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Sunday, February 5, 2023


Telling Tuesday Morning

Earnings, earnings, earnings!

We have got bunches of earnings today with many big names reporting and the Dow is bouncing around like a ping-pong ball in pre-markets as announcements hit the wire.  Yesterday's action was wild too as we flew up to test our 8,217 range-top and then back to our 8,066 zone, only to finish right in the middle at 8,116 so a whole lot of nothin' was going on yesterday

Today we'll be looking for signs of housing life in the Case-Shiller Home Price Index at 9 but it's a report on November pricing so ANY reaction by the market to this report will be silly.  At 10 we will test the January Consumer Confidence and "experts" are expecting a one-point improvement to 39 but German business confidence made a surprising recovery after falling for 7 consecutive months with a 3% improvement in business expectations over the next 6 months so we could be surprised by our own numbers.  "The end of the free fall in expectations is a strong ray of hope, that the vicious circle is broken and the German economy will manage, not to rebound strongly, but to stabilize in the second half of this year," said Alexander Koch, an economist at UniCredit Research in Munich.

We shook off some pretty poor earnings yesterday from BOH, CAT, FCF, ONB, PVTB, TSN and WYE (who we bought on the dip).  After hours we got small misses by AXP and AMGN (who Pfizer should have bought), both of whom seem to have been forgiven.  TXN was very surprising with a big beat but lowered guidance, as did STLD, VMW and ZRAN.  This morning (so far) GLW missed and lowered guidance, DAL just missed (by a mile), DD missed (another bad sign for XOM).  On the plus side we have beats from BJS, BMY, CP, CHKP, EMC, FPL, GKSR, HSY, KCI, MHP (big surprise but ruined it by guiding down), PRSP, STJ, STE, TLAB, TRV (good for ALL?), VLO (good for XOM) and WAT.  In short – it seems hard to draw conclusions from earnings other than there are well and poorly managed companies out there and, for the first time in a long time – that sort of thing is starting to matter again!

It's 8 am and we're still waiting for NUE and X along with BTU to give us a look at the industrial picture but Europe already turned down off a nice start.  Don't blame, SI, who disappointed but the 81% drop in net from last year is unfair because last year 80% of their quarter came from selling VDO Automotive.  Its "total sectors profit" — a measure of profit from its main divisions of industry, energy and healthcare — rose 20% to 2 billion euros, topping consensus estimates by around 200 million euros. Revenue rose 7% to 19.63 billion euros.  Energy and mining stocks are pulling back and dragging Europe down this morning as well as the collapse of Iceland's government as the PM and his cabinet resigned yesterday, making it the second European government (Belgium's King fired his) to lose their jobs over the financial crisis

The currency and banking crises have caused a swift reversal of fortune for Icelanders, per capita once one of the world's wealthiest people. Today, inflation and unemployment are soaring, debt is mounting and the banking sector that provided jobs and fueled a consumption boom has vanished.  At the root of Iceland's troubles was an outsize banking system, which grew wildly overseas and built up foreign liabilities many times the size of Iceland's economic output.  When the credit crunch struck, the banks faced difficulty making payments, and Iceland's central bank didn't have the foreign currency needed to bail them out.

Iceland is having trouble because their currency is collapsing but Japan is having a party this morning as the yen finally pulls back and the Nikkei shot right up to the 5% rule and Australia gained 3% as both governments offered addtional stimulus to their markets.  China is still closed for the holiday and you can still get those FXIs for $24.85, which can be hedged by selling the March $23 puts and calls for $5.40 for a net $19.45 (called away at an 18% profit above $23) or $21.23 if put to you, a 14.5% discount off today's price.  Since the Hang Seng is already off about 60% – we're talking about a pretty massive decline before this trade becomes a loser.  At these discounts, even Russia is becoming attractive

X (got 'em) came in with good results but is guiding a loss for Q1.  We're hedged so we are happy not to be blown out of the position by an all great report and we'll probably have a chance to make a new play on them once the market opens.  VZ was a penny miss but FIOS did better than expected and that's what we care about long-term.  We've been waiting for earnings to get a deal on VZ and this should be it so stay tuned during member chat as we add this to the Buy List.  Case/Shiller is the disaster we expected but our HOVs are taking off pre-market as builders are having some success pushing 4.5% and even 4% loans down to the consumer level.

We face a huge rate test on Friday as $230Bn worth of 3-month commercial paper debt comes due and if the corporations who are holding the paper attempt to push them on the open market there is a real question as to whether the demand will support all that paper.  We had a very good Treasury auction yesterday and that was a relief but, with $150Bn a month in Federal debt to auction off this year, we need a series of a dozen consecutive reliefs in order to survive!  The Fed launched the Commercial Paper Funding Facility on Oct. 27 to buy short-term debt directly from companies amid the credit market's seizure, following Lehman Brothers' collapse.  At the time, money-market funds, which are the main buyers of this debt, were hoarding cash to meet redemptions and companies couldn't obtain loans for much more than 24 hours, and at rates as high as 7% or more.

So I'm still very, very, VERY worried about Friday (see yesterday's post) and I'll be very worried about today if we can't take out yesterday's highs so let's continue to be careful out there but we had a blast playing the swings yesterday and I'm sure there's more fun in store as this volatile week continues.  Interesting note – despite the wild market moves the VIX, as expected, dropped 3%.



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Gold eases 1 pct as equities, euro rise

Gold slipped more than 1 percent in Europe on Wednesday, extending the last session’s decline, as a firmer tone to equities and the euro showed the risk aversion that pushed bullion to a three-month high was ebbing.

Gold was quoted at $889.90/891.90 an ounce at 1047 GMT, down from $897.35 late on Tuesday. Earlier it fell to a low of $882.40 after pushing through technical resistance just above $890.

The 7 percent rise in the SPDR Gold Trust’s GLD bullion holdings this year is widely attributed to safe haven buying. The trust, an exchange-traded fund which issues securities backed by physical stocks of bullion, has seen interest soar as risk-averse investors seek out physical gold.

However, jewellery demand remains depressed as prices hold near $900 an ounce, particularly in key global centres such as India, China and the Middle East. "Jewellers are not comfortable buying at such high prices," said Harshad Ajmera, proprietor of Kolkata bullion dealer JJ Gold House.

The German finance ministry said it had no plans to sell gold, after comments from government budget spokesman Steffan Kampeter on Tuesday that the Bundesbank could sell bullion reserves to finance the government’s stimulus measures.

Among other precious metals, silver prices were little changed at $12.04/12.11 an ounce from $12.01.
Platinum was at $942/950 an ounce against $945, while palladium was at $187/192 from $188.50.

Phil – By the way – Its great to have a direct way of reading David Fry. Thanks. Also I really like ‘Mish’ is he going to get a tab or are they just occasional articles ?

After all the debate yesterday ……
XOM – was downgraded to neutral from buy at UBS, with the broker saying the oil giant’s 21% outperformance to peers seems overdone. "Investors have flocked to XOM since mid-2008 as an energy safe haven as oil prices plummeted, and then hid in its cash-rich balance sheet as liquidity concerns mounted last fall. But with liquidity improving and our view that oil prices have put in the lows, we expect investors to begin to step out on the energy equity risk curve making XOM a less attractive ‘relative’ investment," the brokerage said

Well, a rocket opening would be a nice change.   It seems like a lot has gone on already this cycle and we still have over 3 weeks until expiration!

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