Posted 2007-07-17 08:18
by Karl Denninger
by Karl Denninger
markets, that is.....
Let's take care of the simple first. CocaCola (KO) reported what I can only characterize as lukewarm results, with net up only 0.5%. Of course they're playing the buyback game and their stock is up a bit post-announcement - but to say that this is a lukewarm result would be the understatement of the year. Soft drinks? Yep. Soft is right......
(By the way, Cramer said to buy KO ahead of earnings. How'd that work out for you guys?)
Merrill Lynch reported solid numbers on increased fees. Of course all that deal-making is good for profits. No surprises there.
But there were some surprises. In the Ticking Nuclear Weapons department we have this one:
And let's put that $11b in perspective - that's about half of the market cap of these firms - just in a couple of deals! That $200b is a nasty number.
This is kinda like climbing in a cage with a dozen horny and hungry 900lb Gorillas while carrying a handful of very rotten (and getting more so by the minute!) bananas. You hope you can get them to take the food.....
Heh Mr. Bond Market, for the SECOND time in a week, YOUR ROOF IS ON FIRE!
If that's not enough try here:
Half their value in a month eh? Let me give 'ya a graph so 'yall understand what their stock price looks like, and what the broader markets can look like if the "containment" breaks down....
(That's a cute image isn't it? I like it... :) )
Inflation! PPI came in today at down 0.2% in headline, up 0.3% core. Why down? Oil down a bit. But core is up, and that's not a good number, above target. On a run-rate basis its not bad but the trend in core was supposed to be moderating. Nope. And the headline number was total crap; it was all a decline in gasoline prices, which we know reversed already. They're also claiming that consumer food is down - what a joke!
The futures seemed to like it, popping a bit, but not for long, oscillating back and forth a good bit, finally settling down to basically flat. No help (or hurt) there.
Dow Jones allegedly finally agreed to be taken to the ball. This is certain to bring forth wails and gnashing of teeth among the liberal folks who will cite this as yet more evidence that "its all right-wingers, all the time." Whine and cry if you want; so long as the WSJ's editorial independence is not threatened I don't care, and if it is, I'll vote with my wallet.
JNJ reported and beat by a bit, but not enough to impress. They're indicated lower this morning.
This afternoon has Yahoo and Intel reporting which should be interesting. Intel is widely expected to do well, having hammered AMD over the head even harder. Yahoo has low expectations (and with good reason) being the ugly stepchild in a beauty contest between themselves and Google.
ICSC Chain Sales came in +0.3%, up from 0.1%, and Redbook up 0.4%. Not awful and about what you'd expect from the chain numbers reported last week. However, most of that may be WalMart and their food aisle, if the reports last week are to be believed, which is actually a fairly bad indication. The trend appears to be towards poorer results though.
Regions Financial reported inline, but non-performing assets increased (no surprise there!)
Net Foreign Capital Inflows are up big today, almost $10b higher over April. This is a reflection of the weaker dollar but it also appears to be a bet that the 80 level will hold. Maybe a good bet, maybe not so good. Beware if 80 breaks - that's a whipsaw in the making, and a violent one.
And this morning we're trying to spike downward once again in the dollar index.... are we going to take a run at the ditch today? Tough to know..... but the more we keep banging on the door, the higher the risk we poke through.
In the "dumb quote of the day" department, I actually heard Joe Kernan on CNBS saying "The consumer doesn't really matter" in reference to the market. Oh boy. Yeah, ok. I'll tell 'ya, the more often I hear things like this the more often I think people have been eating their own cooking for a bit too long.
The ISM manufacturing index came in good today with capacity utilization rising. Of course building inventory into a downturn can be ruinous. It looks and feels great - until the floor drops out.
UBS came out this morning saying that they now have 4 quarters in a row of sequential capacity declines in trucking and rail shipments, expressing concern on the economy. Well, yeah. The Dow Transports are "confirming" the Dow's rise but if the facts are that rail car and truckload shipments are down, are we trading on legitimate fundamentals or are we trading on froth and bull****?
Wells Fargo reported a 9% profit rise but their non-performing loan losses rose 67% from the year-ago figures. Chuckie being drawn and quartered? Nawwww.... the market didn't care, sending the shares up 1% in morning action. (Hint: This is going to get a lot worse before it gets better.)
The Dow spiked to 14,000 and immediately pulled back, drawing instant cheering from the CNBS clownfaces. It was almost like sticking a pin in the balloon - was this one of those psychological deals where "it just had to do it" and now we can roll over? Time will tell. But what's obvious is the pump monkey nonsense - "they're covering it wall to wall" as they say. Why? What's the big deal about 14,000? Other than being a round number, of course......
Now don't get me wrong. If we had strong profit growth and a strong economy, I'd be as long as my house and bullish as hell. But we don't. The original S&P500 profit growth estimate was for 4%. Last quarter it actually came in near 8%, leading people to wonder if the numbers had been intentionally underestimated to get a "pop" out of the results (8% ain't all that great YOY!) But this quarter, so far, it looks like right around 4.5%. Now that's positively anemic, and leads one to wonder - why are you paying 15-16x earnings when growth is one third to one quarter that, making the P/E/G ratio on the broad market over THREE.
Oh, let's not talk about that eh; you might get heartburn - or be tempted to hit the SELL SELL SELL button!
Oil pipped over $75 in morning trading but more recently backed off solidly. This is an incredible run and you have to wonder - how long will it be ignored? Its good if you're an oil company, but it sucks rocks through a hose if you're a consumer of oil, which would be in the transports, pharma, agricultural, manufacturing, oh, basically everything else. The fluctuations today are related to futures expiration which happens today; the trend, however, remains solidly upward. I don't believe the move in oil is over and in fact wouldn't be surprised at all to see an 8 handle on oil before the end of the summer.
Home Builder sentiment came in at 24 (down 4 points!) and is now the lowest since 1991! A bottom in housing? Oh hell no! Confidence regionally dropped everywhere, covering sales, buyer traffic and more. There is no evidence that there's a recovery in the offing on housing kids!
The latter was a big part of the boom but it was, in my opinion, a total rip-off when looked at from the perspective of consumers. This pattern essentially insured you'd never actually own your house as you would be forced back every year or two for another mortgage, resetting the payoff clock to zero and stripping off any equity you had built either through payment or appreciation so it could go into the lender's pockets.
This pattern led to ridiculously outsized returns for mortgage lenders and securitizers over the last five or six years at the expense of homeowners who have had their equity reduced or destroyed outright.
Since the Feds have so far refused to go beyond "guidelines" the states are stepping up instead and saying "enough damnit!"
While this will undoubtedly lead to short-term pain in Minnesota (and elsewhere as it spreads) this is a necessary change and will, over the next three to five years, return the real estate market to sustainable, rational valuations. It is thus a good thing for the broader market and economy over time, even though in the short term it is going to sting even more than it already has.
Cramaer on "Stop Trading" today - "Throw your wallet at tech." Give me a ****ing break! He actually pulled out his Target credit card on the air and told people to buy tech stocks ON CREDIT!
Listen very carefully guys. Tech is trading at absolutely unsustainable P/Es, and Cramer butt****ed a whole bunch of people in 2000 with the EXACT SAME CALL just before the entire tech market went to ****.
If you're dumb enough to listen to him, especially if you buy on margin, you deserve what you get and I will be happy to buy your BMW at the bankruptcy auction for 10 cents on the dollar!
Intel reported weaker gross margins than expected. Oops. Yes, sales and profits were up, but the shares were priced to perfection along with the rest of the Tech Sector and they're getting hit after hours for about 5%. Expections maintained for 3Q; but is that realistic? We shall see!
Yahoo got slam*****d as well, as while their revenues came in above the previous quarter their earnings were actually down 2.3%. The street didn't like it a bit and pummelled them immediately after hours.
The Nasdaq and S&P Futures both got nailed by these announcements; that could make for a very interesting open tomorrow......
The cheerleading by the pump monkeys continues. This morning we heard "the economy dodged a bullet from housing" on the Bull****-Channel-In-Chief, CNBS. It did? Have we seen housing turn back upward yet? Not according to the builders! Indeed, none of them see anything approaching stabilization. So how does someone conclude that "we dodged the bullet"?
I wonder what they'll say when the pattern plays out that we've seen for the last 10 housing-led economic downturns and the Dow trades around 10k? Will they recall how wrong they were? Of course not.
Now could it not happen? Sure. I could get hit by lightning this afternoon trying to retrieve the mail too. But I have to look at history and what it tells me, not what I want or what cheerleading would lead me to believe if I was to shut my eyes and buy into a mania.
History is not a perfect indicator of the future, but only a fool ignores it as so many on the street are doing today. Sure, it feels good to see "big profits" on the long side, but as history has pointed out to us repeatedly when those gains are not on the back of actual sustainable earnings growth they have a nasty habit of evaporating right before your eyes, and frequently that evaporation of paper - unbooked - profits comes with frightening speed.
Just remember cheerleaders - the "profits" aren't your to keep until they're reduced to cash.
And by the way, wasn't that fade into the close pretty?
Kinda looks like the ABX.
You know, this?
Heh Bear Stearns, where's that Hedgie Report? Why do I think the answer is a big fat zero on the NAV on at least one of those funds? Someone may have heard something tho - after market right around 4:45 ET the bottom fell out and someone dumped shares in the $138 range - down over a buck from the close. No news on the wire yet.....
Psst - its not going into the commercial R/E market. No, no spillover at all. Why this chart says everything is fine!
Oops. Guess I was wrong about that....
Have a profitable morning!
PS: Come discuss it at the Forum! You can find the link at the bottom of this page....
Let's take care of the simple first. CocaCola (KO) reported what I can only characterize as lukewarm results, with net up only 0.5%. Of course they're playing the buyback game and their stock is up a bit post-announcement - but to say that this is a lukewarm result would be the understatement of the year. Soft drinks? Yep. Soft is right......
(By the way, Cramer said to buy KO ahead of earnings. How'd that work out for you guys?)
Merrill Lynch reported solid numbers on increased fees. Of course all that deal-making is good for profits. No surprises there.
But there were some surprises. In the Ticking Nuclear Weapons department we have this one:
Hehehehehe.... Oh, and there's more than $200 billion in additional debt that has to go out here in the next couple of months or there will be LBO deals that go "boom!""Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of Wall Street are stuck with at least $11 billion of loans and bonds they can't readily sell.
The banks have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month because of the worst bear market in high-yield debt in more than two years, data compiled by Bloomberg show. "
And let's put that $11b in perspective - that's about half of the market cap of these firms - just in a couple of deals! That $200b is a nasty number.
This is kinda like climbing in a cage with a dozen horny and hungry 900lb Gorillas while carrying a handful of very rotten (and getting more so by the minute!) bananas. You hope you can get them to take the food.....
Heh Mr. Bond Market, for the SECOND time in a week, YOUR ROOF IS ON FIRE!
If that's not enough try here:
"By its own measures, everything looks good at ACA Capital Holdings, a financial management and insurance company. But other numbers do not look so good, and the stock price is falling rapidly. The company will not comment on what is going on.Psst - its the credit markets stupid! Gee, isn't that important to all equities? Hmmmmm...
In New York Stock Exchange trading yesterday, ACA shares fell 22 percent, dropping $1.87, to $6.59, on the heaviest volume in the company’s brief history. The shares have lost a third of their value since Thursday, and are trading at less than half of their value a month ago."
Half their value in a month eh? Let me give 'ya a graph so 'yall understand what their stock price looks like, and what the broader markets can look like if the "containment" breaks down....
(That's a cute image isn't it? I like it... :) )
Inflation! PPI came in today at down 0.2% in headline, up 0.3% core. Why down? Oil down a bit. But core is up, and that's not a good number, above target. On a run-rate basis its not bad but the trend in core was supposed to be moderating. Nope. And the headline number was total crap; it was all a decline in gasoline prices, which we know reversed already. They're also claiming that consumer food is down - what a joke!
The futures seemed to like it, popping a bit, but not for long, oscillating back and forth a good bit, finally settling down to basically flat. No help (or hurt) there.
Dow Jones allegedly finally agreed to be taken to the ball. This is certain to bring forth wails and gnashing of teeth among the liberal folks who will cite this as yet more evidence that "its all right-wingers, all the time." Whine and cry if you want; so long as the WSJ's editorial independence is not threatened I don't care, and if it is, I'll vote with my wallet.
JNJ reported and beat by a bit, but not enough to impress. They're indicated lower this morning.
This afternoon has Yahoo and Intel reporting which should be interesting. Intel is widely expected to do well, having hammered AMD over the head even harder. Yahoo has low expectations (and with good reason) being the ugly stepchild in a beauty contest between themselves and Google.
ICSC Chain Sales came in +0.3%, up from 0.1%, and Redbook up 0.4%. Not awful and about what you'd expect from the chain numbers reported last week. However, most of that may be WalMart and their food aisle, if the reports last week are to be believed, which is actually a fairly bad indication. The trend appears to be towards poorer results though.
Regions Financial reported inline, but non-performing assets increased (no surprise there!)
Net Foreign Capital Inflows are up big today, almost $10b higher over April. This is a reflection of the weaker dollar but it also appears to be a bet that the 80 level will hold. Maybe a good bet, maybe not so good. Beware if 80 breaks - that's a whipsaw in the making, and a violent one.
And this morning we're trying to spike downward once again in the dollar index.... are we going to take a run at the ditch today? Tough to know..... but the more we keep banging on the door, the higher the risk we poke through.
In the "dumb quote of the day" department, I actually heard Joe Kernan on CNBS saying "The consumer doesn't really matter" in reference to the market. Oh boy. Yeah, ok. I'll tell 'ya, the more often I hear things like this the more often I think people have been eating their own cooking for a bit too long.
The ISM manufacturing index came in good today with capacity utilization rising. Of course building inventory into a downturn can be ruinous. It looks and feels great - until the floor drops out.
UBS came out this morning saying that they now have 4 quarters in a row of sequential capacity declines in trucking and rail shipments, expressing concern on the economy. Well, yeah. The Dow Transports are "confirming" the Dow's rise but if the facts are that rail car and truckload shipments are down, are we trading on legitimate fundamentals or are we trading on froth and bull****?
Wells Fargo reported a 9% profit rise but their non-performing loan losses rose 67% from the year-ago figures. Chuckie being drawn and quartered? Nawwww.... the market didn't care, sending the shares up 1% in morning action. (Hint: This is going to get a lot worse before it gets better.)
The Dow spiked to 14,000 and immediately pulled back, drawing instant cheering from the CNBS clownfaces. It was almost like sticking a pin in the balloon - was this one of those psychological deals where "it just had to do it" and now we can roll over? Time will tell. But what's obvious is the pump monkey nonsense - "they're covering it wall to wall" as they say. Why? What's the big deal about 14,000? Other than being a round number, of course......
Now don't get me wrong. If we had strong profit growth and a strong economy, I'd be as long as my house and bullish as hell. But we don't. The original S&P500 profit growth estimate was for 4%. Last quarter it actually came in near 8%, leading people to wonder if the numbers had been intentionally underestimated to get a "pop" out of the results (8% ain't all that great YOY!) But this quarter, so far, it looks like right around 4.5%. Now that's positively anemic, and leads one to wonder - why are you paying 15-16x earnings when growth is one third to one quarter that, making the P/E/G ratio on the broad market over THREE.
Oh, let's not talk about that eh; you might get heartburn - or be tempted to hit the SELL SELL SELL button!
Oil pipped over $75 in morning trading but more recently backed off solidly. This is an incredible run and you have to wonder - how long will it be ignored? Its good if you're an oil company, but it sucks rocks through a hose if you're a consumer of oil, which would be in the transports, pharma, agricultural, manufacturing, oh, basically everything else. The fluctuations today are related to futures expiration which happens today; the trend, however, remains solidly upward. I don't believe the move in oil is over and in fact wouldn't be surprised at all to see an 8 handle on oil before the end of the summer.
Home Builder sentiment came in at 24 (down 4 points!) and is now the lowest since 1991! A bottom in housing? Oh hell no! Confidence regionally dropped everywhere, covering sales, buyer traffic and more. There is no evidence that there's a recovery in the offing on housing kids!
"The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period," NAHB Chief Economist David Seiders said in the statement."On the mortgage lending front, Minnesota apparently has had enough of liars loans, negative amortization "exploding debt bomb" mortgages and more. From the forum (unverified so far):
"Effective on August 1 ,2007 the State of Minnesota will implement the following change: ONLY Full doc loans will be allowed – all loans must have verified incomeNo more games in Minnesota! This is likely to continue in other states, which will hasten the much-needed correction in house prices. No more will the unaffordable "debt bomb" mortgages be issued, and more importantly, neither will the "serial refinance trap game" be permitted by the states.
and assets. This applies to all loan types (Conventional, Alt A, Jumbo, HELOAN)
Option ARM’s will not be allowed – no loan resulting in potential negative amortization."
The latter was a big part of the boom but it was, in my opinion, a total rip-off when looked at from the perspective of consumers. This pattern essentially insured you'd never actually own your house as you would be forced back every year or two for another mortgage, resetting the payoff clock to zero and stripping off any equity you had built either through payment or appreciation so it could go into the lender's pockets.
This pattern led to ridiculously outsized returns for mortgage lenders and securitizers over the last five or six years at the expense of homeowners who have had their equity reduced or destroyed outright.
Since the Feds have so far refused to go beyond "guidelines" the states are stepping up instead and saying "enough damnit!"
While this will undoubtedly lead to short-term pain in Minnesota (and elsewhere as it spreads) this is a necessary change and will, over the next three to five years, return the real estate market to sustainable, rational valuations. It is thus a good thing for the broader market and economy over time, even though in the short term it is going to sting even more than it already has.
Cramaer on "Stop Trading" today - "Throw your wallet at tech." Give me a ****ing break! He actually pulled out his Target credit card on the air and told people to buy tech stocks ON CREDIT!
Listen very carefully guys. Tech is trading at absolutely unsustainable P/Es, and Cramer butt****ed a whole bunch of people in 2000 with the EXACT SAME CALL just before the entire tech market went to ****.
If you're dumb enough to listen to him, especially if you buy on margin, you deserve what you get and I will be happy to buy your BMW at the bankruptcy auction for 10 cents on the dollar!
Intel reported weaker gross margins than expected. Oops. Yes, sales and profits were up, but the shares were priced to perfection along with the rest of the Tech Sector and they're getting hit after hours for about 5%. Expections maintained for 3Q; but is that realistic? We shall see!
Yahoo got slam*****d as well, as while their revenues came in above the previous quarter their earnings were actually down 2.3%. The street didn't like it a bit and pummelled them immediately after hours.
The Nasdaq and S&P Futures both got nailed by these announcements; that could make for a very interesting open tomorrow......
The cheerleading by the pump monkeys continues. This morning we heard "the economy dodged a bullet from housing" on the Bull****-Channel-In-Chief, CNBS. It did? Have we seen housing turn back upward yet? Not according to the builders! Indeed, none of them see anything approaching stabilization. So how does someone conclude that "we dodged the bullet"?
I wonder what they'll say when the pattern plays out that we've seen for the last 10 housing-led economic downturns and the Dow trades around 10k? Will they recall how wrong they were? Of course not.
Now could it not happen? Sure. I could get hit by lightning this afternoon trying to retrieve the mail too. But I have to look at history and what it tells me, not what I want or what cheerleading would lead me to believe if I was to shut my eyes and buy into a mania.
History is not a perfect indicator of the future, but only a fool ignores it as so many on the street are doing today. Sure, it feels good to see "big profits" on the long side, but as history has pointed out to us repeatedly when those gains are not on the back of actual sustainable earnings growth they have a nasty habit of evaporating right before your eyes, and frequently that evaporation of paper - unbooked - profits comes with frightening speed.
Just remember cheerleaders - the "profits" aren't your to keep until they're reduced to cash.
And by the way, wasn't that fade into the close pretty?
Kinda looks like the ABX.
You know, this?
Heh Bear Stearns, where's that Hedgie Report? Why do I think the answer is a big fat zero on the NAV on at least one of those funds? Someone may have heard something tho - after market right around 4:45 ET the bottom fell out and someone dumped shares in the $138 range - down over a buck from the close. No news on the wire yet.....
Psst - its not going into the commercial R/E market. No, no spillover at all. Why this chart says everything is fine!
Oops. Guess I was wrong about that....
Have a profitable morning!
PS: Come discuss it at the Forum! You can find the link at the bottom of this page....
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