Archive - Jul 16, 2014 - Story

The reason why "one-time, non-recurring" charges are traditionally excluded from a company's adjusted bottom line calculation is because they are, at least in theory, one-time and non-recurring. So, after looking at the chart below which breaks out Bank of America's quarterly litigation charges alongside its net income, can someone please explain to us why anyone is still showing the bank's pro forma EPS excluding litigation charges?

NAHB Sentiment surged 4 points to 53 - its first time above the crucial 'recovery' 50-level since January. All sub-indices were higher but the biggest gain was in "Future sales expectations" which soared to its highest since September (and consider for a moment just how 'wrong' builders were from that point). All regions rose with The West rising most (and South least). Given the massive divergence between Builder sentiment and the reality of sales and mortgage apps, it is no surprise that "hope" is what they have left.

What does Yellen know? Nothing apparently (if she says 'sell') US equity markets, juiced by China's GDP data (but missing China's retail sales and home price slump) and helped by Portugal 'reassurances' that have yet to materialize, are soaring this morning... VIX is back at a 10-handle as Dow hits record highs, the S&P nears record highs and even small-cap, social media, momo, tech fantasy stocks are ripping... you can't keep a good market down... It seems "fight the Fed" is the new "Don't fight the Fed"

To summarize: the US government first allows corporations (or "people" per SCOTUS) to not only inflate their stock to record highs (via a debt funded, stock buyback scramble facilitated by the Fed's ZIRP bubble), the same companies then engage in the only logical activity that makes sense for the bottom line, one which leaves no tax payments for the US whatsoever, and then the US hopes corporations will show some "economic patriotism." In other words, shame them into adding even more capital misallocation on top what is already the worst case of central-planning since the fall of the USSR. Add this to the "less cynicism, more hope" recent appeal by Obama, and at this rate US GDP will explode courtesy of soaring healthcare fees as everyone ends up in psychotherapy from the resulting cognitive bias of doing the one thing the US government allows, permits and encourages, the very same thing that the same government subsequently shames everyone into having done in the first place!

For the 3rd month in a row, Industrial Production missed expectations as hopes and dreams of follow through in Q2 remain dashed on the shores of hard data. IP rose 0.2% (missing the 0.3% expectation) and May's jump was downwardly revised to 0.5%. What is stunning is that Industrial Production has slowed its gains from the polar-vortex Q1 into a much more economically frigid Q2. Capacity Utilization also missed expectations. Perhaps most worrying is the manufacturing industry's mere 0.1% gain in June - the slowest increase since January.

"It's not clear to us that breaking commercial ties with the Russia partners, consumers gets anyone to where they want to be," warns one political think tank as AP reports, The White House is considering imposing unilateral sanctions on Russia over its threatening moves in Ukraine - a move reflecting frustration at Europe's reluctance to bit off its nose to spite its face. Until now, the U.S. has insisted on hitting Russia with penalties in concert with Europe in order to maximize the impact, but, as Putin warned, those same economic ties have made Europe fearful that tougher penalties against Russia could boomerang and hurt their own economies. Obam has faced criticism over a lack of action, as Bob Corker blasted "sometimes I'm embarrassed for you, as you constantly talk about sanctions and yet, candidly, we never see them put in place," but the European 'concerns' are just as valid in America as Utilities in the U.S. are scrambling for coal, on pace to increase imports 26% this year.

Banco Espirito Santo stocks and bonds are up notably this morning following comments from the Portuguese Central Bank that shareholders are interested in injecting more capital into the failed bank. This has - for now - reassured investors that a bail-in won't be necessary but, as Jefferies notes, "it's hearsay for the moment but it’s helpful." Chatter that "someone" is willing to throw another EUR 2 Billion at this "troubled" financial entity was enough to spur risk-on buying in most of European stocks with Portugal PSI20 surging almost 4%. The question is - after all this additional capital (at what will likely be a major haircut to current equity prices), who will do business with this bank (and why?) after already suffering through the fear of deposit confiscation or debt haircuts?

PPI Final Demand rose 1.9% year-over-year (tied for 3rd highest in a year) as it appears Janet Yellen's transitory "noise" just won't go quietly into the night (though has fallen for 2 months in a row). While the headline print was not helped by a 2.1% surge in fuel prices, Core PPI (ex Food and Energy) rose more than expected (at 1.8% vs 1.7% expected) holding near its highest since Dec 2012. On a sequential basis, the headline 0.4% increase was double the 0.2% expected, while the core M/M rise of 0.2% was in line with expectations.

The media giant 21st Century Fox, the empire run by Rupert Murdoch, made an $80 billion takeover bid (around $86.00) in recent weeks for Time Warner Inc. but was rebuffed, people briefed on the matter said on Wednesday. As WSJ reports, The offer was first made orally in June and then with a formal letter in July. Time Warner rejected the offer curtly, after Chief Executive Jeff Bewkes took the proposal to the board. The deal - which valued Time Warner at 12.6x LTM EBITDA - was notably above even recent record high LBO multiples (and would be financed by none other than Goldman). Of course, this deal - should it ever be consummated (as the stock price suggests) would give Murdoch control of both the left and the right propoganda with CNN and Fox.

• BRICS set up bank to counter Western hold on global finances (Reuters)
• Fed's Yellen Hedges Her View on Rates (Hilsenrath)
• China GDP Grows 7.5% in Second Quarter (WSJ)
• Get More Acquainted With Your Knees as Boeing Reworks 737 (BBG)
• Israel Warns Gazans of New Attack After Hamas Rejects Truce (WSJ)
• Israel poised for Gaza incursions after truce collapses (Reuters)
• China Housing Sales Fall in First Half of 2014 (WSJ)
• IBM to offer iPads and iPhones for business users (Reuters)
• Fed's George says strengthening economy warrants quick rate rise (Reuters)

Another quarter down, another desperate attempt by Bank of America to mask a serious underlying business deterioration using bells, whistles, and gimmicks.

If last week's big "Risk Off" event was the acute spike in heretofore dormant Portugese bank troubles (as a reference Banco Espirito Santo has a market cap at the close last night stood at around €2.1bn ($2.9bn), contrasting to Goldman Sachs ($78.1bn) and JP Morgan ($220.5bn)), then yesterday's acceleration in the Portuguese lender's troubles which as we reported have now spread to its holding company RioForte which is set to default, were completely ignored by the market. Today this has conveniently flipped, following a Diario Economico report that Banco Espirito Santo has the potential to raise capital from private investors. No detail were given but this news alone was enough to send the stock soaring by nearly 20% higher in early trading. Still, despite the "good", if very vague news (and RioForte is still defaulting), Bunds remained bid, supported by a good Bund auction, in part also dragged higher by Gilts, which gained upside traction after the release of the latest UK jobs report reinforced the view that there is plenty of spare capacity for the economy to absorb before the BoE enact on any rate rises. Also of note, touted domestic buying resulted in SP/GE 10y yield spread narrowing, ahead of bond auctions tomorrow.