Archive - Apr 2011

Noteworthy and visual news of the day...

Apple beats top and bottom line, but not all is good in Borg land - Apple fails to meet the top and bottom line outlook.

• APPLE 2Q REVENUE $24.67B, EST. $23.38B
• APPLE SEES 3Q EPS ABOUT $5.03, EST. $5.25
• APPLE 2Q SOLD 9.02 MILLION IPODS, DOWN 17%
• SOLD 3.76 MM MACS IN Q2, UP 28%
• SOLD 18.65 MM IPHONES IN Q2, UP 113%
• APPLE SEES 3Q EPS ABOUT $5.03, EST. $5.25

Once again the key variable is the outlook: In Q3 Apple sees revenue of $23 billion to $23.83 billion, and
EPS of $5.03 to $5.25. Consensus has revenue at $23.83
billion, and $5.25 in EPS.

Goldman's just released look at what the end of QE2 would mean should certainly be taken with a grain of salt: after all lately (and in general), the firm's sellside recommendations traditionally are a gateway for its own prop traders to take the other side of what its clients are doing (observe recent performance in WTI). That said, probably the most insightful piece of data is that we now know what the upcoming Greece bankruptcy will be called in polite circles: wait for it - a "liability management exercise." As for the overall impact on rates, Goldman is not surprisingly bearish on rates, and sees the bulk of the upcoming weakness as focused on the 5 Year point. Franceso Garzarelli summarizes his view as follows: "together with our forecast of above-trend growth in coming quarters
and the idea that the compression of bond premium will decay as the
Fed’s balance sheet (organically or voluntarily) shrinks, we think that
short positions in 5-yr Treasuries remain attractive." In other words, Goldman is expecting some flattening in the short end. Does that mean a steepening is inevitable. As for the broader perspective on the curve, Goldman says: "assuming the Fed’s bond holdings passively run off as securities mature, the bond premium should gradually rise. And our macro forecasts are consistent with higher real rates in coming quarters." In other words, another extremely non-committal report from a firm that is rapidly losing its Master of the Universe status. Key highlights below.

Standard & Poor's Ratings Services said today that it revised its outlooks on the debt issues of Fannie Mae, Freddie Mac, the Federal Home Loan Bank System, and the Farm Credit System Banks to negative from stable while affirming our respective debt issue ratings.

Putting aside the S&P threat to downgrade U.S. debt for the moment, consumer and business confidence is weakening, which would be consistent with other data we are seeing about such diverse things as retail sales and industrial production. This is consistent with our forecast for stagflation.

Over the weekend, University of Texas made headlines after disclosing it was the first major institution to take delivery of $1 billion in gold, although still keeping it in the Comex system. Today, the CEO of the management company Bruce Zimmerman was on Strategy Session providing the rationale for his action to David Faber. First some prehistory: "We began buying gold in September of '09 at about $950 an ounce. Our average price is at about $1,150. We've invested around $750 million in gold over that twelve months and it now has a value around $1 billion." On what Texas thinks of gold (no surprise here): "The role gold plays in our portfolio is as a hedge against currencies. The concern is that we have excess monetary and fiscal stimulus. I noted
a couple of days ago, i think there was a story out about Bernanke
mentioning that while they may not increase quantitative easing, they
may not necessarily reduce their exposure either. So i think that may be
a signal that will continue to have a good deal of monetary stimulus.
We read every day what's going on in DC and across the states. We'll see
what fiscal policies look like. It remains a concern for us." As to the specific reason for demanding delivery: "We had gotten to a size and our thought was that we probably will
have our position for a longer as opposed to shorter term, although we
could sell at any time. But rather than continuously roll the futures
contracts, it became easier and more economical for us to take
possession of the bullion." So how long before many if not all other public fund managers decide the same logic should apply to them as well?

Some extreme sport analogies ...

For all who have been awaiting the release of a video of China's Chengdu J-20 stealth fighter jet, which made its first flight on January 11 of this year, Youku has you covered. In a recently released clip, we can see the J-20 performing high speed taxiing tests at Huang Tian Ba airport, Chengdu. A quick summary of the characteristics of the J-20 can be found here. Of note is the rather loud exhaust noise coming from the "stealth" fighter. One would expect this to be modestly muffled in the final version...

We are living in a weak-dollar fantasy and partying like it's Germany in early 1921 as the Gold Bug Speculators celebrate their wise investments as gold crosses 1,500 an ounce - unfortunately, the value of every other Mark-denominated asset was down 50% by the end of the year.

And now for the latest does of reality from China, which will no doubt be reported by precisely zero of the mainstream media outlets. According to Stratfor, there has been a trucker strike in the Waigaoqiao zone in Shanghai on the morning of April 20. As the attached video reports: "The protests the morning of April 20 were in one of Shanghai’s busiest container ports and they were the result of rising fuel prices and low wages. In 2008, we saw similar strikes over fuel prices as taxi drivers took to the streets across China, highlighting how inflation can easily translate into social issues. These protests come a week after residents gathered in the Sonjiang district in Shanghai on April 13 in protest of cheng guan officials, also known as urban management officials, were said to have beaten a pedestrian in a traffic dispute and Shanghai is also the area where we saw the largest gathering during the Jasmine Movement on February 27." So how much longer will China be able to pretend that its USD-pegged monetary policy, not to mention the Fed's inflation exporting efforts is contained? And how long until China's inability to contain its inflation results in a Tiananmen-lite (or not so lite) redux?

What kind of back-assward world do we live in when the FED has to propose a rule like this?

The quarter AT&T loses iPhone exclusivity is the quarter they report record numbers. Why? They started pushing high end Android phones that more than made up for the iPhone loss. You really can't compete with "less than free"!

Now that TEPCO has finally procured some iRobots (with about a one month delay) with freaking webcams attached to their heads it has released the following stunning footage from inside Reactors 3 and 2, showing the situation in the only reactor which has plutonium as well as one of the reactors to have experienced an explosion. While we doubt the validity of the data, according to IDG the radioactivity level in Reactor 3 is 57 millisieverts/hour. In reactor 2 the radioactivity is disclosed as being too high for workers to enter.

All those who listened to Goldman and sold their oil exposure (to Goldman) may not be delighted to know that WTI is now trading at a higher price than where Goldman advised all their oh so precious clients to dump the black gold. As a reminder on April 12 Goldman released one of three bearish reports on oil expecting brent to drop to $105. In the meantime, cause a sell off in the energy complex. Seven trading days later, those who shorted on Goldman's advice, are now underwater. In the meantime we look forward to Goldman reporting another flawless trading quarter in their Q2 10Q some time in July. Of course by then Goldman's "transitory" deflation bias will be long over.

Remember Japan? From Kyodo: TEPCO Can Not Rule Out Meltdown At Fukushima Reactor. Surely this is bullish for lead, over and above the massive surge in demand for the metal from central banks.