Well, all week long the action in many ways has been a set up for today and the slew of economic data set for release. Investors are bracing good news with the real question being something akin to those Memorex commercials. Is the fourth quarter GDP report real economic growth or just the mirage that comes along with a long overdue inventory rebuilding? One thing is for sure, there are more and more questions haunting the market, including what's real and what's not real.
Real or Memorex?
* Higher taxes are coming.
* Intrusive regulation will kill innovation.
* A jobless recovery, good enough?
* Economic problems around the world will hurt America.
I often talk about the market shaking out the weak sisters, or in the case of early 2009, shaking out the entire family tree. I got the sense of that yesterday as smart money was moving in to do a little nibbling. The rally fell short, ironically, losing steam after Ben Bernanke was confirmed to retain his role as Chairman of the Federal Reserve. But the selloff could have been worse. There is no doubt that the market is vulnerable, but the big question is whether this weakness is justified or simply overdue.
The day after talking of spending freezes and fiscal responsibility, the Senate voted to hike the nation's debt ceiling to $14.3 trillion. I understand the President said the GOP has to get involved, but none voted for the hike and I must say this was a great "no" vote. As brilliant as President Obama is, his tactics in the State of the Union were old school...I mean real old school as in High School. He bullied the Supreme Court, and don't let anyone tell you it's not a big deal because justices are in the job for life. Nobody likes being painted a villain. Most of the justices were nerds in school and maybe they are accustomed to being picked on, but when the coolest kid in school makes you the target of his ire, life can be tough. But peer pressure on this level doesn't always work, and didn't work yesterday. The Republicans aren't angels but were smart enough to fight back against the insanity. They didn't vote for hiking the U.S. debt ceiling another $1.9 trillion bucks.
As my man Cool Hand Luke would say: "Sometimes nothing is a real cool hand."
The debt ceiling hikes are frightening to be sure, and have climbed 12,000% since 1940, so at some point we have to ask when does it come back to haunt the nation. This is unsustainable no matter what kind of spin is used for justification. My bigger question is where the hell is all that money going? How much of this cash has been stolen? Just think if the debt ceiling grew at the average rate of inflation (3.99%) it would now stand at $755.8 billion. The population of the nation is up 134% since 1940.
By the way, if you are wondering what your share of the debt is, try $46,278 from $371.00 back in 1940. Of course, if they had to divvy this up today I guess only the top 5% would have to fork over the dough. The sad fact is that America paid $383.0 billion in FY09 just to cover the interest payment on the national debt.
Apple (NASDAQ:AAPL) debuts its much talked about tablet and the hottest tech stock of the week is.... (drum roll please) Amazon (NASDAQ:AMZN). The shares surged after the bell when the maker of the Kindle (also known as the dinosaur among the hipper than thou Apple crowd) posted earnings of $0.85 per share on $9.52 billion, beating consensus of $0.52 per share and $9.04 billion. It was the best Christmas ever (how many people can say that) as book and CD sales were up 29% and electronic devices 60%. Guidance for the quarter sees revenue in a range of $6.45 billion to $7.0 billion; the Street had modeled for $6.36 billion.
Microsoft (NASDAQ:MSFT) posted earnings of $0.74 per share on $19.0 billion in revenue, huge beats of $0.59 per share and $17.5 billion, respectively. Windows revenue climbed 70%, but the stock was only up slightly in part to some confusion over the accounting for deferred revenue.
We will be breaking down the GDP numbers in greater detail in the afternoon comments. Briefly, 4Q GDP clocked in at +5.7%, the highest number since 3Q03. Inventory re-stocking was a major component of the result, which was toward the upper-end of most forecasts we saw. Consumer spending at +2% came in a bit slower than 3Q at +2.8%. Although the figure is robust on the headline, immediately the following thoughts arise:
1. Does this cause the Fed to move quicker on rates than some currently believe to prevent inflation?
2. Stimulus efforts impregnated the data set; once those measures wear thin, what's left?