Sunday, July 31, 2011

Politicians "Compromise" at Last Moment, S&P Futures Surge

Quick... everyone asked surprise that a deal was reached at the last moment.   Clap like seals at the bipartisan action as our leaders join hand in hand to do what is in the best interest of the country.  What a shocker.

S&P futures are up 18 points; I figured we'd get 2% on the "surprise" announcement, but we still have tomorrow morning to be even more 'surprised' and drive futures up more.  This is why I expected a late day covering by shorts going into the weekend, but it happened much earlier in the day Friday than expected.

I'd expect most of the cuts in the initial $1T to be a bunch of phony accounting maneuvers (which baseline can we use? the one that results in the least amount of 'actual' money being cut), and then a lot of wrangling over the additional $2T late this fall.

Then we can begin anew in early 2013.  But I still expect a tax cut (hey it's an election year coming up) this winter (along with QE2) - of course the tax cut will add to the deficit but don't worry about it.  The can has been kicked, and it's only money after all.

Friday, July 29, 2011

[Video] Cramer's 7 Secular Bull Markets

'Always a bull market somewhere'.  I like most of these groups although I'd focus on high end retail (consumer), technology with pricing power or hyper growth, and agriculture.  I do like Cummins (CMI) and have for years, but not sure about the entire group.  The chemical makers (which he labels plastics) actually have had quite a nice earnings season but if the globe truly slows down over the coming year, they tend to get hit hard.

Aerospace: This is a long-term thesis that there is demand for new, more fuel efficient planes, Cramer said. In this space, he would look at Boeing [BA], Honeywell International [HON] and Precision Castparts [PCP].

Oil and Gas: There is a real need to find more oil and gas because it is so scarce, Cramer said. Several companies have developed technology to help discover more oil and Cramer thinks oil service giants Baker Hughes [BHI], Schlumberger [SLB], Weatherford [WFT] and Halliburton [HAL] are all buys.

Trucks: A massive number of deferrals on new truck orders during the recession, as well as new environmental rules have helped create pent-up demand for trucks, Cramer said. To play it, he suggests engine maker Cummins [CMI].

Plastics: A lack of new capacity and an increase in the non-neutral portion of the feed stock has lead to higher prices, Cramer said. Companies like Dow Chemical [DOW] and Airgas [ARG] are benefitting from these developemnts. Cramer thinks both names are a buy.

High-End Retail: The rich are staying richer, so the luxury brands are working, Cramer said. He likes Tiffany [TIF], Coach [COH], Nordstrom [JWN], V.F. Corp [VFC] and Phillips-Van Heusen [PVH ] in particular.

Agriculture: With farmers planting more crops, Cramer said there are several plays to consider. He likes fertilizer maker Potash [POT], equipment maker Deere [DE] and DuPont [DD ], as well.

Technology: Tech companies that have strategies for the cloud, social media or mobile if they're linked to Apple [AAPL] are all working right now, Cramer said. Examples include Amazon [AMZN] and Google [GOOG]. Aside from that, tech is pretty ugly right now.

Starbucks (SBUX) Doing a Nice Job Reigniting Growth

I'll admit to being surprised by Starbucks (SBUX) the past year or so.  A few years ago it was left for dead as a company whose growth had pretty much stalled.  However, when their original CEO Howard Schultz came back to the company in CEO role, the company straightened itself out and has been impressive.  As a 'premium' brand they do cater to those who are less affected by the weak recovery...thus giving the company more pricing power than I assumed.  As I've been saying for a few years - with the American middle class slowly being eroded, the years ahead will be focused on investing in a barbell approach - the top end, and the low end.  I was just surprised SBUX would be thrown in with the 'higher end' (not being a coffee drinker).

Via Reuters:

  • Starbucks Corp (SBUX) raised its fiscal year forecast above Wall Street's estimates, banking on its relatively well-heeled customers visiting more often and shaking off price increases. The world's biggest coffee chain, which is coming off a years-long restructuring that involved closing poorly performing stores to rekindle growth, on Thursday reported better-than-expected fiscal third-quarter earnings.
  • Seattle-based Starbucks joined a raft of other premium-positioned companies -- including burrito chain Chipotle Mexican Grill (CMG) and Whole Foods Market Inc (WFM.) -- in reporting out-sized same-store sales gains.  "The higher end is alive and well," said RBC Capital Markets analyst Larry Miller.
  • Sales at Starbucks' U.S. cafes open at least 13 months, and which yield about four-fifths of its revenue, jumped 8 percent in its fiscal third-quarter ended July 3. Analysts expected a 5.3 percent increase.
  • Traffic in its home market climbed 6 percent, while average spending per visit rose 2 percent.
  • Chief Financial Officer Troy Alstead told Reuters menu price increases accounted for the bigger part of the rise in spending, but customers were also buying more food.
  • Starbucks targets more affluent consumers than the typical U.S. fast-food chain. Those customers have fared better than their lower-income counterparts as the U.S. economy sputters, and they have resumed spending on discretionary items like $4 lattes and organic foods.
  • Starbucks shares, which have benefited from a massive restructuring that slashed costs and shut over 900 poorly performing cafes around the world, are up 60 percent from a year ago. On Thursday, it said it would be adding a net 800 stores globally in 2012.
  • Starbucks boosted its earnings forecast for this fiscal year to $1.50-$1.51 per share from $1.46 to $1.48 a share, previously. Analysts, on average, were expecting a fiscal 2011 profit of $1.50 per share.
  • It also forecast a 15 percent to 20 percent increase in earnings per share in 2012 and a 10 percent increase in revenue. The forecast is based on mid-single digit comparable store sales growth and the opening of net 800 new stores.
  • Starbucks' third-quarter net income rose 34 percent to $279.1 million, or 36 cents per share, beating analysts' average estimate by 2 cents per share, according to Thomson Reuters I/B/E/S. Revenue rose 12 percent to $2.93 billion.
No position

Marketwatch: Insiders Selling at Unusually Fast Pace

I usually put a lot more stock in insider buying (since it is so rare) versus insider selling (which is prevalent) within single companies, but when we see large flushes across the entire market, it is usually a good sign that those in the know are trying to get out at the 'top'.  Per Mark Hulbert at Marketwatch, one indicator is flashing red:

  • Bad news, stock-market bulls: Corporate insiders are selling their companies’ shares at an abnormally fast pace. In fact, one measure of that selling activity shows insiders of NYSE- and AMEX-listed companies recently were selling at the fastest rate since data began being collected in the early 1970s, four decades ago.  On the theory that insiders know more about their companies’ prospects than do the rest of us, this is an ominous sign.
  • One firm that gathers and analyzes the data is Argus Research, which publishes its findings in the Vickers Weekly Insider Report. One indicator that the firm calculates is a ratio of the number of shares that insiders have sold in the open market to the number that they have purchased.  In the week ending last Friday, according to the latest issue of the Vickers report, this sell-to-buy ratio stood at 6.43 to 1. This is higher than 95% of other weeks’ readings over the last decade.
  • That’s ominous enough, but consider last week’s sell-to-buy ratio for just those issues listed on the NYSE or AMEX. That came in at 13.10 to 1, which is the highest reading for this ratio since when Vickers began collecting the data, which was October 1974.
  • Perhaps the strongest counterargument the bulls can muster at this point is that the insiders are not infallible. That indeed is true. Still, researchers report that they have been more right than wrong.

So Much for Waiting Until the End of the Day....

I wrote this morning that I thought there would be a late day rally as shorts covered and risk taking longs bought the 'debt ceiling resolution over the weekend' idea.  But it appears it has already happened. 

Right idea.  Incorrect time frame.

The S&P 500 is back to flat on the day.

[Video] Remy - "Raise the Debt Ceiling" Rap

A reader put this into comments yesterday - sorta cute.

"I gotta a monetry plan, and it involves a lot of toner!"

2 minutes

The Market Frustrates the Majority

Sometimes cliches are cliches for a reason - they are quite accurate.  Often it is said the market will frustrate the majority of those participating and this week is a prime example.  Scanning various blogs and tweets on the internets (sic), very few wanted to be short ahead of a knee jerk explosion upward on debt ceiling resolution.  That doesn't necessarily mean they were all heavy long, but certainly you don't want a host of index puts to instantly go to zero, and/or that double (or triple!) levered ETF to blow up in your face.  So what does the market do this week as everyone stands to the side with itchy finger ready to 'buy buy buy' once Reuters leaks a deal?  It has its worst week in over a year.  Typical!

As I said early this week, the moving average and technical level don't quite mean so much when we are so headline oriented but we are now getting oversold and nearing key support.  About 10 S&P points away from the 200 day moving average on the exponentials.

If this market remains weak all day, I'd expect some sort of rally in the closing moments - if for nothing else - shorts covering fearful for the debt ceiling deal over the weekend that sends S&P futures up 2% Monday morning.  Doesn't mean it will happen, but it remains a big risk for anyone holding overnight.

Deal or no deal the economy remains pitiful for those not in the top 20%, and especially 2%.

First Pass Q2 GDP a Stinker at 1.3% - Q1 GDP Bombed Down to 0.4%

Expectations were low for this number (1.8%), but the U.S. came in below at a paltry 1.3%.

More devastating was Q1 GDP somehow got revised down to 0.4% from 1.9%!!  I can't recall such a downward revision in recent memory; usually you will see a 0.2% or 0.4% adjustment but 1.5%?

Also reinforces the whole Wall Street game of reacting to economic numbers as a joke.  When your data is that far off, why bother even publishing it.

Based on this apparent margin of error, today's "1.3%" for Q2 could be a negative number for all we know when the final revision comes out in a few months.

And for those crying for more QE?  What did $600B buy you?  Nothing... in fact it hurt most of Main Street by helping to drive up commodity costs and imposing a 'tax' on the majority who don't have mega assets on Wall Street.

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). (I'll say!!) The "second" estimate for the second quarter, based on more complete data, will be released on August 26, 2011.

Full report here.  I won't bother to post the details because frankly we could have an entirely different number down the road.

Thursday, July 28, 2011

[Video] ECRI's Lackshman Achuthan Continues to be Bearish on Economic Conditions as Longer Term Indicators Remain Negative

I'm watching the ECRI interviews very closely since they have had a far better track record than any Wall Street strategist or economist the past half decade.  About 4-5 months ago ECRI said their long term indicators were turning down, and sure enough we've hit (at best) a 'soft patch'.   Apparently there has been no improvement in said indicators (not turning back positive) so the intermediae term still looks soggy.  Very interestingly, when asked about the dichotomy between economic figures and corporate profits, Achuthan believes profits will mean revert to the economy and not vice versa.  If accurate, the market will be in for a bit of a surprise as that is certainly not banked into the cake.

7 minute video - email readers will need to come to site to view.

BorgWarner (BWA) Booms on Beat and Raise

BorgWarner (BWA) continues to be amongst the most impressive of the auto supplier companies.  This morning the company beat on EPS (by 13 cents) and revenue, and raised guidance on both the top and bottom line.  Their business lines continue to be in the sweet spot to take advantage of actual organic growth in the industry.  28% revenue growth while global auto production was down 2% says it all.  Full report here.

The stock has been 'hanging around' for most of 2011, as the sector has fallen out of favor with the investor class.  Most recently after creating a double top with April and July highs, the stock has been beaten quite badly but is reversing that in dramatic fashion this morning.

Via Reuters:

  • Auto parts supplier BorgWarner Inc (BWA) reported a higher-than-expected quarterly profit on Thursday, driven by increased demand for its fuel-economy technologies.  The company, which makes turbochargers, transmission components and other parts, also raised its forecast for 2011 earnings and revenue. It now expects $4.25 to $4.45 per share on an adjusted basis, on a revenue increase of 25 percent to 28 percent.  It previously forecast 2011 earnings of $3.85 to $4.15 per share on a revenue rise of 19 percent to 23 percent.
  • BorgWarner has benefited from increased demand from automakers for its technology to improve engine efficiency and reduce emissions.  That demand has been driven by high gas prices and a move toward stricter emissions standards by the U.S. government.
  • Excluding a patent infringement settlement payment from Honeywell International Inc (HON) and an adjustment related to taxes, BorgWarner earned $1.12 per share in the latest quarter. On that basis, analysts' average forecast was 99 cents, according to Thomson Reuters I/B/E/S.  Sales rose 28 percent to $1.8 billion.
No position

Wednesday, July 27, 2011

WSJ: What's Wrong with America's Job Engine?

Long time readers will know much of this information, as we've been 'early' on the case for years, [Jun 14, 2009: 'Prosperity' Without Jobs?]  declaring the U.S. job engine has been broken for many years but hidden by Federal Reserve induced bubbles - first stock, then housing... mixed in with a healthcare, and government bubble (the former subsidied by Medicare, the latter by property taxes on inflated home values).  Meanwhile, pure private sector jobs have been in net deficit - and those that have been created generally come with lower wages and benefits.  [Feb 3, 2011: CNNMoney - Jobs Coming Back, but the Pay Stinks!] 

Those that are full time of course - "temping" is becoming another national pastime. [Feb 16, 2010: USA Today - Use of Temps to Fill Jobs May No Longer Signal Permanent Hiring]  Meanwhile costs continue to go up for the average American - squeezing Joe Public.  We're in quite a pickle, and it's not just America but much of western Europe.  [Feb 7, 2011: BW - The Youth Unemployment Bomb]

This WSJ story devles a bit into these topics along with the role of automation.  [Mar 28, 2011: Productivity - Wo(man) vs Machine]  I've called it "just in time labor" mimicking the "just in time inventory" that made a grand entrance into U.S. manufacturing in the 80s and 90s.  Less kind but probably as fair, is the professor in the WSJ piece which calls it disposable labor...

Without grand new industries that actually create a multitude of jobs on American soil rather than 75% offshore and 25% domestic, it is very difficult to see the way out.  Even with the Fed trying to create another bubble with all its might.


Over the past 10 years:

• The U.S. economy's output of goods and services has expanded 19%.
• Nonfinancial corporate profits have risen 85%.
• The labor force has grown by 10.1 million.
• But the number of private-sector jobs has fallen by nearly two million.
• And the percentage of American adults at work has dropped to 58.2%, a low not seen since 1983.

  • What's wrong with the American job engine? As United Technologies Corp. (NYSE: UTX - News) Chief Financial Officer Greg Hayes put it recently: "Sales have come back, but people have not.''  That's largely because the economy is growing much too slowly to absorb the available work force, and industries that usually hire early in a recovery—construction and small businesses—were crippled by the credit bust.
  • Something else is going on, too, a phenomenon that predates the recession and has persisted through it: Changes in the way the job market works and how employers view labor.
  • Executives call it "structural cost reduction" or "flexibility." Northwestern University economist Robert Gordon calls it the rise of "the disposable worker," shorthand for a push by businesses to cut labor costs wherever they can, to an almost unprecedented degree.
Consider these clues:
  • In the most recent recession and the previous two—in 1990-91 and 2001—employers were quicker to lay off workers and cut their hours than in previous downturns. Many also were slower to rehire. As a result, the "jobless recovery" has become the norm.
  • In the past, when business slumped, employers cut work forces and accepted less work per employee. During the deep recession of the early 1970s, the output of goods and services in the U.S. fell by 5% and employment by 2.5%. Economists puzzled over "labor hoarding," or the tendency of companies to hold on to unneeded workers.
  • No one talks about that any longer. Between the end of 2007 (when American employment peaked) and the end of 2009 (when it touched bottom), the U.S. economy's output of goods and services fell by 4.5%, but the number of workers fell by a much sharper 8.3%. Today's puzzle: How and why employers managed to boost productivity, or output per hour of work, like never before during the worst recession in decades?  (uhhh, desperation by the work force?)
  • In an earlier era, when more Americans worked on assembly lines, many layoffs were temporary. When business bounced back, workers were recalled, often because of union-contract guarantees.  At the worst of the 1980-82 recession, 1 in 5 of the unemployed were "temporary layoffs." In the recent recession, the proportion of temporary layoffs never exceeded 1 in 10. In part that's because fewer Americans work in factories, where production can be stopped and restarted; if a restaurant doesn't have enough customers, it goes out of business.
  • Corporate employers, their eyes firmly fixed on stock prices and the bottom line, prize flexibility over stability more than ever. The recession showed them they could do more with fewer workers than many of them previously realized.
  • In a survey of 2,000 companies earlier this year, McKinsey Global Institute, the think tank arm of the big consulting firm, found 58% of employers expect to have more part-time, temporary or contract workers over the next five years and 21.5% more "outsourced or offshored" workers.
  • Temporary-help agencies are playing an ever-larger role—from providing clerical and factory workers to nurses and engineers. It makes it easier to cut back in tough times. Workers, in short, now can be hired "just in time." (woo hoo! they used by term) And many employers apparently don't think it's time yet. Because they can hire temps almost instantly, there's little need to hire in anticipation of a pickup in business.
  • When they do hire, big U.S.-based multinational companies are more able and more willing to hire overseas, both because wages are often cheaper there and because that's where the customers are.  In the 1990s, those multinationals added nearly two jobs in the U.S. for every new job overseas; in the 2000s, they cut their U.S. work forces by 2.9 million and increased them abroad by 2.4 million, according to the Commerce Department.  (but just cut taxes below the already historically low rate - as % of GDP - and millions of jobs will suddenly appear from the multinationals - just ask their lobbyists)

As a society, the questions must be asked - what do we do with 'all these people' who don't have a higher form of education.  Their jobs have been increasingly shipped or automated away.  We saw yesterday that their chances of re-employment are low, as they enjoy long term unemployment.  Increasingly this is becoming a permanent underclass.
  • Workers without college degrees find well-paying jobs scarce in the modern U.S. economy. The Bureau of Labor Statistics says there are 25.3 million Americans over age 25 without high-school diplomas: Only 9.8 million, or less than 40% of them, were working in June. About 1.6 million said they were looking for work; the rest weren't even looking.
Absorb that for a moment.  Of 15 or so million Americans without college degrees, less than 2M are looking for work.  The rest?  They seem to be part of the 'disappearing worker' that is leading to head scratching labor force participation rates.

 [Oct 4, 2010: WSJ - Americans Souring on Free Trade as Losing Their Jobs Overpowers Lower Prices]

Back at the 50 Day Moving Average but Not Sure it Matters

Without such a dependence on the political news cycle, I'd be more prone to care about technicals at this moment, but with a certain spike to occur in the averages once the debt ceiling deal hits I am not so sure if these moving averages are going to matter.

Drawing the pictiure back farther we appear to be forming a head and shoulders formation with mid February and "now" being the 2 shoulders and early May the head.  The only problem with that, is the last time we saw this bearish formation, the market slapped bears all over the place by doing the exact opposite of what used to occur after such an occurence.

Aside from political theater, next week is going to be a ball of fun with the global manufacturing gauges (already we saw a flash PMI in China that is contractionary), the U.S employment report, and ISMs.  So there will be a lot of macro economic news dominating over micro in the next week and a half.

It does remain fascinating how America's businesses (especially the larger public ones) can continue to well, while the economy for Main Street continues to remain in recession for many.   People are starting to 'get it' - by it I'm describing the multi year structural issues underlying the economy that have been impacting for well over a decade (but hidden by Fed induced bubbles) - as evidenced by news stories that are finally saying "aha"!  More on that later today.

Economic - Another Old School Republican (Bruce Bartlett) Says Heavy Tax Cuts are Large Contributor to Deficit

It appears another old school Republican has joined David Stockman in railing against the current ethos of the new breed Republicans, and he brings a lot of interesting points to this analysis.  As we've pointed out in many previous pieces the current mantra that 'taxes are too high' for prosperity makes little sense in historical context.  Corporate taxes as a % of GDP is at record lows, as multinationals employ entire armies to avoid them, while lobbying for ever more cuts to of course help 'create jobs'. 

Obviously no one one wants to pay any taxes (or at least as few as possible) but with the explosion of spending, the current imbalance between dollars taken in and dollar sent out is near historical highs.  The current ethos on the GOP side is if we just keep cutting taxes an explosion of growth will create more - not less - revenue.  To some degree (and from much higher levels of taxes) one would think that to be true, but as Mr Bartlett points if this ethos was correct, where was the explosion of economic growth that the Bush tax cuts of 2001 & 2003 was supposed to create.  Indeed, he points out that Bush II expressed that the tax cuts were in part to reduce the fiscal surplus - which by definition contrasts directly with the idea that lower taxes = more revenue!Via NYT Economix

Bruce Bartlett held senior policy roles in the administrations of Ronald Reagan and George H.W. Bush and served on the staffs of Representatives Jack Kemp and Ron Paul.

  • Whether revenue should play any role in deficit reduction is at the root of the fiscal impasse between Congressional Republicans and President Obama. One factor underlying the hard-line Republican position that taxes must not be increased by even $1 is their assertion that the Bush tax cuts played no role in creating our deficit problem.
  • In a previous post, I noted that federal taxes as a share of gross domestic product were at their lowest level in generations. The Congressional Budget Office expects revenue to be just 14.8 percent of G.D.P. this year; the last year it was lower was 1950, when revenue amounted to 14.4 percent of G.D.P.  But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row when revenue as a share of G.D.P. was that low was 1941 to 1943.
  • Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era. At a similar stage in previous business cycles, two years past the trough, revenue was considerably higher: 18 percent of G.D.P. in 1977 after the 1973-75 recession; 17.3 percent of G.D.P. in 1984 after the 1981-82 recession, and 17.5 percent of G.D.P. in 1993 after the 1990-91 recession.
  • Revenue was markedly lower, however, at this point after the 2001 recession and was just 16.2 percent of G.D.P. in 2003.  The reason, of course, is that taxes were cut in 2001, 2002, 2003, 2004 and 2006.
  • It would have been one thing if the Bush tax cuts had at least bought the country a higher rate of economic growth, even temporarily. They did not. Real G.D.P. growth peaked at just 3.6 percent in 2004 before fading rapidly. Even before the crisis hit, real G.D.P. was growing less than 2 percent a year.
  • By contrast, after the 1982 and 1993 tax increases, growth was much more robust. Real G.D.P. rose 7.2 percent in 1984 and continued to rise at more than 3 percent a year for the balance of the 1980s.
  • Real G.D.P. growth was 4.1 percent in 1994 despite widespread predictions by opponents of the 1993 tax increase that it would bring on another recession. Real growth averaged 4 percent for the balance of the 1990s. By contrast, real G.D.P. growth in the nonrecession years of the 2000s averaged just 2.7 percent a year — barely above the postwar average.
  • Few people remember that a major justification for the 2001 tax cut was to intentionally slash the budget surplus. President Bush said this repeatedly during the 2000 campaign, and it was reiterated in his February 2001 budget document.  In this regard, at least, the Bush-era tax cuts were highly successful. According to a recent C.B.O. report, they reduced revenue by at least $2.9 trillion below what it otherwise would have been between 2001 and 2011. Slower-than-expected growth reduced revenue by another $3.5 trillion.
  • Spending was $5.6 trillion higher than the C.B.O. anticipated for a total fiscal turnaround of $12 trillion. That is how a $6 trillion projected surplus turned into a cumulative deficit of $6 trillion.

  • These figures are conservative insofar as revenue is concerned, because the higher interest payments required by the deficits created by the Bush tax cuts are allocated to spending. If one allocates the interest cost proportionally, the Bush tax cuts were responsible for increasing the debt by $3.2 trillion — 27 percent of the fiscal deterioration since 2001.
  • These facts notwithstanding, it has become a Republican talking point that the Bush tax cuts did not, in fact, reduce revenue at all — something the Bush administration itself never asserted.
  • It is hard to know where these totally erroneous ideas come from. Federal revenue fell in 2001 from 2000, again in 2002 from 2001 and again in 2003 from 2002. Revenue did not get back to its 2000 level until 2005. More important, revenue as a share of G.D.P. was lower every year of the Bush presidency than it was in 2000.

  • What will happen at the end of next year when the Bush tax cuts expire is already a matter of intense budget negotiations. Perhaps the whole point of the apparent Republican disinformation effort to deny that the Bush tax cuts reduced federal revenue is to make the reverse argument next year — allowing them to expire will not raise revenue.

Las Vegas Sands (LVS) Rides Macau and Singapore to Another Earnings Beat

Very good earnings from casino operator Las Vegas Sands (LVS) last night, as the company reported a 54 cent quarter versus expectations of 44 cents.  Revenue boomed by 47%.  Unlike Wynn Resorts (WYNN), very little progress was seen in Las Vegas, but the U.S. is now a small fraction of LVS business.   With a fifth location opening in Macau in the coming years, the future remains bright. The stock was up about 5% in after hours yesterday evening.

Via AP:

  • Casino-resort operator Las Vegas Sands Corp. said Tuesday that it earned $367.6 million for the second quarter, reversing a loss of $4.7 million a year earlier as its revenue rose almost 50 percent. The company led by billionaire Sheldon Adelson said its results in Las Vegas improved as the company focused on attracting conventioneers and other business travelers and curbed spending on freebies to attract gamblers to slot machines and table games. At the Venetian and Palazzo casinos in Las Vegas, gambling revenue rose just 2.2 percent to $105.1 million as the company cut its promotional allowances nearly 60 percent.
  • Most of Sands' $2.35 billion in revenue -- and most of the increase -- came in Macau, where it took in $1.21 billion. The company's revenue in Singapore was $737.6 million. In Las Vegas, where the company is based, revenue rose 18.2 percent to $332.5 million.
  • Sands said Marina Bay Sands in Singapore is on its way to becoming the most profitable casino-resort ever. It opened last year.
  • Sands said its adjusted earnings were $438.6 million, or 54 cents per share, for the period that ended June 30. That beat analysts' average forecast for adjusted profit of 43 cents per share. Analysts expected revenue of $2.2 billion, versus $2.35 billion reported. Sands revenue in the same period last year was $1.59 billion.
  • Sands China, the subsidiary that runs the company's casinos in Macau, doubled its net income to $267.4 million, compared with $133.6 million during the same period last year.
  • "The growth of our higher-margin mass table and slot businesses, together with the contribution from the important non-gaming (hotel, retail and convention) components of our integrated resort business model, continue to drive significant margin improvement at Sands China," the company said in a statement.
Analyst view:
  • "Among the destination operators, we believe the valuation for Las Vegas Sands is most compelling considering the growth potential in Singapore, relatively low near-term expectations and its projects already under construction in Macau.," Brean Murray analyst Ryan Worst wrote in a note. "We view Las Vegas Sands as the most attractive growth story in the industry, as its $4.1 billion development of Sites 5 and 6 should drive growth in 2012 and 2013."

No position

Tuesday, July 26, 2011

Please Apply Within... but Only if You Already Are Employed

Interesting piece in the New York Times, on how the unemployed are apparently being shunned.  If accurate, this is going to be a big problem as we move forward since we are at historical levels of long term unemployed.

[click to enlarge graphics]

  • The unemployed need not apply. That is the message being broadcast by many of the nation’s employers, making it even more difficult for 14 million jobless Americans to get back to work.
  • A recent review of job vacancy postings on popular sites like, CareerBuilder and Craigslist revealed hundreds that said employers would consider (or at least “strongly prefer”) only people currently employed or just recently laid off.
  • “I feel like I am being shunned by our entire society,” said Kelly Wiedemer, 45, an information technology operations analyst who said a recruiter had told her that despite her skill set she would be a “hard sell” because she had been out of work for more than six months.
  • Legal experts say that the practice probably does not violate discrimination laws because unemployment is not a protected status, like age or race. The Equal Employment Opportunity Commission recently held a hearing, though, on whether discriminating against the jobless might be illegal because it disproportionately hurts older people and blacks.
  • The practice is common enough that New Jersey recently passed a law outlawing job ads that bar unemployed workers from applying. New York and Michigan are considering the idea, and similar legislation has been introduced in Congress.
  • Given that the average duration of unemployment today is nine months — a record high — limiting a search to the “recently employed,” much less the currently employed, disqualifies millions.
  • The positions advertised ... cover jobs at all skill levels, including hotel concierges, restaurant managers, teachers, I.T. specialists, business analysts, sales directors, account executives, orthopedics device salesmen, auditors and air-conditioning technicians.
  •  One consequence is that the long-term unemployed will rack up even more weeks of unemployment, Mr. Holzer said, and will find it harder to make the transition back to work.
  • Even if Congress passed a measure forbidding companies from making current employment a requirement for job applicants, companies could still simply decide not to hire people who are out of work. Discrimination would be difficult to prove.
  • Idle workers’ skills may atrophy, particularly in dynamic industries like technology. They may lose touch with their network of contacts, which is important for people in sales. Beaten down by months of rejection and idleness, they may not interview well or easily return to a 9-to-5 schedule.
  • Employers receive so many applications for each opening that some may use current employment status as an easy filter. In some cases — as with Ms. Wiedemer, of Westminster, Colo. — recruiters merely assume employers do not want jobless workers.

  • “Clients don’t always tell us ‘we don’t want to see résumés from unemployed workers,’ but we can sense from what people have interested them in the past that they’re probably looking for somebody who’s gainfully employed, who’s closer to the action,” said Dennis Pradarelli, a talent acquisition manager for Marbl, a recruiting firm in Brookfield, Wis. Many of the job ads posted by his firm seek workers who are “currently employed or only recently unemployed.”
  • Job counselors often encourage the long-term unemployed to go back to school or volunteer to demonstrate that they are still productive, engaged members of society. But absent the actual acquisition of marketable skills — which many retraining programs do not provide — it’s not clear such efforts improve the chances of being hired.
  • In the meantime, people like Ms. Wiedemer — who has been out of work for three years — are exhausting their benefits and piecing together what support they can from food stamps and family members. And they are stuck hoping that economic growth manages to outpace their own descent into permanent economic exile.

Cummins (CMI) With Another Home Run Earnings Report

While the stock has been meandering in 2011, Cummins (CMI) remains one of the most impressive multinational industrials from a performance perspective.  The stock has been getting hit each time the market thinks a global slowdown is coming but then recovers to keep 'truckin' along.

This morning the company demolished analysts expectations with a 41 cent beat .  As noted the past few years, this is a 'simple' way to play emerging markets with a U.S. company, as Cummins is amongst a group of "U.S. companies" which derive roughly 2/3rds of revenue overseas.


Cummins beats by $0.41, beats on revs; increased sales and EBIT forecast for 2011 (CMI) 106.66 : Reports Q2 (Jun) earnings of $2.41 per share, excluding items, $0.41 better than the Capital IQ Consensus Estimate of $2.00; revenues rose 20.2% year/year to $4.64 bln vs the $4.26 bln consensus. Co rasies guidance for FY11, sees FY11 revs of ~$18 bln vs. $17.34 bln.

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins employs approximately 40,000 people worldwide and serves customers in approximately 190 countries.

[Apr 26, 2011: Cummins Breaks Out of Trading Range with Yet Another Stellar Quarter]
[Feb 1, 2011: Cummins - Strange Non Reaction to Another Very Good Quarter]
[Feb 11, 2009: WSJ - Cummins Engine Shifts Gears Amid Stall]
[Sep 23, 2007: Stock to Watch: Cummings Hitting on all Cylinders]

No position

Baidu (BIDU) Wins Again

Another stellar report from Baidu (BIDU) last evening, as the decision by Google (GOOG) to back away from the Chinese market due to censorship issues a year and a half ago continues to beneft this company, along with organic growth of the Chinese internet space.

Technically the stock was essentially at a double top going into earnings; from which it will be breaking over on this morning's 6%ish gap up.  Multiple analysts are out this morning raising price targets to $200 or more.

Full report here.

Via Bloomberg:

  • Baidu, China’s biggest Internet company by market value, forecast third-quarter revenue that surpassed analysts’ estimates as customers spend more on search- engine advertising in the world’s second-biggest economy.
  • Revenue will rise to between 3.95 billion yuan ($613 million) and 4.05 billion yuan in the three months to Sept. 30, Baidu said in a statement yesterday. The Beijing-based company’s guidance beat all 11 analyst estimates compiled by Bloomberg.
  • The stock has gained 62 percent this year after more than doubling in 2010.
  • Second-quarter net income almost doubled to 1.63 billion yuan ($252.6 million, or 72 cents per share) from 837.4 million yuan a year earlier, Baidu said. That beat the 1.5 billion yuan average of analyst estimates compiled by Bloomberg. Revenue rose 78 percent to 3.4 billion yuan ($528.4 million).  
  • “The search-engine market potential is huge,” Chief Financial Officer Jennifer Li said in an interview with Rishaad Salamat on Bloomberg Television’s “Asia Edge” today. Baidu’s business is generating “a lot of cash” that could be re- invested by the company to sustain growth, she said.
  • Baidu expects to gain users by adding new products such as a Web browser and social-networking services, CEO Li said in a conference call with analysts today.
  • Average spending per customer rose to 11,500 yuan last quarter, a 53 percent increase from a year earlier, CFO Li said. Revenue from customers in the electronic-commerce industry more than doubled in the quarter, she said.
  • Baidu's market share has risen to 75.9 percent from 64 percent in the first quarter of last year before Google's closure, according to Analysys International, a research firm in Beijing. Google is still China's second-most popular search engine but its market share has declined from 30.9 percent to 18.9 percent.
  • Google has been losing ground in China’s search-engine market since January 2010, when the Mountain View, California- based company said it was no longer willing to comply with Chinese regulations requiring it to self-censor Web content. Two months later, the U.S. company shut its service and redirected Chinese users to its site in Hong Kong.

No position

Monday, July 25, 2011

Netflix (NFLX) Barely Beats on EPS but Warns of Slowing Growth - Finally Shorts Get a Day of Victory

Finally the poor bears on Netflix (NFLX) catch a break.  Revenue came in light by a few million, although EPS beat.  But the guidance is probably the main issue here plus a whole lot of churn in subscribers.  Raw numbers are superlative but measured against super high expectations.... not where they need to be.

Via Barrons
  • Netflix (NFLX) this afternoon reported Q2 revenue below expectations but earnings per share that beat estimates.  Revenue in the three months ended in June rose to $788.6 million, yielding EPS of $1.26 per share.  Analysts on average had been expecting $791.5 million and $1.11 per share.
  • The company ended the quarter with 24.6 million subscribers, it said, which was toward the high end of the company’s own forecast of 24 million to 24.6 million, but below some Street estimates for 24.8 million.
Major issue on this area
  • For the current quarter, the company sees revenue of $780 million to $805 million, and EPS of 72 cents to $1.07 per share. Analysts have been modeling $846.5 million and $1.09.
  • Netflix says it expects subscribers to rise to be in a range of 24.6 million to 25 million in the current quarter.

Netflix shares are down $22.18, or almost 8%, at $259.35 in late trading.

Obviously the price change we discussed recently caused a backlash - quicker than anticipated it appears :)
  • "It is expected and unfortunate that our DVD subscribers who also use streaming don't like our price change, which can be as much as a 60% increase for them from $9.99 to $15.98, when it goes into effect for each subscriber upon their renewal date in September," Netflix said in its earnings release.
  • The company acknowledged that "some subscribers will cancel Netflix or downgrade their Netflix plans, [but] we expect most to stay with us."

No position

WSJ - High Crop Prices are Doing What Politicians Can't Do: Reduce Farm Subsidies

Interesting story in the Wall Street Journal on the effect of surging crop prices on the federal restribution of wealth (remember, it's not called socialism if it goes to corporate farm interests) in the heartland.  [May 27, 2008: Farm Lobby Beats Back Assault on Subsidies]

  • Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their lives. At Sloan Implement, which sells John Deere tractors, "This could be our best year ever," says chief executive Tom Sloan.
  • An exception to the boom is the local office of the U.S. Agriculture Department, the dispensary of federal payments to farmers from an array of arcane programs with names like "loan deficiency" and "milk income loss." On a recent afternoon, the parking lot in front of the squat brick building behind a Chinese restaurant was nearly empty.  The reason: Payments from America's primary farm-subsidy program, dating from the 1930s, have stopped here. Grain prices are far too high to trigger payouts under the program's "price support" formula. The market, in other words, has done what decades of political wrangling couldn't: slash farm subsidies.
  • There remain other types of subsidies, which continue to pay out because they aren't linked to market prices. But high prices are undermining political support for those programs, especially as Congress and the White House get serious about restraining federal spending, amid trillion-dollar deficits and a political brouhaha over the federal debt ceiling.

  • Government checks to farmers have shrunk to about $11 billion annually—half what they were six years ago—and they could shrink by roughly half again if Washington goes through with calls to eliminate a second major type of farm aid that costs the government about $5 billion annually.
  • Critics have long attacked farm subsidies as wasteful and obsolete. Some $760 billion in federal spending ago, they were created to tackle rural poverty during the Depression era, when a quarter of Americans lived on farms. Today, less than 1% of the population is in farming. The typical farmer works many more acres than in years past, thanks partly to ever-more-powerful tractors and harvesting combines, the newest of which steer themselves.
  • The bulk of the federal subsidy money flows to farmers who are wealthier than the typical U.S. taxpayer. The Environmental Working Group, a Washington activist organization that wants subsidy dollars shifted to conservation programs, maintains a database that shows 10% of farms getting 74% of the federal money. Small farmers receive smaller payments simply because they work fewer acres.
  • The programs long were protected by one of the few bipartisan coalitions left in Washington—politicians of both parties from major farming states.
  • Farmer groups, resigned to deep cuts, are pitching alternative subsidy programs that they say would cost taxpayers less.
  • That is a matter of concern to some. While the current crop prices mean subsidy checks aren't much missed by farmers, some agricultural economists worry about what will happen next time the historically volatile farm economy contracts.
  • For decades, while crop prices languished but operating costs rose, many growers counted on these subsidies to survive. For most of their careers, farmers in Shelby County, 200 miles south of Chicago, depended on government payments for roughly half of their income.
  • Today's target prices reflect the largely depressed crop markets that prevailed from the late 1970s until 2005—corn averaging roughly $2 a bushel year after year, and soybeans around $6. But corn now sells for about $7 a bushel in Shelby County, far above the subsidy program's target price of $2.63. Soybeans fetch about $13 a bushel here, versus a $6 target price. So no price-support checks are going out.

  • The USDA still ships billions of dollars annually to farmers for various other programs, such as payments for keeping highly erodible land in grass rather than row crops. It subsidizes crop insurance. Still, federal payments to farmers are expected to fall to about $10.6 billion this year, compared with $24.4 billion in 2005.
  • The other major subsidy program, unrelated to market prices, is a remnant of a failed 1996 experiment by a Republican-led Congress to wean farmers off federal aid. Farmers were supposed to receive fixed, but declining, checks for seven years and then be left to the whims of the market. But in the seventh year, instead of letting the payments expire, Congress turned them into a program of set payments, based on the amount and type of crops that particular farms had historically produced.

[May 16, 2011: U.S. Plains States Farmland Boom Continues, with 20% Year over Year Gains]
[Mar 11, 2011: [Video] Former FDIC Head Bill Isaac Talks about the Dud that is Dodd-Frank, and the Potential for a Farmland Bubble]
[Mar 7, 2011: NYT - In Prices of Farmland, Echoes of Another Boom]
[Feb 16, 2011: WSJ - Midwest Farmland Surges Double Digits in Q4 2010 Alone]
[Nov 15, 2010: Farm Economy Headed for Record]

[Video] Hilarious Clip from MSNBC When Host Questions Economics Background of Congressman ... Who Happens to be an Economics Major

While economics is the dismal 'science' (I use the word science loosely), and has many different interpretations this clip is quite priceless showing the group think by journalists.  Essentially whatever Ben Bernanke says must be right, because after all ... he works at the Fed.  If he says the world ends tomorrow, it will - by royal decree. Psst... Contessa, check out the "Ben Bernanke Was Wrong" video before following the company line.

I will give her some credit - she barely blinked an eye after being run head first into a wall.

30 second clip - email readers will need to come to site to view

Brooks "graduated from Duke University in three years with a double major in political science and economics, with highest honors in economics.

GMO's Jeremy Grantham's Q2 Letter: Separating the Dangerous from the Merely Serious

I missed Grantham's quarterly letter Friday but for those who read it, here it is.  It is an in depth exploration of his Q1 letter.

Summary points (full letter below embedded)


  • We humans have the brains and the means to reach real planetary sustainability. The problem is with us and our focus on short-term growth and pro ts, which is likely to cause suffering on a vast scale. With foresight and thoughtful planning, this suffering is completely avoidable.
  • Although we will have energy problems with peak oil, this is probably an area where human ingenuity will indeed eventually triumph and in 50 years we will have muddled through well enough, despite price problems along the way.
  • Shortages of metals and fresh water will each cause severe problems, but in the end we will adjust our behavior enough to be merely irritated rather than threatened, although in the case of metals, the pressure from shortages and higher prices will slowly increase forever.
  • Running out completely of potassium (potash) and phosphorus (phosphates) and eroding our soils are the real long-term problems we face. Their total or nearly total depletion would make it impossible to feed the 10 billion people expected 50 years from now.
  • Potassium and phosphorus are necessary for all life; they can not be manufactured and cannot be substituted for. We depend on finite mined resources that are very unevenly scattered around the world.
  • Globally, soil is eroding at a rate that is several times that of the natural replacement rate. It is probable, although not certain, that the U.S. is still losing ground. The world as a whole certainly is.
  • In particular, a significant number of poor countries found mostly in Africa and Asia will almost certainly suffer from increasing malnutrition and starvation. The possibility of foreign assistance on the scale required seems remote.
  • The many stresses on agriculture will be exacerbated at least slightly by increasing temperatures, and severely by increased weather instability, especially more frequent and severe droughts and floods.

  • Capitalism, despite its magnificent virtues in the short term– above all, its ability to adjust to changing conditions – has several weaknesses that affect this issue.
  • It cannot deal with the tragedy of the commons, e.g., overfishing, collective soil erosion, and air contamination.
  • The finiteness of natural resources is simply ignored, and pricing is based entirely on short-term supply and demand.
  • More generally, because of the use of very high discount rates, modern capitalism attributes no material cost to damage that occurs far into the future. Our grandchildren and the problems they will face because of a warming planet with increasing weather instability and, particularly, with resource shortages, have, to the standard capitalist approach, no material present value.

Grant Ham

Twiddling Thumbs Awaiting Debt Ceiling Resolution

The S&P 500 put on a few % last week during the 'rumor' of a debt ceiling resolution and did not give much of it back when no such resolution came to be.  So much like Greece.... we can rally on every development or rumor of said development multiple times.   Things were not looking so well a week ago Monday with the chart of the index, but at this time headlines are dominating technicals, and by Tuesday everything was reversed back upward.

There were rumors Saturday that a "framework" HAD to be agreed to by 4 PM EST Sunday or all the world would end, as Asian markets would revolt!  Well no Mayan 2012 event yet.  Yawn.

We have another heavy week of earnings, but we begin to move into more of a mix of the big S&P 500 types with some mid cap names that are more interesting (but less influential on the major indexes). 

As for economic data - its another lighter week as we await the first week of the new month which is always the blockbuster.  Some home sales data tomorrow (new home sales, Case-Shiller), and the first run of Q2 GDP Friday (remember if its good you celebrate it and buy stocks, if it is bad you say it is backwards looking).  Some lesser reports like durable goods, Chicago PMI fill out the week.

Friday, July 22, 2011

Congrats to Brave Buyers of Acme Packet (APKT) in After Hours

I was scratching my head at the treatment of Acme Packet (APKT) last nite - down to the mid $50s on a beat on both top and bottom line.  Anyone who took the plunge and bought in the mid $50s has a nice 15-18% gain in half a session.

The trouble with having the 'guts' to buy that strange action is you are looking around thinking 'what does everyone else know that I am don't.'  In this case - apparently nothing.  Just a massive head fake.

No position

Blast from the Past: Skyworks Solutions (SWKS)

One of the top gainers of the day is a name we used to talk about quite a bit - Skyworks Solutions (SWKS).  It is up some 19% today, and is taking some of its friends (such as Triquint Semi +8%) up with it.  It is certainly not a name I would be in ahead of earnings, as the chart was a horror show, but as a reader said in comments - we most likely have one very nice short squeeze going on here.  Based on the segments it is in, the stock action has been quite poor.

  • Revenue in the three months ended in June rose 27% to $356 million, yielding EPS of 49 cents per share.  Analysts had been expecting $345 million and EPS of 46 cents.
  • For the current quarter, the company sees revenue of $400 million and EPS of 53 cents, ahead of analysts $370 million and 50-cent-per-share consensus.
No positions

Down/Up Action the Previous 8 Days Quite Rare - Only 42 Instances Since 1928

For some reason the action the past few weeks 'feels' much more bullish than it has been.  The S&P 500 is only about 20-25 points (less than 2%) above where it was about two weeks ago - perhaps the shaking off of a lot of neutral to poor news is what is causing me to feel like the bulls are winning.  The fact we also rally on the exact same leaks (rally 182 on Greece, rally 23 on debt ceiling) seems to be cute as well.  Could also be the leadership stocks ala Apple, Netflix, Lululemon are strong like ox.

Coming into today, the S&P 500 had done something it only had done 42 times in the past 85 or so years per Bespoke... .put in a serious of eight consecutive up/down days.  The knee jerk reactions to every political headline, or even rumor of a coming political headline are causing whiplash.

Going back to 1928, the S&P 500 has had a down,up,down,up,down,up,down,up pattern just 42 times.  Below we highlight the 21 times that it has occurred since 1990.  

As I said coming into the week it is dangerous territory to short ahead of what will definitely be some sort of agreement on the debt ceiling as market participants will "be surprised" and rally the market.  Even a rumor of a deal yesterday caused a surge.  I'd like to see bulls get over 1360, and then of course 1370 - maybe "M&A debt ceiling deal agreement Monday" will do the trick.

Washington D.C. as Nation's Landlord? Why Not - Everything Else Has been Thrown Against the Wall

There were (and continue to be) so many programs and bailouts proposed and engaged in to try to "help" the housing market in 2008-2009, that I have lost count.  However, with Freddie and Fannie now owning an impressive amount of the housing stock in this country, central command has even more power to 'affect change'.  It appears the powers that be are mulling becoming the world's largest landlord!

Frankly I find this cool - I mean when a renter doesn't pay their rent, wouldn't it be super awesome to get a call from Obama demanding payment?


  • The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter. While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.
  • "Adding more stock simply increases that overhang. If that can be avoided, it should be," says Jared Bernstein, an economist who left the White House in April and is now a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington. Because rents are firming up, "this idea could have some legs," he said.
  • But scattered-site rental programs could require the government to become a national landlord, an area where the mortgage firms have little experience. They also pose accounting challenges that could produce big upfront losses.
  • One proposal winning support among some federal officials would sell thousands of foreclosed federal properties to private investors who agree to rent them.  Investors would rehab homes, run the leasing process, and contract with national property management firms to handle day-to-day tenant demands.
  • The government could keep a stake in the venture, modeled on loss-share transactions by the Federal Deposit Insurance Corp. Officials have received interest from around a half-dozen private investors, according to people familiar with the matter. (translation: private investors see a way to bilk the taxpayer)
  • HUD owned about 69,000 homes at the end of April and sold 11,000 homes in that month. Fannie and Freddie held another 218,000 at the end of March.
  • But the Obama administration can't enlist Fannie and Freddie's participation in a wider rental program without the approval of the firms' regulator, the Federal Housing Finance Agency. An FHFA spokeswoman says the agency is "open to considering initiatives that are consistent with the goals of the conservatorship." 
[click to enlarge]

    [Nov 5, 2009: Fannie Mae's New Deed for Lease Program - Rent Your Home from the Government]
    [Jul 15, 2009: Reuters - Obama Mulls Rental Option for Homeowners, along with Paying Mortgages for Unemployed]

    Caterpillar (CAT) Misses EPS Estimates, but Beats on the Top Line and Raises Guidance

    Caterpillar (CAT), which essentially has become the Apple (AAPL) of heavy machinery, is out this morning and while reporting stellar numbers - was a tad short on the bottom line.  The stock is being punished in premarket to the tune of 5% since expectations are now very high going into every Caterpillar quarter.  Technically, it is sitting just over the 50 day moving average.

    CAT is blaming some missed revenue opportunities on Japan, so this seems to be a bit of an overreaction, but the stock is quite rich.

    • The disaster in Japan had a $200 million negative impact on second-quarter sales, was negative on costs and efficiency and lowered operating profit nearly $60 million.  However, the negative impacts from Japan are now behind us," Oberhelman added.
    Estimates were for $1.79, and $13.52B in revenue. Full report here.

    • Caterpillar said net income rose to $1.02 billion, or $1.52 per share, in the second quarter, compared with $707 million, or $1.09 per share, a year earlier.  However, the latest period included certain acquisition-related expenses. Excluding those items, Caterpillar earned $1.72 a share.
    • Analysts had expected Caterpillar to report earnings of $1.74 a share on revenue of $13.56 billion.
    • Revenue at the economic bellwether rose 37 percent to $14.23 billion from $10.4 billion a year ago. 

    Guidance raise:
    • Excluding the impact of Bucyrus, we are raising expectations for 2011.  We expect sales and revenues in a range of $54 to $56 billion and profit per share of $6.75 to $7.25.  That is an improvement from our previous outlook of $52 to $54 billion of sales and revenues and profit per share of $6.25 to $6.75.
    • We expect that Bucyrus will add about $2 billion of sales in 2011 and negatively impact full-year profit by about $0.50 per share.  In total, including Bucyrus, we expect sales and revenues in a range of $56 to $58 billion and profit per share of $6.25 to $6.75

    Caterpillar general economic views:

    • "While the economic recovery in the United States continues to be weaker than many expected, we're forecasting continued moderate economic expansion.  That, coupled with stronger growth in the developing world, is driving higher sales for Caterpillar.  
    • There's been quite a bit of concern in the media over the past few months centered on China.  While we've seen some softening of growth in China, dealer deliveries to end users were up in the second quarter of 2011 compared with the second quarter of last year and grew at a faster rate than the overall industry in China.  In our view, China is doing a good job of balancing growth and inflation, and our expectations for China remain positive.  
    • That said, we can't lose sight of the significant growth that's going on around the world outside the United States and China.  Economic activity and our business in Latin America, the Middle East, Africa, CIS and greater Asia are robust," Oberhelman added.  
    No position

    Thursday, July 21, 2011

    Market Being Tough on Almost Entire Networking Space - Acme Packet (APKT) Selling Off in After Hours Despite Earnings Beat

    There has been a sour taste in this general space with the likes of F5 Networks (FFIV) and Riverbed Technology (RVBD) the past 48 hours.  While these companies are not exactly 'related' perfectly they all fall under a wide umbrella called 'networking', and Acme Packet is the latest to report this afternoon.  Despite a 2 cent beat, and $2M+ beat on the top line, the company is off another $3 $5 from the level it closed at - which was a substantial loss in itself.

    Expectations were $76.9M in revenue and 27 cents EPS.

    Full report here.

    • Total revenue in the second quarter of 2011 was $79.7 million, compared to $53.3 million in the second quarter of 2010 and $74.0 million in the first quarter of 2011. 
    • Net income in the second quarter of 2011 was $14.0 million, or $0.20 per share, compared to $9.7 million, or $0.14 per share, in the second quarter of 2010 and $13.7 million, or $0.19 per share, in the first quarter of 2011. Net income on a non-GAAP1 basis in the second quarter of 2011 was $20.4 million, or $0.29 per share, compared to $12.5 million, or $0.19 per share, in the second quarter of 2010, and $18.9 million, or $0.27 per share, in the first quarter of 2011. 

    Guidance was also raised (slightly) for the year - part of it being this quarter's better than expected report.

    No position

    UBS Rolls Out 1x, 2x Internet IPO ETNs - EIPO, EIPL

    Step by step we're getting closer to mimicking the NASDAQ 99 era, although in a much narrower group of companies.  The next wave taking us closer is the type of ETFs/ETNs we are seeing such as what UBS has just rolled out, both a straight forward, and double leverage Interent IPO ETN.

    While I suppose this is an easy way to play a lot high beta stocks in 1 instrument, I assume its really going to act almost as a levered play on the NASDAQ.  When "risk is on" it will outperform, and when "risk is off" underperform.

    Now if they could ever come up with a product that gets me access to IPOs of the 'hot stocks' before they come public... call me.

    Per UBS

    The UBS Internet IPO Index (NYSE ticker symbol "NETIPO") is intended to measure, on a total-return basis, the performance of a subset of Internet companies listed on the New York Stock Exchange or The Nasdaq Stock Market, Inc. that satisfy specified market capitalization and other eligibility requirements (the "Index Constituents"). The Index provides exposure specifically to those Internet companies that have been publicly traded for less than three years. 

    Fact sheet here: 0.65% expense ratio

    Top holdings

    10% each: LNKD, AWAY, YNDX, RAX

    Then P (9.6%),  RENN (9.2%), OPEN (6.5%), ACOM (6%)....

    No positions

    [Video] Profile of Michael Burry

    Interesting video from Bloomberg on former hedge fund manager Michael Burry.  Quite an interesting guy who started from nothing, got his own hedge fund running, made a huge subprime bet (with far less fanfare than John Paulson), and then called it quits after victory.

    25 minute video, email readers will need to come to site to view

    hat tip Marketfolly

    Things to Do When You Have So Much Money You've Run Out of Ways to Spent It - Write Your Name 2 Miles Long in the Sand So It Can be Seen from Space

    Sometimes you just wish you had won the genetic pool.  If for no other reason, here is yet another story on why we need to become energy independent.  Sheesh.

    Via Forbes blog

    On a sandy island in Abu Dhabi Sheikh Hamad bin Hamdan Al Nahyan has inscribed what is in effect the biggest graffiti tag the world has ever seen. Hamad, 63, a scion of the billionaire Abu Dhabi royal family, has gouged his name in capital letters two miles across and half a mile wide.

    His moniker is so big it can be seen from space (as this Google Earth pic demonstrates). The tip of the “H” reaches into the strait that leads to the Arabian Gulf, allowing Hamad to fill the first two letters of his name with water. The “M” looks partially filled as well.

    Hamad has shown a penchant for excess in the past. He is said to own more than 200 cars, including seven Mercedes 500 SELs painted in the colors of the rainbow. Indeed the man known as the Rainbow Sheikh has even created the Emirates National Auto Museum, home to a custom-built globe-shaped motor home said to be one-millionth the size of the Earth itself. If he weren’t so rich, we’d call this guy an artist.

    Credit Card Usage in U.S. Up 10.7% But an Increasing Amount is Going to Basics Like Gas and Food

    Looks like we are celebrating the 1,827th rescue of Greece this morning.  The good thing about this story, is it we should have rescues for years to come across the Eurozone - which of course should lead to rally after rally via Bailout Infinity.

    Coming back to domestic affairs, the increase in credit card usage has been seen as a 'positive' by the Street; however looking under the surface we see some troubling trends; especially in growth in credit for purchases of gasoline and food. To which of course the Fed says - at least you can buy the second generation iPad for less than the first generation - no inflation here. [Nov 10, 2009: Walmart Executive - "There are Families Not Eating at the End of the Month"]

    Via Bloomberg:
    • Consumers in the U.S. are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel pricesThe dollar volume of purchases charged grew 10.7 percent in June from a year ago, while the number of transactions rose 6.8 percent, according to First Data Corp.’s SpendTrend report issued this month. The difference probably represents the increasing cost of gasoline, said Silvio Tavares, senior vice president at First Data, the largest credit card processor.
    • Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food,” said Tavares, who’s based in Atlanta. “That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem.”
    • After-tax income adjusted for inflation fell 0.1 percent from January through May, according to figures from the Commerce Department. (and if you believe inflation is HIGHER than 'reported' by government, its worse than -0.1%
    • The swings in purchases of fuel and food have been “dramatic,” Tavares said. The volume of gasoline purchases placed on credit cards jumped 39 percent last month from a year earlier, compared with a 21 percent increase in June 2010, he said. Food shopping increased 5 percent.
    • The value of an average transaction on credit cards outpaced the gain for debit cards, showing consumers are increasingly relying on borrowing to pay for gasoline and other necessities, Tavares said.  (wonder how that will work out in the end?)
    • The use of credit cards is a “smoking gun” that indicates some consumers, including the long-term unemployed who have lost jobless benefits, are resorting to other sources of cash flow just to “get by,” said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto.  “People on the margin are putting necessities on their credit cards and this is a trend that’s very consistent with what lower-end retailers have been saying about their paycheck cycles,” Rosenberg said.
    • Core customers of Bentonville, Arkansas-based Wal-Mart Stores Inc. (WMT) are “cash strapped,” William Simon, U.S. stores chief, said at a June 15 conference hosted by William Blair & Co. “The paycheck cycle is severe.”
    • Similarly, customers of Matthews, North Carolina-based Family Dollar Stores Inc. (FDO) are living “paycheck-to-paycheck,” so when gas or food prices go up, “they don’t have the cushion that many others might have,” Chairman and Chief Executive Howard Levine said on a June 29 conference call.
    • For people to think that this rebound in credit-card usage is actually a sign of resurging consumer confidence, I think they’re looking at the situation backwards,” Rosenberg said.

    Chinese Flash Reading on Manufacturing Contracts for First Time in a Year, Falling to 28 Month Low, While Eurozone Slows; Markets Shrug

    Sometimes you really wonder how little news matters to markets ... according to a flash survey the driver of global growth the past 3 years, China, will report its lowest PMI reading in manufacturing in 28 months on August 1.... and essentially we have seen a yawn in response.  While I do expect corporate earnings to dominate at this time, along with the continuing drama in the sovereign debt arena, this (non)reaction is surprising.

    Europe also reported some poor data this morning... more yawning.

    Via Reuters:

    • Growth ground to a halt in the euro zone's private sector this month while China's factory sector contracted for the first time in a year, surveys showed on Thursday, deepening evidence of a sharp slowdown in the global economy.
    • In the latest sign economic growth is dwindling, Markit's Eurozone Purchasing Managers' Indexes showed growth in the 17-nation bloc's factory sector came to a standstill in July while its dominant service sector grew at its slowest rate in 22 months  "The large fall in the flash euro zone PMI in July provides further signs that the debt crisis may be starting to take a heavy toll on the economic recovery in the region," said Ben May at Capital Economics.
    • The flash services PMI sank to 51.4 this month from 53.7 in June, its lowest level since September 2009 and falling far short of expectations for 53.0 but has been above the 50 mark that divides growth from contraction for nearly two years.  The flash manufacturing PMI fell to 50.4 from 52.0 in June, its lowest reading since September 2009 and missing consensus expectations in a Reuters poll for 51.5.
    • Output in the euro zone's manufacturing sector, which drove a large part of the recovery in the bloc, shrank for the first time in two years, with the index falling to 49.5 from 52.5, its lowest since July 2009.  Factories also saw new orders falling for the second month running, with the index sliding to 47.6 from 49.8, its lowest reading since June 2009.
    • An earlier release from Germany, Europe's largest economy, showed its composite PMI staging the biggest one month fall since late 2008, slumping to 52.2 from June's 56.3.
    • "There is no doubt that the free fall in the PMIs of the last three months comes as a negative surprise. We believe that external factors remain predominant, in particular the ongoing softening in the global factory cycle, as shown by further signs of weakness in China this morning," said Marco Valli at UniCredit.

    Via NYT:
    • The vast Chinese manufacturing sector appears to have contracted in July for the first time in a year.  The initial results of a closely watched survey of purchasing managers produced reading of 48.9 in July, the lowest level in 28 months — down from 50.1 in June, said HSBC, which published the index.
    • HSBC’s preliminary index, known as the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of executives in more than 400 companies. Output in July contracted at a faster rate, export orders shrank at a slower pace and the gauge of new orders dropped below 50, the dividing line between expansion and contraction, today’s data showed

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