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No Earnings Warnings... Good Omen? By: Charles Payne

|Includes: AAL, American Airlines Group (AAL), BP, DAL, LUV, UAL
The best news in the market yesterday was no news at all on the earnings front. I don't want to jinx anything but there hasn't been a single big-time earnings warning to speak of and the avalanche of results begin in a couple of sessions. I realize investors are shifting their attention to top line results, no longer satisfied with bottom line beats on the carcasses of fired employees. Still, we are only a couple of days from Alcoa's (NYSE:AA) release and no major company has told the Street to brace for the bad news. Of course, it's also about guidance, and we could continue to see tempered expectations. Heck, even the hottest companies in the world (read Apple) have taken advantage of a low expectations environment to sandbag guidance. But when companies report this time around the market will need leadership.

I didn't like volume, or lack thereof, but I'll take it. The next thing to watch is the reaction of shorts, which have had a free run of the joint for so long I'm sure they're flat-footed and complacent. Shorts have had more success than the "Twilight" movie series and "True Blood" wrapped together, but these guys are never satiated. One stock with a massive short position made a massive upside move yesterday. Passenger revenue and other data released from airlines sent these stocks significantly higher, including US Air (LCC), which has a 24% short position. Positive news from airlines is critical because it's the kind of discretionary spending that also speaks to consumers' willingness to take advantage of elbow room. Remember the last couple of summers and stay-cations?

Some of this speaks to the fact Americans are going to spend money. They have been dinged a little and actually surprised me by bumping savings again after it looked like they climbed out of their foxholes. I actually applauded the savings despite the near-term hit to our economy, but one thing is for sure...Americans are going to spend. Moreover, once they get more comfortable they will spend money they don't have. It is great news for the airlines, and at some point will be great news to retailers, too. I call it trickle up economics and the real reason the rich get richer. It's as American as apple pie. The only time it bothers people is when the hornets' nest is kicked and someone screams foul.

When that happens people begin to think, hey, maybe someone else should pay my bills. When this happens, people are incentivized to not pay mortgages or other obligations. I guess for some it looks like an alluring Venus flytrap, but for others it's a smack in the face for what this nation is and how we got to the top.
I've read stories of women that never made as much as minimum wage, scrubbed floors forever, and saved a couple million dollars. I would venture a guess they never saw a commercial on TV because they would have heard:

"Because, you're worth it"
"You deserve it"
"You deserve a break, today"

The point is our dynamic economy is built on consumer spending and they will spend more as they feel better about job security and jobs, tax situation, leadership, deficits, and other real threats to their way of life. You could say it's in our DNA to spend money, and so it will happen, but people will take care not to destroy themselves. People are smarter that they were because they learned the hard way. Europe is getting smarter, too, because they learned the hard way. Sadly, it's not just people that have paid down debt that are positioned to spend a little more, but people that walked away from mortgages and other financial obligations. I must say across the board delinquencies are beginning to come down over a variety of loan obligations. Check out the decrease in direct auto loan delinquencies in the chart below.

David Silver has gone into more details on these trends in a piece on our homepage at
BP in Middle East

British Petroleum was started in 1909, made the first big oil find in the Middle East in Iran, and went onto drill there for decades. At one point, new Iranian Prime Minister Mohammad Mossadegh was prepared to nationalize Iranian oil when he was overthrown in a coup many believe was orchestrated by the CIA and British government. When the British government began selling its stake in the company (from 1979 to 1987), Kuwaiti Investment Authority attempted to take the company over but was thwarted by the British government. So, it's interesting the company is scouring the Middle East for a would-be savior.

There is no doubt in my mind BP could cut a heck of a deal because those in the Middle East must believe the company stole their natural resources. It's not unlike Tata Motors overpaying for Jaguar and Range Rover.

On a grander scale there was a time when the British government looked down its nose and could dismiss financial offers from the Middle East. Now, there is a chance they cut deals with the most ruthless leaders in the area, and is ready to allow BP to take money from anyone. Things change and people never forget. There are a few cautionary tales in this storyline.

The Market

One great day can't make up for a horrific second quarter, but it's a nice reminder that the market can move higher, albeit from extremely oversold conditions. The S&P 500 is far below its key moving averages but closed above 1,050, a well known inflection point.
Early this morning, same store retail sales figures came pouring in on balance I say they are a mixed bag. June was also the first monthly decline in luxury spending this year according to Master Card. I must say I'm impressed with the action in women's retailers yesterday and Limited's results this morning. The women in our lives give up so much I hope they are splurging on themselves.


The IMF weighs in on global economy, and it has upwardly revised its previous outlook on growth. The organization pointed to heighten risks and reiterated its view on debt needing to come down saying Europe has to quickly resolve debt problems and restore confidence in its banks.

Solar plane completes 24 hour flight...single seat plane powered by 12,000 solar cells stayed in the air only using the power of the sun in an experimental flight in Switzerland...Not exactly the Wright brothers or Amelia Earhart but its a start...I guess.

Initial Jobless Claims came in at 454,000 which is better than the 460,000 consensus estimate and on a sad side note, I actually feel relieved about the number.

First Take: June Same-Store Sales

By: Brian Sozzi, Equity Research Analyst

So June same-store sales are coming in mostly ahead of consensus on the back of the following catalysts:

* Memorial Day calendar shift (appears to have had a 150 to 300 bps positive impact on specialty retail; somewhat of a similar negative result for discounters as stores were closed)
* Father's Day
* Pre July 4 buying
* Buying closer to appropriate weather instead of investing beforehand

In other words, what we are seeing are a batch of strong numbers, right? Well not be a Debbie Downer as the weekend approaches, but I must ask the question. If comps are coming in anywhere from four basis points and higher compared to consensus, where are the earnings guidance revisions for 2Q? Is it a case of management teams playing it close to the vest, attempting to drive earnings upside when results are posted in mid August in order to reawaken slumbering share prices? Could be. However, the feeling of cautiousness I am sensing this morning may in fact be warranted as many retailers pulled out all of the stops with respect to promos in June. During our store walks throughout the month, the level of promotions picked up, in our view, relative to previous months. Full-price selling, while existent on items that consumers perceived to have value, leveled off. Companies with great assortments, say an Ann Taylor (NYSE:ANN), was trying to move product by offering visible promos throughout the month. I think what is happening is that retailers in earnest want to clear through goods prior to back to school/fall because their receipt plans are elevated compared to 2009. Oh, yes, the inventory reduction story of 2009 will officially be over in the second half of the year, with retailers on average increasing per square foot inventory by about 5% year over year to rebuild same-store sales. With that inventory investment and uncertain sales backdrop, the downside risk to earnings is tangible. This is but one reason for the pullback in broader retail stocks since the last week in April.

I will be sharing more insights on the afternoon report.

Disclosure: none