Monday, October 24, 2011

Wow. Netflix (NFLX) Down 27% After Hours

The stock that crushed so many shorts the past few years, Netflix (NFLX) has had a terrible past few months.  To put the cherry on top, the stock is down some 27% in after hours as I type.  At $~$85ish the stock is at its lowest point since... April 2010.  What an amazing fall...

[chart does not show after hours print]

File this one for memory under title 'when momentum stocks reverse'.  Or 'how not to anger your customer base'.
  • The company’s U.S. subscriber base fell 810,000 to 23.79 million; international subs rose 510,000 to 1.48 million.

Via IBD:

Netflix (NFLX) beat analyst views but set a disappointing fourth quarter forecast Monday tied to DVD-customer losses after a change in subscription pricing. Netflix stock dropped 27% after hours, following a 1.5% rise during the trading day. Netflix said it ended the quarter with 21.4 million streaming subscriptions and 13.9 million DVD subscriptions. Domestic subscribers fell to 23.8 million from 24.6 million in the second quarter, as higher than expected cancellations came in.

The company said after the stock market close that it earned $1.16 per diluted share in the third quarter, up 66% from a year earlier and far ahead of analysts' views for 94 cents. The streaming-video and DVD-by-mail company took in revenue of $822 million, up 49% from a year ago and ahead of analyst views for $812 million.

"We think DVD subscriptions will decline sharply this quarter, as reflected in our guidance, due to our price changes," the company said in its third quarter earnings release.

It anticipates that total unique U.S. subscribers overall will be slightly up in the fourth quarter. Netflix sees the fourth quarter coming in with 20 million to 21.5 million domestic streaming subscriptions and 10.3 million to 11.3 million domestic DVD subscriptions.

The company sees fourth quarter earnings per share between 36 cents and 70 cents. (i.e. they have no idea with that wide of a margin!) Analysts polled by Thomson Reuters had been looking for $1.08. For revenue they had been looking for $919.6 million. Netflix forecast fourth quarter revenue at between $841 million and $875 million.

No position

Starting to Hit Overbought Levels

This market has no in between anymore.  It's either extreme pessimism or extreme happiness - consistent with the 'risk on', 'risk off' HFT + EFT environment that has now become the trademark of the equity market over the past 3-4 years.  Three weeks to the day the market was in shambles, with technicals about to break down past the key 1120 level.  The following day at 3 PM we put on a 4% rally in the closing hour and it's been almost a non stop party since.  It's been one of the most powerful moves in terms of amount of move in short duration that I've seen outside of early 2009 and periods of 1999.

I don't mean to step on anyone's party but we are nearing some overbought levels now in a bevy of secondary indicators.   There is some resistance ahead as well in the 1260-1265 level (June lows) but resistance is all relative as we've seen many times the past few years.   That said, with the market clearing the 200 day moving average (exponential) Friday, traders will be in a buy the dip mentality until a point comes when that level is again broken.  So as long as this S&P 500 holds the upper 1230s, I would not expect any rash pullbacks as buyers who missed this ferocious move now will be trying to jump in as performance anxiety hits.

I did not post it, but Friday Jon Hilsenrath (he whom the the Fed speaks through) of the WSJ posted a story about more mortgage buying from the Fed.... like I've insisted for well over a year, QE3 is coming.  My timing is going to be off perhaps due to Operation Twist ... but this is all they know to do, and targeting asset prices (i.e. manipulation) is now the Fed's unspoken third mandate.

The Massive Divergence Between Investing in Nov-Apr vs May-Oct Over the Past 50 Years

Barry Ritholtz over at The Big Picture just posted an astounding chart showcasing the impact on returns due to seasonality.  While it is somewhat 'data mining' (choosing the last 52 years) the larger point is still quite firm - investing in November thru April is generally far more favorable than in May thru October.  The difference over this 52 year period is staggering.  Starting with $10,000: Portfolio A returned ~$439,000... Portfolio B ~$23,000.  Of course this is backward looking, and it failed in 2007 and 2008 as Barry points out, but it does make one stand up and notice!   Not too bad for a method that requires two trades a year!

[click to enlarge]

Obama to Change HARP to Refinance ALL Government Backed Mortgages, Not Just Those Who Owe 125% or Less on Loan

Looks like the plan floated in late summer [Aug 25, 2011: White House Considering Plan for Country Wide Refinance of Government Backed Loans]  is coming to fruition as we have news today that every government backed loan (as long as someone meets a few conditions) will now be eligible for refinancing, regardless of loan to value.   Originally the HARP (Home Affordable Refinance Program) was limited to those not only with no equity in their home, but up to -5% equity.   Then it was adjusted up to -25% equity.  Now there will be no negative equity limitation.   Apparently, President Obama can do this without Congressional approval.

As the story in August detailed, if everyone eligible participated this would be about a $85B stimulus to the economy. 

Per Marketwatch:

  • President Barack Obama on Monday is due to unveil a changed mortgage refinance plan that would allow homeowners who have suffered steep price declines on their properties to get cheaper loans. 
  • According to reports, the Home Affordable Refinance Program will be changed so that any Fannie Mae- or Freddie Mac-guaranteed mortgage could be refinanced.
  • With house prices nationally roughly a third below their peak, there are some 20 million borrowers who will now be eligible to refinance into mortgages near record lows — the 30-year carried an interest rate of 4.11% last week — rather than the mere 894,000 borrowers who have used the program so far. 
  • The new plan will require homeowners to be current on their paymentsThe move could have a major impact on the U.S. economy if the plan works as designed: There are $550 billion worth of mortgages that could benefit from a removal of refinancing impediments, economists at Morgan Stanley estimate. 

The WSJ Developments blogs answers some common questions on the changes:

  • Initially, the program was limited to borrowers who owed between 80% and 105% the value of their homes. In mid 2009, the program was opened to borrowers who owed up to 125% the value of their homes.
  • But a series of unforeseen “frictions” have led fewer borrowers to take up on the offer of lower rates. Fewer than 900,000 homeowners have refinanced under HARP over the past 2½ years, and just 72,000 of those borrowers have loan-to-value ratios between 105% and 125%.

How is HARP being expanded? Borrowers will soon be able to refinance no matter how far underwater they are. This should have a big impact in certain parts of Nevada, Arizona, and Florida where many borrowers owe more than 125% of the value of their homes. In Nevada, for example, two thirds of all loans backed by Fannie Mae are underwater, and half of all loans are above the 125% loan-to-value cut-off.

What other changes are being made to improve HARP? One of the most important changes addresses the risk that banks will have to “buy back” defaulted mortgages from Fannie and Freddie if the loans are discovered to run afoul of underwriting rules. This has prompted banks to scrutinize appraisals and require extensive documentation of borrowers’ incomes on loans for which they don’t already collect payments, even if Fannie and Freddie already guarantee those loans. As a result, some borrowers can only qualify for HARP by going to their current mortgage servicer, rather than shopping around for the best rate.

Under changes to be announced on Monday, banks will be largely shielded from the “buy back” risk on HARP mortgages, and they’ll only have to verify that borrowers meet a more tailored set of eligibility rules: that they’ve made their last six payments and have no more than one missed payment in the last year and that they have a job or another source of regular income.

How will this change help borrowers? This will streamline the refinance process, eliminating the need in many cases for borrowers to obtain appraisals or to provide extensive income documentation. Instead, borrowers will have to show that they’re current on their mortgage, that they have a job or another source of regular income, and that they meet the other eligibility criteria for HARP.

Flash Purchasing Manager Indexes in Europe and China Diverge a Bit

While the official data comes out in just over a week from now, we have initial reading on the Purchasing Managers Indexes in both China and Europe out overnight, and the score is mixed.   The HSBC data out of China (which measures smaller and non state companies) has rebounded a bit after hovering just under 50 the past few months.  (any reading over 50 signals expansion)  Meanwhile, Europe disappointed versus expectations and seems to indicate some relatively serious pains developing in the region.

First China...

  • China's vast manufacturing sector expanded moderately in October to snap three months of contraction.  HSBC's flash purchasing managers' index (PMI) also showed price pressures eased in China, underlining consumer price data that has shown a slight pullback in inflation from three-year peaks.
  • The flash PMI, designed to give an early snapshot of the month's factory activity, rose to 51.1 in October from September's final reading of 49.9 as new orders and new export orders expanded.  The reading surpassed the 50-point level demarcating expansion from contraction for the first time since June, when the PMI was 51.6.
  • Both new orders and new export orders sub-indexes rose above the 50-point mark in October. Given the gloomy global outlook, however, it is too early to determine if the rebound in export orders can be sustained.
  • The input price sub-index fell to 54.3 in October from 58.8 in September.
  • "Thanks to the pick-up in new orders and output, the headline flash PMI rebounded back into expansionary territory during October, marking a steady start to manufacturing activities in the four quarter," said Qu Hongbin, China economist at HSBC.  "Meanwhile, inflation components within the PMI results confirmed stable output prices growth and slower input price inflation. All these data confirm our view that there is no risk of a hard landing in China," he said.

Over to Europe...

  • The euro zone's private sector tipped further into decline in October, according to business surveys on Monday that showed the bloc's economy is in serious danger of lurching from stagnation into outright recession.
  • Shrinking order books and plummeting confidence sent euro zone factories into contraction for the third month in a row, and service sector companies for a second month.
  • The Flash Markit Eurozone Services Purchasing Managers' Index (PMI), which measures business activity at thousands of firms from banks to restaurants, sank to 47.2 this month from September's 48.8, well below a Reuters consensus of 48.5.
  • "Most indicators seem to suggest it is going to get worse not better in the coming months. So there is a significant chance of a contraction in the fourth quarter," said Chris Williamson, chief economist at survey compiler Markit.
  • He said the current level of the indexes, which have a good record of tracking economic growth, could signal a quarterly rate of decline approaching half a percentage point.
  • The services new business sub-index fell to 46.2 in October from 47.1 in September, its lowest reading since July 2009 when the euro zone was still escaping the worst recession since World War II.
  • German manufacturing contracted this month for the first time in two years, according to individual country PMIs released earlier on Monday. The service sector rebounded unexpectedly but that was perhaps the only bright spot among this month's surveys.
  • The euro zone's manufacturing PMI slipped to 47.3 in October from 48.5 last month, its lowest point since July 2009. The output index, which feeds into the broader composite survey that combines manufacturing and services, fell to 47.2 from 49.6 in September.
  • Like the service sector survey, manufacturers reported a steep fall in new business, with the index for that slipping to 43.7 from 45.2 the previous month -- its lowest reading since May 2009.
  • "There is little to see what will cause an improvement for the first quarter (next year) unless European leaders in the next few weeks manage to bring out a convincing package to restore confidence," said Markit's Williamson.
  • The composite PMI, a broader measure of private sector activity, also fell sharply, from 49.1 in September to 47.2 this month. Its employment index fell to 50.3 from 51.0, showing an effectively stagnant labor market. Worryingly, Markit suggested worse is on its way for euro zone workers.
  • Williamson pointed to this month's backlog of work index, which fell to its lowest level since August 2009, and tends to lead the employment index.  "We can expect to see some disappointing news on the labor market front and that is going to further hit consumer confidence."

Caterpillar (CAT) Results Show No Signs of Major Slowdown in Global Economy

The big Sunday European meeting seems to be having little effect on markets this morning, as we now wait for the big Wednesday meeting.  So off to company specific news.

Caterpillar (CAT) has become one of the de facto global growth names, as this multinational has thrived with the help of global labor arbitrage, and massive government spending in developing markets on infrastructure spending.  While the acquisition of Bucyrus has skewed numbers a bit, results reported this morning continue to impress, and there appear to be little signs of the global slowdown in their numbers.  The company did add a significiant amount of jobs globally, but we don't have a country by country breakdown in the earnings release.

Technically the stock was hit hard during the Euro crisis, as worries about a global slowdown wrecked all the cyclicals, but has rallied ferociously back with the general market.  The stock is up 5%+ in premarket, just above $92 as I type.

Full report here.

Via Reuters:
  • Caterpillar Inc reported a 44 percent quarterly earnings increase and record revenue due to strong demand, far exceeding analyst estimates.  The world's largest heavy machinery manufacturer reported third-quarter net income attributable to common shareholders of $1.14 billion, or $1.71 per share, compared with $792 million, or $1.22 per share, a year earlier.  Excluding the impact of the recent acquisition of Bucyrus, earnings were $1.93 a share.
  • Analysts on average had expected Caterpillar to earn $1.54 per share in the third quarter.
  • Sales rose 41 percent to $15.7 billion, which is a record, according to the company.
  • Caterpillar said full-year 2011 results would come in at the highest end of its previous outlook. The company now expects annual revenue of $58 billion, including its recent acquisition of Bucyrus. Its previous forecast had been a range of $56 billion and $58 billion.
  • Profit is now expected to come in at $6.75 per share for the year, compared to a prior forecast of $6.25 to $6.75.  The outlook includes a negative impact from the acquisition of Bucyrus of about 50 cents a share. Without the impact of Bucyrus, Caterpillar expects 2011 profit of about $7.25 a share.
  • The company also gave initial projections for 2012 revenue, saying it expects sales to improve 10 percent to 20 percent next year.
  • The world's largest maker of construction and mining equipment also says it is continuing to add jobs — nearly 5,000 between June and September alone.
Strangely, much like a bank - Caterpillar took a $17M gain from a decrease in provision for credit losses.  I guess everyone is a pseudo financial nowadays.

[Jul 22, 2011: Caterpillar Misses EPS Estimates, but Beats on the Top Line and Raises Guidance]
[Apr 29, 2011: Caterpillar Continues Its Winning Ways]
[Jan 27, 2011: Caterpillar - Another Home Run Report]
[Oct 21, 2010: Caterpillar Scores with Now Redundant Playbook: Slashed Domestic Labor + Emerging Market Growth = Mad Money]
No position

Sunday, October 23, 2011

[Video] 60 Minutes - The Life of Steve Jobs

Fascinating interview with the biographer of Steve Jobs - a lot of interesting snippets, worth the watch.  For example, Jobs didn't even know how to code... and while he was adopted he never knew his father, but met him a few times at a restaurant he frequented, as his birth dad was the owner (both did not realize who the other was).

Email readers will need to come to site to view

Part 1 - 15 minutes

Part 2 - 13 minutes

Friday, October 21, 2011

Does the Market Have it Wrong, or Does ECRI Have it Wrong?

Some call the market a great discounter of the future - I'd disagree that it's that great.  Or efficient.  U.S. markets were at all time highs in fall 2007 forecasting what?  Nothing that was to come in the year ahead.  We can make a similar argument in 1999 as the NASDAQ went ballistic.  Mostly they now seem to forecast easy money from the Fed.

As readers know, the ECRI has recently made the call for the U.S.: recession. [Sep 30, 2011: [Video] ECRI's Lakshman Acuthan Makes the Call: Recession]  Within days of that call, the market bottomed, and has rallied some 14%.  Copper seems to agree with the ECRI, but equities are laughing it off.  Of course we have the situation in Europe which appears to be weighing on the market more than anything, and with countless rumors of intervention 'bazookas' coming down the pike, 'free market capitalists' in markets are rejoicing.

Jon Markman takes a closer look at whose right - the ECRI or the market.  As an aside ECRI indicators are STILL falling, even as recent economic data has 'improved' (at least versus expectations).

The Economic Cycle Research Institute’s weekly leading index continues to fall. This week its rolling growth rate fell to -10.1%, the lowest level since July 2010.   You’ll recall that no recession started following the decline in this index last year — at least no recession that shows up in GDP numbers yet, although we came awfully close — but the ECRI has gone ahead and declared that a recession is inevitable this time.  The ECRI cites other, longer-leading indicators it keeps cloistered away and only reveals to paying clients. That has raised some to wonder whether the ECRI might be wrong about its call this time.

On to the Markman piece:

  • A slight improvement in retail sales last month; decent third-quarter earnings from companies like Google Inc. and Intel Corp.; Europe’s vow that it’s close to a debt-crisis solution; and a two-week rally in stocks have spurred economists and fund managers to discount the possibility of a recession in the United States. That concern gripped markets in August.  It’s almost an article of faith: Every mainstream report on the economy now ends with the comment that the latest data-point du jour shows that a contraction in GDP will be avoided
  • So is the Economic Cycle Research Institute, which emphatically forecast a recession the Friday before the market began its October rally, going to be wrong for the first time in decades? Or will its managing director, Lakshman Achuthan, who unequivocally stuck his neck out and said recession is ‘’unavoidable,’’ have the last laugh?
  • My expectation is that ECRI will be proven right again, and that the stock rally we’re seeing now is a gift — and entirely in line with his forecast — ahead of a renewed collapse.

Here is a fascinating data point!
  • Consider that the last two times Achuthan leveraged his cycle research to make an out-of-consensus recession call were March 2001 and March 2008. After the first, the S&P 500 rose 14% to its 10-month average in May before falling 32% over the next 16 months. After the second, the S&P 500 rose 9.8% to its 10-month average in May before collapsing by 42% over the next nine months.
  • The reason for the lag is that ECRI’s calls come early. That’s why they are called “forecasts” rather than “observations.” If the past two examples provide any guidance, the current rally has a shot at rising to the 1,230 to 1,280 level of the S&P 500 before turning tail. On Wenesday, the index closed at 1,209 after falling by 1.3%.
  • As you might expect, Achuthanhimself isn’t budging from his call. I caught up with him this week.  “It really isn’t unusual for the consensus to recognize recessions many months after they have begun,” Achuthan said, “because most analysts are focused mainly on coincident indicators like GDP, retail sales and jobs, along with a couple of short leading indicators like the purchasing managers indexes and jobless claims.”
  • Back in March 2001, he noted, 95% of economists surveyed by The Economist said there would be no recession that year. And yet it had already begun. Not until a year later, in July 2002, did the data conclusively show three successive quarters of decline in GDP in 2001. But by then, the markets had already priced it in by falling 20%.  Further revisions showed that, in fact, the United States didn’t suffer two straight negative quarters of GDP in 2001 but rather a zigzag pattern of positive and negative GDP growth. Still, the U.S. lost nearly 3 million jobs in that recession, which made it one of the worst postwar recessions in terms of employment. And yet mainstream economists completely missed it as it was happening.
  • The same thing happened in 2008. Well into that recession, most economists in real time still thought the U.S. had dodged it. Indeed, by June 2008, six months into the recession, the fed funds futures markets (following indications from Federal Reserve governors) were wildly mistaken by betting on an interest-rate hike of 1 percentage point by year-end.
  • Even right before the Lehman Bros. bankruptcy, nine months into the recession, the backward-looking real-time data didn’t show GDP contraction in the first and second quarters of 2008. It was only when the data was later revised that the negative quarters, proving a recession, emerged. Again, by the time it had become obvious, markets had priced it in by declining 40%.
  • Farther back in time, the severe mid-1970s recession also wasn’t recognized until a year after it began in November 1973. And so it goes.
  • That is why Achuthan doesn’t worry too much about “positive surprises” in data released after his recession call. It’s just par for the course.
  • If this scenario is right, or close enough, then ECRI will be proven correct again and stocks will fall to the 750 to 900 area of the S&P 500 over the next 18 months once the last sucker’s rally is complete this winter.

"Risk On", "Risk Off" Days Surging the Past 4 Years

We've been talking a lot the past few years about the massive correlations in the market, along with 'student body left' (or student body right) trading.  The media likes to call this risk on, risk off - where people either buy everything or sell everything, en masse - lemming like.   A popular measure in the market is "90% days" - i.e. when 90% of stocks move in the same direction.

This chart from the WSJ Marketbeat blog shows how we've exploded on this measure during the past four years.  Each of them has seen above 30 such sessions!  In a year where there are about 255 trading sessions, that's almost 14% of the trading days when everything is moving en masse.  1 out of 7 - that's remarkable.  You can see how this compares to the earlier part of the decade.  Part of this is the growing influence of HFT and EFTs, and of course the massive macro news and interventions by central bankers and government are also creating outsized effects.

Groupon Nears IPO as it Prices at $16-$18 - Roadshow Next

It was a big mistake for Groupon and Zynga not to file for their IPOs this spring when the fire was hot for these names.  The valuation talked about even in early summer upon IPO for Groupon was $30B - now we're talking just over $10B.  [Jun 3, 2011: Groupon Files IPO Papers with Potential $30B Valuation]  While I still expect a ton of hype, the aura around Groupon in particular has waned a bit.  There has been some fighting with the SEC on how to account for revenues - Groupon has given in on that.  And I think at some point there will be 'coupon' fatigue.  But I'd still expect a huge first day pop.  The IPO should be coming very soon.

  • Groupon reported nearly breaking even in its third quarter, an important milestone as it prepares the final leg of its long journey toward an initial public offering.  On Friday, the daily deals giant published the expected price range of its initial offering in a revised prospectus. Groupon expects to sell 30 million shares and fetch $16 to $18 a share, valuing the company at as much as $11.4 billion.
  • Groupon is also seeking to quell questions about its business model, disclosing that it had narrowed its losses in the third quarter, to $1.7 million in consolidated segment operating income. Using that same metric, the company turned a profit in its core North American business, earning $18.8 million, with the losses mainly coming from mainly the international businesses.
  • Friday's revision was filed as Groupon and its cadre of bankers prepare for a two-week roadshow with potential investors, hoping to tap into long-simmering excitement over the company's forthcoming I.P.O. The company had been especially keen to prove that it was at least close to profitable before it began its road show, according to people briefed on the matter.
  • The site now has 142.9 million subscribers, according to its latest filing, a sevenfold increase from last year. As of the third quarter, about 29.5 million of those people had purchased at least one deal.
  • Yet soon after the company filed its first prospectus, it had attracted harsh scrutiny from skeptics of its business model, as well as accounting that critics said gave a misleading impression of profitability. Groupon has had to amend its prospectus several times, including to restate its revenues and to remove a controversial financial metric.
  • Though Groupon's growth has slowed as it has grown larger and more diversified-- its net revenue grew only 9.6 percent over last quarter, to $430.2 million -- the company disclosed in its latest filing that it is still attracting new subscribers and converting them into paying customers.
  • As it readies itself for potentially tough questioning from investors, Groupon's highest priority has been to show that its business and growth are sustainable. In Friday's prospectus, the company said that the amount of coupons sold per customer had grown roughly 22 percent year-over-year, to about 4.2. And the company's average revenue per deal had grown about 31 percent over the same time last year, as well as about 7 percent over the second quarter.
  • Meanwhile, the company also trimmed what has been one of its biggest expenses: online marketing aimed at luring in new customers. Groupon trimmed that spending to $181.1 million in the third quarter, after spending $432 million for the first half of the year, continuing what Mr. Mason had promised would eventually be a significant cutback in marketing expenses.
  • Over the past year, Groupon has rolled out new offerings that expand its business beyond daily deals, including travel packages and ticketed events. Those new products have diversified the company's operations, though they often carry lower profit margins that have weighed on sales growth.
  • Revenue per subscriber fell 15 percent to $3.3 in the third quarter, from the previous quarter, and the company's deal margin, or revenue divided by gross billings shrank.

[Feb 26, 2011: Groupon Revenue Hits $760M in 2010; Staggering Year over Year Growth]
[Dec 31, 2010: NYT Dealbook - New Round of Financing for Groupon Sets Stage for Late 2011 IPO]

No position

Just Poked Nose over 200 Day Moving Average

After some stalling at 1134 here in the first 50 minutes, we see the S&P 500 now poking its nose over the 200 day moving average at 1136.  This is the first visit over that level since the second day of August.  Those who have been waiting for that clearance of the 200 day (computers and human) probably will jump in now.  Likewise, bears who have been shorting against this level, tend to throw in the towel - which is why sometimes we see reversals once both these moves happen.

As always the close is more important than the intraday action but seems difficult to think bears will take a major stand ahead of a happy meeting Sunday in Europe.   A close above 1240 or so would be a positive.

Next up for bulls to attack are those lows of June, they look roughly at 1265 to 1270.

EDIT 10:35 PM - for those interested, the 200 day SIMPLE moving average is up there at 1274.

If you are keeping track at home, we are now up nearly 15% in the S&P 500 from two weeks ago Tuesday when I believe it was a rumor that China was willing to buy European debt created a huge reversal at 3 PM that day (that was the day the market rallied some 4% in an hour).  This has been one of the greatest moves of the rally since March 2009 in terms of ferocity in a short duration.

Dollar Getting Slammed Ahead of European Weekend Meeting, as Futures Surge - 200 Day Moving Average in Play Again

It is quite amazing how many times we can rally on almost the identical news.  Futures are surging as investors 'anticipate a solution' this Sunday Wednesday to all that ails Europe.   This same solution has driven the market up in 80% of the sessions the past 3 weeks.  It's the plan for a solution that keeps giving.  With the S&P at 1215 at the close yesterday and the 200 day moving average up at 1234, futures indicate we're going up to test that level for the second time this week.

It will be interesting to see what happens when and if we get over that key level, as that will be a sign for bears to give up and throw in the towel.  Usually that is the point when we actually are prone to a reversal.  But with happiness reigning due to the Sunday + Wednesday meeting(s) one wonders if we will ever 'sell on the news' - it's been a buy the rumor, and buy the news market thus far.

Here is today's happy news - there might not be a solution Sunday but they promise by Wednesday!

  • Germany tried to put an optimistic face on discussions with France over a strategy to deal with Europe's crippling debt crisis Friday, despite a warning from a French minister that the euro currency itself was under threat.
  • Markets appear to be giving Europe the benefit of the doubt that they will eventually be able to agree to a comprehensive package of measures in time for a second summit, which a German government spokesman said was tentatively scheduled for Wednesday.
  • Chancellor Angela Merkel refused to discuss any differences between Germany and France in talks with lawmakers a day after the two countries conceded that a new strategy won't emerge this weekend. Members of her government repeatedly stressed Europe's two biggest economies were in agreement on the broad outlines of a deal.
  • Finance ministers from the 17 countries that use the euro will be looking to thrash out differences of opinion later Friday as they gather in Brussels, ahead of the arrival of the leaders on Saturday. Ahead of their meeting, the chairman of the eurogroup, Jean-Claude Juncker, said the delay to a debt crisis deal created a "disastrous" image of the eurozone to the outside world and that it's not necessarily just France and Germany that have differences of opinion.
  • Sunday's leaders' summit had been earmarked as the time Europe would finally deliver a comprehensive plan to get a grip on the currency union's debt troubles, which has seen three countries bailed out and threatened the future of the euro currency itself.
  • Though Merkel insisted in discussions with lawmakers Friday that there are no major differences of opinion between herself and French President Nicolas Sarkozy, Europe's two biggest economies appeared to be at loggerheads over how to make best use of the bailout fund, the so-called European Financial Stability Facility, or EFSF.
  • Merkel's spokesman Steffen Seibert said Merkel and Sarkozy held a telephone conference on Thursday with President Barack Obama and Prime Minister David Cameron to discuss the summit and that leaders agreed the outcome must involve sending "a clear signal of an end to the debt crisis."
  • Seibert said the decision to split the summit into a two-step process -- with Sunday envisioned as a chance to hammer out the details of how the EFSF is to be used and the overall package to be passed on Wednesday.
  • Yet, while France proposes turning the EFSF into a bank that would have access to unlimited credit from the European Central Bank, Germany has refused to sanction such a move, arguing it would compromise the ECB's impartiality.  
  • What to do about the euro440 billion ($607 billion) EFSF doesn't seem to be the only point of contention.  Germany and several other rich countries have been pushing for banks and other private investors to take steeper losses on their Greek bondholdings, before the eurozone can sign off on a second multibillion euro rescue package for the struggling country. France and the European Central Bank had so far opposed forcing banks to write off more Greek debt, fearing that would destabilize the banking sector and worsen market turmoil.

Thursday, October 20, 2011

Washington D.C. Passes San Jose as Wealthiest Metro Area

The trend of wealth domination in the Washington D.C. area continues.  Now not only do the 3 wealthiest counties ring D.C. [Mar 11, 2010: [Video] America's 3 Wealthiest Counties Now Ring Washington D.C.] , but the entire metro area has just passed San Jose in wealth.  Go taxpayer dollars!

  • Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.
  • The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.
  • Total compensation for federal workers, including health care and other benefits, last year averaged $126,369, compared with $122,697 in 2009, according to Bloomberg News calculations of Commerce Department data. There were 170,467 federal employees in the District of Columbia as of June. The Washington area includes the District of Columbia, parts of Northern Virginia, eastern Maryland and eastern West Virginia.
  • In recent years Washington has attracted more lobbyists and firms with an interest in the health-care overhaul and financial regulations signed into law by President Barack Obama, according to local business leaders. “Wall Street has moved to K Street,” said Barbara Lang, president and chief executive officer of the DC Chamber of Commerce, referring to the Washington street that’s home to prominent lobbying firms. “Those two industries clearly have grown in our city.”
  •  In the San Jose area, home to Cupertino-based Apple Inc. (AAPL) and Cisco Systems Inc. (CSCO) in San Jose, income dropped to $83,944 from $84,483 in 2009.
  • Median income in both metro areas has been falling since 2008, when it reached a record in each place. The 4.7 percent drop in Silicon Valley during that period was three times larger than the Washington region’s 1.5 percent fall.
  • The flow of federal dollars in and around the nation’s capital helped the region weather the economic slump better than most areas and is contributing to its recovery. The unemployment rate in the Washington metro area in August was 6.1 percent, compared with 10 percent in San Jose.
  • “The region did experience a shorter, shallower recession than San Jose,” said Sara Kline, a Washington analyst at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The federal government stepped in to take efforts to dampen the recession. It was focused to some extent in the D.C. area as well, given the presence of federal workers there and contractors. That insulated it from more of a downturn.”
  • Last year Washington also had the most lawyers per capita in the U.S. compared with the 50 states, with one for every 12 city residents, according to figures from the American Bar Association and the Census Bureau. In New York State the figure was one out of every 123 residents, while in California the ratio was one in 243.
  • Associate attorneys in the Washington area who have worked between one and eight years had a median salary of $186,250, compared with the national median for their peers of $123,521, according to a survey by the Washington-based National Association for Law Placement.
  • Lobbyists play a prominent role in the Washington economy. In 2010 there were 12,964 registered lobbyists, with most working in or around the nation’s capital, according to figures compiled by the Center for Responsive Politics, a Washington- based research group that tracks political spending. Spending on lobbying efforts reached a record $3.51 billion last year, up from $3.49 billion in 2009.
  • The Washington suburbs are also home to government contractors such as Bethesda, Maryland-based Lockheed Martin Corp. (LMT), the world’s largest defense company, and General Dynamics Corp. (GD), the Falls Church, Virginia-based maker of Abrams tanks and Gulfstream business jets.

[Apr 25, 2011: The Washington D.C. Bubble - K Street Edition]
[USA Today Nov 10th - More Federal Workers' Pay Tops $150,000]
[Feb 3, 2011: Washington D.C. Leads Nation's Major Cities in Job Growth in 2010]

Riverbed Technology (RVBD) Pleases the Street

It's been a tough road the past few months for networking companies, as worries about a slowing economy and lower technology spending have weighed on the group.  A few high profile names also missed their numbers last quarter, or provided uninspiring guidance.  This has wrecked a lot of charts, including that of Riverbed Technology (RVBD).  Last evening, the company reported a good set of numbers, and the stock is amongst the upside leaders today.

For the quarter, the company posted revenue of $191 million and non-GAAP profits of 24 cents a share, ahead of the Street at $185.3 million and 21 cents. Revenue was up 28% from a year ago.

For Q4, the company sees revenue of $198 million to $202 million, and non-GAAP profits of 24-25 cents a share, ahead of the Street at $199.5 million and 23 cents.

The company also bought back $20 million of its common stock in the latest quarter.

No position

Wednesday, October 19, 2011

Wynn Resorts (WYNN) Suffering in After Hours

If you had told me coming into the week, that there would be disappointments by IBM, Apple, and Goldman Sachs, and the market would only be down this much after such a huge run, I'd have called you a liar.

Wynn Resorts (WYNN) is the next to not quite be up to snuff.  There is some confusion on the EPS figure due to debt extinguishment, but the 'headline' number is $1.05 v $1.18 estimated.  I don't kow if analysts had this in their number or not but ...
  • The net loss attributable to Wynn Resorts of $33.5 million, or ($0.27) per diluted share in the third quarter of 2010 included a $64.2 million loss on extinguishment of debt
If not, that $1.05 becomes $1.32.  (note - looking at this over again, I believe there is a typo as it says third quarter of 2010 rather than third quarter of 2011)

Revenue was essentially in line at $1.3B vs $1.29B.  Macau continues to be the star, with a 41% year over year gain in revenue at $951M in revenue - we can see how dominant Macau is becoming in the revenue stream.  Occupancy rate was almost 94% versus 87.6% the year before, so no slowdown in the region yet, unlike what investors are worried about.

Las Vegas revenue was only up 3.7% year over year. Meh.   Occupancy up slightly from just below 88% to just above.

The stock is currently down about 5.5% in after hours, after a 5.5% drop during the normal session.  Technically you can see the 50 and 100 day moving averages have converged to provide a ceiling the past two weeks, while everything else was rallying.  It's not a great chart setup right now.

Full report here.

No position

This Day in European Rumors - Lawyers Say No!

Another day, another European development rumor of a development.  This time from the WSJ:

European officials discussing ways to increase the effectiveness of their bailout fund are focusing on using the fund to provide collateral to back up bond issues by troubled countries, according to people familiar with the matter.
Lawyers for governments and the European institutions have warned that using the bailout fund to provide direct guarantees would violate the European Union’s no-bailout clause, pouring cold water on the widely discussed notion that simply issuing European Financial Stability Facility guarantees for first losses would expand the firepower of the bailout fund.
Instead, under versions of the insurance plan being discussed ahead of a critical weekend summit, countries would effectively borrow an additional amount from the EFSF when they need to tap markets for financing.
That extra amount would be kept aside as collateral to provide some compensation to creditors in the event of a default.  That means, though, that governments wishing to use the scheme would need to borrow extra from the EFSF to raise funds in the markets.

Never Heard of High Low Logic Index, but Mark Hulbert Says this Indicator is Very Accurate, and Now Bullish

Never heard of this indicator but thought I'd pass the story along.  I swear for all the negative sentiment I am hearing about, I am reading positive stories about big Q4 rallies almost everywhere the past 5 or so days.

  • Would you be interested in a market indicator that has correctly called every major market top and bottom in recent decades—with few false signals?  Of course you would.
  • And the good news doesn’t stop there: This exceptional indicator is currently in very bullish territory.   The indicator I’m referring to is the High Low Logic Index, which was devised in the 1970s by Norman Fosback, then the President of the Institute for Econometric Research, and currently editor of Fosbacks Fund Forecaster. The index represents the lesser of two numbers: New 52-week highs and new 52-week lows with both expressed as a percentage of total issues traded.
  • Higher readings of the High Low Logic Index are bearish, according to Fosback, as they suggest that “the market is undergoing a period of extreme divergence... Such divergence is not usually conducive to future rising stock prices, [since] a healthy market requires some semblance of internal uniformity.”
  • Interestingly, Fosback found from his research, “it doesn’t matter what direction that uniformity takes. Many new highs and very few lows is obviously bullish, but so is a great many new lows accompanied by few or no new highs.”
  • Fosback in the 1970s recommended a 10-week exponential moving average of the indicator, and this is the approach taken by Ned Davis Research. The firm each weekend updates a version of the index based on all publicly-traded stocks in the U.S. Its latest value is 1.7%, which is solidly in bullish territory.
  • In fact, there have been only four other occasions over the last 25 years in which the Ned Davis Research version of the High Low Logic Index has moved from bearish territory above 4.05% to as low as it is today, and all four came close to a major market bottom: Late 1987, late 1990, early 2003, and late 2008.
  • This last occasion represented the most premature the indicator came in anticipating a bull market, and even then it was only 3-4 months early.
  • The threshold level that Ned Davis Research has used in its back testing to indicate bullish market breadth is 2.5%. Whenever the 10-week exponential moving average of the High Low Logic Index is below this level, according to the firm, the S&P 500 index   has appreciated at a 17.9% annualized rate. Whenever it has been above 4.05%, in contrast, the S&P 500 index has declined at a 12.5% annualized pace. (interesting
  • Did this indicator anticipate the market’s weakness in August and September of this year? Unfortunately not, which is another way of saying that the message of the indicator is that recent weakness was not the beginning of a major bear market. The highest it ever got to was 3.2%, according to Ned Davis Research, a level that the firm’s back testing has indicated to be a neutral reading.
  • The last time the indicator was higher than the 4.05% sell threshold was late 2007, just before the Great Recession and associated credit crunch. The bulls can only hope that the indicator will be as successful this time around as it was on prior occasions.

Hmm, I'm getting a lot of traffic today from - trying to figure out what story it is linking to.  It looks like a site that puts out sarcastic headlines and then linking to a news story.  If anyone happens to know, please post a comment.

EDIT 12:23 PM - nevermind found it.  It was the social security story from yesterday.

Funny headline

(Some Guy) Sad Social Security recipients to receive additional 38 dollars a month next year. Bank Of America to add a 38 dollar monthly fee for being old   ( divider line 78

More: Sad, social security, Social Security recipients, federal laws

Student Loan Debt Continues to Hit New Records

The student loan debt bubble continues to fester.

While we have become numb to large numbers with all the trillions thrown around the world the past few years, when you take a step back and really think about the amount of debt incurred for higher education in this country, it is a bit staggering.  Per this USA Today story, last year was the first time the country passed the $100B threshold in any one year (that run rate has DOUBLED in a decade), and the total will cross over $1T this year.  As reported a few months ago, student loan debt has now surpassed credit card debt in the country.  Like all good bubbles, this one will end badly but will be spread out over many years.  In the meantime a lot of for profits, and public universities are generating 'mad money'.

As for newly minted graduates? A lot of money is being spent for little reward in this economy. [May 20, 2011: Nearly 50% of 2009 College Graduates are Either Jobless, or Working in Jobs that Don't Require a College Degree]

  • Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers.
  • The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York.
  • Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what's owed on home loans and credit cards.
  • The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.  "Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children," says Mark Kantrowitz, publisher of
  • "It's going to create a generation of wage slavery," says Nick Pardini, a Villanova University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers. 
  • •Defaults. The portion of borrowers in default — more than nine months behind on payments — rose from 6.7% in 2007 to 8.8% in 2009, according to the most recent federal data. 
  • •For profit-schools. The highest default rates are at for-profit schools that tend to serve lower-income students and offer courses online. The University of Phoenix, the nation's largest, got 88% of its revenue from federal programs last year, most of it from student loans.

NYT: Farmers Facing Loss of Subsidy May Get New One

This story in the New York Times, demonstrated both the folly that is American politics, and how difficult it will be to ever truly do any real deficit reduction.  I'm not picking on farmers - it is just representative of the system, and a beholden political class.  Very similar to what we read in 2008 [Mar 27, 2008: WSJ - Farm Lobby Beats Back Assault on Subsidies] even as commodity (esp. food) prices shot through the roof.   Even the so called fiscal 'conservatives' are beholden to corporate (much of the U.S. ag sector is corporate) masters [Jun 15, 2011: AP - Republicans Dodge Farm Cut Subsidy]  Again, not picking on this group- - pick any powerful industry, and the game is the same.

  • It seems a rare act of civic sacrifice: in the name of deficit reduction, lawmakers from both parties are calling for the end of a longstanding agricultural subsidy that puts about $5 billion a year in the pockets of their farmer constituents. Even major farm groups are accepting the move, saying that with farmers poised to reap bumper profits, they must do their part.
  • But in the same breath, the lawmakers and their farm lobby allies are seeking to send most of that money — under a new name — straight back to the same farmers, with most of the benefits going to large farms that grow commodity crops like corn, soybeans, wheat and cotton. In essence, lawmakers would replace one subsidy with a new one.
  • Vincent H. Smith, a professor of farm economics at Montana State University, called the maneuver a bait and switch.  “There’s a persistent story that farming is on the edge of catastrophe in America and that’s why they need safety nets that other people don’t get,” he said. “And the reality is that it’s really a very healthy industry.”
  • The subsidy swap is gaining momentum as lawmakers seek to influence the cuts in farm programs that are expected to be made by a special Congressional panel charged with slashing $1.2 trillion from future budgets.  On Monday, leaders of the House and Senate agriculture committees said they were preparing recommendations for $23 billion in unspecified cuts over 10 years, far less than some other proposals.
  • Lawmakers’ reluctance to simply eliminate a subsidy without adding another in its place demonstrates how difficult it is for Washington to trim the federal largess that flows to any powerful interest group. Indeed, the $5 billion program that lawmakers are willing to throw under the tractor, known as the direct payment program, was created in 1996 as a way to wean farmers off all such supports — and instead was made permanent a few years later.
  • The new subsidy is being championed by Senator Sherrod Brown, Democrat of Ohio, and Senator John Thune, Republican of South Dakota.  Mr. Thune, a leading voice in favor of deficit reduction, received at least $80,000 in campaign contributions since 2007 from political action committees associated with commodity agriculture, according to data compiled by the nonpartisan Center for Responsive Politics, which tracks campaign spending. 
  • Critics say that farm subsidies today have little to do with helping struggling family farmers. Instead, they go predominantly to well-financed operations with large landholdings.  An analysis of federal data by the Environmental Working Group, an advocacy group that tracks farm subsidies, showed that the top 10 percent of direct-payment recipients in 2010 received 59 percent of the money under the program.
  • In lean times, such support might seem vital, but in recent years commodity farmers have done well.  The Agriculture Department forecasts that farm profits this year, measured on a cash basis, will total $115 billion, 24 percent higher than last year, thanks to soaring crop prices. Adjusted for inflation, profits are expected to be at their highest level since 1974.
  • The average income for farm households has been higher than general household incomes every year since 1996. The average household income was $87,780 for all farms in 2010, and $201,465 for families living on large farms.
  • Direct payments have come under fire because farmers get them whether markets are high or low. The new subsidy, called shallow-loss protection, would act as a free insurance policy to cover commodity farmers against small drops in revenue. Most commodity farmers already buy crop insurance to protect themselves against major losses caused by large drops in prices or damage to crops. Those policies typically guarantee 75 to 85 percent of a farmer’s revenue, with the federal government spending $6 billion a year to pay more than half the cost of farmers’ premiums.
  • The proposed new subsidy would add another layer of protection to guarantee 10 to 15 percent of a farmer’s revenue, paying out not only in years of heavy losses, but also when revenue dipped less severely.

[Video] Nassim Taleb on Occupy Wall Street and the Banking System

It's been a long while since we've heard from Mr. Dark Swan himself - Nassim Taleb.  After the Bailout Nation action in 2008-2009, he sort of declared he was giving up and going underground in disgust at the system, and away from the public eye.  I've really only seen one video of him since [Jun 10, 2010: Nassim Taleb Emerges from Self Imposed Exile], but Bloomberg just sat down for an interview.  Here is Taleb's take on the Occupy Wall Street movement, and the banking system.

14 minute video - email readers will need to come to site to view

[Aug 13, 2009: The Parallel Reality: Nassim Taleb and Elizabeth Warren]
[Apr 8, 2009: 10 Principles for a Black Swan Proof World]
[Apr 2, 2009: The Tale of Political Influence in Changing Accounting Rules, Nassim Taleb on CNBC]
[Dec 4, 2008: Nassim Taleb on Charlie Rose]

Tuesday, October 18, 2011

Amazing Apple (AAPL) Fact of the Day -

Regular readers know I rarely touch on Apple (AAPL) because frankly there is not much to say - amazing company, in the right spot, visionary, blah blah.  A lot of blogs write incessantly about the company to drive traffic - I only do that once a quarter, haha.

Amazing Apple fact of the day:

Someone just noted on twitter Apple has $81.6B in cash.

To put that in perspective, per's screener, there are only 62 publicly listed companies on U.S. exchanges with a MARKET CAP over $81.6B.

Just staggering.  Apple's cash hoard alone would be the 63rd largest company market cap on U.S exchanges.  Perhaps Apple will be invited to participate in the ESFS!

End of Days; Apple (AAPL) Misses Estimates

Apple has beaten estimates 30 quarters in a row.  So this number is a shocker: $7.05 vs $7.28 estimate. More shocked, they missed on the top line - $28.3B vs $29.45B.

Stock is down $25 as I write this, or about 6%.

In a George Costanza moment, this company which is infamous for low balling guidance actually is guiding over consensus for next quarter: $9.30 EPS vs analysts $8.98 (Revenue $37B v $36.6B).

Again this is all about expectation - for a company of this size, such growth is simply jaw dropping.  Margins expanded nicely year over year, revenue and EPS growth year over year (for a company this size) awesome, and international sales now almost 2/3rds of sales.

Based on the metrics, the iPhone sales were the big issue.  CFO blames pervasive rumors of iPhone5 keeping customers from purchasing, but says the 4S response has been "off the charts."(per Seeking Alpha)

Full report here.

The Company posted quarterly revenue of $28.27 billion and quarterly net profit of $6.62 billion, or $7.05 per diluted share. These results compare to revenue of $20.34 billion and net quarterly profit of $4.31 billion, or $4.64 per diluted share, in the year-ago quarter. Gross margin was 40.3 percent compared to 36.9 percent in the year-ago quarter. International sales accounted for 63 percent of the quarter’s revenue. 

iPhone 4 shipments 17.07 million up 21% year/year. (some estimates of 20M here, could be people waiting for 4S)
iPad shipments 11.1 million up 166% year/year. (this one appears to have come in a bit light)
iPod sales were 6.62 million, down 27% year/year
Mac shipments were 4.89 million up 26% year/year

No position

UK Guardian: France and Germany Ready to Agree to 2 Trillion Euro Rescue Fund

The S&P 500 has rocketed here in the past 20 minutes or so (right at resistance as I type this at 1225-1235 area), as news reports surface of an agreement to lever that ESFS to 2 trillion Euro.  This has sort of been the same news we've been rallying on for over 2 weeks, but I guess this is a market where you buy the rumor, and the news.

(edit 3:30 PM  - if you want the Cliff Notes - essentially the ESFS will be used as an insurance fund, to absorb the first 20% of losses of European debt go forward.  Therefore as a private buyer you'd need at least a 21% haircut in say Portugal, Spain, or Italy's debt to begin taking losses.  Because the taxpayer would take the first loss.  That's how they are levering the 400B Euros into 2T.  Technically 440B Euro is in the ESFS but 40B already seems to be accounted for.  Didn't Germans approve the ESFS expansion on grounds it would not be levered just a few weeks ago?  Even though as they were voting everyone was already talking about levering it? Hear no evil, see no evil I guess.)

Details from the UK Guardian

  • France and Germany have reached agreement to boost the eurozone's rescue fund to €2tn as part of a "comprehensive plan" to resolve the sovereign debt crisis that the eurozone summit should endorse this weekend, EU diplomats said.
  • The growing confidence that a deal can be struck at this Sunday's crisis summit came amid signs of market pressure on France following the warning by ratings agency Moody's that it might review the country's coveted AAA rating because of the cost of bailing out its banks and other members of the eurozone. The leaders of France and Germany hope to agree a deal that will assuage market uncertainties or, worse, volatility in the run-up to the G20 summit in Cannes early next month.
  • France would now have to pay more than a full percentage point – some 114 basis points – more than the price paid by Germany to borrow for 10 years as the gap between the two country's bond yields widened to their highest level since 1992.
  • On Tuesday stock markets and foreign exchanges reacted uneasily to the damping down of expectations, notably out of Berlin, about the prospects of a full-scale deal although EU diplomats close to the talks say the Franco-German agreement covers boosting the financial firewalls for eurozone members to withstand the threat of a "credit event" or sovereign debt default in weaker countries.
  • This takes two forms. First, the main bailout fund, the European financial stability facility, will be given additional levers enabling it to offer first-loss guarantees for bondholders, be they private or public. Senior diplomats say this will deliver a fivefold increase in the fund's firepower – giving it more than €2tn compared with the current €440bn lending capability. The EFSF will effectively become an insurer, thereby overcoming European Central Bank resistance to the idea of turning into a bank.
  • Second, Berlin and Paris have agreed that Europe's banks should be recapitalised to meet the 9% capital ratio that the European Bank Authority is demanding following its re-examination of the exposure levels of between 60 to 70 "systemic" banks. The EBA has marked these exposures much closer to current market values.
  • It is said that the overall recapitalisation required will be closer to €100bn rather than the €200bn talked about by Christine Lagarde, IMF managing director, and others. French and German banks, senior sources said, can meet the new capital ratio target on their own without recourse to state funds, let alone the EFSF. Other countries' banks, however, may need financial support from the state or the EFSF.
  • Berlin and Paris are also said by those close to the negotiations to be edging nearer to agreeing on the increased scale of private sector involvement in the second rescue package (€109bn) for Greece. This was set at a voluntary 21% "haircut" in the July package but, under worsening overall economic conditions and a likely restructuring of Greek debt, Germany has been pushing for losses of up to 50%. France, backed by the ECB, has resisted the idea while EU officials have clearly indicated that a range of 30 to 50% is being considered.
  • Senior EU officials admit that technical details remain to be settled. Some of these will be agreed by finance ministers who meet on Saturday while others will await final agreement in the run-up to the G20 summit in Cannes. "It's a huge agenda," senior officials said of the plan of work for the summit. "But there will be a number of breakthroughs."
  • They added: "We thought the [Greek] package of 21 July was a big step but obviously it was not enough and now we're pretty confident that markets will say that these people really mean what they say and will ensure stability."

Congratulations Seniors - First Cost of Living Increase in Social Security Benefits Since 2009

Official government reported inflation increased enough this year for the first COLA adjustment since 2009.  Looks like seniors will be getting a 3.5% increase starting in 2012.  Don't spend it all in one place.

  • Social Security recipients will get a raise in January -- their first increase in benefits since 2009. It's expected to be about 3.5 percent.  
  • Some 55 million beneficiaries will find out for sure Wednesday when a government inflation measure that determines the annual cost-of-living adjustment is released.
  • Congress adopted the measure in the 1970s, and since then it has resulted in annual benefit increases averaging 4.2 percent. But there was no COLA in 2010 or 2011 because inflation was too low. (for those living within the government statistics - not for those with healthcare costs, kids in college, energy purchases, or for those who eat food
  • Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.
  • Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.
  • Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year -- the months of July, August and September -- with the same months in the previous year.
  • If consumer prices increases from year to year, Social Security recipients automatically get higher payments, starting the next January. If price changes are negative, the payments stay unchanged.  Only twice since 1975 -- the past two years -- has there been no COLA.
  • Advocates for seniors say it's about time.  "If you've been at the grocery store lately and remember what you used to pay for things, see what you're paying for things today," Phillips said.

Rally Impressive in Light of IBM

Due to the way the DJIA weighs stocks, the higher the stock price the bigger the influence.  Hence the 0.5% gain in that index is all the more impressive today, with IBM down about 9 points (which I believe is equivalent to about 63-65 Dow points).

We continue to act 'constructively', as the 50 day moving average area (up to S&P 1191) held like a peach this morning - low of the day 1191.48.  Like clockwork.

As important, 'bad news' is now getting ignored - the PPI came in 'hot' but everyone knows the Fed doesn't care about any inflation readings - if anything it just means potential QE3 is pushed out a few meetings, but they won't be tightening for half a decade, so inflation reports are moot for a few years.  Earnings reports last nite and this morning were not impressive but the market is in a happy place so it's a character change.

Some reports on the European ESFS situation is the leading plan is for that vehicle to accept the first 20, 30%ish of losses on debt purchases by private investors, hence 'levering' it to about a $1 trillion entity.  Kicking the can always makes the market happy, so people seem to be sanguine about what Europe is doing.

Technically, we still want to see this S&P over 1240 level to be more intermediate term bullish.

Reuters: Masses of Temporarily Employed in Southern Europe

There are some quite fascinating data points in this Reuters story on the bifurcated European job market.  I believe this is in large part feeding the type of discontent we are seeing from the Occupy Wall Street movement.  Specific to many parts of Europe however, there is a bifurcation in the workforce as older workers with benefits in established jobs are very expensive to fire, whereas new hires are put in temp jobs with no benefits.  A staggering 25% of Spain's workforce is temporary, as is 23% of Portugal's.   I posted a story about a similar thing happening in Japan a few years ago [Jul 29, 2009: Japan's "Herbivore" Men - Young American Men's Future?]- the societal effects of many who can not move out of their parents house, not have a lot of hope for a future, not able to get married, and the like are immeasurable - and as I said earlier, I believe feeds into the backlash against business we are now seeing.

Via Reuters:

  • Silvia knew things would be tough, but never like this.With a masters' degree in publicity, the 24-year-old has been working for more than two years, full-time, in an internship that is starting to feel like it will never end.  Paid 300 euros a month for the same work as the salaried public relations professionals who sit next to her, she doesn't earn enough to move out of her parents' house and her bus pass and lunch expenses eat up most of her pay.
  • But despite feeling her multinational employer is flouting rules that limit the use of worker contracts with no benefits, she's not about to complain to the labor office since she considers herself blessed to have a job at all.
  • "Since I was little my parents urged me to get a university degree to find good work. But I'm lucky to have any work at all. There were 30 of us in my graduating class and I'm one of the ones who is doing the best with their career," Silvia said.
  • With Spain's youth unemployment higher than 40 percent and its overall joblessness the highest in the European Union at one in five, young professionals accept any conditions as they try to start their careers.
  • The story is much the same in neighboring Portugal and Italy, where more and more people have so-called junk jobs: temporary contracts that used to be common in tourism, farming and construction but are now used by all kinds of companies.
  • A quarter of Spain's workforce is on temporary contracts, as is 23 percent of Portugal's, compared with a European Union average of 14 percent.
  • In Spain, Portugal and Italy, a rigid dual system has emerged. Middle-aged people have stable jobs with benefits. They are expensive to fire and protected by masses of legislation. Meanwhile, younger workers are stuck in a revolving door of temporary contracts that are easy to abuse.
  • The two-track job market is stunting economic growth, studies show. Temporary workers get trapped for longer and longer periods without benefits, which affects output and makes southern Europe less competitive.
  • The curse of the mileurista — the Spanish-language term for a temporary worker who earns a thousand euros a month without benefits — is not new. Young professionals in southern Europe have found a permanent position elusive for some time. "We used to talk about mileuristas like it was a bad thing. Now it's good. A 1,000-euro a month temporary contract is decent," said Jose Maria Marin, labor expert and contemporary history professor at Spain's National University of Distance Education.
  • The phenomenon of young people living with their parents is another thing holding back economic growth, creating a vicious cycle for job creation. If they were setting up new households they would be stimulating the housing market as well as consumer spending.
  • Another risk for economies with high percentages of temporary workers, notes Wilthagen, is that banks are shy of lending to people without permanent employment, further holding back consumption.
  • Theoretically, a temporary contract is a foot in the door to prove yourself as a good hire.  But in southern Europe many supposedly temporary hires renew contracts year after year and do the same jobs as the permanent hires around them, just without the job security or benefits. (similar to what is happening in Japan)  This creates an enduring second-class job tier similar to the phenomenon of "permatemps" in the United States in the 1990s.
  • Many Portuguese companies abuse a freelance contract called the "green receipt," using it to hire full-time, in-house workers, said Joao Labrincha, an organizer of marches earlier this year against state austerity measures.  He said green receipt workers often have fixed schedules like any other employee, but have no right to holidays, social security, health insurance or severance pay.
  • Even the government misuses the contracts. "I've worked for the state under green receipts for more than five years. The system is rather perverse. Many of my colleagues are also under these precarious conditions, some of them have been temporary workers for the last 10 years," said a middle manager at the Portuguese Institute of Museums, who asked not to be named.
  • It's difficult to transition into a permanent job when no such posts are being created. In Spain, 80 percent of new job contracts signed in the last decade were temporary contracts — businesses just aren't creating permanent positions.  (staggering!)

[Sep 7, 2011: BW - The Youth Unemployment Time Bomb]

China GDP Falls to 2 Year Low, UK Inflation Surges

As always take all government data with many grains of salt - especially the Chinese kind.   [Aug 5, 2009: China's Provincial Growth Figures Far Overstated versus National Figures] [Dec 7, 2010: WikiLeaks - China's GDP Figures are "Man Made" - or at Least One Province's] but according to 'official' data China GDP fell to 9.1% this past quarter.  I'd say copper is telling us is has fallen more than that, but again this is the official line.

  • China's economic expansion slowed in the third quarter to its weakest pace in more than two years as euro-debt strains and a sluggish U.S. economy took a toll, but healthy domestic drivers suggest little room to relax monetary policy near term.
  • GDP grew 9.1 percent from a year earlier, the third consecutive quarterly slowdown in growth after 9.5 percent in the second quarter and 9.7 percent in the first.
  • The domestic strength and inflation of more than 6 percent argue for the central bank to keep a tight rein on monetary policy even though overall growth is slowing.
  • "GDP growth was surprising for the market on the downside," said Stephen Green, economist at Standard Chartered in Hong Kong. "There is clearer deceleration in the third quarter. No change in policy. Small signs of ad-hoc loosening but no macro change in policy." 
  • The data was slightly below forecasts of 9.2 percent and the weakest since 8.1 percent in the second quarter of 2009. 
  • As an indicator of global demand, exports from China actually detracted from the economy's growth in the first three quarters of this year. That was underlined by September data showing exports growth to the euro zone, its biggest market, more than halved from August. 

Some other metrics:
  • Countering the impact of the global slowdown, fixed-asset investment in the first three quarters of the year chalked up annual growth of 24.9 percent, slightly ahead of forecasts of 24.8 percent.
  • Retail sales rose 17.7 percent in September from a year earlier, topping forecasts for a rise of 17.0 percent. Indeed, industrial output in September rose 13.8 percent, above forecasts for an increase of 13.3 percent, suggesting the third quarter ended on a slightly upbeat note. 
  •  However, China's real estate investment, which accounts for a fifth of the country's fixed-asset investment, cooled sharply to 25.0 percent in September from a year earlier, as compared with a rise of 31.6 percent in August, Reuters calculations show, based on the official data.
  • Reuters calculations suggest implied oil demand in China rose just 1 percent in September from a year earlier, its slowest rate of growth so far this year. 

Meanwhile, the U.K. which has (in my opinion) a far better accurate gauge of inflation (excludes 'rent equivalent' housing) - just saw their inflation figure surge to 5.2%, from 4.5%.  Keep in mind the central bank just started a new round of QE measure to boot.  Stagflation baby.  These guys better start doing some of the adjustments we do over here (which if we had not 'adjusted' the way we measure things the past few decades would be reading 8%) so their official statistics don't look so rude.   [May 10, 2008: Finally Some Mainstream Reports are Figuring Out the Spin from Government] [May 22, 2008: Bill Gross - Inflation Underplayed by Government] [Dec 16, 2010: Consumer Inflation as Measured in the 1980s Would Be 8%+, as Measured in 1990, 4%]
    • The rate of Consumer Prices Index (CPI) inflation in the UK matched its record high in September, rising to 5.2% from 4.5% the month before.An increase in energy costs was behind a large proportion of the rise. 
    • The 5.2% rate is the highest CPI measure since September 2008, and it has never been higher since the CPI measure was introduced in 1997. 
    • The Retail Prices Index (RPI) - which includes mortgage interest payments - rose to 5.6% from 5.2%. The latest RPI measure is the highest annual rate since June 1991. 
    • The Office for National Statistics, which released the data, said in a statement: "By far the largest upward pressure to the change in CPI... came from increases in gas and electricity charges. "There were also large upward pressures from air transport and communication services." 
    • Bills for gas and electricity have risen 9.9% in the past month, and are up 18.3% on the year. Transport has risen 12.8% on the year, and food was 6% higher than 12 months ago. 
    • September's CPI measure is way ahead of the Bank of England's target rate of 2%. However, Bank governor Mervyn King still expects inflation to begin falling next year, once factors such as January's VAT rise drop out of the equation.
    • Jonathan Loynes, chief European economist at Capital Economics, called the CPI figure a "nasty surprise".But he also agreed that inflation was "either at or close to a peak" and should soon start to fall back.

    Monday, October 17, 2011

    Found the Website Issue

    Apparently over the past few days, one of the links on the website brought by a 3rd party was infiltrated and causing issues on some of the websites it appeared on (mine included).  At the bottom of each blog entry there are three 'related links', and over the past 48 hours the company that provides that link was being attacked and hence any website that used that service was potentially exposed.  Since those links are temporary and change each time someone comes to the site and reads that story, this is why when I scanned for malware I could not find it - it had already been eradicated.

    They said they have since fixed it, but it might take 24-48 hrs before Google recognizes the website as safe again.  Until then you might continue to get the message about this being a site potentially with security issues etc etc.

    I've removed that linking service at the bottom of the posts for now.

    You Know the Economy is Bad When....

    People foresake shoes with holes in them, for no shoes at all!

    Crocs (CROX) is down 35% after hours.

    IBM also missed on the top line in both hardware and software - hmmmm.

    With all the accounting games they can still do fine on the bottom line but you can't 'adjust' revenue.  Something to keep an eye on.  Been a long while since IBM disappointed.

    Getting Some Sort of Malware Warning but no Malware Detected

    For some reason in the past 30 minutes or so, Google has reported the website as suspicious with potential for malware - although when I go to the diagnostics page to find out why it says there has been no malware detected.

    Not really sure what to do about it.... when I go to my analytics page it also says Google has not detected any malware.  Bugger.

    Here is the page I was referenced to - any computer geniuses feel free to contact me.

    Safe Browsing

    Diagnostic page for

    What is the current listing status for
    Site is listed as suspicious - visiting this web site may harm your computer.
    What happened when Google visited this site?
    Of the 25 pages we tested on the site over the past 90 days, 0 page(s) resulted in malicious software being downloaded and installed without user consent. The last time Google visited this site was on 2011-10-14, and suspicious content was never found on this site within the past 90 days. 
    This site was hosted on 1 network(s) including AS15169 (Google Internet Backbone).
    Has this site acted as an intermediary resulting in further distribution of malware?
    Over the past 90 days, did not appear to function as an intermediary for the infection of any sites.
    Has this site hosted malware?
    No, this site has not hosted malicious software over the past 90 days.

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