Archive - Jan 23, 2013

AAPL's after-hours loss in market cap is greater than the market cap of one BlackRock, Starbucks, Target, Costco, or Nike. Down almost 9% from yesterday's close, AAPL is trading down to January 2012 levels (off 35% from its highs) and is now notably less capitalized than the entire European banking system. Of course, this has had serious consequences for the major indices that are trading after-hours (and futures). Futures traded down to the day-session lows before closing but QQQ are now trading at 6-day lows in after-hours...and as S&P futures reopen they are gapping down a little more.

It looks like what may be good for the environment is actually bad news for the government.  

The most anticipated earnings release of the quarter has come and it has been a dud, at least judging by the market's expectations and its response. Because while EPS beats just barely (a far cry from the epic EPS beats of Steve Jobs days) coming at $13.81 on expectations of a $13.53 print, revenue outright missed, coming at $54.5 billion on expectations of a $54.9 billion Q1 2013 result. Furthermore, fears about profit margins were proven correct, with total gross profit coming in at $21.1 billion, which alas was 38.6% of revenue, well below the vaunted 40% threshold (as a reference margin was 44.7% a year ago, and 40.0% a quarter ago). And finally, the breakdown by components in the iPhone 5 release quarter was just, well, meh.

One look at the headline numbers, and of course the short interest of Netflix, and one can see why the stock is being squeezed by nearly 30% after hours:

• Q4 Revenue: $945 MM, Exp. $934 MM
• Q4 EPS of $0.13, Exp. $(0.13)
• Q4 domestic contribution margin 18.5%, up from 16.4% in Q3 and 10.9$ in Q4 2011
• Total domestic subscribers 27.15 MM, paying subs: 25.47 MM
  • Forecasts 28.5MM-29.2MM domestic subscribers in Q1
• Sees Q1 Revenues of $1.004 billion to $1.031 billion
• Domestic DVD subs dropped from 8.61 to 8.22 while generating $254MM in revenue and $128MM in profit

In fact, all is either just a little bit better or much better if one looks at the projection set... until one looks at the actual Cash generated by the Business. Behold the Free Cash Flow as reported by the company... no, not AMZN, although it may well be its small cousin.

In the old days, it was Fed via POMO to stocks; but given the new normal, now we have levered POMO to rescue us via vol compression and yet again - today saw risk-assets sliding all night (though admittedly only around 0.5% off highs) only to be rescued by a vol-compressing equity push that started the moment POMO finished. HY credit was tinkered with in the last hour to keep things afloat and of course AAPL soared into its earnings report. The debt-ceiling vote did little to maintain risk-on as CAD weakness (BoC holding off from rate hikes) pulled the USD higher, and hurt risk-on commodities - as Oil plunged on the day. Treasury yields continued to fall - entirely ignoring stocks once again - even though stocks caught down to risk early and ended at new five-year highs on the Dow (thanks almost entirely to IBM). So low volume in stocks (AAPL decent volume), low average trade size in S&P futures, and a disconnected equity market from bonds and FX once again... eyes down for an Apple full-house...

With minutes to go, this is what the world (according to the Google machine) is thinking ahead of Apple's earnings... and what the market expects...

Manhattan: 2770 Broadway NYPD reporting a a Robbery at the Bank Of America same perp that robbed HSBC at 2681 Broadway few. moments ago.

— NY Scanner (@NYScanner) January 23, 2013

Much was made of the first two days of this year as indicative of the great 'meme' that every sell-side rep and commission-taking asset manager has pumped investors full of - the 'great rotation' is here. Finally, rates were rising, growth was here, money on the sidelines was moving, and the supposedly 'dumb money' was rotating from bonds to stocks. However, that is not what happened now is it? 10Y yields are now practically unchanged on the year - even as stocks continue to be bid - with the major divergence beginning on January 11th. There is, however, an alternate 'great rotation' that appears just as powerful - that of covering idiosyncratic AAPL longs and rotating into systemic long equity positions (or covering AAPL-hedging short equity index positions). We suspect, given the volume shifts below, that much of the mysterious buying power in S&P 500 futures is indeed beta-hedge unwinds from massively over-exposed AAPL longs unwinding. With AAPL's earnings due tonight, perhaps this 'rotation' will be over.

While we know that most of the world's billionaires are currently holed up in Davos, Bloomberg has created a visual extravaganza for tracking the great and good of our fair world. The real-time billionaire tracker maps the world's richest people to their country of citizenship, industry, gender, age, and source of wealth. We assume this is the new deal target for our administration - how long before we see these headshots on the back of a set of playing cards?

Hey there Breuer, who you jiving with that cosmic banksta debris?

Hell hath no fury... After an extensive 24,500 word hearing, it would appear we are not really any closer to knowing who knew what when and why we weren't told. However, while the invisible hand of the word-cloud fairy found it useful to highlight the words 'People', 'Think', and 'Know', perhaps it was Hilary's infuriated outburst (clip below) when pressed on what happened that sums it all up in her eyes: "What Difference Does It Make?" It seems that once again 'they' know what is best for us to know and not know... But perhaps the only relevant statement in the entire theatrical presentation was the following: "we don't have assets of any significance right now on the African continent. We're only building that up," which perhaps has something to do with this...

Two days ago we presented the complete hedge fund performance for 2012, in which it was clear that David Einhorn's Greenlight had a Q4 that did not go quite as expected, primarily as a result of AAPL plunging in the quarter, and his hated GMCR soaring, leaving his fund with a 8% return for the year (and -5% for the quarter), well below the general market and some of his far more vocal hedge fund peers. Those curious just what it is that caused this underperformance, here is the complete Greenlight Q4 letter discussing not only why Einhorn is doubling down in AAPL, why he still likes Marvell, Computer Sciences and Vodafone, as well as his continuing negative outlook on Iron ore, and the Yen. He closed out positions in WLP, MCO, DIA, ITX and PBI. In summary: "At quarter end, the largest disclosed long positions in the Partnerships were Apple, Cigna, General Motors, gold and Vodafone Group. The Partnerships had an average exposure of 114% long and 70% short."

As we reported previously, the stock of the oldest bank in the world, Italy's venerable Banca Monte Dei Paschi of Siena, was halted in early trade after plunging on news that the bank had engaged in not only the previously reported secret derivative transaction with Deustche Bank to hide losses before a prior government bailout, but yet another derivative transaction, this time with Nomura, signed three years ago and whose intention, ironically, was to reduce 2012 earnings by some €220 million.What the ultimate purpose of these deals was is still unclear and will likely become apparent eventually, however it will likely require the former Chairman of the bank, Giuseppe Mussari, who served as Chair from 2006 until April 2012, and who officially quit his post as Italy's top banking lobbyist after today's revelations, to testify. One person whom he may testify against is none other than current ECB head Mario Draghi, who just happened to be the head of the Bank of Italy from 2006 to 2011, or the entire period when Monte Paschi was engaging in what increasingly appears to have been fraudulent activity.But don't worry: just like in the US, nobody of signfiicance is about to go down for this "glitch" which is about to be blamed on some poor mid-level shmuck, and which nobody in the senior level management had any idea about, and certainly not the person who ultimately would have had to give the green light: the current head of the ECB.

Things are so corrupt in China, that as soon as the new Government stated it would crack down on corruption, a fire sale of luxury properties began as corrupt officials sought to dump their illegal holdings.

No sooner had the House got its 212 votes to pass (with 109 Democrats voting against) the debt-ceiling extension "No Budget, No Pay" bill then Silver and US equities began to rise. At the same time, WTI started to crack lower. Now it is over to Harry Reid and the promised 'smooth sailing' through the Senate. As a reminder for all those ebullient Dow watchers, IBM's gains today account for 76 Dow points - which means the remaining 29 names of the Dow are -3 points! The brief risk-on rally is already fading...priced-in? or doesn't matter?