Archive - Jul 2013 - Story

Those who have been following the ongoing "revenue recession" will hardly be surprised that in the trifecta of major corporate earnings releases hitting the tape after the close, there were precisely zero revenue beats. To wit:

• INTC: Revenue misses $12.81bn, Exp. $12.89 bn, cuts guidance.
• EBAY: Revenue misses $3.88bn, Exp. $3.89bn, sees earnings and revenue on lower end of guidance.
• IBM: Revenue misses $24.92 bn vs $25.34 bn; But since this is the largest component of the DJIA, leaving it there may lead to unpleasant consequences for tomorrow's Dow, the company had to inject a mega dose of hopium and boosted its forecast.

Since EPS is the most easily fudgable number in existence (just look at BAC's "non MTM" EPS today), all companies beat on the bottom line. Without looking we will assume that at least 2 out of the 3 are trading higher after hours.  And if not, all the three companies need to do to make the algos forget about the top-line non-growth reality is take a page from the YHOO book, hold a very "edgy" video conference call, and see their stocks up 10% tomorrow. Of course, everyone will ignore that the relentless decline in revenues is merely a function of depressed CapEx spending, a tapped out consumer, a crash in EM demand, and major FX headwinds, and blame it all on the [hot|cold] weather.

We suspect few would have expected a relatively quiet kind of day for stocks and bonds today but that is what we got - with all the action taking place at the release of Bernanke's prepared remarks. Thanks to DuPont (Peltz not talking) which added 21 points to the Dow, the Dow ended mildly green. The Nasdaq and S&P had small gains as the Trannies outperformed. Treasuries saw a notable 'hump' compression with the belly dropping 6bps but the long-end and the short-end only -2bps. VIX unwound all of yesterday's relative 'hedge' premium and closed unch to Monday. The USD ended modestly higher as did WTI (back over $106.50) but gold and copper end down 0.75% for the week. It was silver that suffered from apparent sanguineness (sic.) as it slumped 4% from the earlier highs of the day. Of course, tomorrow's another day of Bernanke as the "wait-and-see" market rolls on - closing once again perfectly at VWAP...

Any day now...

McDonalds has created a ridiculously condescending budget (along with Visa) which provides some advice for its staff's planning (beginning with "get a second job"). Critically though, the key factor of all this is that food stamps are corporate welfare. They actually are not welfare for the workers themselves, who undoubtably don’t have wonderful lives. What ends up happening is that because the government comes in and supplements egregiously low wages with benefits like food stamps, the companies don’t have to pay living wages. So in effect, your tax money is being used to support corporate margins.

It is somewhat ironic that a Federal Reserve which is now more committed to "forward guidance", transparency and communication than ever in history, just announced the resignation of Krishna Guha, the head of NY Fed's Communications Group, aka the head PR contact for all media. More importantly, the resignation took place without a handy substitute ready. Our advice to the Fed, if unable to find a worthy replacement: just hire Jon Hilsenrath - after all he already is effectively the Fed's mouthpiece.

Jan Hatzius' assessment of Bernanke's first congressional testimony was just released. We assume it was not written while he was having lunch with Bill Dudley at the Pound and Pence.

Stolper: "On July 5, rising EM external funding costs, following a strong Payrolls report in the US, prompted us to express our view of EM FX vulnerability by recommending a long USD against a basket of TRY, ZAR, INR, BRL, CLP. A combination of events has worked against our recommendation; relaxation of Fed tapering fears, unwinding of long dollar positioning and activism by EM authorities to stem depreciation pressures. As a result, at the close of London trading today, the recommended basket closed at 97.8, below the stop-loss of 98."

Projections based on high rates of endless growth are delusional. Those who embrace these projections are equally delusional. Attacking critics who have taken the time to study the data and trends is not going to magically make these programs sustainable or fix what's broken. Placing one's faith in government projections that always forecast high rates of endless growth (because "growth" fixes everything) is embracing delusion. Reality trumps accounting trickery and delusional projections every time. Let's see how accurate all the government agency projections (including the SSA Trustees) turn out in September 2015, at the end of fiscal year 2015.

The following brief exchange between a congressman and Ben Bernanke pretty much wins today's Humphrey Hawkins farce.

• Q: Are You Printing Money?
• Bernanke: Not Literally

And a FTW follow up from the Chairman:

• If the Fed were to tighten policy, the economy "would tank"

And there you have it. Everyone can go home now.

Page 5 of BAC's Financial Supplement lays it out for all to see: the "Net change In available-for-sale debt and marketable equity securities" in Q2 was $4.233 billion. How does this compare to the firm's reported Net Income of $4 billion? It compares as follows: absent Mark-To-Unicorn, Bank of America's "Net Income" of $4 billion would have been a loss of $200 million. Which, incidentally, is what BAC reveals is its Comprehensive Income at ($209)MM. Of course, since every other firm is in the same boat of hiding epic losses the second the market stop acting according to every whim of the central planners, nobody cares and certainly nobody wants to bring attention to this little fact.

While Chanos' last year's short on HP has not been a tremendous success (yet), it seems the market is more acquiescent to the famous China bear's short call on CAT (among other things due to its infamous major exposure to China). As we noted in detail most recently first two months ago and then one month ago, things at the industrial company are not going at all well, but Chanos notes some more important concerns:

• CHANOS: SHORT CATERPILLAR INC.
• CHANOS: SAYS CATERPILLAR HAS ‘ACCOUNTING ISSUES’
  
• CHANOS SAYS CATERPILLAR IS TIED TO WRONG PRODUCTS IN WRONG TIME
• CHANOS: WILL FACE A SERIES OF SUPERCOMMODITY HEADWINDS
• CHANOS: ACCOUNTING FOR BUCYRUS DEAL MAY HAVE BOOSTED CAT EPS
• CHANOS: EARNINGS DRIVER FOR CAT MAY HAVE BEEN ONCE IN LIFETIME

For now, CAT is down around 2.2% on the day and while he believes global growth (and CAT's geographic bets) will hurt, it is the accounting for Bucyrus which makes the Enron billionaire most nervous.

The clear message from the markets (for now) is that "we like to able to interpret prepared remarks in only one (bullish Taper-off) way but we don't like it when you speak ad hoc Ben."

For the 9th week of the last 10 mortgage applications fell (led by refis - down 55% from their peak). Now down an incredible 45% from its May highs - the largest 10-week plunge since December 2010 - overall mortgage activity is languishing around the lowest levels of the post-recession 'recovery'. Year-over-year, applications have dropped 44% which is close to the worst on record as applications and mortgage rates track one another in their 'whocouldanode' perfectly correlated manner. It seems - for all those blinkered pollyannas - given this morning starts and permits disaster, that home sales are the next shoe to drop and judging by the empirical relationship with apps and rates, the 'surprise' could be significant for many who remain hopeful.

Based on the following quotes just uttered by the Chairman...

• BERNANKE: WALL STREET HASN'T BENEFITED MORE THAN MAIN STREET
• BERNANKE SAYS FED `VERY FOCUSED' ON MAIN STREET

... Bernanke's next career as a sit-down comedian smash hit is guaranteed.

Back in September we, somewhat naively, penned "US Totalitarianism Loses Major Battle As Judge Permanently Blocks NDAA's Military Detention Provision" in which we said that "the war against the true totalitarian terror won a decisive battle." Sadly, the "victory" lasted for about 10 months. Today, US totalitarianism strikes back with a vengeance.

• U.S. APPEALS COURT THROWS OUT PERMANENT INJUNCTION THAT HAD LIMITED U.S. GOVERNMENT'S USE OF INDEFINITE MILITARY DETENTION -- COURT RULING

In other words, every legal decision will be binding... until Obama's cronies in the 13 circuit courts of the appellate system get a tap on the shoulder. And good luck with the SCOTUS.