While Q1 expectations have been marked down notably, the full year has hardly budged as the back-end of 2013 gets more and more loaded with margin expansion hope and earnings growth faith. As Goldman notes, consensus expects S&P 500 will deliver year-over-year EPS growth of +3% in 1Q 2013 driven by Financials earnings growth of 9%. Bottom-up consensus quarterly earnings growth rises from 3% in 1Q 2013 to 18% by 4Q 2013 using a recurring earnings 2012 base (Operating EPS is expected to surge to 29% growth by Q4). Against this, the level of consensus sales is highly correlated with economic growth expectations (i.e. moderate) and so it is on the shoulders of margins that the whole house of cards sits. Consensus expects margin recovery will begin in 4Q and extend throughout 2014. Consensus now expects full-year 2013 margins to reach a new peak of 9.2%. However, as Goldman notes, the prospect that margins may have peaked was a consistent theme that emerged during the 4Q 2012 earning conference calls; but we warn that 2013 earnings comparisons to 2013 will be problematic due to the significant differences between Operating and Adjusted EPS - which could also be quite telling in terms of accounting gimmickry.
- Finally the MSM catches up to reality: Workers Stuck in Disability Stunt Economic Recovery (WSJ)
- China opens Aussie dollar direct trading (FT)
- National Bank and Eurobank Fall as Merger Halted (BBG)
- Why Making Europe German Won’t Fix the Crisis - The Bulgarian case study (BBG)
- Nikkei hits new highs as yen slides (FT)
- Housing Prices Are on a Tear, Thanks to the Fed (WSJ)
- Why is Moody's exempt from justice, or the "Big Question in U.S. vs. S&P" (WSJ)
- Central banks move into riskier assets (FT)
- N. Korea May Conduct Joint Missile-Nuclear Tests, South Says (BBG)
- North Korea Pulls Workers From Factories It Runs With South (NYT)
- Illinois pension fix faces political, legal hurdles (Reuters)
- IPO Bankers Become Frogs in Hot Water Amid China Market Halt (BBG)
- Portugal Seeks New Cuts to Stay on Course (WSJ)
Have you ever done something really stupid, just because you were in love? Something you look back on and cringe, thinking “why on earth did I do that?” Of course. Who hasn’t? In the world of economics and finance, they call this ‘sentiment’. Consumer confidence, business confidence, investor confidence… these are basically emotional readings. Screw the numbers. To hell with the truth. It’s all about how people feel. It seems crazy, but it’s true. Right now, for example, ‘sentiment’ is telling us that the euro crisis is over. It’s telling us that the debt ceiling is pretty much resolved. And, after taking five years to reach pre-crash levels, it’s telling us that the stock market is once again safe for the average investor. Yet the numbers tell a completely different story. Something just doesn’t add up. Investors are throwing caution to the wind right now... ignoring the basic fundamentals and focusing exclusively on euphoric sentiment. (Or central bank policy). We can personally attest, and any boxer will tell you, that it’s the punch that you don’t see coming which knocks you out.
There's never been coordinated global money printing of the scale of today and it's likely to end badly. Here's how you can protect your investment portoflios from what's to come.
The general mantra from mainstream analysts and economists since the first of the year is that the "economy is set to finally turn the corner." The premise of the assumption is that the Fed's continued monetary actions, and now specific targeted goals of suppressed inflation and targeted employment, is going to push the economy into "escape velocity." Today, we leave the analysis up to you. The following series of charts displays several important economic variables ranging from incomes and production to economic growth. The question for you to answer: "Is the economy about to boom OR has it peaked for the current economic cycle?" As you look at each chart below compare what you are visualizing versus what you are being told.
There's never been coordinated global money printing of the scale of today. It will end badly and investors need to prepare accordingly.
One really wonders why people have lately sold gold. It seems to make little sense in light of the widespread mainstream views on what the 'correct' monetary policy should consist of. Monetary cranks abound wherever one looks. The ultimate outcome of all this inflationary experimentation is preordained, so people have every reason to be very concerned about preserving the value their assets. Of course we are well aware that markets can often behave in an irrational manner for extended time periods. In fact, this is what allows astute speculators and investors to make profitable trades, as there are frequently opportunities created by the markets getting it wrong. In this particular case it is still astonishing, considering how blindingly obvious it is in which direction things are currently moving. Mr. Woodford wants to 'scare the horses'. We are wondering why they are not scared yet – but we suspect they will be soon enough.
If the economy is getting better, then why does poverty in America continue to grow so rapidly? Yes, the stock market has been hitting all-time highs recently, but also the number of Americans living in poverty has now reached a level not seen since the 1960s. Yes, corporate profits are at levels never seen before, but so is the number of Americans on food stamps. Yes, housing prices have started to rebound a little bit (especially in wealthy areas), but there are also more than a million public school students in America that are homeless. That is the first time that has ever happened in U.S. history. So should we measure our economic progress by the false stock market bubble that has been inflated by Ben Bernanke's reckless money printing, or should we measure our economic progress by how the poor and the middle class are doing? Because if we look at how average Americans are doing these days, then there is not much to be excited about. Unfortunately, that bubble of false hope is not going to last much longer. In fact, we are already seeing signs that it is getting ready to burst.
Economic conditions in Italy are as depressed as they've been since the end of WWII, the economy is still contracting, Italy's banks are in terrible shape, private sector lending is very strained, and the ECB's policy is not resolving the problems. As is typical in countries enduring this level of economic pain, the political situation is starting to get pretty chaotic. Bersani, the top vote getter in the recent elections, has been unable to form a government, new elections this year are increasingiy likely, and recent polling suggests a dead heat among Bersani, Berlusconi and the anti-establishment party of Grillo. Surge in support for Grillo creates a risk because it is not entirely clear what he would do if he came to power. He has made a clear promise to put the euro to a vote and generally thinks that the European fiscal and monetary policies have been a bad deal for Italy. Obviously, an attempt to revisit those policies by a country as systemically important as Italy could destabilize things fast, and the risk of a radical outcome is growing. And over the past few months there are indications of that risk getting priced in and putting pressure on Italy, particularly on its banking system. Italian banking spreads are up; there has been a modest pullback in banks' wholesale funding, a modest increase in their ECB borrowing and no bond issuance.
One of the simplest, most overused and popular assertions is that claim that stocks must rise because interest rates are so low. In fact, you cannot get through an hour of financial television without hearing someone discuss the premise of the Fed Model which is earnings yield versus bond yields. The idea here, once formalized as the "Fed Model," is that stocks' "earnings yield" (reported or forecast operating earnings for the S&P 500, divided by the index level) should tend to track the Treasury yield in some fashion. This simply doesn't hold up in theory or practice.
As expected, no changes in any of the three key rates from the ECB.
4 April 2013 - Monetary policy decisions
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
More important will be the press conference starting at 8:30 am Eastern, where Draghi will field questions on the ECB's non-intervention in light of the conditions it imposed most recently in Cyprus, the legal term-sheet status of the OMT, the latest relapse into recession by Europe, and more. Note: we said questions, not answers.
Why has the Euro-zone fallen back into recession, and why can't it shake of its seemingly never-ending crisis? Is there light at the end of the tunnel - or is that an approaching train? A walk through the Euro-zone with charts of macro-economic data reveals the crisis is far from over. Instead, most trends are pointing towards further deterioration - facts as opposed to the hope and anecdote that we are bombarded with on a daily basis. While perusing these charts, consider EU President Barroso's comments just today that, "the worst of the crisis is over." You decide.
The term “Story stock” used to mean a company with little more than a sheaf of press releases and a glitzy narrative about its future prospects. Now, ConvergEx's Nick Colas notes that pretty much any stock with a fighting chance of outperforming needs to have a “Story” to cut through the clutter of a noisy macro-driven market. Story-less equities where the valuation is cheap simply dawdle, while theoretically expensive story stocks sizzle loudly. So what makes a good story? The answer is not only “Blowin’ in the wind,” it is as old as the hills. CEOs matter intensely – they tell the story, and in the best cases they are the “Hero” at the center of it. Other types of narratives: “New Blood”, “Resurrection”, and “Conan the Barbarian.” And even with all these categories, Colas reminds us that we can’t forget that the U.S. equity market is essentially one large story stock, driven by a “Hero” figure – even if you don’t consider Chairman Bernanke is the same league as Moses or Ironman. Of course, we don’t know how this particular “Story” will end. We don’t call someone a “Hero” until they finish the cycle and return with their gifts and teachings. After all, if creating +$2 trillion out of thin air isn’t some powerful magic to fight off the forces of evil, we don’t know what is.
The driftless overnight sessions are back. After the Nikkei soared by 3% following several days of declines, and the Shanghai Composite continued its downward ways despite Non-Manufacturing PMI prints for March which rose both per official and HSBC MarkIt data, Europe was unsure which way to go, especially with the EURUSD once more probing the 1.28 support level. The USDJPY was no help, and even with the BOJ meeting at which new governor Kuroda is finally expected to do something instead of only talking about it, imminent, has hardly seen the Yen budge and provide the expected carry-funding boost to global risk. In terms of newsflow there was little of it: European CPI in March printed at 1.7%, above expectations of 1.6%, but below February's 1.8% rise in inflation. UK continued telegraphing the inevitability of Mark Carney's imminent QE, with construction PMI the latest indicator missing, at 47.2, below expectations of 48.0 (above 46.8 last). Elsewhere, Spanish Prime Minister Mariano Rajoy on Wednesday called for Europe to implement growth policies to balance its austerity drive and for countries with room for fiscal manoeuvre to increase public spending. "Europe is the only region in the world in recession. To overcome this situation we need three things: every country needs to do its homework, we need more (European) integration and we need growth policies," Rajoy said in a televised speech to leaders of his People's Party. "That's why countries which can afford it should spend more." Surely Europe will get right on it: after all, it's only "fair."
From 'why Cyprus could not bail out its banks' to its failed financing needs and the road to confiscation, Demonocracy provides the 'everything you wanted to know about Cyprus' infograph 'but were afraid to read'.