As we reported last night, whether as a result of Snowden revelations and NSA blowback by BRIC nations, or simply because the global economy is contracting far faster than rigged and manipulated markets worldwide will admit, IBM's Q1 revenues not only missed consensus earnings, but dropped to their lowest level since 2009. And yet, IBM stock is just shy off its all time highs and earnings per share have been flat if not rising during this period, leading even such acclaimed investors who never invest in tech companies as Warren Buffett to give IBM the seal of approval. How is that possible? Simple: all that investment grade companies like IBM have done in the New Normal in order to preserve the illusion of growth, is to use cash from operations, or incremental zero-cost leverage, to fund stock buybacks. In essence a balance sheet for income statement tradeoff. However, that "great stock buyback gimmick" as we call it, is finally coming to an end.
VIX-slamming, USDJPY-ramping, BTFDe-escalating muppetry and we end the week near the highs with the S&P and Trannies comfortably green YTD (though notably underperforming gold still). Treasuries were sold hard today (7Y +10bps) as the D word was bandied about by the politicians (while in reality de-escalation was anything but what was happening), but the 5s30s still flattened modestly further. 10Y saw one of its worst days of the year and yields pressed up to their 200DMA. Gold and silver were flat to modestly lower as copper and oil limped higher. FX markets were relatively calm as the USD pushed higher on the week (+0.5%). Stocks closed weak into the close but after 3 days of ramp, it's hardly surprising.
An impromptu press conference... on Obamacare but we are sure there'll be time to poke the bear...
The latest development out of NATO, which was already largely expected, must be part of the just announced elaborate de-escalation scheme. From VOA: "NATO members are sending navy ships to the Baltic Sea to increase the security of the alliance's eastern European allies in response to the Ukraine crisis. NATO's Maritime Command said Thursday it is sending four minesweepers and a support vessel to the Baltic Sea. The ships are from Norway, the Netherlands, Belgium and Estonia."
Here’s something you don’t see very often: For a day and a half this week, the Japanese government’s benchmark 10-year bonds attracted not a single successful private sector bid. At today’s artificially-depressed yields, no one wants this paper — except of course the Bank of Japan, which is buying up the bonds with newly-created yen. In a world of markets rather than manipulations, this kind of imbalance would be an automatic short candidate. Actually, this kind of imbalance would never occur and as one trader noted "I know this could end badly."
Everyone knows that the half-life of these pointless diplomatic summits aimed at "de-escalating" geopolitical tensions is measured in days if not hours... But minutes? Moments ago from RT, and literally minutes after the final Geneva "agreement" was blasted, we get this: "Kiev says Military operation in Ukraine southeast to go on despite Geneva agreement." The agreement, which as a reminder, said "All sides must refrain from any violence, intimidation or provocative actions." That's right: not just "pro-Russian separatist terrorists", but all sides.
Krugman: "There's zero evidence that the kind of extreme inequality that we have is good for economic growth. In fact, there's a lot of evidence that it is actually bad for economic growth. Nobody wants us to become Cuba." Ah yes, inequality, the same inequality that the Fed - Krugman's favorite monetary stimulus machine - has been creating at an unprecedented pace since it launched QE. Just recall: "The "Massive Gift" That Keeps On Giving: How QE Boosted Inequality To Levels Surpassing The Great Depression." So while Krugman is right in lamenting the record surge in class divide between the 1% haves and the 99% have nots, you certainly won't find him touching with a ten foot pole the root cause of America's current surge in inequality. And, tangentially, another thing you won't find him touching, is yesterday's revelation by Gawker that the Nobel laureate is the proud recipient of $25,000 per month from CUNY to... study inequality.
Those munificently rising stock prices and options cash-outs owe much to the Fed’s campaign to suppress interest rates and fuel stock market based ”wealth effects”, but the CEOs are doing their part, too. They have become full-time financial engineers who use the Fed’s flood of liquidity, cheap debt and soaring stock prices to perform a giant strip-mining operation on their own companies. That is, through endless stock buybacks and M&A maneuvers they create the appearance of “growth” while actually liquidating the balance sheet equity and future asset base on which legitimate earnings growth depends. The poster boy for this deformation is IBM which for all intents and purposes has become a stock buyback machine on steroids. It had a bad hair day yesterday, reporting still another year/year decline in sales, but that goes right to the heart of the matter. During the last seven years IBM has been a stock traders dream, climbing an almost picture perfect chart from $94 per share in March 2007 to a recent peak of $212.
First it was Lavrov announcing the "roadmap" to de-escalate Ukraine tensions. Now it is the turn of John Kerry.
Considering how successful diplomatic "solutions" to the Ukraine crisis have been in the past, it is no wonder almost nobody was paying attention to Geneva where today the four parties were holding talks to resolve the Ukraine situation, and moments ago they released, via Russia's Lavrov, a joint statement on "de-escalating the situation." From Bloomberg:
- LAVROV SAYS DOCUMENT APPROVED ON UKRAINE
- 4 PARTIES CALL FOR ILLEGAL ARMED GROUPS TO BE DISARMED: LAVROV
- UKRAINIANS MUST RESOLVE CRISIS THEMSELVES, LAVROV SAYS
- PARTIES URGE AMNESTY FOR PROTESTERS IN UKRAINE'S EAST: LAVROV
And, approrpiately enough, the Easter Egg:
- UKRAINE NEEDS DECENTRALIZATION, MORE REGIONAL POWERS: LAVROV
In other words, more referendums? For now stocks aren't reacting bullishly (perhaps because as UBS recently suggested, war may be bullish for US stocks), however, oil is lower on the news.
Moments ago Weibo opened at a price that shocked pretty much everyone following the story of China's twitter, which had already cut overnight the number of shares it was taking public:
WEIBO CORP OPENS AT $16.27, IPO AT $17.00
However, within moments of opening the underwriters did everything they can to avoid another Facebook and defended the IPO price, promptly sending the stock above $17.00 where it was trading as of this second. Will they succeed, or will the Chinese social networking invasion also be Candy Crushed? The next few hours will likely give the answer.
Moments ago, in a show of continued solidarity with the people of (West) Ukraine, US Defense Secretary Chuck Hagel announced the latest batch of "non-lethal" aid to Ukraine. Among the items that would be shipped are:
- Sleeping mats;
- Water purification systems;
- Medial supplies; and
Why no healthcare plans? Hagel added that while US actions are "provocative" and "heighten tensions", the US supply of equipment to non-NATO member Ukraine is not meant to "provoke or threaten Russia" and will review providing Ukraine with more support, also saying that the US is offering "planners" to help NATO update plans. The same NATO which as we reported yesterday, is preparing to expand its air and water presence around Russia... also obviously in a way that is not meant to threaten provoke Russia.
No, not the S&P 500.
As it turns out, in their euphoria to lower EPS estimates, the sellside lemmings forgot all about revenues. Oops. Because according to the Deutsche Bank Q1 earnings tracker, while two thirds may have beat earnings, a stunning 51%, or a majority of the reporting companies have missed Q1 revenue estimates.