Archive - Jul 2010

• Euro weakens versus Dollar, Yen on speculation tests to reveal loan losses.
• 3M net income climbs 43%; raises 2010 EPS view to $5.65-5.80 (prev $5.40-5.60).
• Adidas posts 2Q results 'significantly above' market expectations.
• Akzo Nobel says net profit rose 76% in 2Q thanks to sales growth.
• Amazon's Q2 earnings rose 45% to $207M on a 41% increase in sales of $6.57B.
• AmEx's Q2 profit rose to more than $1B from $337M, and Capital One's increased to $608M from $223M.
• AT&T's Q2 net income jumps 25% to $4.0B; adds 1.6 million wireless accounts.

A New Normal world is likely to
be one with frequent flips between “risk on” and “risk off” days. With
so much profit and loss riding on tail events and so little profit and
loss tied to the cluster of outcomes near ex ante means,
repositioning will likely be more frequent. This is because many
investors lack conviction in their understanding of the true
distribution, so that each passing day provides an opportunity to learn
or unlearn how likely the relevant tail events are. Positioning
for mean reversion will be a less compelling investment theme in a world
where realized returns cluster nearer the tails and away from the
mean. James Carville said twenty years ago that he
wanted to be reincarnated as the bond market because the vigilantes had
so much clout over policymakers. But in the New Normal world, he might
wish to be reincarnated as the Asian equity markets because they are
where traders in Europe and the U.S. look to see if it is a “risk on” or
“risk off” day. With so much money chasing fewer assets with known
return distributions, and with reliable investment rules of thumb
scarce, frequent flips between “risk on” and “risk off” days will likely
be a continuing symptom of the Knightian uncertainty that still, to
some extent, hangs over global financial markets.

- Richard Clarida, Pimco

RANsquawk European Morning Briefing - Stocks, Bonds, FX -- 23/07/10 (Stress Test Special)

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 23/07/10 (Bank Stress Test Special)

The Public Sector Pension Investment Board (PSP Investments) announced today that it recorded an investment return of 21.5% for the fiscal year ended March 31, 2010 (fiscal year 2010), exceeding the Policy Benchmark return of 19.8% by 1.7%. The 2010 performance is one of PSP Investments’ best performances to date and reflects a return to fundamentals from the distressed valuations resulting from the liquidity crisis of the past two years.

Not much, just ...

In the latest black eye to the democrats' midterm election chances, Charlie Rangle, the former chairman of the ways and means committee was charged with a plethora of ethics violations, confirming yet again that the phrase "honest politician" is just as oxymoronic as "Non-stripper-abusing Wall Street CEO." And while we will leave the politics aside, one of the charges is particularly interesting as it ties in closely with the recently popular topic of offshore drilling. Specifically, one of the allegations against Rangel is that he was guilty of: "Preservation of a tax shelter for an oil drilling company, Nabors Industries, which has a chief executive who donated money to the center while Rangel's committee considered the loophole legislation." It appears offshore drilling is not just a republican provenance. If NBR is about to be exposed for a kickback scheme with one of the (allegedly) most "ethically violated" politicians, one wonders just what a detailed investigation into any very probable comparable corruption schemes by BP, DO, HAL, APC and others would reveal and just how far the trail of Corexit-laden corruption would lead.

The market continues to chop around aggressively in the 1,055/1,100 for the S&P future.

Copper has broken out which is one of the markets we had our eye on. The next big resistance beyond 317 is 328/329 (huge overlap and 61.8% retracement). The next two mornings we walked in to strong bids in the commodities space and higher equity prices in China. The Shanghai composite has lost 33% from the highs of the summer 2009, so the market has a lot of room to bounce and that's why maybe copper which is highly correlated to economic and market activity in the region has taken the lead breaking out. Note that the Nikkei has not recovered much from the lows so far but has held the key support at 9,090. I would be tempted to play long in that market at least since I see the future moving up to 10,600 if the bounce continues. - Nic Lenoir

It took them three years to figure out they had it wrong. It will make a difference when they change their ways.

Deep in the bowels of Donk (DOdd-fraNK Financial abomination bill, whose 2315 pages nobody has read in their entirety), in Title XII: IMPROVING ACCESS TO MAINSTREAM FINANCIAL INSTITUTIONS, section 1205 is a provision titled "Low-cost alternatives to payday loans" in which the government outlines its plans for establishing what is essentially a payday loan advance business. Does this mean the government is going into the business of direct lending and bypassing the stingy banks completely? As payday loans tend to be the most usurious of all short-term credit instruments for the lower classes, will the government's intervention into this most recent arena result in the obliteration of the existing business model for payday lenders? But far more importantly, will the government use this platform as a means to provide cash to virtually anyone in exchange for shoddy collateral and mere promises to repay the loan? And nowhere in the text is it said the loans are even collateralized with something like a deferred paycheck: these loans could very easily be on par or even worse than NINJA loans, in which the ability to breathe and walk at the same time is sufficient for eligibility, while the ability to actually repay never even figures in the loan officer's mind?

No commentary needed

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/07/10

Swell ...

It appears the Derek Zoolander Center For Children Who Can't Read Kindle Good And Want To Learn To Go Long AMZN Stock good too (and must be at least this big), is just not gonna get built after all. And so America's brief infatuation with yet another fad draws to a close. All AAPL fans: keep an eye on this one. Don't worry though, both Amazon and Apple will pass the ECB's stress test with flying colors.

More as we get it.