by ilene - October 23rd, 2014 9:14 pm
Courtesy of Joshua M Brown
My title above is only half-kidding. Because everytime Wall Street pronounces “The Death Of” anything, that’s pretty much when it starts working again. But there is an important point being made in a new article at the Wall Street Journal about the current state of some of our biggest stalwart stocks and their underlying businesses, a point I made two days ago here…
Here’s the Journal:
A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 months, according to data from S&P Capital IQ. Revenue growth for nearly half the industrials didn’t outpace the U.S. inflation rate of 1.7%.
Each company has its own idiosyncratic problems—changing consumer tastes at Coke, for example, or technology-industry shifts at IBM—and each is taking steps to address them.
But underlying it all is a sense of malaise for companies whose once powerful formulas for success left them too big to switch tack quickly when market conditions changed.
In my relatively short time on The Street, I’ve seen several former blue chip stocks disappear or become disgraced to the point of no return. Companies like Woolworth’s and Sears and Eastman Kodak and Xerox and Lucent and MCI – all of which, for a long time, were considered automatics for investors seeking reasonable, reliable returns in evergreen businesses.
Unfortunately, it doesn’t actually work that way. Change is the only constant.
Picture by Geralt at Pixabay.
by ilene - October 23rd, 2014 9:08 pm
Courtesy of ZeroHedge
With today's exuberance around earnings (notably forgetting the reality of various bellwether fails), we thought it appropriate to get some context on just what the "market stalwarts'" results look like in context.
A third of the companies in the Dow have posted shrinking or flat revenue over the past 12 months, as WSJ notes,
"steady has become stagnant as companies once considered among the market’s most reliable post poor growth, quarter after woeful quarter."
European Service Prices Plunge at Steepest Rate Since January 2010; Reflections on Keynesian Stupidity
by ilene - October 23rd, 2014 8:52 pm
Courtesy of Mish.
The Markit Flash Eurozone PMI shows the steepest fall in output prices since global crisis and renewed job losses, in spite of an otherwise stable PMI.
The Eurozone saw a marginal upturn in growth of business activity in October, according to the flash PMI results. The headline Markit PMI ™ rose from September’s ten-month low of 52.0 to 52.2, signalling the first upturn in the pace of expansion for three months. However, the index remained below the average seen in the third quarter, and was the second-weakest reading seen so far this year.
Backlogs of work fell at the fastest rate since June of last year, dropping in both services and, to a lesser extent, manufacturing.
Service providers reported the first cut in payroll numbers since March, though manufacturers reported a slight upturn in employment. Prices were increasingly being cut in order to help boost sales. Average prices charged for goods and services showed the largest monthly fall since February 2010, having now fallen almost continually for just over two-and-a-half years. Charges for services fell at the steepest rate since January 2010 while a more modest decline was seen in the manufacturing sector, where prices fell only marginally and to a lesser extent than in September.
Price cuts occurred despite overall input costs rising in October, pointing to a further squeeze on operating margins. That said, manufacturing input prices fell for the second month running. Finally, business optimism about the year ahead in the service sector fell to the lo west since June of last year.
“The Eurozone PMI rose in October but anyone just watching the headline number misses the darker picture painted by the survey’s other indices, which show the region teetering on the verge of another downturn. Growth of new orders slowed closer to stagnation and backlogs of work fell at a faster rate, causing employment to be cut for the first time in nearly a year. Business confidence in the service sector also slid to the lowest for over a year and prices charged fell at the fastest rate since the height of the global financial crisis, adding to an increasingly downbeat assessment of business conditions.”
“While the survey suggest s the euro area has so far
by ilene - October 23rd, 2014 7:14 pm
IBM went down hard on its quarterly earnings report this week. This made a splash in the news because, well, it’s IBM, and also Warren Buffett owns it, so it was a rare moment of human fallibility for him. But there is a lot more to the story than that. Very sophisticated people have been keeping an eye on IBM for some time.
In particular, Stanley Druckenmiller—former chairman and president of Duquesne Capital, former portfolio manager of Soros’s Quantum Fund, and, honestly, one of the greatest investors in modern times—went public about a year ago saying that IBM was his favorite short (which says a lot) and that it was the poster child for, well, the type of stock market we have nowadays.
What was Druckenmiller referring to?
Some Quick History
Ten years ago, during the housing boom, the consumer was the most leveraged entity, taking out negative amortization mortgages, cashing out home equity, things like that. The consumer got a margin call, which was ugly—you know the story—and has spent the last six years deleveraging.
While the consumer was taking down leverage, the US government was adding leverage, taking the deficit to over 10% of GDP at one point. But even the government is deleveraging (for the moment), and now it is America’s corporations that have been adding leverage, at a furious pace. We’ve had trillions of dollars in corporate bond issuance in the last few years.
So when corporations sell bonds, what do they typically use the proceeds for?
In theory, the proper use for debt is to finance capital expenditures. Growth. But in this last cycle, that’s not what the money has been used for. It’s primarily been used for stock buybacks and dividends.
Robbing Peter to Pay Paul
Now, there are good corporate finance reasons to lever up a balance sheet and conduct stockholder-friendly actions, like buying back stock or paying dividends. You can read about it in the corporate finance textbooks. For any company, there is an optimal amount of leverage. It’s even possible to be underleveraged.
But you see (and this is the important thing), when you
by ilene - October 23rd, 2014 6:43 pm
By John Mauldin
I featured the thinking of Dr. Lacy Hunt on the velocity of money and its relationship to developed-world overindebtedness and the potential for deflation in this week’s Thoughts from the Frontline, and I thought you’d like to peruse Lacy’s entire recent piece on the subject.
Lacy takes the US, Europe, and Japan one by one, examining the velocity of money (V) in each economy and bolstering the principle, first proposed by Irving Fisher in 1933, that V is critically influenced by the productivity of debt. Then, turning to the equation of exchange (M*V=Nominal GDP, where M is money supply), he demonstrates that we shouldn’t be the least bit surprised by sluggish global growth and had better be on the lookout for global deflation.
Hoisington Investment Management Company (www.Hoisingtonmgt.com) is a registered investment advisor specializing in fixed-income portfolios for large institutional clients. Located in Austin, Texas, the firm has over $5 billion under management and is the sub-adviser of the Wasatch-Hoisington US Treasury Fund (WHOSX).
I am writing this note in a car going to Athens, Texas, where I’ll join Kyle Bass and friends at his Barefoot Ranch for a huge macro fest. October is one of my favorite times of the year to be in Texas, and the ranch is a beautiful venue. I am sure I will have some challenging conversations.
Last night in Chicago I was picked up by Austyn Crites, who drove me downtown in rush-hour traffic, which gave us a lot of time to talk about his current passion, high balloons. I have been fascinated with them for some time, but there hasn’t been a lot of reliable information.
Basically, Google and Facebook are both planning to launch very large helium balloons full of radios and cameras and float them up to 60,000+ feet. The concept is working in several remote locations now. It’s a way to get full wireless internet coverage. With about 40,000 balloons you can blanket the earth. Literally. Full connectivity. Everywhere. Austyn wants to design a new type of balloon and be the manufacturer. It’s tricky as you need a VERY thin balloon envelope (that does not leak)…
by ilene - October 23rd, 2014 3:17 pm
Courtesy of Mish.
Looking for growth in Europe? You won’t find it in France, but for now you can still find it in Germany (for now).
The Markit Flash France PMI shows French private sector output falls at sharpest rate in eight months.
- Flash France Composite Output Index falls to 48.0 (48.4 in September), 8-month low
- Flash France Services Activity Index falls to 48.1 (48.4 in September ), 8-month low
- Flash France Manufacturing Output Index falls to 47.6 (48.4 in September ), 2-month low
- Flash France Manufacturing PMI falls to 47.3 (48.8 in September), 2-month low
The latest flash PMI data signalled a deepening downturn in France’s private sector economy during October. The seasonally adjust ed Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, slipped to 48.0, from 48.4 in September. That was its lowest reading since February, albeit indicative of a moderate rate of contraction overall. Faster declines in output were recorded in both the services and manufacturing sectors during October.
Employment in the French private sector fell further in October, extending the current period of contraction to one year. Furthermore, the rate of decline quickened to the sharpest since April 2013. Similarly solid rates of job shedding were registered across the services and manufacturing sectors. Staffing levels were cut in line with reduced workloads.
Outstanding business at French private sector firms fell for the sixth month running, and at the fastest pace since May 2013. Lower backlogs were signalled by service providers and manufacturers alike.
Divergent trends continued to be observed for input and output prices during the latest survey period. Input costs rose for a seventeenth consecutive month, albeit at a moderate pace. Increases were signalled in both the services and manufacturing sectors. Conversely, output prices decreased further in October. The rate of decline in charges was considerable, having accelerated to the sharpest in five years. Firms in both sectors cut their selling prices, citing intense competitive pressures and tough negotiations with clients.
Jack Kennedy , Senior Economist at Markit, which compiles the Flash France PMI ® survey, said: “The French economy remained stuck in reverse gear in October , as crumbling demand dragged activity
by ilene - October 23rd, 2014 12:45 pm
Courtesy of Mish.
Lack of significant improvement in payments by IBEX companies to suppliers is yet another another sign there isn’t much of a recovery in Spain.
La Vanguardia reports Late Payments by Ibex Companies Hits €47 Billion, 169 days (nearly 3 times the legal time limit). Ibex is the name of the Spanish stock market exchange.
Via translation from La Vanguardia. <
Delinquency of the Ibex 35 exceeds 47 billion euros and the average payment is 169 days late, almost three times the limits set by law, according to the latest report of the Platform Multisectoral against delinquency (PMcM), made from the data published by the National Securities Market Commission (CNMV).
In 2012, the average payment of listed non-financial corporations was 191 days, while in 2013 totaled 184, down 4%.
Construction and real estate had a 10% improvement. Trade and services improved 4%. Despite this improvement, the data shows that the construction sector and real estate remains the one with the greatest delay in settlement of bills. Their average payment reached the 288 days in 2013, while in 2012 exceeded 300.
Behind them are trade and services, with 253 days, nine fewer than in 2012.
PMcM president, Antoni Cañete said that “these data show that some of these big companies are financed at the expense of their own providers, mostly SMEs and freelancers”. “This situation, is produced by the dominant position of Ibex companies, shows abuse and violation of the law, “added Cañete.
IBEX vs. DOW
La Vanguardia notes that in the DOW, the average collection period of industrial companies is 105 days, followed by service and trade at 70 days and energy at 60 days.
Mike “Mish” Shedlock
by ilene - October 23rd, 2014 11:27 am
Courtesy of Lee Adler of the Wall Street Examiner
The headline, fictional, seasonally adjusted number for initial unemployment claims came in at 283,000, very close to the Wall Street conomist crowd consensus guess of 285,000. That was a non event.
The actual, not seasonally finagled numbers, which the Wall Street captured media ignores, shows claims continuing at all time record levels on the basis of claims per million workers. The condition has now persisted for 13 months. I have warned for months that this implied that the central bank financial engineering/credit bubble has been at a dangerous juncture. The media echo chamber continues to present record lows as positive, stubbornly ignoring the historical fact that extremes like this have always led to severe market and economic contractions.
According to the Department of Labor the actual, unmanipulated numbers were as follows. “The advance number of actual initial claims under state programs, unadjusted, totaled 255,483 in the week ending October 18, a decrease of 18,260 (or -6.7 percent) from the previous week. The seasonal factors had expected a decrease of 33,552 (or -12.3 percent) from the previous week. There were 312,037 initial claims in the comparable week in 2013.”
The actual week to week change last week was a decrease of around 18,000 which is a less than normal decline for the third week of October. The average of the prior 10 years for that week was a drop of approximately 38,500. It’s too soon to say this represents a change of trend. The previous several weeks had a much stronger than average performance. This week looks like giveback.
Actual first time claims were 18.1% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between approximately -5% and -15%. Over the past 3 weeks the numbers have been at an extreme seen only a handful of times since the bungee rebound of 2010. There are no signs of weakening yet.
New claims were 1,828 per million workers counted in September nonfarm payrolls. This number is far lower than the ratio in the comparable October week at the top of both the housing bubble in 2006 and the internet bubble in 1999.
by ilene - October 23rd, 2014 10:15 am
Courtesy of Pam Martens.
What the New York Fed attempted to pull off this past Monday with its full-day conference for the execs of wayward Wall Street banks was a public relations stunt to switch the national debate from its culture to Wall Street’s culture. Styled as a “Workshop on Reforming Culture and Behavior in the Financial Services Industry,” the event came less than a month after ProPublica and public radio’s “This American Life” released internal tape recordings made by a former New York Fed bank examiner, Carmen Segarra, revealing a regulator with no bark or bite.
ProPublica’s Jake Bernstein wrote that the tapes and a confidential report by an outside consultant demonstrated the New York Fed’s “history of deference to banks.”
But there is far more to this story. Wall Street banking executives, who elect two-thirds of the Board of Directors of the New York Fed and have frequently served on its Board, have structured the institution to be its sycophant. Consider the fact that Jamie Dimon, CEO of JPMorgan Chase, sat on the Board of the New York Fed from 2007 through 2012 as the regulator failed to follow through on three separate staff recommendations that JPMorgan’s Chief Investment Office undergo a thorough investigation, as reported this week by the Federal Reserve System’s Inspector General.
JPMorgan’s Chief Investment Office in 2012 finally owned up to losing $6.2 billion of bank depositors’ money in wild bets on exotic derivatives in London.
A Wall Street regulator, like the New York Fed, which has staff positions called “relationship managers” that are considered senior to, and can bully and intimidate, their bank examiner colleagues, is in no position to be lecturing Wall Street on its culture. Indeed, the culture on Wall Street of “it’s legal if you can get away with it,” grew out of its cozy, crony relationships with its regulators like the New York Fed, an enshrined revolving door at the SEC, self-regulatory bodies delivering hand slaps and its own private justice system to keep its secrets shielded from the public’s view.
by ilene - October 23rd, 2014 7:58 am
Earnings Per Share. EPS. If you can't get E up, then get S down…
Submitted by Tyler Durden.
Those who have been following Caterpillar actual top-line performance know that things for the industrial bellwether have been going from bad to worse, with not only retail sales declining across the globe, as documented here previously, but with the current stretch of declining global retail sales now longer than during what was seen during the Great Recession.
And yet, moments ago, CAT, which is a major DJIA component, just reported blowaway EPS of $1.72, far above the $1.35 expected. How did it achieve this stunning number which has pushed DJIA futures higher by almost half a percent?
Simple: first there was the usual exclusions, with "restructuring costs" adding back some $0.09 to the bottom line number.
But the punchline was this: "In addition to the profit improvement, we have a strong balance sheet and through the first nine months of the year, we've had good cash flow. So far this year, we've returned value to our stockholders by repurchasing $4.2 billion of Caterpillar stock and raising our quarterly dividend by 17 percent," Oberhelman said."
And here is just how the surge in buyback activity looked in comparison to Q3 2013…
… and since the start of 2013:
One can only assume the collapse in CapEx spending is because the company is so enthused about its global growth prospects.
But wait, there's more, because another reason why the stock is soaring is because CAT actually boosted EPS guidance despite the ongoing retail sales collapse. To be sure, CAT did not boost revenue guidance, and "The company now expects 2014 sales and revenues to be about $55 billion, the middle of the previous outlook range of $54 to $56 billion."
What it did do was say that "with 2014 sales and revenues of about $55 billion, the revised profit outlook is $6.00 per share, or $6.50 per share excluding $450 million of restructuring costs. That is an improvement from the previous profit outlook of $5.75 per share, or $6.20 per…