by ilene - May 22nd, 2015 11:22 pm
Financial Markets and Economy
"It would be difficult to overstate the recent downside surprise in global consumer spending," writes JPMorgan Senior Global Economist Joseph Lupton.
Though retail sales in the U.S. have missed expectations for five consecutive months, disappointing consumer spending is far from just a made-in-the-USA story, he observes.
Japan’s foreign investments and assets climbed to a record in 2014, keeping it in front of China and Germany as the world’s top creditor nation.
The reading stretches Japan’s lead as No.1 creditor country to 24 years, with 71 percent more in net assets than China, even after its Asian neighbor surpassed it to become the world’s second-largest economy in 2010.
French telecommunications group Altice SA is talking to several banks about raising debt for a potential bid for Time Warner Cable Inc, the second-largest U.S. cable operator, according to people familiar with the matter.
The talks are an important step for Altice in putting together a bid for Time Warner Cable, which is also being courted by Charter Communications Inc after Comcast Corp abandoned its $45.2 billion offer for Time Warner Cable last month over U.S. antitrust concerns.
Deutsche Lufthansa AG scrapped its dividend this year partly because of charges tied to its pension fund. Investors have been shunning the shares — and those of peers that are likely to follow suit.
An unintended consequence of Mario Draghi’s bond-buying campaign has been an increase in the estimated cost of providing for retired workers. According to an index designed by Citigroup Inc., companies with the biggest pension deficits that have been forced to reduce profit forecasts are trailing the rest of the market by the most since 2013.
by ilene - May 22nd, 2015 2:33 pm
Courtesy of Mish
Inquiring minds are reading Fed Chair Janet Yellen's Outlook for the Economy speech, delivered today at the Providence, Rhode Island Chamber of Commerce.
Here are a few snips from what I believe to believe is a way over-optimistic assessment. I provide rebuttals following each statement.
Yellen: The U.S. economy seems well positioned for continued growth. Households are seeing the benefits of the improving jobs situation, and consumer confidence has been solid.
Mish: The economy is not positioned for much, if any, growth. Consumer confidence is not solid, and consumer spending plans have been sinking like a rock. See Consumer Confidence Plunges Below Any Economist's Estimate; Consumers Shock Economists.
Yellen: The drop in oil prices amounts to a sizable boost in household purchasing power. The annual savings in gasoline costs has been estimated at about $700 per household, on average, and savings on heating costs--especially here in the Northeast, where it was so cold this winter--are also large. Given these energy savings on top of the job gains, real disposable income has risen almost 4 percent nationally over the past four quarters. Households and businesses also are benefiting from favorable financial conditions. Borrowing costs are low, supported by the Fed's accommodative monetary policies. And credit availability to both households and small businesses has improved.
Mish: Any savings on energy went up in smoke on rental increases and rising health care costs. See CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned.
Yellen: In recent months, as I noted earlier, there has been some softness in the economic data. Recent indicators of both household spending and business investment have slowed, and industrial output has declined. The Commerce Department's initial estimate was that real gross domestic product was nearly flat in the first quarter of 2015. If confirmed by further estimates, my guess is that this apparent slowdown was largely the result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labor disputes at ports on the West Coast, both of which likely disrupted some economic activity. And some of this apparent weakness may just be statistical noise. I therefore expect the
by ilene - May 22nd, 2015 12:43 pm
Courtesy of Mish.
The CPI came in exactly in line with the Bloomberg Consensus option today.
It’s the details, not the overall number that is worrying. Medical care and rents have been rising rapidly.
The Fed likes to ignore food and energy costs. They have their chance to prove it.
From Bloomberg …
Pull forward that rate hike is what some of the hawks are thinking after reading today’s consumer price report where a benign looking headline, up only 0.1 percent in April, masks rising pressure through many components.
Excluding food and energy, core prices rose 0.3 percent which doesn’t seem that much but is outside Econoday’s high-end forecast for 0.2 percent. It is also the highest since January 2013. The year-on-year rate for the core is plus 1.8 percent which, after dipping to 1.6 percent earlier in the year, is closing in on the Fed’s general inflation target of 2.0 percent.
Readings showing pressure are outside energy including medical costs (up a very steep 0.7 percent in the month) and education costs (up 0.5 percent). Shelter costs, reflecting rising rents, came in at plus 0.3 percent for the 3rd time in 4 months which is the hottest streak for this reading since way back in late 2006 and early 2007. Also standing out are gains in furniture (up 1.3 percent) and used cars (up 0.6 percent).
Oil prices have been on the rise but not energy costs, at least in the April report which fell a heavy 1.3 percent. Gasoline fell 1.7 percent in the month. Two other readings also showed downward pressure: airfares (minus 1.3 percent) and apparel (minus 0.3 percent). Food costs were flat.
The headline CPI is down 0.2 percent year-on-year which looks downright deflationary. But the lack of pressure is due entirely to energy which is down a very deflationary 19.4 percent year-on-year. Energy prices are bound to firm given the recent move in oil from the high $40s for WTI to $60. That and emerging price pressures through the bulk of the consumer economy raise the risk that inflation may be brewing after all.
The CPI Seasonally Adjusted Numbers from the BLS look even worse.
by ilene - May 22nd, 2015 12:36 pm
To be "fiscally conservative/socially liberal" means overlooking many of the facts that make it impossible to separate social and fiscal issues. The following article discusses why the social and fiscal aspects of any political theory are so tangled that one is often just an unfortunate side of the other and why the relatively innocuous "fiscally conservative/socially liberal" position is inconsistent — a mix of ideas that do not hold up well together.
For a "top down" approach to sorting out the inconsistencies of your economic and political theories (forgetting the "liberal" and "conservative" labels for a moment), explore how the laws define our economic playing field. (E.g. read Stiglitz on Inequality, Wealth, and Growth: Why Capitalism is Failing.)
Thoughts? Please give us yours in the comment section.
It's a popular refrain among "centrists." The truth is that social and fiscal issues are inextricably bound
By Greta Christina, originally published at Alternet (via Salon)
Well, I’m conservative — but I’m not one of those racist, homophobic, dripping-with-hate Tea Party bigots! I’m pro-choice! I’m pro-same-sex-marriage! I’m not a racist! I just want lower taxes, and smaller government, and less government regulation of business. I’m fiscally conservative, and socially liberal.”
How many liberals and progressives have heard this? It’s ridiculously common. Hell, even David Koch of the Koch Brothers has said, “I’m a conservative on economic matters and I’m a social liberal.”
And it’s wrong. W-R-O-N-G Wrong.
You can’t separate fiscal issues from social issues. They’re deeply intertwined. They affect each other. Economic issues often are social issues. And conservative fiscal policies do enormous social harm. That’s true even for the mildest, most generous version of “fiscal conservatism” — low taxes, small government, reduced regulation, a free market. These policies perpetuate human rights abuses. They make life harder for people who already have hard lives. Even if the people supporting these policies don’t intend this, the policies are racist, sexist, classist (obviously), ableist, homophobic, transphobic, and otherwise socially retrograde. In many ways, they do more harm than so-called “social policies” that are supposedly separate from economic ones. Here are seven…
by ilene - May 22nd, 2015 11:13 am
Courtesy of The Automatic Earth.
NPC Dedication of Francis Asbury statue, Washington, DC 1924
The present Chinese leadership appears to be trying to gain (regain?) more -if not full- control over the country’s economic system, while at the same time (re-)boosting the growth it has lost in recent years.
President Xi Jinping, prime minister Li Keqiang and all of their subservient leaders – there are 1000?s of those in a 1.4 million citizens country- apparently think this can be done. Yours truly doubts it.
As I’ve repeatedly said over the past years, I don’t think that they ever understood what would happen if they opened up the country to a more free-market, capitalist structure. That doing so would automatically reduce their political power, since a free market, in whatever shape and form, does not rhyme with the kind of control which the Communist Party has been used to for decades, and which the current leaders have grown up taking for granted.
I don’t think they’re fools or anything, just that their -preconceived- ideas of power don’t rhyme with the kind of economy Beijing, starting with Deng Xiao Ping, has created. In particular, they have allowed other segments of society to accumulate great wealth, and with wealth comes power.
And in fine Pandora’s Box fashion, it’s very hard, if not impossible, to reverse the process. This failure to grasp to what extent these ‘market liberation’ policies have had a Sorcerer’s Apprentice effect, may, if not must, lead to utter chaos and worse…
A closely related failure is that the rulers have allowed the shadow banking system to grow to ginormous proportions. Likely, in their eyes this ‘merely’ helped the economy grow at double digit speed for years, and they could stop it at will. But something else was growing along with it: the power of the shadow banks -and the people behind them-, both economic and political. Which is not acceptable in a one party rules all system.
And so there is a crackdown going on, presented as ‘reform’, and shadow bank loans have indeed diminished. But that is hurting the economy much more than it heals it. And so measures are reversed on the fly.
by ilene - May 22nd, 2015 10:03 am
Courtesy of Pam Martens.
When the U.S. Department of Justice held its press conference on Wednesday to announce that five mega banks were each pleading guilty to a felony charge, paying big fines and being put on probation for three years, Assistant U.S. Attorney General Leslie Caldwell specifically took a battering ram to the reputation of Swiss bank, UBS.
Four banks — Citicorp, a unit of Citigroup, JPMorgan Chase & Co., Royal Bank of Scotland and Barclays — pleaded guilty to an antitrust charge of conspiring to rig foreign currency trading while UBS pleaded guilty to one count of wire fraud for its earlier involvement in rigging the interest rate benchmark, Libor.
In explaining why the Justice Department was ripping up the non-prosecution agreement it had negotiated with UBS in December 2012 over its involvement in the Libor fraud and now charging it with a felony, Caldwell delivered a scathing attack on UBS, stating:
“Perhaps most significantly, UBS has a ‘rap sheet’ that cannot be ignored. Within the past six years, the department has resolved criminal investigations of UBS three times, resulting in non-prosecution or deferred prosecution agreements. UBS also has entered into civil and regulatory settlements on multiple occasions within the past few years. Enough is enough.”
Enough is apparently not enough, however, when it comes to serial banking tyrants based in the U.S. Not only does Citigroup have a monster rap sheet that keeps growing, but it’s the bank that contributed significantly to the U.S. financial collapse in 2008 and received the largest taxpayer bailout in U.S. history: $45 billion in equity infusions, over $300 billion in asset guarantees, and over $2 trillion in low-cost loans from the Federal Reserve.
by ilene - May 22nd, 2015 9:25 am
Courtesy of Pater Tenebrarum via Acting-Man.com
A Big Dow Theory Divergence
We briefly want to show a few charts that have caught our eye recently. This is by no means a comprehensive market update (we plan to provide one soon). Here is something though one doesn’t see all too often: the Dow Industrials and Transportation averages have diverged from each other for about six months running. To be sure, no valid Dow theory sell signal has been given yet. For that to happen both averages need to break their previous reaction lows in concert. However, divergences at peaks are a “heads up” signal. Charles Dow would probably at least raise one eyebrow and frown a little.
Transportation stocks have turned from leaders into laggards, in the process diverging ever more from the Industrials average – click to enlarge.
The NYA, Then and Now
The next two charts were sent to us by a friend who manages a fund and often passes on his technical observations to us. The first chart shows the broad-based NYSE Stock Exchange Index (NYA) as it looked in the final years of the tech mania that fizzled out in the spring of 2000. The second chart shows the NYA as it looks today.
The NYA from 1996 to 2000 – click to enlarge.
The NYA today – click to enlarge.
The similarity between these two charts is quite baffling. However, we hasten to add that we have seen many such pattern comparisons over the past few decades, and they often turn out to be meaningless. Incidentally though, Paul Tudor Jones’ career really took off when he traded the 1980s market based on the pattern of the 1920s market, and the pattern actually did repeat, including the infamous crash (the action obviously began to diverge after the crash, but the patterns eerily shadowed one another for a number of years). So at times, a pattern comparison can actually turn out to be helpful.
by Insider Scoop - May 22nd, 2015 12:00 am
Courtesy of Benzinga.
Analysts at Goldman Sachs initiated coverage on Qorvo Inc (NASDAQ: QRVO) with a Buy rating.
The target price for Qorvo is set to $98.
Qorvo shares closed at $81.26 yesterday.
Latest Ratings for QRVO
|May 2015||Goldman Sachs||Initiates Coverage on||Buy|
by Insider Scoop - May 22nd, 2015 12:00 am
Courtesy of Benzinga.
In a report published Friday, Deutsche Bank analyst Paul Trussell previewed Big Lots, Inc. (NYSE: BIG)’s first quarter and offered mitigated factors to current concerns.
Big Lots is scheduled to report its first quarter results on May 29 before market open. The Wall Street consensus estimate is calling for an earnings per share of $1.75 on revenue of $1.590 billion.
Will Comps Slow?
According to Trussell, the top concern heading in to the quarter is a deceleration of same-store sales as Big Lots faces a tougher compare, could see softness in furniture while the company struggles to gain traction in consumables.
Trussell noted his mitigating factors include cooler benefits to continue through fiscal 2016, furniture financing should gain momentum due to discretionary spending power and operational training/support, new merchants have lifted quality, marketing shift has been “dramatic,” and the ‘editing’ drag is over.
Trussell is projecting fiscal 2015 same-store sales of 2.1 percent with upside potential.
Is Gross Processing Margin Mounting?
Investors are also worried that Big Lot’s gross processing margin (GPM) could be pressured as consumables penetration (especially frozen) increases. With over 1,200 stores now with coolers, the mix could shift unfavorably.
Trussell argued that this concern may be legitimate, the company still ended fiscal 2014 120 basis points below its prior GPM peak and will continue to see significant tailwinds from lapping heavy markdowns/editing, improving shrink and regular rate sell-through, and low freight and fuel prices.
Trussell is modeling a 29 basis point increase in GPM in fiscal 2015 followed by a 27 basis point gain in fiscal 2016, reaching 40.0 percent.
Could SG&A Deleverage?
Finally, investors are concerned that higher insurance and depreciation costs, pressure across retail to boost wages and a higher than expected cost associated with the company’s online rollout could pressure SG&A.
Trussell counted that Big Lots’ store payroll, occupancy and advertising are all growing at a lower rate versus sales and the company could benefit from closing underperforming doors. In addition, the company only needs…
by Insider Scoop - May 22nd, 2015 12:00 am
Courtesy of Benzinga.
RBC Capital Markets has had a material rerating in the tech sector since the beginning of this year. Analyst Mark Mahaney was on CNBC recently to discuss this rerating and share the outlook for his current top picks: Amazon.com, Inc. (NASDAQ: AMZN), Netflix, Inc. (NASDAQ: NFLX), and Shutterstock Inc (NYSE: SSTK).
Less Aggressive On Major Tech
"We began this year with many of these stocks at trough levels. Netflix, Amazon, Priceline, Google," Mahaney said. "They were all pretty close to, some of them were close to market multiples and that created interesting buying opportunities. We have had a rerating, so, overall as a group we are less aggressive than we were at the beginning of the year. That said, we still think there’s upside to those three names."
Related Link: Murray Christmas! Bill Murray Is Coming To Netflix
On the kind of appreciation Amazon can see from here, Mahaney said, “Amazon we think there is a $500 pitch from where the stock is today. So, call it 15-20 percent upside from here and the big play on the stock, what needs still to be proven and what the market is still skeptical on, maybe rightfully so, is margins in the core retail business. We got positively surprised by AWS, but the skepticism is still there on the retail side. We think that skepticism can be overcome.”