Wheeeee - this is fun!
Well, it’s fun when you have disaster hedges anyway. I already sent out an Alert to Members this morning reminding them that there’s no point in having disaster hedges if you don’t use that money to buy on the dips, though. Yesterday we added downside, leveraged plays on SDS (2) and DXD and our focus short was on Netflix (NFLX) (last week it was Mastercard (MA), and that went very well) along with our usual DIA Mattress play. That shifted us a bit negative as we failed to hold our watch levels and now we are sadly looking all the way down to those low closes of: Dow 9,686, S&P 1,022, Nasdaq 2,081, NYSE 6,434, Russell 590, SOX 332 and Transports 1,905 as a possible re-test if things get really ugly.
On July 3rd I laid out "5 Plays that Make 500% if the Market Falls" and, fortunately, we didn’t need them as we took off on Monday but they are still good plays and a little cheaper now than they were when we last tested our bottoms. If you are not well-protected, I strongly suggest you read this post and at least be ready to initiate a hedge if we can’t turn this morning around. As with most days lately - it’s all about copper and the $3 line…
That being said, I do think we will turn this morning around eventually - because IBM (IBM) is down $7 and the Dow moves about 8 points per $1 of component value so that’s hitting the Dow for 56 points all by itself. IBM’s earnings were great but revs missed, in large part due to currency issues. BRIC revenues were up 22% for the company, despite the crap exchange rate.
Texas Instruments (TXN) got whacked too on their report that profits nearly tripled on a 42% jump in revenues (not kidding). "Demand has continued very solid and very broad-based," said Ron Slaymaker, the company’s vice president of investor relations.
Mr. Slaymaker said the biggest positive surprise in the period was stronger demand from companies that buy industrial equipment, which have rebounded much slower than consumers from the recession. One notable area of weakness, he added, was sales of chips used in cellphones. TI has long been a major supplier to handset-maker Nokia Corp., which in June lowered its second-quarter forecast.
The company reported net income for the period ended June 30 of $769 million, or 62 cents a share, up from net in the year-earlier period of $260 million, or 20 cents. Revenue rose to $3.5 billion from $2.46 billion.
For the current period, TI projected earnings per share of 64 cents to 74 cents, and revenue of $3.55 billion to $3.85 billion.
Stacy Rasgon, an analyst at Sanford C. Bernstein, noted that TI’s guidance was strong. But the fact that TI did not beat revenue expectations in the second period may have prompted jitters that momentum for the company is starting to slow. According to Thomson Reuters, analysts on average had expected revenue of $3.52 billion for the second quarter.
I mean, come on people - this is just silly! Of course, I mentioned yesterday that CNBC had Mohamed El Erian coming on this morning at 8 am and the plan was for him to bust on earnings and spin things down so this overnight flush is a great background for his negative spin - trying to chase another wave of suckers into low-yielding bonds.
Things are certainly not great. Tupperware (TUP), Zions Bancorp (ZION), Atheros Communications (ATHR), Noble (NE) and Steel Dynamics (STLD) all missed last night as well, but that doesn’t mean there’s nothing at all to buy:
- UnitedHealth (UNH): Q2 EPS of $0.99 beats by $0.24. Revenue of $23.3B (+7.4%) vs. $23B. (PR)
- Bank of New York Mellon (BK): Q2 EPS of $0.55 beats by $0.01. Revenue of $3.3B (-1.1%) in-line. (PR)
- PepsiCo (PEP): Q2 EPS of $1.1 beats by $0.02. Revenue of $14.8B (+39.7%) vs. $14.4B. (PR)
- Weatherford International (WFT): Q2 EPS of $0.11 beats by $0.04. Revenue of $2.4B (+22.3%) vs. $2.3B. (PR)
- Whirlpool (WHR): Q2 EPS of $2.64 beats by $0.51. Revenue of $4.5B (+8.8%) in-line. (PR)
- Packaging of America (PKG): Q2 EPS of $0.38 beats by $0.07. Revenue of $616M (+12%) vs. $594M. Shares +0.8% AH. (PR)
PKG, by the way (or companies like it), are Warren Buffett’s favorite tracking indicator of economic outlook! Sales of packaging products are up 12% from last year. This morning those packages will be put to use as we have ICSC Retail Store Sales jumping 1.4% this week, after being down 1.5% last week and up 4.2% year over year. We get Redbook Sales at 9 and we’ll see if they can confirm the trend. At the moment we’re waiting for Housing Starts, or lack thereof, to hit us at 8:30 and this evening we should get an AWFUL ABC Consumer Confidence Index as every poll taken lately has been downright DEPRESSING.
8:30 Update: Mohamed is on CNBC saying the markets have to reprice growth to reflect long-term low returns - JUST LIKE BONDS! Wow, that’s an amazing coincidence - the guy who makes his money selling long-term, low-yielding bonds wants his competitor, the stock market, to also be valued for low yield. This would, coincidenally I’m sure, make his bonds seem more attractive and make Mohamed more money but, of course, there is no disclaimer to what he says - he is simply presented as a world-reknowned expert who we should all be listening to and the people at CNBC, who accept his advertising dollars, could not possibly kiss his ass more without moving to Cinemax.
8:45: Mohamed’s 45-minute block finally comes to and end and he didn’t do enough to keep the futures at their lows, but boy did those lows suck! 9,946 on the Dow, 1,050 on the S&P and 600 on the Russell - all nasty, nasty levels I hope we don’t see in regular trading. June Housing Starts were down 5% to 549,000 vs. 574,000 expected (about where we were last month) but Permits were up 2.1% to 586,000 from 574,000.
Goldman (GS) booked a big miss as they included the SEC settlement in Q2 earnings as well as the new UK Bonus Tax, which dragged earnings down to .78 vs. $2.75 expected. The bonus tax won’t go away but the SEC is done and it will be back to raping and pillaging as usual next Q so they are still a buy at $140 (selling puts is a good way to enter).
According to the WSJ, many small banks are feeling squeezed, but it’s not just because of the weak economy. Mega-banks like BofA (BAC), JPMorgan (JPM) and Wells Fargo (WFC) are "hoarding" customers, as market power becomes increasingly concentrated in the hands of the nation’s largest banks. The big 3 hold about $3.50 of every $10 in local deposits, and are "squeezing" and "hoarding" customers "any way they can," says Jeff Wagner, chief financial officer at Florida Business Bank. Corporate customers are being told by the biggest lenders not to move their deposits to other banks or else they might not get a new loan, he says. Ah, the joys of unfettered Capitalism…
Fortified by infusions of taxpayer capital and takeovers of other large institutions killed or wounded in the crisis, a handful of hulking banks is emerging from the mess to dominate everything from mortgages to checking accounts to small-business loans. The financial-regulation law will bring new shackles and oversight, likely to cost the big banks billions in revenue. But their growing supremacy will help them absorb the blow.
The three huge banks made 57% of all home mortgages in the first quarter, up from 28% in 2008, according to Inside Mortgage Finance, an industry newsletter. In 2008 and 2009, they got $95 billion in capital from the U.S. government, all of which they have repaid. Measured in loans and other assets, Citigroup Inc. (C) and the three other giants had $7.7 trillion as of March 31, up 56% since the end of 2007. Their combined assets are nearly twice as big as the assets of the next 46 biggest banks, according to SNL Financial, a research firm in Charlottesville, Va.
Bank of America, J.P. Morgan and Wells Fargo "can make money beyond belief" because of their low costs and volumes of scale, and "there is no chance of anyone challenging them," says Arnold Danielson, a bank analyst in Bethesda, Md. "You cannot compete on that level," says Mr. Wagner.
We have, of course, been buying BAC, C and JPM on the dips (I’m not too wild about WFC) as FinReg does nothing to harm these "WAY too big to fail" institutions. What’s funny about this is how citizens don’t even understand how terrible this situation is. Local banks make less money because they take risks in the local markets and pay higher rates of interest and charge less fees to make up for lack of advertising power. They got hit harder in the bank crisis but were not bailed out by the government, who has been happy to shut down 250 banks in the past couple of years.
Meanwhile, the big banks are virtually handed the failed banks as gifts AND they are given tens of Billions of funny money to spend buying out their competitors or simply undercutting them. This then wipes out the remaining local banks and it’s far too late by the time the local population realizes that the fees keep going up and the loan requirements get stiffer every day until small businesses are considered too risky and are driven out of business by big businesses, who get their access to capital while playing golf with the heads of the major banks.
This is just another chapter in "Grand Theft America" a game that is so real, that you ACTUALLY lose your job and your house and your retirement savings if you don’t win (and only 30,000 people in the US ever win - and most of them inherited their winnings).
Congrats to our man, David Ristau of The Oxen Group, who picked one of today’s few winners with his call on WHR yesterday. The company not only knocked it out of the park with a 150% increase in earnings over last Q (rebate stimulus helped) but they also raised full-year guidance. Not bad for a glum economy. Redbook Chain Store Sales are out and they are up 2.7% for the year but down 0.6% in July. This is interesting because last month they were also the opposite of ICSC’s report, when ICSC saw a drop but Redbook showed a 3.1% gain so, on the whole, let’s call retail sales flat.
Is flat bad? Well, it’s not good, and last July we were down about 9,000 on the Dow so we certainly shouldn’t be at 11,000 but I still think 10,000 is about right - more of the low-end of our expected trading range that should be up and down about 5% from our 10,200 line (9,650-10,750). We’ll have to slog through the rest of earnings unless the QE2 comes in, although we should get an extension of unemployment benefits this afternoon and that should be a nice Russell booster, so IWM or TNA will be fun plays on the morning dip - very speculative, of course.
Be careful out there!