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Caterpillar Beats Estimates But Lowers Guidance, Blames Downbeat Outlook On China, Strong Dollar And Slow Fed

Caterpillar's stock has gotten pummeled recently, which explains why after posting results that were better than expected the stock has seen a big short squeeze, pushing it up 4% in thin pre-market trading. Of note, the company reported EPS of $2.54 on Expectations of $2.28, and revenues of $17.4 billion on estimates of $17.1 billion, yet it cut its full year revenue guidance from $68-72 billion to $68-70 billion on what it says is a weaker economy and a stronger dollar: "From the time the previous outlook was first established in January of 2012, the U.S. dollar has strengthened versus most currencies around the world.  That has negatively impacted the full-year outlook by about $1 billion as sales in currencies other than the U.S. dollar are translating into fewer U.S. dollars. While the world's economic environment is weaker than we had expected, our sales have continued to grow." Yet what is most curious is that even CAT has become schizophrenic with respect to the Fed, in one bullet point saying the Fed's easing has done nothing to "benefit economic growth" yet in another claiming more easing will not come "soon enough to benefit growth in 2012." The Bernanke put is now so pervasive even non-financial companies have to rely on the Chairman getting out of bed at just the right angle and sitting down on the CTRL-P macro.



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Frontrunning: July 25

  • ECB's Nowotny - ESM banking license could be advantageous (Reuters) - just keep regurgitating headlines until they generate a short squeeze
  • IMF Says China Downside Risks Significant as Growth Slows (Bloomberg)
  • Moody's cuts outlook on EU stability facility to negative (Reuters)
  • Rome places spending controls on Sicily (FT)
  • Big banks' glory days feared to be gone for good (Reuters)
  • China's CNOOC scoped Nexen, partnered, then pounced (Reuters)
  • Germany backs Spanish austerity plans (FT)
  • Are 2012 Games one too many for London? (Reuters)
  • Euro Crisis Spreading East Damps Growth, Development Bank Says (Bloomberg)
  • Japan Flags Yen-Sales Impact as BOJ Eyes More Easing (Bloomberg)


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RANsquawk EU Market Re-Cap - 25th July 2012



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Nowotny "Hilsenraths" EUR, Futures By Reviving Doomed "Red Herring" Discussion Of ESM Banking License

Europe is once again scrambling by clutching at broken straws and juggling dead ends.  To wit: instead of actually proposing a realistic solution to its massive debt overhang, the ECB's Ewald Nowotny "said there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full-scale Spanish bailout." As a reminder, this is an absolute dead end that Germany and the ECB have both repeatedly rejected as implementation would confirm just how hollow the European gutted shadow banking market (you can't have shadow banking without credible collateral). Further slamming the Nowotny comment was Daiwa which called the Nowotny statetment a Red Herring and that "remarks that ECB council member sees arguments for giving bailout fund banking license "look to be just noise," Grant Lewis, head of research at Daiwa Capital Markets Europe, says in client note. Comments appear to have been off the cuff and purely personal opinion; such a move remains “highly improbable,” as Germany and ECB “implacably opposed” to this. Finally Daiwa adds that markets will soon focus again on fact that if ESM can’t be activated in early autumn, there’s no money available to bail out Spain, “let alone Italy." 



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British Double Dip Accelerates Following "Terrible" GDP Data

If the UK was desperately hoping for a "terrible" economic print, it got it this morning after preliminary Q2 GDP printed 0.7% on expectations of a -0.2% decline, following a -0.3% drop in Q1, cementing the country's double dip collapse. Reuters explains: "The Office for National Statistics said Britain's gross domestic product fell 0.7 percent in the second quarter, the sharpest fall since early 2009 and a bigger drop than any of the economists surveyed in a Reuters poll last week had expected. The figures confirmed that Britain is mired in its second recession since the financial crisis, with the economy shrinking for a third consecutive quarter. It will add pressure on Osborne to get the economy growing again after a crisis that has left many Britons poorer as rising prices and higher taxes ate up meager wage increases. Sterling hit its lowest in nearly two weeks against the dollar after the data, and government bond prices rallied on speculation that the Bank of England may have to provide more economic stimulus than expected. Earlier this month the BoE has announced another 50 billion pound program of gilt purchases with newly created money to soften a grim economic outlook, but Wednesday's data is likely to add to market speculation that it may cut interest rates later this year. "This is terrible data. Frankly there's nothing good that comes out of these numbers at all," said Peter Dixon, an economist at Commerzbank. "The economy looks to be badly holed below the water line at this stage. It's a far worse period of activity than we'd expected."" Amusingly, according to Goldman "It is difficult to reconcile the weakness of today’s official GDP data with any other indicator of economic or labour market activity." We knew the peripherals were doing all they can to sabotage their economies and be eligible for more aid and bailouts. But the UK?



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Biderman: "The Most Damage Is Caused By Those Who Are Not As Smart As They Think They Are"

It is not often we double-dip in the Sausalitan's soliloquies but tonight's glorious truthiness from Charles Biderman, CEO of TrimTabs, is worth the price of admission. After explaining that the only way he could be any more bearish is to be double-levered - and that he believes that besides "believing in miracles" this market will see the March 2009 lows once the market-rigging is fully exposed, he makes probably the most clarifying statement we have heard regarding our central-planners-in-chief. With regards to Messrs. Bernanke, Geithner, and Obama: "The most damage is caused by those who are not as smart as they think they are." They continue to believe they are smart enough to fix all our financial problems (and Europe's - if they would just listen to Timmay) by building a bridge over the recession - thanks to asset-buying and ZIRP. "The only problem is we are running out of bridge and are nowhere near recovery" is how he sees it and reflecting on the massive gains that have been made on short-dated Treasuries as the Fed (who is the one buying them) extends the ZIRP horizon - it is clear that this is nothing but a huge Ponzi scheme.



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David Stockman: "The Capital Markets Are Simply A Branch Casino Of The Central Bank"

"This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they're doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank. And they will keep laughing all the way to the bank on Wall Street until they lose confidence in the Fed's ability to keep the yield curve pegged where it is today. If the bond ever starts falling in price, they unwind the carry trade. Then you get a message, "Do not pass go." Sell your bonds, unwind your overnight debt, your repo positions. And the system then begins to contract... The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today."



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Economic Countdown To The Olympics 5: Ten Olympic Trends

With the 302 events across 32 sports of the Olympics about to start (with early round soccer starting tomorrow), we conclude our five part (Part 1, Part 2, Part 3, and Part 4) series of posts bringing markets, economics, and sports together by looking at 10 exhibits that Goldman sees as describing how various aspects of the Olympics have evolved from the first modern Games in 1896 (where Greece won 46 medals compared to USA's 20) all the way to London 2012. From the monetary value of the distributed gold medals to the globalization of medal wins, the trends are analogous to the world's change but the full report attached provides some incredible interviews with many of the greatest Olympians ever with Michael Johnson reminding us that: "People are generally very fed up with political processes and the bickering that comes with it. You have some politicians with one particular set of ideas as to how to fix the problems and one with another set of ideas, and this continues to create a divide between people. The Olympic Games is the epitome of non-politicised activity. It’s about coming together... and having the opportunity to put differences aside and get behind their country and the athletes who are representing them."



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The Li(e)bor Rigging Scandal Infographic For Dummies

Since (at least) 2005, Barclays has been manipulating LIBOR, and their traders have been allegedly pocketing $40MM a day betting on interest rate derivatives. If the LIBOR, one of the most fundamental metrics of our banking system can be rigged, can you imagine what other elements of our financial system are a fraud? This morning's comments from European regulators appears to confirm that this story has a long way to go as ECB's Almunia states: "The evidence we have collected is quite telling so I am pretty sure this investigation will not be closed without results."



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Apple Falls

UPDATE: AAPL -6.25% AH

Major misses everywhere, and this for the second quarter in a row - from the Q3 earnings report:

  • APPLE 3Q REV. $35.02B, EST. $37.25B
  • APPLE 3Q EPS $9.32, EXP. $10.37
  • APPLE 3Q NET PROFIT $8.8B
  • APPLE SEES 4Q REV. ABOUT $34B, EST. $38.01B
  • AAPLE 3Q GROSS MARGIN 42.8%, EST. 43.8%
  • APPLE SOLD 17.0 MILLION IPADS DURING QTR, UNIT EST. 15.4M
  • APPLE 3Q IPOD UNITS SOLD 6.8MLN , DOWN 10%
  • APPLE SOLD 4.0 MILLION MACS DURING QTR, UNIT EST. 4.3M
  • APPLE SOLD 6.8 MILLION IPODS IN QTR, UNIT EST. 6.6M

Is the dream over?



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Netflix Plunges After Cutting Q3 Outlook, Sees Q4 Loss

The endless saga of the rental and streaming company, that once had a vendetta with Whitney Tilson until the latter finally threw in the towel after he first shorted then went long Netflix only to blow up on both occasions, continues, this time by plunging 15% after hours following a cut in guidance for Q3 and announcing it will likely once again have a loss in Q4.



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Gold Outperforms But Hilsenrath-Rally Fails, As VIXophrenic Equities Converge To Bonds YTD

Pathetic. A late day surge to test yesterday's lows and VWAP (which makes some technical sense) was buoyed by positivity from yet another Hilsenrath 'hint'. The total lack of response in the afternoon as German and Spanish FinMins tried to jawbone us up was the reality. We do note though that all the 'Hint' managed to do was get us back to VWAP - which suggests that 'the force is weakening with this one'.



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Hilsenrath Once Again With The 3:55 PM Sticksave

Just like last time around when stocks were plunging with no knight in shining armor in sight, until the Fed's faithful mouthpiece-cum-scribe Jon Hilsenrath showed up with a report, subsequently disproven, that more QE is coming minutes before the market close on July 6, so today stocks appeared poised for a precipice until some time after 3 pm it was leaked that none other than Hilseranth once again appeared, at precisely 3:55 pm, with more of the same. Ironically, the market only saw the word Hilsenrath in the headline, and ignored the rest. The irony is that this time around the Fed's scribbler said nothing that we did not know, namely that the Fed can do something in August, or it may do something in September, or it may do nothing, none of which is actually news.



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GM Stock Slides To Fresh Post-Bankruptcy Lows

Of all curious correlations we could find to demonstrate the collapse in GM stock, which opened for trade back in November 2010 at $35, and just hit an all time post-IPO low at just over half its IPO price, the best one that exemplifies the second great collapse of GM is the amount of dealer inventory, aka channel stuffing, shown on an inverted axis: the lower the price of GM, the more the channel stuffing. Of course, nobody could have possibly predicted that. Just like nobody could have predicted that Greece will need a third bailout, let along hit the IMF goal of 120 debt/GDP in 2020.



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