Saturday, July 30, 2011
Willie Walsh, the chief executive of the company formed by the merger of British Airways and Spain's Iberia, said consumers must get used to higher ticket prices. Arguing there had been a "structural shift in the price of oil", Mr Walsh said: "The industry is going to have to price in $120 oil. As a percentage of our cost base, it's 32pc. For the low-cost guys it's more like 50pc. It is such a big part of an airline's costs that fares will have to go up."
I love all the talk of panic. I have heard from several people today asking if they should buy this panic selling. Except for mortgage REITs for a brief second this morning there is no panic. The NASDAQ is flirting with a new high. The S&P 500 is about 6% off the highs. This is not a panic by any stretch. A panic is 20, 40 or even 50% below the highs. This is just people squaring positions. Some have said the VIX is really high so that's a measure of panic. The VIX is at 25. Call me when it runs over 40 and we will have something to talk about in terms of panic. So far this barely qualifies as a dip. - T. Melvin
Gold ($GLD, $IAU, $DGP), Japanese Yen ($FXY), Swiss Franc ($FXF), U.S. bonds ($IEF) were about the only areas showing any life or safe haven status.
For republicans who ran on a platform of reducing deficits and now control the House it’s a bitter pill to vote for bigger deficits. The reality it’s not their turn since they only have the House. They need to win the presidency and the senate to move their plans forward. Some should just abstain for now then. For democrats they see their favorite programs in jeopardy and are hardened to protect them. They need to retain power.Marc to Market: Five Key Events Next Week
Marc to Market: Five Key Events Next Week: "The US debt ceiling remains unresolved at this late date. The market's response over the past week to Europe's new initiatives is poor as p..."
Marc Faber: " I’m sure there will be an agreement, but it doesn’t solve the fundamental problem of excessive debt and of further, very substantial deficits. They’ll iron out something with lots of compromises and with spending cuts that are backloaded, in other words they won’t happen immediately. As we go along say in three or five years' time when these spending cuts should occur and when the tax increases should occur, nothing will happen in my opinion.”
Jim Rogers Blog: Debt Talks - A Charade
Jim Rogers Blog: Debt Talks - A Charade: "RT.com video interview: Debt Talks A Charade, US Will Still Spend And Drive Debt Jim Rogers is an author, financial commentator and succe..."
Yahoo Inc. ($YHOO) has settled a dispute tarnishing a key investment in China, but the truce didn't bring much peace of mind to the embattled Internet company's disillusioned shareholders.
The complex agreement announced Friday revolves around the spinoff of an online payment service formerly owned by China's Alibaba Group, an emerging Internet powerhouse partially owned by Yahoo.Alibaba spun off the payment service, Alipay, earlier this year in a move that Yahoo shareholders didn't learn about until it was disclosed in a May 10 regulatory filing in the U.S. Yahoo's shares have lost a quarter of their value since that bombshell, reflecting investor concerns that the spinoff had diminished the value of Yahoo's 43 percent stake in Alibaba.
The settlement will require Alipay to share nearly half its profits with Alibaba. It will culminate in Alipay writing a check of $2 billion to $6 billion to Alibaba if it becomes successful enough to pursue an initial public offering of stock within the next decade. A big chunk of that money eventually could flow to Yahoo and Alibaba's other major shareholder, Japan's Softbank Corp., which also signed off on the Alipay agreement.
The terms confirmed what investors had suspected all along: Yahoo won't make as much money off of its Alibaba investment as it would have if Alipay hadn't been spun off into a separate company controlled by a group led by Alibaba CEO Jack Ma.
Instead of owning all of Alipay, Alibaba now owns a 37.5 percent stake in the service. Alibaba's potential windfall from an Alipay IPO has now been capped at $6 billion, a ceiling that might look low if Alipay can realize its ambition of becoming the China's equivalent of PayPal, which has steadily risen in value since eBay Inc. bought it for $1.5 billion in 2002.
The chief financial officers of Yahoo and Alibaba did their best to sell the Alipay settlement as good deal for all parties involved, but Wall Street didn't appear to be buying the rationale.
After initially jumping on news of the deal, Yahoo shares slipped 40 cent, or nearly 3 percent, to close Friday at $13.10.
"Alipay agreement: better than nothing, but not that great," J.P Morgan analyst Doug Anmuth wrote in a Friday note that summed up the market's sentiment.
The sour reaction keeps the pressure on Yahoo CEO Carol Bartz, whose inability to turn around the company or boost its stock after two and half years on the job has spurred talk on Wall Street that she might be replaced before her contract expires in January 2013. Yahoo has consistently indicated that Bartz has the support of the company's board, which hired her despite her lack of Internet experience.
Bartz, 62, also has had a rocky relationship with Alibaba's Ma, another source of worry for Yahoo shareholders. That's because Alibaba has emerged as a prized asset while Yahoo's own revenue has been falling during Bartz's tenure. Anmuth estimates Yahoo's stake in privately held Alibaba is worth about $4.76 billion, accounting for more than one-third of Yahoo's current market value of $17 billion. Yahoo's value has shed $7 billion since the news of the Alipay spinoff.
Neither Bartz nor Ma participated in Friday's conference call, raising questions about whether the tensions between the two executives are so bad that they can't even be diplomatic toward each other in a public forum.
In prepared statements, both Bartz and Ma hailed as positive developments for their companies.
The conference call with analysts was handled by Yahoo CFO Tim Morse and Alibaba CFO Joseph Tsai, who joined with Ma to form the company that now owns Alipay. Ma and Tsai pledged 50 million shares of Alibaba stock to back a $500 million promissory note to cover part of the future payments that Alipay is expected to make to its former parent company.
Tsai stressed Alipay had to be spun off to comply with Chinese laws forbidding foreign investments in an online payment service operating in the country.
If Yahoo and Softbank had still held indirect stakes in Alipay through Alibaba, the service wouldn't have been licensed in China. Given that, Tsai said, Yahoo shareholders should be happy to have a chance to share in Alipay's profits and IPO under the new arrangement that leaves Alibaba with a 37.5 percent stake in the payment service instead of full ownership.
"If you own 100 percent of a business that doesn't have a license to operate, that's 100 percent of zero," Tsai said.
Alipay so far has primarily processed payments on Taobao, a rapidly growing electronic commerce site owned by Alibaba. That "preferential" relationship has called for Taobao to pay Alipay just enough to cover its costs. Those terms will remain intact under the new agreement. That means if Alipay hopes to become a thriving business on its own, it will have to become a major payment provider on other websites. Tsai said Alipay so far brings in just $60 million in annual revenue from payment processing on sites other than Taobao.
"It's really too early to think of a liquidity event for Alipay," Tsai said. "But we believe given the size of the market in China ... Alipay could have potential value."
If Alipay remains privately held, the agreement allows Yahoo and Softbank to demand Alipay to go public or be put up for sale in 2021 if the payment service is worth at least $1 billion at that time.
Italy, Spain Worries Complicate Greece Aid
BRUSSELS—Investor concerns over Italy and Spain are complicating efforts to deliver Greece its next chunk of rescue aid, underscoring the increasing difficulty Europe faces in reining its more than year-old credit crisis.
Greece is due to receive the next installment of its original, €110 billion ($158 billion) bailout in September. But Italy and Spain, both of which committed to extend bilateral loans to Greece with other euro-zone countries, have seen their own borrowing costs rise recently.
Living up to that commitment could put further pressure on Italian and Spanish bonds, just as officials in Madrid and Rome have been scrambling to reassure markets. Euro-zone finance officials are now considering allowing Italy and Spain to opt out of the payment, according to people familiar with the matter.
"We're trying to get around this obstacle by getting the EFSF to finance the next tranche," one official said, referring to the European Union's rescue fund, the European Financial Stability Facility. "The only problem is this is on very short notice."
If the rescue fund isn't ready to lend to Greece, Italy and Spain might be called on to make loans directly, potentially exacerbating tensions in the Spanish and Italian sovereign-debt markets.
Greece, the first euro-zone country to receive a bailout, was given direct loans from its partners because the EFSF, which has a lending capacity of €440 billion, hadn't been set up.
Euro-zone leaders at their summit last week directed the EFSF to make the next loan payment of €5.8 billion to Greece, replacing the bilateral loan system that euro-zone governments set up in 2010. But the rescue fund must first raise money on financial markets. That could be difficult by mid-September—particularly during August when most of Europe is on vacation.
Complicating matters is the requirement that several national parliaments back new rules for the EFSF before the fund can lend to Greece.
Spain's 10-year bonds are yielding 6.12%, and Italy's 10-year yields 5.92%—both well above rates Greece pays on loans under the first bailout program.
EFSF loans wouldn't face this problem: Guarantees from the euro zone's six triple-A-rated countries—Germany, France, the Netherlands, Finland, Austria and Luxembourg—are enough to back the fund's entire €440 billion lending capacity. That ensures the EFSF will keep its triple-A rating and low funding costs even if more countries need to borrow from it.
Greece is due to receive the next installment of its original, €110 billion ($158 billion) bailout in September. But Italy and Spain, both of which committed to extend bilateral loans to Greece with other euro-zone countries, have seen their own borrowing costs rise recently.
Living up to that commitment could put further pressure on Italian and Spanish bonds, just as officials in Madrid and Rome have been scrambling to reassure markets. Euro-zone finance officials are now considering allowing Italy and Spain to opt out of the payment, according to people familiar with the matter.
"We're trying to get around this obstacle by getting the EFSF to finance the next tranche," one official said, referring to the European Union's rescue fund, the European Financial Stability Facility. "The only problem is this is on very short notice."
If the rescue fund isn't ready to lend to Greece, Italy and Spain might be called on to make loans directly, potentially exacerbating tensions in the Spanish and Italian sovereign-debt markets.
Greece, the first euro-zone country to receive a bailout, was given direct loans from its partners because the EFSF, which has a lending capacity of €440 billion, hadn't been set up.
Euro-zone leaders at their summit last week directed the EFSF to make the next loan payment of €5.8 billion to Greece, replacing the bilateral loan system that euro-zone governments set up in 2010. But the rescue fund must first raise money on financial markets. That could be difficult by mid-September—particularly during August when most of Europe is on vacation.
Complicating matters is the requirement that several national parliaments back new rules for the EFSF before the fund can lend to Greece.
One remedy discussed by the governments would be for the EFSF to pay part of the mid-September tranche, with the rest paid through loans directly from governments, the official said.
The first Greek bailout agreement allows countries with funding costs higher than the interest rates on the Greek loans to be compensated by the interest payments earned by other euro-zone governments. The pact also allows these countries to avoid making a payment altogether.Spain's 10-year bonds are yielding 6.12%, and Italy's 10-year yields 5.92%—both well above rates Greece pays on loans under the first bailout program.
EFSF loans wouldn't face this problem: Guarantees from the euro zone's six triple-A-rated countries—Germany, France, the Netherlands, Finland, Austria and Luxembourg—are enough to back the fund's entire €440 billion lending capacity. That ensures the EFSF will keep its triple-A rating and low funding costs even if more countries need to borrow from it.
(MarketWatch) — The Senate voted Friday night to set aside a House-passed bill that would raise the U.S. debt limit and cut the deficit, paving the way for a vote on Senate Democrats’ own measure and intense compromise talks as the clock ticked toward a potential government default next week.
The House bill passed 218-210 earlier Friday, after Republican leaders won over conservatives by tying an increase in the $14.3 trillion debt limit to passing a balanced-budget amendment. President Barack Obama opposes the House bill and is backing the rival measure from Senate Democratic Leader Harry Reid. The House and Senate bills share key similarities, but a sticking point is how much and when to raise the government’s borrowing limit.
Senate leaders were working furiously on a compromise measure, and comments from Republicans including Sens. Olympia Snowe of Maine and Scott Brown of Massachusetts indicated a deal could win bipartisan support. Snowe said she was reviewing plans by Reid, of Nevada, and Minority Leader Mitch McConnell of Kentucky and hoped they would work through their differences, according to The Wall Street Journal.
Obama continued to warn that the debt limit needs to be raised by Tuesday to avoid default. Payments on Treasury debt, veterans’ benefits and government employees’ salaries would halt if the government can’t pay its bills, the White House says.
On Saturday, the Republican-controlled House plans to reject Sen. Reid’s debt-ceiling bill, which would cut around $2 trillion in spending over 10 years and raise the debt limit by about $2.4 trillion. That’s enough to last past the 2012 elections and avoid a new fight over the debt ceiling before voters go to the polls.
Reid is hoping to ultimately pass his bill in the Senate after negotiating with Republicans and has set a vote to cut off debate on it for early Sunday morning. Final passage would then come Tuesday.
The House bill rejected by the Senate Friday night would lift the debt ceiling by $900 billion immediately. Authored by Speaker John Boehner, it requires both the House and Senate to pass a balanced-budget amendment before the debt limit is raised again. Boehner’s bill, which faced a revolt from conservatives on Thursday night, also cuts $917 billion in spending over 10 years.
“We’ve tried our level best” to end this crisis, Boehner, an Ohio Republican, said on the House floor Friday afternoon.
The Senate voted to table, or set aside, the House Republican bill in a vote of 59-41 on Friday night.
Earlier Friday, Reid invited McConnell to “sit down with me” and work out a deal to raise the borrowing limit and cut spending.
“This is our last chance to save this nation from default,” Reid said.
Neither the House nor the Senate bill would raise taxes.
Investors are nervously watching the action in Washington. U.S. stocks extended a multisession losing streak Friday, sending the Dow Jones Industrial Average and the S&P 500 Index to their worst weeks in more than a year. Fears that U.S. lawmakers wouldn’t resolve the debt crisis threatening an already cooling U.S. economy were behind the selling.
Treasury prices, meanwhile, gained on Friday and pushed 10-year note yields down by the most since December.
Boehner’s original plan faced defections from conservative Republicans upset that it didn’t make deeper spending cuts. The Ohio Republican spent much of this week trying to marshal support for his proposal, only to push back a floor vote originally scheduled for Thursday night. The addition of the balanced-budget amendment — something Obama has said he opposes — persuaded conservatives to get on board. The Treasury has long insisted that Tuesday is a hard deadline for raising the limit. But according to The Wall Street Journal, the Treasury is planning to prioritize its payments by ensuring that it will make a $29 billion interest payment to bond holders on Aug. 15.
Credit-rating firms including Standard & Poor’s have warned that the United States could lose its coveted AAA rating without a credible plan to slash deficits. Obama invoked those warnings on Friday, saying the cost of borrowing would rise for all Americans.
“A lower credit rating would result potentially in a tax increase on everyone in the form of higher interest rates on their mortgages, their car loans, their credit cards. And that’s inexcusable,” the president said.
Tea-party groups, for their part, were holding out for deep spending cuts.
“Like any family or any business facing fiscal difficulties, Washington must make cuts in spending and must make them now — today. We simply will not accept their lazy, fiscally irresponsible approach,” said a statement from Jenny Beth Martin and Mark Meckler, co-founders of the Tea Party Patriots.
Friday, July 29, 2011
(MarketWatch) — The U.S. recession was even deeper than previously thought, a new government report showed on Friday.
As part of an annual revision of data on U.S. gross domestic product, the Commerce Department said that the economy contracted by 5.1% between the fourth quarter of 2007 and the second quarter of 2009, more than the 4.1% previously estimated. It ranks as the most severe recession in the post-World War II era.
As a result of the revision, GDP is now still below the pre-recession peak, economists said.
Cramer on $TGT, $SNDK, $AKAM, $ESRX, $LTD, $PRU, $SBUX, $MET, $CHK
What the heck is Target ($TGT) up for? Or SanDisk ($SNDK)?. Akamai Technologies ($AKAM)? Express Scripts ($ESRX)? Limited Brands ($LTD)? Prudential ($PRU)? Starbucks ($SBUX)?
Each one tells a story. I think Akamai and SanDisk are examples of sellers' exhaustion. You can't keep pounding the same stocks over and over. Express Scripts signals a recession. It's what you buy. Prudential may be related to the strength of MetLife ($MET), which is something that Doug Kass has pointed out. Target and Limited Brands? These are signs of health. They are signs that there is a pulse. Starbucks says that earnings matter, and so does its accelerated revenue growth. The company posted terrific numbers -- 30% growth in China, for heaven's sake!
Chesapeake Energy ($CHK)? More on this one later, but if you take them at their word, something I have very much learned to do, CHK's management is saying that they may just have had the biggest find of oily liquids in 40 years: the Utica shale. And it is in Ohio! That's right, Speaker John Boehner's homeland.
Aubrey McClendon, Chesapeake's CEO, is talking about how his million-plus acres in Utica could be worth $15 billion-$20 billion. He says it is economically equal to Eagle Ford, which IS the largest find in 40 years. Given that CHK's market capitalization stands at $22 billion, that's a pretty important find, even after you discount Chesapeake's big debt load. No wonder it is moving higher. That kind of move can truly move the needle -- even with Washington's chaos front and center.
Morgan Stanley tracks Q2 earnings season
Nearly 60% of S&P 500’s market capitalization has reported Q2 earnings, and the results have
been generally positive. Reported earnings have outpaced consensus estimates by 4.4%, and
only 11% have reported below consensus earnings. Reported revenues are beating the
consensus by 3.2% with currency driving upside. The market continues to punish misses by more
than it is rewarding beats. This effect is at least partly attributable to the relative outperformance
of the largest 50 stocks so far this quarter. We forecast this asymmetry will continue in the second
half of 2011.
been generally positive. Reported earnings have outpaced consensus estimates by 4.4%, and
only 11% have reported below consensus earnings. Reported revenues are beating the
consensus by 3.2% with currency driving upside. The market continues to punish misses by more
than it is rewarding beats. This effect is at least partly attributable to the relative outperformance
of the largest 50 stocks so far this quarter. We forecast this asymmetry will continue in the second
half of 2011.
Treasuries ($IEF, $TLT) Set for ‘Perverse’ Gain on Downgrade
July 29 (Bloomberg) -- Baring Asset Management is
“bullish” on Treasuries on the expectation that the turmoil
caused by a U.S. credit-rating downgrade will cause investors to
flock to the nation’s government bonds.
Treasuries are likely to gain as the downgrade hurts
government-sponsored enterprise paper, such as the $5.2 trillion
market for agency mortgage bonds issued by Fannie Mae and
Freddie Mac, Toby Nangle, London-based director of asset
allocation at Barings, wrote in response to e-mailed questions.
While they may receive a “perverse” short-term gain, the
U.S.’s deteriorating fiscal position means the dollar will fall
and Treasury yields will eventually rise, he said.
“The immediate impact of a downgrade would be a bid for
Treasuries,” said London-based Nangle, who helps oversee about
$53 billion. “The allure of Treasuries will dampen in the
medium term as the reserve currency status is undermined. With
persistent U.S. fiscal weakness, there is no reason why
Treasuries should rally in the long term.”
Yields on benchmark 10-year Treasuries have fallen 89 basis
points, or 0.89 percentage point, since reaching a nine-month
high of 3.77 percent on Feb. 9. The securities yielded 2.88
percent as of 2:17 p.m. in London today.
The administration of President Barack Obama says the
Treasury’s borrowing authority runs out Aug. 2 and that it may
not be able to pay all of its bills after that date unless the
nation’s $14.3 trillion debt limit is raised. The public will be
briefed no earlier than when financial markets close today about
priorities for paying the nation’s obligations if the U.S. debt
limit isn’t raised by then, a Democratic official said.
BlackRock Inc., Franklin Templeton Investments, Loomis
Sayles & Co., Pacific Investment Management Co. and Western
Asset Management are among those warning the U.S. may lose its
top-level debt rating even if the debt limit is raised.
“bullish” on Treasuries on the expectation that the turmoil
caused by a U.S. credit-rating downgrade will cause investors to
flock to the nation’s government bonds.
Treasuries are likely to gain as the downgrade hurts
government-sponsored enterprise paper, such as the $5.2 trillion
market for agency mortgage bonds issued by Fannie Mae and
Freddie Mac, Toby Nangle, London-based director of asset
allocation at Barings, wrote in response to e-mailed questions.
While they may receive a “perverse” short-term gain, the
U.S.’s deteriorating fiscal position means the dollar will fall
and Treasury yields will eventually rise, he said.
“The immediate impact of a downgrade would be a bid for
Treasuries,” said London-based Nangle, who helps oversee about
$53 billion. “The allure of Treasuries will dampen in the
medium term as the reserve currency status is undermined. With
persistent U.S. fiscal weakness, there is no reason why
Treasuries should rally in the long term.”
Yields on benchmark 10-year Treasuries have fallen 89 basis
points, or 0.89 percentage point, since reaching a nine-month
high of 3.77 percent on Feb. 9. The securities yielded 2.88
percent as of 2:17 p.m. in London today.
The administration of President Barack Obama says the
Treasury’s borrowing authority runs out Aug. 2 and that it may
not be able to pay all of its bills after that date unless the
nation’s $14.3 trillion debt limit is raised. The public will be
briefed no earlier than when financial markets close today about
priorities for paying the nation’s obligations if the U.S. debt
limit isn’t raised by then, a Democratic official said.
BlackRock Inc., Franklin Templeton Investments, Loomis
Sayles & Co., Pacific Investment Management Co. and Western
Asset Management are among those warning the U.S. may lose its
top-level debt rating even if the debt limit is raised.
Apple ($AAPL) more liquid than Uncle Sam
On Thursday afternoon, The Tell reported that Apple ($AAPL) was closing in on Exxon Mobil's ($XOM) crown — $364 billion versus $405 billion, respectively — as the biggest U.S. company using a market-cap measure.
Matt Hartley of Canada's Financial Post has gone one further and made the claim that “the world’s largest technology company now has more cash on hand than the most powerful democracy on Earth has spending room.”Citing U.S. Treasury data, Hartley writes that whereas the U.S. has an operating balance of some $73.77 billion, Apple’s cash reserve is $75.88 billion (per its latest June earnings report).
This might amount to an Apples-and-oranges-type comparison, but it’s a sobering thought
Today brings more earnings and economic data with GDP, Chicago PMI and Consumer Sentiment.
The market continues to be held hostage by the headline news. It is just too risky to load up in hopes that the politicians are going to suddenly find a way to compromise and reach an agreement. Stay watchful and reactive, because this is an event driven market.
Ireland Will 'Likely' Restructure Post-2013 Debt, Goodbody Says
July 29 (Bloomberg) -- Ireland will probably follow Greece and restructure its post-2013 debt as it won’t be able to fund itself at a sustainable interest rate following the end of its international rescue package, Goodbody Stockbrokers said today.“The Irish state is fully funded up to the end of 2013,but markets are unlikely to fund Ireland at sustainable interest rates when the program ends,” said Dermot O’Leary, an economist at Goodbody Stockbrokers in the note. “In our view, given there is no longer opposition to default at all costs at euro leaders’level, this makes a restructuring on post-2013 Irish debt likely as the end of the current IMF/EU program nears.”
(Reuters) - Republican leaders will scramble to rescue their budget deficit-cutting plan on Friday after conservatives mounted a rebellion that heaped uncertainty on efforts to avert a catastrophic debt default.
House of Representatives Speaker John Boehner's failure to round up enough support for his plan on Thursday exposed a rift in the Republican Party that is hampering efforts to reach a compromise to raise the U.S. debt ceiling before a Tuesday deadline.President Barack Obama says that unless Democrats and Republicans strike a deal, the government will start being unable to pay all its bills on August 2, a once unthinkable prospect that is increasingly unnerving investors.
With only four full days left, the Treasury could unveil as early as Friday an emergency plan explaining how the government would function and pay its obligations if Congress does not agree to raise its borrowing limit from $14.3 trillion.Despite warnings of dire economic consequences, lawmakers appear as far apart as ever as conservative Republicans demand an end to what they say is out-of-control government spending and Democrats seek to protect spending on social programs.
In a sign of growing international alarm over the U.S. impasse, China's state-run news agency sharply criticized U.S. politicians, saying the world's largest economy has been "kidnapped" by "dangerously irresponsible" politics.
As the largest foreign creditor to the United States, Beijing has repeatedly urged Washington to protect its dollar investments, which are estimated to account for about 70 percent of its $3.2 trillion in foreign exchange reserves.
Boehner's plan, which would cut spending by about $900 billion and raise the debt ceiling for a few months, is sure to be rejected by the Democratic-controlled Senate but could factor into an eventual compromise.
His inability to win quick passage in the Republican-run House could weaken his position at the bargaining table.
Top Senate Democrat Harry Reid wants to raise the debt ceiling by enough to kick the crisis beyond the November 2012 presidential election.
Reid indicated late on Thursday that he may advance his own bill, which cuts spending by $2.2 trillion over 10 years, in the Senate rather than use Boehner's proposal as the basis for a compromise.
REPUBLICAN MEETING
House Republicans were due to meet at 10 a.m. (1400 GMT) on Friday to discuss a way forward after last-minute arm-twisting by Boehner failed to overcome opposition within his party and forced him to abandon a planned vote on Thursday night.
The setback raised doubt over his ability to deliver enough votes in any compromise deal with the Senate.
Lawmakers continued to throw blame at each other, with Democrats accusing Republicans aligned with the fiscally conservative Tea Party movement of holding Americans hostage to their vision of small government.
"Republicans have taken us to the brink of economic chaos. The delay must end now so we can focus on the American people's top priority: creating jobs and growing the economy," House Democratic Leader Nancy Pelosi said in a statement.
Tea Party lawmakers say they are justified in taking a strong stand after being elected last year on a promise to slash spending.
Fears of an unprecedented default by the world's biggest economy and the more likely scenario of America losing its top-notch credit rating are gnawing at markets, hitting stocks, undermining the dollar and fueling a move to safe havens.
Further market turbulence appeared likely on Friday. After the announcement that the House would not vote on Thursday, the dollar fell to a four-month low of 77.50 against the Japanese yen. U.S. stock futures were off 0.6 percent, pointing to a weaker start on Wall Street.
Veterans of U.S. legislative battles voiced confidence that a deal will be reached as Congress works through the weekend and feels the heat from jittery financial markets and ordinary Americans frustrated by the Washington gridlock.The main sticking point between Republican and Democratic leaders is that Boehner's two-step plan would only extend the government's borrowing for a few months. Obama wants the debt ceiling raised beyond the November 2012 elections.
Without a deal, Obama could be forced to consider taking emergency steps to ward off a default even though the White House has said Congress must come up with a solution.
Among his options are invoking an obscure constitutional amendment to raise unilaterally the debt ceiling or for the Treasury to prioritize payments, choosing between paying bond holders or Social Security pension recipients, for example.
"I think they should be exploring all their legal options," Democratic Representative Chris Van Hollen said on Thursday night.
Even if the administration were to implement some of the options, the debt crisis could still trigger turmoil in financial markets.
Technical Analysis $EURUSD - M.Chandler
The euro posted an outside down day on Wed (engulfing pattern in Japanese candlesticks) and there has been follow through today. The last important low for the euro was on July 12 near $1.3833. The trend line off that low comes in near $1.4355 today and has been clearly violated. It is also below the 20-day moving average which is found near $1.4285. The next important levels to keep in mind are the $1.4269 area, which has been taken out intra-day and represents a 38.2% retracement of the euro's bounce from July 12. The 50% retracement is found near $1.4187 and the $1.4140 area is the low recorded before the market's reaction to the draft EU statement on July 21.
Electricite de France SA, Europe’s biggest power generator, reported first-half profit rose after nuclear output surged and said annual spending on atomic safety and reactor maintenance will increase.
Earnings before interest, taxes, depreciation and amortization rose to 8.62 billion euros ($12.4 billion) compared with an adjusted 8.14 billion euros a year earlier, EDF said today in a statement. That was in line with the 8.58 billion- euro median estimate of 10 analysts surveyed by Bloomberg. Net income climbed to 2.55 billion euros from a restated 1.66 billion euros a year earlier. European Aeronautic, Defence & Space Co., the parent of Airbus SAS, said profit in the first half rose 39 percent after higher plane deliveries outweighed lower revenue at the defense subsidiary.
Earnings before interest and tax advanced to 563 million euros ($806 million) from 406 million euros a year earlier. Ten analysts surveyed by Bloomberg had estimated 511 million euros. Sales rose 8 percent to 21.9 billion euros, the Paris- and Munich-based company said.
Earnings before interest and tax advanced to 563 million euros ($806 million) from 406 million euros a year earlier. Ten analysts surveyed by Bloomberg had estimated 511 million euros. Sales rose 8 percent to 21.9 billion euros, the Paris- and Munich-based company said.
Apple Inc. ($AAPL) more than doubled its share of the global handset market last quarter as the iPhone maker posted record shipments, while Nokia Oyi's ($NOK) lead in the industry shrank amid a sales slump, research company IDC said.
Apple increased its market share to 5.6 percent in the second quarter, from 2.6 percent a year earlier, IDC said in an e-mailed statement today. Thursday, July 28, 2011
Cramer on $GLD, $GG, $ABX
Goldcorp ($GG) shows how hard it is to own individual gold stocks. It is by far the best in terms of finding costs but it disappointed. I will have to stick only to the mantra of $GLD, bullion and coins. Not worth buying anything else, including $ABX. Just too dicey...
LSI Corp.'s ($LSI) second-quarter profit soared as the storage chip maker booked a $260 million gain on the sale of its external storage business and posted higher revenue.
The company also projected current-quarter earnings from continuing operations of 11 cents to 17 cents a share on revenue of $535 million to $565 million. Analysts polled by Thomson Reuters were projecting 12 cents and $511 million, respectively.
Shares surged 9% to $7.02 after hours as revenue also topped expectations. The stock is up 7.5% so far this year through Wednesday's close.
LSI has transformed itself in recent years from a diversified chip maker with handset and manufacturing operations, among other offerings, to a provider of chips for networking and storage.
Earlier this year, it agreed to sell its external storage systems business to NetApp Inc. (NTAP) for $480 million, as its board authorized a new stock-repurchase program of up to $750 million.
LSI reported a profit of $293.8 million, or 48 cents a share, up from $7.43 million, or 1 cent a share, a year earlier. Excluding stock-based compensation and other items, per-share earnings from continuing operations were 10 cents, up from 9 cents. Revenue climbed 5.7% to $500.6 million.
The company's April guidance called for a per-share profit of 7 cents to 13 cents on revenue of $465 million to $495 million.
Gross margin was flat at 47.5% as costs edged up.
$LSI indicated +11.49% preopen.
Exxon Mobil Corp. ($XOM) said Thursday its second-quarter profit rose to $10.68 billion, or $2.18 a share, from $7.56 billion, or $1.60, in the year-ago period. Wall Street analysts expected Exxon to earn $2.30 a share, or $11.2 billion, according to a survey by FactSet Research. The Irving, Texas company said its second-quarter earnings benefitted from higher crude oil and natural-gas prices, improved refining results and strength in its chemicals unit. Oil-equivalent production rose 10% on increases in its Qatar liquid natural gas project as well as its growing unconventional gas portfolio. Capital spending rose 58% to $10.3 billion, a record. $XOM is indicated -1.9% preopen.
I'd look for some upside relief based on the minor oversold condition and high volume, but I'm still looking for some downside in August based on other indicators . The 30-day moving average of the advance/decline line is only now overbought, so it is nowhere close to oversold. It will take it until at least sometime near August expiration before I can see an oversold condition. - H. Meisler
Nouriel Roubini Blog: I See The Chances That Greece Or Portugal Will Lea...
Nouriel Roubini Blog: I See The Chances That Greece Or Portugal Will Lea...: "In a few years the current rescue plan for Portugal will break down. The same holds for Ireland. Euro-zone politicians may muddle through ..."
Marc to Market: No Closure ($EURUSD)
Marc to Market: No Closure: "The US debt ceiling debate continues. The House vote, initially slated for today, has been postponed. President Obama's advisers and the t..."
EURO-ZONE SERVICES CONFIDENCE (JUL) COMES IN AT 7.9 MISSING EXPECTATIONS OF 9.2
EURO-ZONE INDUSTRIAL CONFIDENCE (JUL) COMES IN AT 1.1 MISSING EXPECTATIONS OF 1.6
EURO-ZONE ECONOMIC CONFIDENCE (JUL) COMES IN AT 103.2 MISSING EXPECTATIONS OF 104.0
EURO-ZONE CONSUMER CONFIDENCE (JUL) COMES IN AT -11.2 MARGINALLY BEATING EXPECTATIONS OF -11.4
Cramer on $SPX, $BA, $NSC, $NFLX, $AMZN, $VFC, $JNY, $PVH
Most painful since the old TARP days, no? I mean just brutal and nasty. I have five stocks on my screen that are green: Boeing ($BA), which I bet will be down tomorrow in keeping with this tape's memory, Norfolk Southern ($NSC), same as Boeing, I bet it goes down tomorrow, Netflix ($NFLX), which I thought got a huge negative overreaction the other day, Amazon ($AMZN), with accelerating growth, and Jones Group ($JNY), which was a staggeringly good quarter, a la VF Corp. ($VFC) and Phillips Van Heusen ($PVH). I haven't had the sea of red like this in a long time.
I love to go back and forth with my friend Doug Kass on days like today, and I felt that he had a good concept, that you had to do some buying because the selling was so indiscriminate. There's one difference, though. I didn't see anything I trusted yet. This terrible pattern of selling off the good ones the day after they rally makes me want to wait until tomorrow to take a harder look at what to buy.
Nothing shocks. Could it rally tomorrow?
We can rally any time. That's a certainty. But not without something positive in Washington. I want to wait until I catch a whiff of one. I didn't smell anything today, except rotten eggs.
(MarketWatch) -- The number of unemployed German workers fell by a seasonally-adjusted 11,000 in July, the Federal Labor Office reported Thursday. Economists had forecast a drop of 15,000. The seasonally-adjusted jobless rate was unchanged at 7%. The unadjusted number of unemployed rose by around 46,000, the labor office said, noting that a seasonal rise is common in July due to summer holidays and temporary unemployment registration by new school graduates.
Wednesday, July 27, 2011
Fed's Beige Book
"Economic activity continued to grow; however, the pace has moderated in many Districts. Consumer spending increased overall, with modest growth of non-auto retail sales in a majority of Districts. Activity among nonfinancial service sectors improved overall in most Districts. Manufacturing activity expanded overall, but capital spending plans were somewhat cautious. Most residential real estate activity was little changed and remained weak, although construction and activity in the residential rental market continued to improve. Price pressures moderated somewhat in many Districts, although some firms indicated that they were able to pass on some cost increases to their customers. Reports of loan demand were more mixed. Labor market conditions remained soft in most Districts. Wage pressures remained subdued."
Felix Zulauf about Greece, $EURUSD (BARRONS)
Meanwhile, we'll turn our focus on the latest Greek bailout project. And here we're lucky because we managed to enlist our old friend and Roundtable regular Felix Zulauf to guide us from his perch in Switzerland.
Felix runs the eponymous investment firm Zulauf Asset Management, is a bright and sensible fellow and has a truly global purview of markets and economies. We should say he has long been a euro skeptic in keeping with his precept that a monetary union can only survive if the different economies of the member countries are very similar or it's composed of a full fiscal and political entity, comparable to the good ole' U.S. That obviously isn't the case with the euro. And, fair warning, he's not very much taken with the latest effort to keep Greece afloat.
The rescue blueprint is supposed to provide Greece with financing through 2014. (We've forgotten how long the first bailout was projected to be good for, but, if nothing else, the Greeks emerged as pretty adept at spending large sums in a short time.) The European Financial Stability Facility (EFSF, for short) and the IMF will cough up 109 billion euros ($157 billion), the private sector (read: banks) will chip in, one way or another, 50 billion, while the Greek government will use some of its new-found largess to buy back old debt currently changing hands in the open market at a discount of 50%.
In other words, as Felix puts it, the banks will take a hit of €50 billion over three years (around 21% of their original investment), while the EFSF and the IMF supply the rest. The bailout blueprint avoids for the time being default and escalating contagion, but in Felix's view it does zilch to ameliorate the causes of Greece's (or anybody else's) fiscal woes. "The politicians," he explains, with only the vaguest of smirks, "obviously believe that the world will get back to good growth and great tax revenues" and the problems will vanish. Which, not surprisingly, he sees as pure, unadulterated hogwash.
He points out that Luxembourg, the Netherlands and Finland seem to have a thing about spendthrifts, and can't be counted on to support the loan guarantees. Belgium is groaning under the burden of its own heavy indebtedness and la belle France is much weaker than it seems on superficial analysis. That leaves Germany to pay the mounting bill, which he estimates already tops a cool €500 billion, and he owns up to the distinct feeling that Chancellor Merkel doesn't like that one little bit.
As the primary cause of the euro crisis, Felix fingers the huge competitive differences between Germany, which has frozen labor costs over the past 10 years and the weak sisters of the euro union, not a few of whom merrily partied and went deeply in debt often via real-estate booms even gaudier that the one that ultimately laid us low. The banks of the peripheral members are suffering from what he calls "a slow-motion bank run." To make matters worse, the governments of the peripherals have imposed fiscal austerity, which he expects, will plunge their economies back into recession by the time the fourth quarter rolls around.
In the short run, Felix says, the plan, as we've seen, allows investors to exhale and markets to rally. But once the touch of euphoria plays itself out, the omens are anything but bright. For one thing, the EFSF has only €440 billion in its vaults. That's more than enough for humble folks like us, but scarcely enough if, as he deems likely, global growth slows and other troubled mendicant governments come cup in hand begging for a bailout.
The European Central Bank, moreover, seems bent and determined to continue to steer a tight policy course out of fear of misusing monetary policy to manage short-term economic problems. The result is sparse liquidity in Europe in contrast to abundant liquidity in the U.S., compelling the shakier members of the union to fund themselves via dollars and turning those bucks into euros. That makes the euro stronger but further weakens the competitive position of the peripherals.
Mario Draghi, the Italian successor to Jean-Claude Trichet as head of the ECB (the change is slated for September) apparently wants to show, Felix suspects, he's more German than the Germans, which means the bank will be in no hurry to ease up. But come the next crisis and the bank will have to cave and switch to a more accommodative monetary policy. Once that happens, Felix predicts, the euro will take a mean spill.
Thanks to the decision to once more bail out Greece, equity markets, he concludes, may rally and U.S. shares might even reach new highs in the next two to four weeks. But, avers Felix, stocks are moving in a different direction than the sluggish underlining economies. He compares the situation to a fully loaded plane flying too low and at slowing speed. "Under such circumstances," he warns, "all sorts of unpleasant surprises usually arrive.
Felix runs the eponymous investment firm Zulauf Asset Management, is a bright and sensible fellow and has a truly global purview of markets and economies. We should say he has long been a euro skeptic in keeping with his precept that a monetary union can only survive if the different economies of the member countries are very similar or it's composed of a full fiscal and political entity, comparable to the good ole' U.S. That obviously isn't the case with the euro. And, fair warning, he's not very much taken with the latest effort to keep Greece afloat.
The rescue blueprint is supposed to provide Greece with financing through 2014. (We've forgotten how long the first bailout was projected to be good for, but, if nothing else, the Greeks emerged as pretty adept at spending large sums in a short time.) The European Financial Stability Facility (EFSF, for short) and the IMF will cough up 109 billion euros ($157 billion), the private sector (read: banks) will chip in, one way or another, 50 billion, while the Greek government will use some of its new-found largess to buy back old debt currently changing hands in the open market at a discount of 50%.
In other words, as Felix puts it, the banks will take a hit of €50 billion over three years (around 21% of their original investment), while the EFSF and the IMF supply the rest. The bailout blueprint avoids for the time being default and escalating contagion, but in Felix's view it does zilch to ameliorate the causes of Greece's (or anybody else's) fiscal woes. "The politicians," he explains, with only the vaguest of smirks, "obviously believe that the world will get back to good growth and great tax revenues" and the problems will vanish. Which, not surprisingly, he sees as pure, unadulterated hogwash.
He points out that Luxembourg, the Netherlands and Finland seem to have a thing about spendthrifts, and can't be counted on to support the loan guarantees. Belgium is groaning under the burden of its own heavy indebtedness and la belle France is much weaker than it seems on superficial analysis. That leaves Germany to pay the mounting bill, which he estimates already tops a cool €500 billion, and he owns up to the distinct feeling that Chancellor Merkel doesn't like that one little bit.
As the primary cause of the euro crisis, Felix fingers the huge competitive differences between Germany, which has frozen labor costs over the past 10 years and the weak sisters of the euro union, not a few of whom merrily partied and went deeply in debt often via real-estate booms even gaudier that the one that ultimately laid us low. The banks of the peripheral members are suffering from what he calls "a slow-motion bank run." To make matters worse, the governments of the peripherals have imposed fiscal austerity, which he expects, will plunge their economies back into recession by the time the fourth quarter rolls around.
In the short run, Felix says, the plan, as we've seen, allows investors to exhale and markets to rally. But once the touch of euphoria plays itself out, the omens are anything but bright. For one thing, the EFSF has only €440 billion in its vaults. That's more than enough for humble folks like us, but scarcely enough if, as he deems likely, global growth slows and other troubled mendicant governments come cup in hand begging for a bailout.
The European Central Bank, moreover, seems bent and determined to continue to steer a tight policy course out of fear of misusing monetary policy to manage short-term economic problems. The result is sparse liquidity in Europe in contrast to abundant liquidity in the U.S., compelling the shakier members of the union to fund themselves via dollars and turning those bucks into euros. That makes the euro stronger but further weakens the competitive position of the peripherals.
Mario Draghi, the Italian successor to Jean-Claude Trichet as head of the ECB (the change is slated for September) apparently wants to show, Felix suspects, he's more German than the Germans, which means the bank will be in no hurry to ease up. But come the next crisis and the bank will have to cave and switch to a more accommodative monetary policy. Once that happens, Felix predicts, the euro will take a mean spill.
Thanks to the decision to once more bail out Greece, equity markets, he concludes, may rally and U.S. shares might even reach new highs in the next two to four weeks. But, avers Felix, stocks are moving in a different direction than the sluggish underlining economies. He compares the situation to a fully loaded plane flying too low and at slowing speed. "Under such circumstances," he warns, "all sorts of unpleasant surprises usually arrive.
NEW POWERS FOR EURO ZONE'S EFSF BAILOUT FUND EXPECTED IN PLACE BEFORE END OF 2011
EFSF LIKELY TO CONDUCT GREEK BOND BUYBACKS ITSELF, NOT GREECE
GREEK BOND BUYBACKS TO FOCUS ON BONDS TRADING AT LESS THAN 65 PCT
BOND BUYBACK SIZE NOT LIMITED TO THE 20 BLN EURO INDICATED FIGURE AFTER EURO ZONE LEADERS' SUMMIT
GREEK BOND BUYBACKS TO FOCUS ON BONDS TRADING AT LESS THAN 65 PCT
BOND BUYBACK SIZE NOT LIMITED TO THE 20 BLN EURO INDICATED FIGURE AFTER EURO ZONE LEADERS' SUMMIT
EFSF TO HANDLE UNDISBURSED PORTION OF FIRST GREEK BAILOUT
IMF HAS NOT DECIDED YET ON ITS SHARE IN NEW GREEK BAILOUT
EFSF WILL NOT NEED TO RAISE ALL THE MONEY FOR GREECE AGREED BY EURO ZONE LEADERS IN CASH, MAY PROVIDE OWN BONDS
Cramer on $AMZN
Accelerated revenue growth is a beautiful thing, and Amazon ($AMZN) has it in spades. That's why this stock is exploding higher today even though I am sure the nitpickers will be looking at some cash flow number they don't like, or analyzing the tax rates or what they pay in sales tax, for that matter.
When I hear that this multi-billion-dollar company has the strongest growth in 10 years, and I recall where the company was 10 years ago, I am pretty much blown away at the return this company is getting on invested capital. It is as if all those investments in customer service and fulfillment paid off in one gigantic quarter, and now Amazon is a cash machine that's got acceleration in sales and re-acceleration in media sales, both remarkable things. I remember when Amazon was viewed by people as something of a Ponzi scheme, a company that pretty much gave away any hope of profit to be the endless "first-mover" of retail over the Web. It was a scorned and heavily shorted stock because of that.
Turns out that the strategy was dead right and Jeff Bezos, the man who always laughed at the scoffers, has gotten the last laugh all the way to the bank.
Still, the doubters dominated on the call. They are worried about sales tax collection even as half of the revenues they get have sales tax on them and yet that didn't stop the numbers from being great. They are worried about shipping costs and oil, not realizing that perhaps the spike in gasoline led to more online shopping. They are worried about the expense of the "Fulfilled by Amazon" business, not realizing that whatever they fulfill for others is basically gravy.
This is one of the cleanest quarters I have come across, and it is a reminder of the strength of the cloud -- for Amazon is, basically, the best cloud story out there.
It is tough to figure out what to pay. This stock sells at more than 2x the growth rate we thought we had here. But with accelerated revenue growth you can stretch what you pay, hence the more than 60x earnings and 2.2 on the PEG ratio isn't too much. Who knows? Maybe you are paying 1.8x or lower based on the outyears.
Just one of the great stories out there. What a run.
Random musings: eBay ($EBAY) is a great play off of what Amazon is saying, because the "fulfilled by eBay" biz, courtesy of the GSI purchase, should be paying big dividends this quarter as the retailers who choose it or migrate from Amazon can use it as a virtual outlet store.
Dow Chemical Co ($DOW), the largest chemical maker in the United States, posted a 74 percent jump in quarterly profit as sales surged in all business units and geographic regions.
For the second quarter, the company posted net income of $982 million, or 84 cents per share, compared with $566 million, or 50 cents per share, a year earlier.Excluding a debt repayment charge, Dow earned 85 cents per share.
By that measure, analysts expected earnings of 81 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 18 percent to $16.05 billion. Analysts expected $14.74 billion.
Marc to Market: In Ugly Contest, $USD Moves into the Lead
Marc to Market: In Ugly Contest, US Moves into the Lead: "The stalemate in Washington has eclipsed the Greek tragedy to be the main driver of the foreign exchange market. The US dollar has sold off..."
Cramer on $AMZN, $AAPL, $GOOG, $BRCM, $WDC, $STX, $CSCO, $JNPR, $RVBD,$APKT
Love for Amazon ($AMZN). Love for Apple ($AAPL). Love for Google ($GOOG). And not a lot of love left for everyone else.
I know a lot of people are jumping for joy that a Broadcom ($BRCM) goes up after being pounded into submission, or that Western Digital ($WDC) can break out of the orb that is Seagate ($STX). But this tech market keeps speaking in the same tongue: Give me high-growth Internet with cloud (Amazon) and mobile (Apple and Google) and social (Google). You have to have at least one, but if you have it in spades, as Amazon has, there is no price that seems too high to pay.
I know a lot of people are jumping for joy that a Broadcom ($BRCM) goes up after being pounded into submission, or that Western Digital ($WDC) can break out of the orb that is Seagate ($STX). But this tech market keeps speaking in the same tongue: Give me high-growth Internet with cloud (Amazon) and mobile (Apple and Google) and social (Google). You have to have at least one, but if you have it in spades, as Amazon has, there is no price that seems too high to pay.
However, if you are in telecom equipment, think Riverbed ($RVBD), Acme Packet ($APKT), Cisco ($CSCO) and now Juniper Networks ($JNPR), which had already been down so much that we nibbled at it -- wrongly it turns out -- for Action Alerts PLUS, there's no price that people will pay for it.
The dichotomy is stark, and it reminds me that without those parameters -- social/cloud/mobile -- it is just too dangerous to play. The rest follow the old "see you in September" dictum. Shares of Juniper Networks ($JNPR) have been bleeding badly since hitting a high of $45.01 on March 8. As of Tuesday's close, the stock was 31% off its 52-week high.
Clearly, investors have been worried about the company's growth prospects and, apparently, those concerns are justified as the company posted disappointing second-quarter earnings and issued a soft outlook for the third quarter.
The management of this Internet networking equipment company said that second-quarter profit rose 3% from a year ago to $0.31 a share. Sales rose 15% to $1.12 billion. The consensus estimates called for profit of $0.34 a share on sales of $1.15 billion. Juniper blamed the sales miss on delayed purchases.
Commenting on the results, CEO Kevin Johnson said: "Juniper's results reflect momentum in our routing business and a return to solid performance in switching. A number of factors, however, including mixed signals in the macro economy, impacted our performance this quarter."
Of the company's sales, 52% came from the Americas, 29% from Europe, Middle East and Africa (EMEA) and 19% from Asia-Pacific. Sales in the Americas rose 17% from a year ago; EMEA sales gained 14% from a year ago and Asia Pacific revenue rose 9%.
Service provider revenue totaled $729 million, up 18% from a year ago. Enterprise sales came in at $391 million, up 9% from a year ago.
The second-quarter, non-GAAP operating margin fell to 21.6% from 22.3% in the first quarter. The operating margin in the year-ago quarter was 23.9%.
For the third quarter, Juniper forecast earnings per share (EPS) of $0.26 to $0.30 a share on sales of $1.07 billion to $1.12 billion. This is below the consensus current third-quarter EPS estimate of $0.38 a share on sales of $1.22 billion.
The company expects the third-quarter, non-GAAP operating margin to be in a range of 19% to 21%.
Management said that it is cautious on the second-half 2011, but optimistic about 2012. It also mentioned that recent design wins will begin translating into revenue in late 2011.
On Monday, Juniper reorganized its software business. Microsoft ($MSFT) veteran Bob Muglia was named executive vice president for Juniper's Software Solutions division. Most recently, Muglia served as president of Microsoft's $15 billion Server and Tools business where he was responsible for infrastructure software, developer tools and cloud platforms.
Shares of Juniper were trading around $26.70, down 14% in after-hours trading. - K.Shreve
Daimler revenues disappoint
(Reuters) - German car and truck maker Daimler's second quarter revenues fell short of expectations, indicating that demand for cars in emerging markets may be starting to cool.
Second-quarter revenues rose about 5 percent to 26.34 billion euros ($38.12 billion), Daimler said on Wednesday, missing an average estimate of 27.99 billion in a Reuters poll.Premium and mass-market carmakers have looked to fast-growing markets such as China to make up for sluggish sales growth in more mature markets, particularly in Europe.
But China's car market -- the world's biggest -- is expected to cool this year, partly due to rising fuel prices and tighter rules on car registrations after sales there surged by a third to a record in 2010.Sales growth at Mercedes-Benz Cars in China slowed significantly to 8 percent in the second quarter from 82 percent in the first.
Daimler Chief Executive Dieter Zetsche last month warned of growing economic risks in emerging markets such as China that could cause the auto industry's growth engine to sputter.
Emerging markets have generated almost three quarters of world growth over the past two years, but there is rising concern that inflation in China, the world's second-largest economy, could prompt a slowdown in emerging markets across the board.
"Demand for cars in the major emerging markets of China, India, Brazil and Russia will probably continue to grow. But rates of growth in China and India are likely to be distinctly lower than last year," Daimler said on Wednesday.
Its second-quarter earnings before interest and tax (EBIT) rose 23 percent to 2.58 billion euros ($3.73 billion), which beat an average estimate of 2.49 billion euros in a Reuters poll.
Daimler was upbeat on the rest of the year, saying business had developed better than expected."In light of the better than anticipated performance in the first half of 2011 and the currently good market demand, the Daimler Group now targets EBIT from the ongoing business in 2011 that will be better than we previously expected and will very significantly exceed the level of 2010," the company said.
It said it now expects 2011 EBIT to very significantly exceed the year-earlier level. Analysts on average see 2011 group EBIT at 9.15 billion euros, up almost 26 percent from a year earlier.
Amazon($AMZN) revenue, spending surges; stock jumps
(Reuters) - Amazon.com Inc ($AMZN) will use its surging revenue to boost growth and drive expansion into areas such as Web content and cloud computing rather than boost its margins.
The largest Internet retailer reported a jump in quarterly revenue on sales of its Kindle electronic reader and other electronics and forecast better-than-expected revenue for the current quarter, sending its shares up more than 6 percent late on Tuesday.Amazon benefited from growth in e-commerce, though margins continued to be pressured by heavy spending on distribution, technology and digital content.
The company is investing to build warehouses and distribution to support rapidly growing e-commerce, its main business.
It's also spending heavily on servers and data centers for its cloud computing business Amazon Web Services, while buying more digital content to bolster media offerings, such as streaming video.
This spending has dented profit margins in recent quarters. Analysts and investors are mostly happy to see such investment by the company -- as long as it winds down at some point and lays the foundation for future profit increases.
"They're sacrificing near-term profitability for longer-term revenue growth," said Michael Souers, specialty retail analyst at S&P Equity Research. "As long as they are able to transform growth into profits in the future, investors will be satisfied. The chances are strong."
Amazon on Tuesday reported a 51 percent rise in second-quarter revenue to $9.91 billion, surpassing Wall Street's expectations for $9.4 billion.
The company forecast third-quarter sales of $10.3 billion to $11.1 billion, compared with the average forecast for $10.35 billion, according to Thomson Reuters I/B/E/S.
Second-quarter net income fell to $191 million, or 41 cents per share, from $207 million, or 45 cents per share, in the same period a year earlier. Analysts expected 35 cents per share for the latest second quarter, according to Thomson Reuters I/B/E/S.
The operating profit margin fell to 2.0 percent from 4.1 percent a year earlier.
Operating income is expected to be between $20 million and $170 million in the third quarter, the company estimated. The guidance includes about $180 million of stock-based compensation expense and amortization of intangible assets. It also assumes no other acquisitions or investments will close in the quarter.
That forecast suggests Amazon's third-quarter pro-forma operating margin will be 1.8 percent to 3.2 percent, according to Aaron Kessler, an analyst at ThinkEquity. That's below his previous estimate.
"Amazon's willing to give up short-term profits for long-term growth and more market share," Kessler told Reuters. "But ultimately they are managing the business for shareholders. We're expecting modest margin expansion next year. Investors would like to see some return on these investments starting next year."
The company is expected to introduce a tablet computer later this year that would compete with Apple Inc's iPad.
Souers reckons thin third-quarter margins suggest Amazon is spending heavily on this new tablet.
"Longer term this is the best move they can make. The world is shifting toward digital from physical media and a tablet will help them cement a position in streaming content like movies and music," the analyst said.Amazon Chief Financial Officer Tom Szkutak declined to comment on whether the company was working on a new tablet computer. However, he pledged to keep spending and investing to support growth and new businesses.
Amazon said it spent $941 million on so-called "fulfillment centers" -- warehouses or logistics centers -- in the second quarter, compared to $582 million a year earlier. Technology and content costs totaled $698 million in the latest period, versus $408 million in the same period of 2010.
"We're investing in the conversion from physical to digital and we feel very good about the traction we're getting there," he said.
Szkutak also stressed that the company is focused on cash flow and high returns on investment, rather than profit margins.
Amazon's main online retail business is growing so fast that the company needs to spend on a lot of new distribution capacity, he explained during a conference call with analysts.
Amazon has announced 15 new fulfillment centers so far in 2011 and the company will unveil more before the end of this year, he noted.
Amazon Web Services -- which hosts computing for corporate clients over the Internet -- accounts for a "big piece" of Amazon's current and future spending, because it's growing so fast, the CFO added.
Amazon shares, which have risen about 18 percent since the start of 2011, gained 6.1 percent to $227.35 in after-hours trade.
The company said sales in Worldwide Electronics and Other General Merchandise, which includes the Kindle e-reader, computers, cameras and other consumer electronics, jumped 69 percent to $5.89 billion in the second quarter.
Excluding currency fluctuations, sales rose 62 percent.
"That's very strong," said Scot Wingo, chief executive of ChannelAdvisor, a software provider that helps retailers sell more online through channels including Amazon and eBay Inc."E-commerce in general is growing at 10 percent to 14 percent, so Amazon continues to gobble up market share." Wingo owns Amazon shares, and eBay is an investor in ChannelAdvisor.
At some point, such growth will taper off and this is when Amazon will be able to cut back on spending and increase profitability, S&P's Souers said. He's expecting margins to increase "significantly" in coming years.
Tuesday, July 26, 2011
Cramer on $ITW, $MMM, $F, $NOV, $NFLX, $UPS, $PEP, $BRCM
Are you kidding me? We are taking our cue from the president, Illinois Tool Works ($ITW)and 3M($MMM)? Is that right? Should we not take our cue from Ford ($F), National OIlwell Varco ($NOV),Cummins ($CMI) and Domino's ($DPZ)?
I guess the combination of the president telling us to be afraid, very afraid, dovetails with the poor execution -- sorry -- from ITW and the worries of 3M, which I think are more Japan-oriented than they may fess up to. Look, today is a mixed bag. Netflix ($NFLX), which has captured the trading fancy of just about everyone, is being hit by a triple whammy: higher content costs coming, higher expenses coming because of the international expansion, and an attempt to raise prices, a move that many think is a mistake.
But why not give them the benefit of the doubt? Doesn't CEO Reed Hastings deserve the benefit of the doubt? Is he being too conservative, a la UPS ($UPS)? Or is he just flat-out regretting the move? I think that it is the former.
Nevertheless, the caution controls the action. Anyone who is cautious is killing his or her own stock. Remember Pepsi ($PEP)? I think that those who speak positively -- like Eaton ($ETN), Cummins, National Oilwell and Broadcom ($BRCM) -- work. Those who are downbeat -- 3M, ITW -- get spanked.
And the president casts a pall over everything, including the good ones. Stay the course.
House balanced budget vote - Thursday
House GOP leaders are planning a vote Thursday on a proposed amendment to the Constitution requiring a balanced budget.Many Tea Party-backed lawmakers are insisting on passage of a balanced budget amendment before they consider voting for an increase in the debt limit,but the House effort appears unlikely
to win the two-thirds margin required to pass.
The House passed a balanced budget amendment in 1995 but it fell just short in the Senate (Washington Post).
to win the two-thirds margin required to pass.
The House passed a balanced budget amendment in 1995 but it fell just short in the Senate (Washington Post).
Soros Returns Client Money to End Four-Decade Hedge-Fund Career
July 26 (Bloomberg) -- George Soros, the billionaire bes tknown for breaking the Bank of England, is returning money to outside investors in his $25.5 billion firm, ending a career ashedge-fund manager that spanned more than four decades. Soros, who turns 81 next month, will hand back the money,less than $1 billion, by the end of the year, according to twopeople briefed on the matter. His firm will focus on managingassets solely for Soros and his family, according to a letter toinvestors. Keith Anderson, 51, chief investment officer since February 2008, is leaving, said the letter, signed by Soros’s sons Jonathan and Robert, who are co-deputy chairmen. “We wish to express our gratitude to those who chose toinvest their capital with Soros Fund Management LLC over thelast nearly 40 years,” they said in the letter.“We trust thatyou have felt well rewarded for your decision over time.” The move completes Soros’s transformation from aspeculator, who in 1992 made $1 billion betting that the Bank ofEngland would be forced to devalue the pound, to philanthropiststatesman, a role he first imagined for himself as a Hungarianémigré studying at the London School of Economics after WorldWar II, according to Soros’s writings. In the last 30 years,he’s given away more than $8 billion to promote democracy,foster free speech, improve education and fight poverty aroundthe world, he said in a recent essay.
Family Assets : Soros’s sons said they took the decision because newfinancial regulations would have made it necessary for the firmto register with the Securities and Exchange Commission by March2012 if it continued to manage money for outsiders. Because the firm has overseen mostly family assets since 2000, when outside money accounted for about $4 billion, they decided it made moresense to run it as a family office, according to the letter. The rule calls for hedge funds with more than $150 millionin assets to report information about their investors andemployees, the assets they manage, potential conflicts of interest and their activities outside of fund advising.Registered funds will also be subject to periodic inspections by the SEC. “We have relied until now on other exemptions fromregistration which allowed outside shareholders whose interestsaligned with those of the family investors to remain invested inQuantum,” the executives said in the letter, referring to itsflagship Quantum Endowment Fund. “As those other exemptions areno longer available under the new regulations, Soros FundManagement will now complete the transition to a family officethat it began eleven years ago.”
Druckenmiller’s Move : Soros, who controls more than $24.5 billion for himself,his family and his foundations, declined to comment on theletter. Last year, Stanley Druckenmiller, Soros’s chiefstrategist from late 1988 until 2000, closed his money-management firm, Duquesne Capital Management LLC, and createdhis own family office. While Quantum has returned about 20 percent a year, onaverage, since 1969, when its predecessor was started, accordingto a person familiar with the firm, the fund’s performance hassuffered in the last 18 months. In the first half of this year,Quantum lost about 6 percent, the person said, following a gainof 2.5 percent in 2010. Other macro funds have returned 5.6percent in the last year-and-a-half, according to Chicago-basedHedge Fund Research Inc. Soros was born in Budapest in 1930, as Dzjchdzhe Shorash.When the Nazis invaded the city in 1944, Soros’s father arrangedfor false papers for his family and friends that identified themas non-Jews. Most of the people his father helped survived thewar, Soros said in the essay published in the New York Review ofBooks in late June.
Evil Force: “Instead of submitting to our fate we resisted an evilforce that was much stronger than we were -- yet we prevailed.Not only did we survive, but we managed to help others,” he wrote, adding the experience gave him an appetite for taking risk. “This left a lasting mark on me, turning a disaster of unthinkable proportions into an exhilarating adventure.” After London, Soros came to New York at the age of 26 andbecame a trader, initially buying and selling stocks for Wall Street brokerage F.M. Mayer. He planned to work for five years,enough time, he reckoned, to save $500,000 and return to Englandwhere he would pursue his philosophical studies, according to aninterview he gave to Michael Kaufman, author of “Soros: TheLife and Times of a Messianic Billionaire.” Instead, he stayed in the world of finance, eventually moved to Arnhold and S. Bleichroeder Advisors LLC, where he setup the predecessor to the Quantum fund in 1969. He started his own firm in 1973.
Conflicting Goals: Over the years, Soros had to deal with conflicting goals of making good and doing good. While Soros’s fund made about $750 million betting on a decline in the Thai baht in 1997, the wager increased economic woes in Thailand as the government spentbillions unsuccessfully defending its currency. In the wake ofthe devaluation, Thailand was forced to cut public spending inexchange for a $17.2 billion rescue package from theInternational Monetary Fund. In 1997, his philanthropic tendencies drove him to buyRussian assets. He took a $1 billion stake in RAO Svyazinvest,Russia’s state-owned telecommunications company, and went on tobuy Russian stocks and bonds. He didn’t sell his positions evenafter publishing a piece in the Financial Times advising thegovernment to devalue the ruble by 15 percent to 25 percent.Four days later, Russia followed his advice. “He felt that if he was a beacon of investment in Russia,others would follow and the capital inflows would transform thesociety and integrate them into the G7,” Robert Johnson, aformer Soros managing director, told author Sebastian Mallaby inhis book ‘More Money than God.’ “There’s a philanthropic side of George that started to interfere with the speculative one.” ‘Public Interest’: In his recent essay, Soros echoed the remarks of his formercolleague. “I have made it a principle to pursue my self-interest inmy business, subject to legal and ethical limitations, and to beguided by the public interest as a public intellectual andphilanthropist,” he wrote. “If the two are in conflict, thepublic interest ought to prevail,” he said. Soros opened his first foundation, the Open Society Fund,in 1979, when his fund had reached about $100 million and hispersonal wealth had climbed to about $25 million. His initialfocus was on promoting democracy and a market economy in EasternEurope. Soros now funds a network of foundations that operate in 70 countries around the globe, everywhere from the U.S. toMontenegro to South Africa and Haiti. In late 1988, he hired Druckenmiller to be his chiefstrategist to take over the day-to-day trading of the firm’sassets so he could concentrate on his charitable pursuits.
Breaking the BoE : While Druckenmiller was the architect of the $10 billionBritish pound trade, which forced the currency out of theEuropean exchange-rate mechanism, Soros served as a coach to theyounger man, encouraging him to increase his bet. Druckenmiller left in 2000, together with another starmanager, Nick Roditi, after losses when the technology bubbleburst. Just two years before, the firm had been the biggest hedge fund in the world with $22 billion in assets, and Sorossaid it was too much money to manage in such concentrated positions. After the departures, Soros decided to farm out more moneyto portfolio managers both inside and outside Soros FundManagement. He said he would settle for a 15 percent annualizedreturn, about half of what the fund had posted since its start.
Stepping In : In 2007, as the subprime mortgage crisis was gaining speed, Soros again stepped in. Quantum returned 32 percent that yearand posted an 8 percent gain in 2008, when funds on average dropped about 19 percent. Overall, Quantum Endowment grew fromabout $11 billion in June 2000 to today’s level. The firm went through several chief investment officers,including Soros’s son Robert, before hiring Anderson, who was aco-founder at BlackRock Inc. and its global fixed-income chief. The uncertainty about markets and Quantum’s 6 percent divecaused Anderson to sell positions in mid-June and the firm isnow holding about 75 percent cash. It hasn’t been decidedwhether Jonathan and Robert will hire a new CIO, or whether they will add to their stable of external managers. In the meantime, Soros continues to focus on his philanthropy and on voicing his views on macroeconomic events,such as the sovereign debt crisis in Europe. “My success in the financial markets has given me agreater degree of independence than most other people,” Soros wrote in his recent essay. “This obliges me to take stands oncontroversial issues when others cannot, and taking suchpositions has itself been a source of satisfaction. In short, my philanthropy has made me happy.”
The Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world. This is a clear case of socialism for the rich and rugged,you’re-on-your-own individualism for everyone else.” Senator Bernie Sanders.
Baidu ($BIDU) is clearly in the game as they delivered robust earnings, increased guidance and growth. Recently they moved offshore into Japan (first move outside China) and it appears they are killing it there. The stock has been on a tear since it was 120 or so and looks to gain much more ground in the near future.-B. Lang
Broadcom ($BRCM) is trading sharply higher following a better than expected second quarter report. The stock is trading near the $38.00 level in the post market after a powerful 7% surge. BRCM is headed for a huge gap higher open on Tuesday, one that will lift it well above its spike highs in May. A continued recovery rally through the remainder of the week will leave behind a solid base that began to take shape shortly after the company's earnings inspired April 27th breakdown. An uninspiring quarter along with a weak outlook lead to new leg lower. The stock has been on the mend since reaching a bottom in mid June and now may be leaving behind a important base. - G. Morrow
(MarketWatch) — Amazon.com ($AMZN) is expected to report strong sales growth but a decline in earnings for the second quarter as the company continues to invest in its distribution network as well the development of new products — including, according to analysts, a widely expected tablet device.
Amazon is slated to issue its second-quarter report after Tuesday’s closing bell.
Wall Street currently expects strong top-line growth, with sales surging more than 42% to $9.37 billion, according to consensus estimates from FactSet Research. Earnings are expected to fall to 35 cents a share from 45 cents a share in the same period last year. Operating income is expected to slide to about $196 million from $270 million last year.
Earnings are likely to be “constrained by continued investments” in order-fulfillment centers, technology and content, as well as a “step-up in marketing spend,” wrote Dan Geiman of McAdams Wright Ragen in a note to clients Monday. Amazon’s operating margins are a closely watched metric. The company guided to a wide range during its last earnings report in April, predicting a margin range of 1% to 2.5% for the period. Wall Street is predicting a strong improvement for the third quarter, with consensus estimates baking in an operating margin of about 4%.
The margin forecast could be a catalyst for the stock, which is up more than 18% from the first of the year, though Amazon’s valuation remains pricey at more than 75 times estimated earnings for the next four quarters.
While Amazon rarely delves into upcoming products and services during its earnings announcements, Ben Schachter of MacQuarie said he expects analysts to inquire about the company’s much-rumored tablet device, which is expected to launch within the next couple of months.
“Tablets will clearly be a focus area for the call, and we expect a lot of questions and few answers from the company,” Schachter wrote in a note to clients. A tablet would add to the company’s Kindle line of e-readers as a branded device designed to showcase the company’s growing library of digital content.
Along with e-books, Amazon has been building out its online music, movie and videogame stores, along with its “Cloud Drive,” which is a cloud-based digital locker service that can store media files and allow users to play them from any Internet-connected PC.
One risk to the tablet strategy is the low prices the company will likely have to carry in order to effectively compete with the popular iPad from Apple Inc.($AAPL). Collin Gillis of BGC Partners said such a move is likely to weigh even heavier on Amazon margins.
“It is also very reasonable that the company produces a tablet product to complement its recent music-locker service and movie-streaming service — and we expect that the company maintains aggressive pricing that could result in the hardware being sold for no profit,” Gillis wrote Monday. Anthony DiClemente of Barclays countered that an Amazon tablet could drive adoption of the company’s digital content, writing that “a tablet should help offset future declines in the physical media business as media shifts from physical to digital.”
Media, he noted, represented 40% of Amazon’s sales in the first quarter of this year
I feel sorry for Mr. Bernanke because he really doesn’t get it. He doesn’t understand. He’s a typical academic. You know, a typical academic is a professor of medicine that knows everything about how a patient becomes sick but doesn’t know how to cut something like a butcher and therefore, can’t operate on a patient. Mr. Bernanke academically knows everything, but has no clue about the real world. No clue whatsoever.- Marc Faber
Jim Rogers Blog: Latest WSJ Video Interview, July 25
Jim Rogers Blog: Latest WSJ Video Interview, July 25: "Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New Yor..."
$NFLX Summary: Revenues Lag; Focus on Streaming by S. Gad
Netflix ($NFLX) announced its second-quarter 2011 earnings results with earnings per share (EPS) of $1.26 and revenues of $789 million. This compares with EPS and revenues of $0.80 and $520 million in the year-ago quarter. Analysts were expecting an EPS of $1.11 and revenues of $791 million. NFLX shares responded by sinking nearly 10% in after-market trading.
The company ended the quarter with more than 25 million subscribers worldwide, up from 15% a year ago. Sequentially, Netflix added 1.8 million net new domestic subscribers in the second quarter 2011 vs. 3.3 million in the first quarter. On an international basis, NFLX added 160,000 net new subscribers in the second quarter.
Netflix's focus on streaming content continued to gain popularity; 75% of new subscribers signed up for streaming service. Netflix continues to take the savings from reduced DVD purchases and plow it into the streaming side, which helped boost domestic operating margins by 140 basis points quarter over quarter.
The company's 60% rate hike for DVD/streaming subscribers is a gamble. Management cited that it is "expected and unfortunate" that subscribers don't like the price change and admitted that some subscribers will cancel or downgrade plans. Even though the rate increase doesn't go into effect until September, these comments lead me to believe that users are already starting to cancel. However, the real effect will materialize in the third and fourth quarters of this year.
Third quarter guidance is set for 24.6 to 25.4 million U.S. subscribers and 1.1 to 1.45 million international subscribers. Part of the push into streaming is to fuel international growth since shipping DVDs abroad makes no sense.
Streaming is a natural, but major move for Netflix. Competition is fierce with Time Warner's ($TWX) HBO GO and other streaming services. Given the stock's price reaction today, it's possible that Netflix shares will remain range-bound until the company can illustrate its results over the next couple of quarters.
Cramer on $SPX, $NFLX, $TXN.
Maybe the politicians figured they didn't do enough damage when they failed to reach an agreement over the weekend. So they came back with another dose of pain this afternoon and robbed the averages of a fine close. Still, I remain convinced that the gloom in Washington is not equal to the boom in corporate earnings.
Sure, it looks like Netflix ($NFLX) is light. And I get that. More on it later. I know that everything good in profits gets filtered through the horrible, ugly prism of Washington, including what look to be good numbers from Texas Instruments ($TXN).
But I urge you to realize that these politicians now seem to want the market down. They are playing market. They want to say to each other's side, "You are ruining portfolios." And both parties are doing a darned good job at it.
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