One again, the seemingly immortal David Bianco, who for some odd reason constantly evokes allusions to the green sock puppet from the Muppets, is once again forced to be sacrificed at the altar of credibility, having just released a report hiking his S&P500 estimates. To wit: "We raise our 2011 and 2012 S&P 500 EPS estimates to $97 and $104 from $95 and $102 respectively. Despite a moderation in overall US GDP growth, S&P 1Q EPS is coming in significantly higher than expected on stronger manufacturing activity and business spending, higher foreign profits and commodity prices,and a weaker dollar. Half of the increase in our 2011 EPS is from higher 1Q EPS, which we expect to come in at $23.50 (Table 2). Mid-$90s annualized EPS in the seasonally light 1Q supports a more robust EPS outlook." This comes just in time for the economy to take a confirmed dip lower following recent consistently lower economic releases capped with today's Services ISM. And why Immortal? We hearken back to the following Bloomberg article from November 2007: "None of that swayed Cohen, Trennert and Bianco. They say low equity valuations, overseas growth and the prospect that the Federal Reserve will cut its interest rate target for overnight loans between banks can lift the S&P 500 to a record 1,600 this year." This never happened, and in fact Bianco top ticked the market to the dot. How he still has a job is beyond anyone with half a working frontal lobe.
Will the bond market kill the party in stocks? It's not that simple...
The First Casualty Of An "Improving" Economy: The Fast Food Dollar Menu, As McDonalds Considers Hiking PricesSubmitted by Tyler Durden on 12/22/2010 16:11 -0500
As the fallacy that an economy is improving if the stock market is higher percolates, accompanied by the all too real surge in input costs (yes, oil really is on the verge of breaking $91 first, and then $100), the margin contraction we have been discussing for over 2 months is becoming increasingly acute: for a good recent example nowhere is it more evident than in the latest Philly Fed reading. Yet what is true for manufactured products, is far more applicable for food products, whose input costs are determined by the daily vagaries of millions of speculators. Which means that as the catch 22 of an "improvement" for some courtesy of 3 year highs in the Nasdaq is perceived by the speculators as an actual improvement for all (which would be the case if stocks were owned uniformly by every layer of society, which is certainly not the case), prices will eventually hit the tipping point where retailers will be forced to start passing on cost increases to consumers. Enter McDonalds whos executives according to AGWeb, were quoted as saying that "menu prices could rise if the economy improves." And since after listening to the endless barrage of brainwashing from the mainstream media, one can't not be left with the impression that the economy is doing anything but improving, conveniently ignoring the fact that the Fed is stimulating it coincidentally via QE2, the next step for the broad part of the US population for whom there is no improvement in anything, which would be the majority of America, is about to get its next whopper (pun intended) of a Bernanke side effect, namely inflation in the most affordable of food product categories: fast food. But since this is not caught by the core CPI, all shall be well, and the Fed will be able to proclaim, without losing any sleep, that inflation is truly contained, when the only thing that is contained is lending to those who most need it.
The report making the rounds today comes from CitiFX' Technical group which goes against the Wall Street conventional wisdom and instead of a 1,550 on the S&P forecasted by discredited permabull David Bianco, expects to see the market drop 16% by the end of next year. The punchline is that "the peak may be posted as early as the opening days of January 2011 (possibly even 3rd January as per the other 3 examples) with a down month in the region of 5%." And if a down 5% January is not enough, the firm believes that based on historical precedent, we will also see a 20% intrayear drop, and close the year 16% down. The catalysts: i) The bond market falling sharply as it did in 1977 sending yields higher and fueling inflation or supply fears or both, and ii) Europe imploding. While this could stress our view on the dollar fixed income and commodities, this dynamic still supports our bearish equity view. The report's conclusion may prove to be very prescient: "Happy holidays, get some rest. You may need it." On the other hand, with the Fed now practically solely responsible for risk asset pricing, we would not be surprised to see the Dow end 2011 at 36,000.... of course as gas hits $36/gallon, but that's irrelevant. Wealth effect forever!
For what may be the best look at the future of the world's most recent Banana republic entrant (the U.S.S. of A. for the confused) has to look forward to, we need to merely shift our attention at another one, which has had the privilege of experimenting with its Banana status for far longer: Bangladesh. After the stock market plunged on Sunday by 552 points or 6.72%, hundreds of angry investors took to the streets, "threw bricks at police, marched in the streets shouting slogans, and staged a sit-down protest." These very same "investors" which have and always will be better known as momo investors, which chase returns only to end up with the live grenades, "chanted slogans against the government and the regulators, and marched
through the busy roads in the Motijheel Commercial area, halting
traffic. They also staged a sit-in at the SEC building." The reason for the recent mass hysteria in chasing stocks: pretty much the same as what the Fed is trying to do right here in the US: "The rising value of the stocks in recent years has attracted hundreds
of thousands of small-scale or retail investors in Bangladesh, says the
BBC's Anbarasan Ethirajan in Dhaka. It became a popular investment for ordinary people, often providing higher returns than bank deposits and savings." Well, with the USA today posting an article with the following title on its cover page: "Experts agree: Get over your fear and get back into stocks ", and more incredulously, when one of these so-called experts is none other than David Bianco, the same utterly irresponsible creature who in October 2008 cut his 12 month S&P forecast from 1650 to 1500, well there is nothing much left to say: Bernanke has succeeded in converting America into a third-world subcontinent country.
Nope...just some normal profit taking and another opportunity to load up on stocks...
The title of Jan Hatzius' latest piece pretty much says it all, although here is the punchline: "We continue to believe that the risk of a renewed technical recession—defined as a return to quarter-on-quarter declines in real GDP—is an uncomfortably high 25%-30%. In our view, this exceeds the likelihood of the trend/above-trend growth scenario envisaged in the consensus forecast." So just as the Great Depression v2 is now called the Double Dip, Goldman now calls the Double Dip a "Technical Recession." Surely that will make everything better again.
Shortly after adjusting his 2010 S&P target lower to 1,200, David Kostin continues to favor his Rosenberg-SIRP equivalent strategy of "low operating leverage, high dividend growth, strong balance sheet, large market cap, and 'low valuation'." In other words, with the entire market now turning defensive (but not David Bianco: David always has some funny wackiness up his sleeve that's for sure), it is a little difficult to see how stocks will push higher by 12% in the remaining 4 months of the year, especially with negative GDP prints anticipated for the remainder of 2010, which would be in line with the Zero Hedge-anticipated sub 1% Q2 final revision GDP. In other words the economy has stalled, and there is no stimulus coming: the $10-20 billion dribs and drabs pittances of fiscal stimulus here and there will do nothing to push the economy higher. Also, Kostin summarizes the findings of his latest Hedge Fund Tracker (we will post it shortly), which indicates which stocks are the latest HF hotels: in a nutshell these are EMC, ESRX, DVA, TYC, BIDU, PFE, INTC, and VIA. For people who have reservatoins against gold, and see it as a source of liquidity in a downturn, the same logic to the nth degree applies to these names. Should there be a selloff, these stocks will get decimates as HFs rush to get out. Also, Kostin summarizes the top ten S&P stocks by daily tading turnover, i.e., where the computers are running wild. These are Pactiv, US Steel, Abercrombie & Fitch, AK Steel, Apollo, Frontier, CF Industries, NVIDIA and DeVry: this is where the bulk of the binary action was in the past week.
As we expected, the murder (or whatever a group thereof is called) of wall street Ph.D. lemmings is appropriately positioning its collective tail between its legs and duly following Jan Hatzius into preliminary double dip(ression) territory. JPM's Robert Mellman just cut his Q3 and Q4 GDP forecast from 2.5% and 3.0% to 1.5% and 2.0%. The firm has not touched its 2011 estimates yet. Obviously once Q2 GDP is revised to sub 1% as we are fairly confident will be the final revision, it will. We are waiting for the hilarious capitulation from Wall Street's most discredited cheerleader: that of BofA's David Bianco.
Our expected economic groupthink revision by the sellside "strategists" is accelerating, as now even permabullish CNBC permaguest Joe LaVorgna "takes the knife" to his Q2 GDP estiamte. Yet despite presumably seeing the light, he only cuts Q3 and Q4 estiamtes to 3.0% and 3.3%, still hundreds of bps higher than Goldman, and even worse when compared to reality. David Bianco and his stratospheric GDP will stick out like a speedoless nudist in the middle of the liquidity ocean when the economic tide finally goes out. Luckily, Bianco has no credibility to begin with so the concept of discrediting surely does not apply.
Another Revision Of The Q2 GDP Number By JPM: Firm Now Estimates That The Real Economic Performance Was 1.3% (From 2.4%)Submitted by Tyler Durden on 08/10/2010 11:34 -0500
Last week we noted that JPM's Michael Feroli estimated that due to a major downward revision of inventory build of non-durable goods, which the BEA had overaccounted for, the GDP print of 2.4% released two Fridays ago was actually 1.7%. Today, the stripping of the GDP print from upward biased data continues, and Feroli once again whacks the GDP number, which he now sees at 1.3%, or essentially 50% of the actual released number. This is again due to BEA's overoptimism, as today's data on wholesale inventory buildout was also far lower than the unrealistic BEA assumption (will the BEA ever underestimate a number? any number?). JPMorgan's conclusion: "The June data released so far suggests Q2 GDP is tracking closer to a 1.3% annual rate of increase, well below the 2.4% in the initial release." By the time all the overoptimistic assumption are eliminated, Q2 GDP will end up negative, and Goldman's 1.5% estimate of GDP growth in H2 will prove to be, as we expected, overoptimistic. Of course, this number is not revised for all the governmental Keynesian transferism, without which GDP would would be double digit negative. We leave it up to you to figure out what this means for Q3 growth now that there is no fiscal stimulus, and if the Fed does not launch QE2, there will be no monetary stimulus until late September 21 at the earliest.
Shock And Yawn: BofA's David Bianco Proves He Is "Smarter" Than Goldman By Raising His S&P EPS EstimatesSubmitted by Tyler Durden on 08/10/2010 10:41 -0500
Jan Hatzius' recent downgrade of the US economy, and the subsequent downgrade of the S&P by such formerly gruntled optimists as Goldman's David Kostin, has completely failed to register with permabullnut gallery. Case in point: the Bank of America strategist who was supposed to replace David Rosenberg, yet has become his own satirist caricature, David Bianco, has decided to go completely the other way, by actually rising not only his 2010 S&P estimates, but also 2011, and even, hilariously, 2012, this despite other such landed economist Ph.D's (from reputable institutions) as the San Fran Fed warning that there is a "significant" risk of a double dip in 2 years (yes, that's the Fed warning about a re-recession, not some rational, realistic, coherent human being), thus once again proving that his true worth is whatever CNBC pays him for his daily appearances in the Cheerleader Session block (which has now dropped out of Nielsen tracking due to complete lack of public interest in vapid propaganda). And for those who claim idiocy can not be captures in words, we disagree. To wit "Some dismiss our target because a deflationary shock could collapse current EPS. Others argue that EPS will be flat for years. We disagree; we think exceptionally low interest rates support real estate values and EPS will grow through foreign investment. The S&P has the best of the DM and EM world, low rates and healthy growth." Speechlessness ensues. What follows is propaganda so scary, it is good. If Bianco really believes this, we hope BofA provides free psychiatric sessions for its employees.
Time to look past short-term market turbulence and see why fundamentals are improving. It will be volatile, but the market will keep grinding higher. Choose your stocks and sectors carefully, however, the big beta moves are over.
A completely worthless analysis on quant factors from Bank Of America (probably written in conjunction with David Bianco), which concludes that momentum quants have ruled so far this year. What is amusing is that in the very same report, BofA confirms that Momo outperformance such as the one seen currently and evidenced by the appearance of numerous services catering to momo trading echochambers in twitter and elsewhere, is associated with the Euphoria phase of markets, which usually precedes at least a 20% drop. Brilliant.
Bank Of America Sees Material Deterioration In Budget Deficit Estimates, Worried About Fiscal Tightening Post Mid-TermsSubmitted by Tyler Durden on 05/02/2010 08:41 -0500
A few days after the economists have had some time to digest the latest GDP numbers, the results are coming in, and they aren't pretty... And to Obama's chagrin they aren't going to get any better. The end of the stimulus "sugar high" is approaching, and most likely will culminate with the mid-term elections: the attached piece by BofA only solidifies this observation. Bank of America, after Goldman, is now the latest major bailed out bank to join the bandwagon decrying US fiscal insanity (oddly enough, few have much to say about the lunatics in charge of monetary matters). And that's just for the medium-term. Speaking of lunatics, for those curious about the long-term, who can summarize it better than the Oracle of Constitution Avenue himself: "Unfortunately, we cannot grow our way out of this problem. No credible forecast suggests that future rates of growth of the US economy will be sufficient to close these deficits without significant changes to our fiscal policies." - none other than B.S. Bernanke. Furthermore, this is the real problem, forget all about G-Pap reelection chances (none to negative): Greece is just a pleasant distraction compared to what would happen if the US can't roll $700 billion in short-term debt each month.