure, there is rationale for investors buying stocks in companies outside the U.S., it’s another version of chasing performance. But, what else is going on here? I’ve been touting the need to have exposure around the world, but that’s not the same as saying to completely avoid American companies. Interestingly, the big shift began in 2007, when U.S. investors dumped a net $47.7 billion in domestic equities while pumping a net of $139.1 billion into funds holding international stocks. Much has been made of the fact the market is down overall for the past 10 years, but it’s hard for U.S. stocks to move higher at the rate they are being jettisoned and ignored.
People don’t forget how much money was made in the market in the 1990s, which resulted in a golden age for domestic equities. Back then, we all became believers .. and why not?
1995 S&P +37.6%
1996 S&P +23.0%
1997 S&P +33.0%
1998 S&P +28.6%
1999 S&P +21.0%
2000 S&P -9.1%
There is no denying that performance plays a role in allocation, but it’s much deeper than that, and at some point confidence in the nation could send more funds into the market. This would help U.S. stocks perform in a manner that better reflects their value.
This year, $35.8 billion net U.S. bonds exited while $28.9 billion net flowed into international funds. Since 2007, $2.89 trillion has come out of U.S. stock funds while $1.43 trillion was invested in equities outside U.S. It’s real hard to expect the stock market to move higher under that much selling, which shows a lack of faith.
I think the U.S. market is extremely undervalued, but in order for it to rebound Americans are going to have to once again believe in America.
A not so funny thing is happening on the way to the new era of Enlightenment, where today’s Great Men will fix everything for everyone. The intellectuals that will create the power of Zeus from sun and wind are learning it’s the everyday person that is really the engine of our society, and the power behind our past and future successes.
Unfortunately, the everyday person has been pushed to the sidelines, initially with the glee and excitement of those that get to the Macy’s Thanksgiving Day parade the night before to watch those mighty balloons filled with hot air. Most Americans understood it would take some time for the smart folks to get in there and work their magic. But, those on the sidelines are restless and desperate. They stand there now with dirty faces and empty stomachs.
Even as those intellectuals pass by, still floating on hot air, explaining why their magic hasn’t worked, the crowd is being told to have faith. To have faith in an ideology that has never worked; to have faith in a giant, bloated, and money-hungry government; to have faith in a system that punishes success and tells us to not only cheer mediocrity, but to embrace it as well. More than anything else the new Enlightenment crowd is telling us to not have faith in their own dreams and aspirations.
The tiny successes seen over the last year and a half have been greeted by the President with congratulations to himself, his team, or some brilliant intellectual. I’m not sure if it’s possible for the intellectual snobs that saw fit to award the Nobel Peace Prize to Barack Obama a couple months into the job will ever have anything but disdain for the boor who first hammered out for himself an iron spade.
I can only pray that somehow, or someway, President Obama can make such an about-face. In the meantime, those walls of government, and the cascade of new laws, have closed in not only on our hopes but also our chances to bring our house to life.
There are a slew of earnings reports from retailers this week. There are also enough first and second tier economic releases out to make a difference in the market this week. A couple of weeks ago the market put up a good fight after disappointing jobs numbers were released, but the nonstop onslaught of bad news chipped away at resolve built on things like valuation and future potential. The market reflects themes in society at large, the main one being a lack of confidence. The market can only explode higher on a better-than-expected jobs report, which isn’t necessarily a good jobs report per se, just one that clears a low expectation hurdle. Until then, small victories like besting housing consensus could go a long way toward stemming that sinking feeling that comes with a lack of confidence.
On my radio show this weekend, a caller asked about the typical September and October challenges, which brings up a good point. So much of our success and failure is self-fulfilling, so if those months get off to poor starts it could snowball quickly. That being said, I’m a contrarian at heart, and understand this is the time smart money often makes its move while the rest of us are crying in our milk.
The DJIA couldn’t eclipse the 50-day moving average on the upside Friday, and is now faced with having to hold the 200-day on the downside. This could mean a tight trading range which right now, I would gladly accept.
Although the Street is treating earnings from Lowe’s (LOW) with kid gloves, equity futures are lower, and have been listless all morning long. I don’t think there are any axes to grind this morning; the bias has turned south and stocks will probably drift.
(Wall Street Journal) — Stocks fell as weaker-than-expected weekly jobless-claims data added to investors’ jitters a day ahead of the monthly payrolls report. Near midday, the Dow Jones Industrial Average was down35 points, or 0.3%, to 10644. 35 points, or 0.3%, to 10644.
I still marvel at the thought our economy is going to be pulled out of the doldrums and catapulted into the next decade via solar and wind power, and things like electric cars. I’m not a big car guy, but I’ve seen a shift in the auto shows from outrageous thinking and dreams that lead to cars of the future, all of which would really leave your mouth agape. Now, the shows aren’t imaginative at all.
This is maybe because the car of the future is the car of the past. I mean like a long time ago.
With the Nissan Leaf and Chevy Volt debuting soon it will be back to the future. Who knew the folks at Studebaker had it right all along? The Studebaker Brothers got into the battery-powered car business in 1902 to 1912, mostly making taxis. The beauty was the Vitoria Phaeton, an electric version of the buggy once pulled by horse. Considering the selling points it’s a wonder that steam, and then gas-driven cars, ever caught on.
> Easily charged
> Great for cities
> No need for gas stations
Earn Baby Earn
After the bell, Priceline (PCLN) posted an earnings report that could only be called a grand slam. Revenue was $767.0 million and earnings came in at $3.04 per share; the Street was looking for $733.0 million and $2.64 per share, respectively. Current quarter guidance of $979.5 million in revenue and $4.98 per share (high end) were miles above consensus for revenue of $863.3 million and $4.18 per share. The company’s rental car business improved by 32%, and hotel by 48.2% year over year indicating a shift from that stay-cation phenomenon. Where once business was driven domestically, it is international that is on fire, up 59% from last year and 82% from 2Q08, while domestic has been a more pedestrian 12.6% and 32.0%, respectively.
Apache (APC) beat the Street and scalped BP all in one shot. The company posted earnings of $0.49 per share, beating the Street by $0.14. Management threw someone under a bus with a statement saying the April 20, 2010 well blow-out was “preventable and likely the result of gross negligence or willful misconduct.”
Electronic Arts (ERTS) posted a loss of $0.24 per share; the Street thought it would be a loss of $0.35 per share. Apparently, the World Cup soccer game scored! The company has one of strongest holiday season lineups in the sector and with console prices declining and new peripherals having arrived, the videogame titan’s stock is one to watch (especially considering over $1 billion in cash and zero debt on the balance sheet).
Toyota Motor Corporation (TM) posted a profit of approximately $2.2 billion (190.47 billion yen) as robust demand in Asia, government buying incentives in Japan, and a reviving U.S. market canceled out the impact of the strong yen. The Company also increased its guidance for the first half of fiscal year 2011 and the full year. For the first half, Toyota lifted its net profit estimate to 250 billion yen from 150 billion yen, and raised its operating profit estimate to 270 billion yen from 100 billion yen. The company now expects 9.800 trillion yen in sales in the period, up from 9.400 trillion yen. For the year to March, it raised its net profit outlook to 340 billion yen from 310 billion yen and its operating profit forecast to 330 billion yen from 280 billion yen. It also revised up its sales projection to 19.500 trillion yen from 19.200 trillion yen.
These days everyone is talking about their brand; I remember such talk during the Internet boom, just spend the money on branding as who needs profits. Now everyone I know is busy crafting their brand. I think the problem for most is it’s like telling too many lies, at some point it’s hard to keep track. I say just be truthful to yourself and let the chips fall where they may. On that note, what is Oprah thinking about these days? This week the second Oprah store opened, a 138 square foot “microsalon” at Water Tower Place in Chicago. You would think such a small, intimate place would have great out-of-reach stuff that normal people splurge on as a once-in-a-lifetime purchase. Instead, you can pick up $28.00 “O” rhinestone key chains and $30.00 canvass tote bags with signature quotes written all over them.
According to Chicago’s “Crain’s”, one shopper called it “junky, petty stuff” when she thought there would be luxury stuff like Ralph Lauren (Black Label) and Bobbi Brown beauty products. I know Oprah is big but is she taking on Wal-Mart (WMT) or is it a sign of the times? One thing is for sure, if this is a smart branding move I’m going to wear overalls next time I guest host on Fox.
Consumer bankruptcies in May declined month to month, but were up 9% year to year to stay on pace for 1.5 million this year. After a sharp decline in consumer bankruptcies after the Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 (September), there has been a steady climb that threatens to challenge numbers posted before the law went into affect. April 2010 was the highest monthly result since the overhaul. This is horrible news, and it points out that there are two Americas being created and while the goal has been to destroy the wealthy, or so-called wealthy, the affect has been to hurt those not-so-wealthy citizens.
The ADP report is out, and we like it. While I preach about getting too giddy over mediocrity we have to celebrate baby steps. The pick-up in small business hiring is a great and hopeful sign. If we get a positive surprise on Friday, the Dow could rally toward 11,000.
On that note, I must say I need more faith from subscribers. I have people that took a loss in PCLN just a few weeks ago. Today, there are two upgrades on that and one on SOLF. We can wait like the Street for these stocks to move 30% to 50% higher or we can find value and get in, sometimes early, if you consider a few weeks early. I’m not trying to pound this in but do this my way and results will be better. My representatives are going to speak to all subscribers to make sure they understand our methodology and philosophy.
For those not in the market, I understand, but think you’re making a mistake. I’m afraid of the White House and Federal Reserve, too, but I’m not going to bet against America and not invest in value. I’m not going to abandon free markets and sit in a cave because that only helps their agenda, not mine. Sure, from time to time we have to retrench because we can’t control the market, but the focus is on opportunities that come along with the scariest times. In the last 24 hours one subscriber, one person on an elevator, and one person on the street asked if they should buy BP. I mentioned in the comments people in New Orleans were loading up on weakness.
I was too afraid because of the psyche of subscribers to officially feature it- shame on me, but it’s up huge from recent lows.
1Q: Polo Gallops Through the Gate to Start the Fiscal Year
By: Brian Sozzi, Equity Research Analyst
This morning, the retail powerhouse managed very easily to eclipse the earnings expectations it craftily helped to lower on the 4Q10 earnings call. In spite of the Company’s “heavy” investment in establishing the infrastructure to run an ever-increasing global brand, the 1Q11 financials support the notion that a well run firm with quality products in all price spectrums is enough to leverage operating expenses and ring the earnings register. We upgraded our rating on the stock July 2 (for institutional clients), citing a more compelling valuation backdrop post a two-month slide, and our sense that Polo had catalysts in place (shipment growth, product mix, sourcing) that suggested above consensus earnings were probable. Suffice it to say we were not left disappointed with the 1Q11 report.
Points of Interest
* Strong growth in all regions, product categories, and distribution channels (includes Europe).
* Revenue accelerated q/q (it was off the easiest comparison of the FY, however).
* Gross margin beat consensus by 180 bps, and expanded strongly y/y on items other than sourcing (mix, inventory management).
* Retail comps slightly mixed (strong in factory and Club Monaco, weak in Ralph Lauren) but a new level of operating margin was attained (comparing to prior first fiscal quarters).
* Guidance raise for FY11 only accounts for 1Q11 revenue beat; clearly this is conservative barring a mass consumer exodus globally.
* Robust cash position hints at new share repurchase plan.
* Inventory well controlled (-4.0% y/y excluding Asian operations).
* Overall comps were likely the best in our coverage universe for the quarter.
* The quarter was clean (no tax rate issues).
(Smart Money) — When the stock market turns volatile and the economy buckles, investors often look to curb some risk by moving into traditionally conservative money market funds. Not this time. Industry data and the latest round of earnings reports from brokerages show that, although investors may not have a vast appetite for risk, money market funds aren’t satisfying them either.
It seems each week this summer has expressed a different story about the economy and stock market. Some weeks it’s hopeful, others it’s dreadful, but all carry more than a dollop of angst. That uneasy feeling has been a source of gyrations which ironically only create more angst. It’s a vicious cycle; one that I think is deliberately manipulated to shakeout individual investors at certain times and then lure them back later. (Of course, most investors are naturally lured back when the market is higher…much higher.)
I sent an email out Friday afternoon explaining my frustration at subscribers that take losses on my ideas even though I think those ideas will work out. By the way, taking loses is an important part of successful investing, but dumping stocks largely because the herd is moving in one direction is almost always a mistake unless it was an idea bought for a reason that didn’t involve real analysis. The main point is this is a mercurial market but you can’t be a mercurial investor.
Last week, PWER was a big winner and yet 15% of people in the database already sold, most at a loss, for a variety of reasons. The fundamental story and potential never changed, however. This is the case with the broad market. Of course, there are more fundamental risks to the broad market than with a company that’s carving out market share in a fast-growing niche in a super hot sector. But all of the emotional noise from headline events that caused so much havoc may not translate into material changes for our economy. At least not a worst-case scenario. At some point our economy has the potential to reverse course and turn on the jets. In the meantime, if you buy high and sell low the stock market will never work for you. If you sell every stock when it’s down then be prepared for a bumpy and very unprofitable ride. I’ve been at this for a while and this never changes; people simply taking losses out of anxiety.
If you want to be an investor, then be an investor, but don’t think every stock you buy is going to go straight up.
As for the market right now, I’m impressed with last week; not the results but what drove those results.
> Resolve – market could have folded a few times during the week but didn’t
> Earnings – top line growth still problematic, but strong earnings and confident guidance
> Politics – more Democrats saying it’s too soon to let Bush tax cuts expire
Sure, volume continues to be a concern, but that doesn’t mean we aren’t on the cusp of a major rally. Resolve sways back and forth like an old bandana stuck on a barbed wire fence, but it was there last week. It’s a combination of factors, including all that cash on the sidelines becoming antsy. The key characteristic of this earnings season was to be disappointed. Yep, that was the case; we came into earnings ready to be let down. Wide-eyed economists and the Federal Reserve have rushed to lower their expectations for 2H10 growth. So, slow top line growth in the Spring could mean even tougher sequential comparisons three months from now. That means guidance is more important than usual. Last week many mega companies upped their full year outlook and in the process, gave the economy the nod.
It’s not robust, but it’s not double-dip, either. But there are question marks. The biggest is whether the White House will dig in deeper with its goal of limiting corporate profits and redistribution of wealth. A great technique for leveling the playing field would be to hike taxes on the so-called rich while holding the Bush tax cuts for everyone else. I still can’t get over this notion that some are arguing the rich should have their taxes raised because they don’t spend money. The flip side of this, and Nancy Pelosi brought it up recently, is the notion that the best way to get money into the economy is to give it to poor people. While there is no doubt people on welfare and unemployment spend their money it’s unnerving and anathema of the American way that thrift and smarts should be punished.
Moreover, when will those on welfare and long-term unemployment wake up to the fact they are viewed as chattel, just vessels to transfer money from the government into the big businesses that government says it loathes? To grow the nation, new wealth must be created, and that comes with opportunities. Such opportunities can’t happen without the flow of money and confidence as both are bottled by endless rhetoric and new rules and regulations. Last week, the CEO of UPS (UPS) Scott Davis said as much. “There is no doubt that policy uncertainty is an issue out there” he said. Frustration has caused many CEOs to speak out because healthcare reform, financial reform, and cap and trade are going to be very expensive for their businesses. One could imagine what it means to the little guy, still considered rich under tax guidelines but individual microscopic specks in the economy.
Mr. Davis went onto say: “Clearly policy uncertainty is one of the worst things for a recovery.” The war on prosperity has many casualties the most damming is everyone losing complete confidence in what is possible and what is impossible.
With hundreds of rules yet to be written, and scores of agencies and thousands of agents being assembled to descend on the business world, it’s easy to understand why such gargantuan amounts of money are being squirreled away. Already we see how financial regulatory reform can gum up the works. Last week, Ford Motor Credit had to shelve an offering that could have risen between $1.0 billion to $3.0 billion because no rating agency will offer an assessment of risk. In fact, all agencies have said they will no longer allow their ratings to be used in association of prospectuses and offerings involving asset-backed securities. According to Deal Logic, there were no asset-backed deals last week, the first time this year that has happened. Before last week and new Financial Regulation, there has been an average of four deals a week raising $1.8 billion. This is what gets the economy moving, not unemployment checks.
The market is in limbo, edging lower, but mostly waiting for the latest data on housing. New home sales today could make or break the session. I’m looking to see if prices move higher. As we wait for what could be the second lowest reading on record, the Street is mum on the dubious milestone of 100 banks failing thus far this year.
Overseas there is a moot response to European bank stress test results, not sure if people are flabbergasted, embarrassed, or just dismissive of the results (only 7 of 91 banks failed). The situation continues in the United States, where another seven banks failed over the weekend. For 2010, the tally broke through 100 banks that have failed (now at 103) for a total of $72.4 billion in assets and an estimated loss to the FDIC’s Insurance Fund of $18.0 billion. The failures cost the FDIC $431.0 million. The FDIC was already running a $20.7 billion deficit at the end of March 31, 2010.
Fed-Ex Sparks Futures
A pre-report from FedEx turned futures around this morning, with the Company announcing that it expects its fiscal first quarter earnings to be in a range of $1.05 to $1.25 per share (an increase from previous guidance of $0.85 to $1.05). The new outlook reflects better than expected volumes in Express and Ground volumes in addition to more higher-margin International Priority business. It could be a hint that global trade isn’t suffering as much as feared following the various European austerity measures.
We witnessed market resolve yesterday, and that’s news these days. Making yesterday’s session even more impressive is the drubbing Apple (AAPL) took in the aftermath of a terrible press conference by Steve Jobs last Friday. The guy strolled around stage with the air of a conquering warrior except this battle put a chink in the company’s armor, made worse by a standoffish and arrogant rant that apparently has done more harm than good. By saying the iPhone 4 had the same kinds of problems as other phones made it easier for other cell phone makers to say Apple removed the veil of superiority, something perhaps no billion dollar marketing campaign could have done. Apple is 24% of the NASDAQ, and if it was up 3% instead of down it would have been a magnificent session.
Apple can afford to be arrogant now, but I must say Jobs went from a sympatric American hero to just another self-absorbed billionaire bothered when little people make too much noise. I remember when the Toyota (TM) situation began we got that same kind of attitude. There was nothing contrite about their initial attempts at a legitimate mea culpa. Then there were early forays into public relations during the first couple of months of the BP oil spill. Granted BP was played by the government on things like the size of the gusher, which covered the Administration’s lack of rapid response, but make no mistake BP sucks when it comes to honesty. Heck, all Goldman (GS) had to do was use the word “mistake” to escape the clutches of a perennially embarrassed SEC. Apple is on top now, but it never hurts to be humble.
Speaking of being humbled, IBM missed the top line consensus last night, and it’s paying a heavy price for that despite solid, if not overly cautious, guidance. The company’s service contracts dipped 12% to $12.3 billion, while revenue of $23.7 billion missed the Street’s $24.2 billion estimate. Still, the company beat on the bottom line with earnings per share of $2.65, down from $3.10 a year ago, but still $0.07 better than consensus. Last year missing on the top line and beating on the bottom line was good enough…not this year. I remember when IBM hit ten bucks a share in 1993 and many people thought Big Blue was heading for the dust bin of corporate history. The company hired Louis Gerstner, whose resurrection put him up there with Thomas Watson Sr. in the annals of IBM and corporate leadership. The company has been a well-oiled machine since then.
Last night, IBM management pleaded with analysts to take into account a loss of $500.0 million on the top line from currency fluctuation, a figure not modeled for in the consensus number. The company has posted 30 consecutive quarters of year over year earnings increases. This is remarkable stuff, dating back to the Welch era at GE. Nonetheless, Big Blue will be black and blue today.
It’s not going to be any better for Texas Instruments (TXN) despite what I think is strong guidance. Revenue of $3.5 billion was a fraction below the $3.55 billion expected, while earnings of $0.62 per share were in line with estimates. Keep in mind revenues were up 42% year over year, but were not as robust as Intel’s (INTC) just last week. Third quarter guidance of $0.64 to $0.74 per share didn’t impress the Street, which has modeled for $0.64 per share. Management is cautious, and I think this is another reason for the adverse initial reaction.
Goldman Sachs (GS) couldn’t come to the rescue this morning even as earnings per share came in at $2.75, well above consensus of $2.08. Benefits and compensation for the first half of the year were 43% of revenue versus 49% in 2009.
Washington Spending and Spin
I actually like the idea of having a higher bar to cross with respect to moving the market, although I worry about what we saw from 1999 to 2009 when corporations made $10.0 trillion dollars only to see their share prices lower. Of course, there is something to be said about quality of earnings. It takes a fair amount of financial engineering to produce 30 consecutive quarters of year over year earnings increases. But, investors have to be buyers.
Today, unemployment benefits will more than likely be extended, although it will pile on the national debt. The idea any American doesn’t want to help another is ridiculous, but at what point are we not helping all Americans including our children by piling up debts that will eventually topple. I remember the opposition to welfare reform was fashioned as mean-spirited and racist. Getting people off of welfare is the best thing a nation could do for its fellow man, and providing a positive business atmosphere is a much better thing for a president than fighting for unpaid unemployment. But it is despicable this campaign to paint segments of the nation as cold hearted. We help, and we give, and then we give more. Last year, however, our giving declined 3.6% to $303.75 billion.
According to Indiana University Center on Philanthropy, and the Giving USA Foundation, it was the first time charitable giving decreased year over year since 1987. Still, the numbers are impressive. Despite the chiding from former President Clinton that Americans aren’t giving enough and ignoring places like Haiti, international giving spiked 6.2%.
I hope the 27 million Americans unemployed or underemployed find work soon. I fear we are going to be hearing about those mean Republicans six months from now, instead of meaningful and sustained job creation sparked in part by government policies like tax breaks instead of tax hikes.
The market is going to be under considerable pressure in part to those earnings results mentioned above, and in part to a setback in the Gulf and that oil-well cap. Just as the market was falling through a trap door after all of the aforementioned earnings reports, and a disappointing release from Johnson and Johnson (JNJ) in particular, the market has (temporarily) put on the brakes with a sliver of good news in the form of better than expected housing permits. Although starts were down 5% to an annual rate of 549,000 (consensus was 575,000), permits edged up 2% to 586,000.
Whirlpool Reports a Clean Quarter, Soft of
By: Brian Sozzi, Equity Research Analyst
Today, appliance king Whirlpool Corp. (WHR) reported its 2Q10 operating results, providing a first glimpse into how the U.S. consumer responded to appliance/housing stimulus measures and how the international consumer mentally handled the near collapse of the EU. The verdict is mixed believe it or not, even though the company managed to surpass consensus revenues (by $500 million) and EPS (by $0.69 applying adjusted number). Reasons to be slightly guarded on this morning’s report are detailed below.
Whirlpool announced net sales of $4.53 billion, +8.8% y/y, or +6.0% excluding the benefit of currency translation. The star of the quarter was Mr. Gross Margin, which came in at 16.78% compared to the 14.50% consensus forecast (we modeled for 15.00%). Productivity measures and increased utilization at Whirlpool manufacturing facilities to satisfy demand offset higher raw material prices and price/mix that continues to be unfavorable (we believe it’s a combination of Whirlpool giving concessions to home centers/mass merchants to move volume and consumers scaling back on over the top appliance purchases). Elsewhere, Whirlpool appears to have managed rather well, continuing to control operating expenses and improving operating cash generating levers. All business segments notched y/y operating profit growth; though we are cautious as to the amount of tax credit monetization that impacted Latin America, where operating profit rose 120% y/y. Prior to 2Q10, Whirlpool had $645.0 million in BEFIEX tax credits remaining.
Guidance was raised to $9.00 to $9.50 per share from $8.00 to $8.50 per share (consensus: $8.67 per share), in spite of unit shipment totals for Latin America, Asia, and Europe being held consistent to the comments expressed on the 1Q10 call. We were modeling for FY10 EPS of $9.17. Our inclination is to appreciate the strong quarter from Whirlpool, especially in light of a string of softer than expected economic data on a global scale. That said, we are becoming mindful of the company’s tougher profit growth comparisons in 2H10 and a demand picture in Europe that may weaken further from simply bumping along the bottom as it has to start 2010.
Areas of Concern
* Revenue growth slower q/q in all segments.
* Operating profit gains are slowing (bounced hard in 1Q09 as some of the company’s productivity initiatives kicked in).
* Company did not raise unit shipment outlooks for Europe, Asia, or Latin America; they took their outlook to 5% growth in North America from 3% to 5%.
* Guidance was raised by $1.00 to $1.50 from previous range, and at $9.00 to $9.50, was well ahead of the $8.67 consensus. However, using the adjusted EPS number for 2Q10, which would suggest a beat to consensus of $0.69 instead of the $0.51 being reported, the raise could be viewed as a slight disappointment when matched up to the maintained outlooks for unit shipments internationally.