U.S. futures are up, and up strongly this morning. Europe is up big as well and this could bode well for us after Europe shied away from saving the day yesterday. It was typical Europe, and if they keep up this hard talk, weak action it is only a matter of time before the bond vigilantes attack in masses via a horde looking much like the Mongolian Invasion centuries ago and that is something Europe hardly wants to contemplate facing at this time. It is best to address problems when you know the what the enemy is (the current credit issues) not when you must fight the known problem and the unknown (think the trading desk rumors and random bear raids). This is something which we will be watching in the weeks and months ahead because it seems only a matter of time before someone tries it.
We have a ton of economic news out today, and it is as follows (data set - consensus):
Nonfarm Payrolls - 100k
Nonfarm Private Payrolls - 105k
Unemployment Rate - 8.2%
Hourly Earnings - 0.2%
Average Workweek - 34.5 hrs
ISM Services - 52.3
Looking at Asian markets we see markets are mixed:
All Ordinaries - down 1.10%
Shanghai Composite - up 1.02%
Nikkei 225 - down 1.13%
NZSE 50 - up 0.45%
Seoul Composite - down 1.11%
In Europe markets are higher:
CAC 40 - up 2.61%
DAX - up 2.31%
FTSE 100 - up 1.50%
OSE - down 1.18%
Financial Knight Capital Group (KCG) had another rough day yesterday as shares fell $4.36 (62.82%) to close at $2.58/share after a few high profile clients dropped the firm from their trading platforms. Volatility was up, and so too was the volume with 158.3 million shares traded yesterday. The company announced that they lost in the neighborhood of $440 million in capital when their computer system ran amuck and began trading crazily. We dislike the computerized trading that lacks the human oversight which markets had in the past. The computers act on an algorithm with no checks and balances and we are in the school of thought that had this happened with humans there would have been a chain of command and someone along the line would have asked whether the trades were for real. Artificial Intelligence is extremely intelligent, however it lacks the experience and gut instincts that man has. Luckily this was contained for the most part and did not set off something larger, however we do believe that the government will investigate this and hopefully implement further rules to limit this type of behavior moving forward.
Genworth Financial (GNW) also shows up red yesterday for the second day in a row while also hitting a new 52-week low during the session. It is obviously investors still disappointed from the earnings report and we can hardly blame them. In our experience, when a company supposedly has a plan that they are not ready to make public, that is usually indicative of a company with management that simply has no plan and is trying to buy some time. Shares fell $0.36 (8.04%) to close at $4.12/share on volume of 23.8 million shares. The shares will most likely linger around these levels until management can put forth a plan to shareholders which can right the ship.
Retail Gap's (GPS) same store sales in July were up 10% while the company also announced that their quarterly earnings would surpass last year's numbers and blow away the current analyst expectations by a wide margin. This is a story which we have talked about here numerous times over the past year and recommended to readers in the lower $20s. The company really has turned things around and now has style in their product offering and execution on the operating side. It sure looks like everything is running on all cylinders here and if the results from their competitors are any indication then they are making inroads at growing market share and shall continue to through the end of the year. Shares finished up $3.75 (12.75%) to close at $33.17/share on volume of 20.9 million shares.
Aeropostale (ARO) was one of the losers in the retail sector, with shares dropping $6.37 (32.75%) to close at $13.08/share as 14 million shares were traded. The drop was the result of the company cutting their second quarter earnings guidance due to sales falling at the company's stores open at least one year whereas the expectation was for low single digit gains. With the latest sales estimates, management now expects the company to breakeven rather than post any earnings this quarter, which has us questioning the company's strategy moving forward. The company had been one of the great growth stories of the past decade, but are they due to go into a lull as they grow into what they have created and attempt to rekindle the excitement in consumers which previously brought them into the stores? That is the important question here, and one investors need to be asking themselves. We personally would focus less on Aeropostale and more on Gap.
Manufacturing Shares in Sealed Air (SEE) were lower yesterday after the company missed on earnings and announced that they were looking at their options. It appears that the company will be getting smaller to better focus on what management thinks are its key businesses and areas geographically which they can best compete. Investors did not like the news, sending shares lower by $2.65 (16.77%) to close at $13.15/share as 23.9 million shares traded hands. The company also announced that they will eliminate 900 jobs this year as demand is down and they get leaner to better operate in the current economy.