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Cutting Into Muscle - The Record Corporate Margin Juggernaut Has Just Rolled Over

Tyler Durden's picture


In this week's chartology from Goldman's David Kostin there is the usual plethora of useful data, but two slides deserve a very special mention because with 39% of the S&P already reporting Q4 data, the implication is quite dire. If Kostin is correct, then the corporate margin juggernaut, which recently hit an all time high in Q3 of 2011, and which has for all intents and purposes been the one offset to deteriorating economic conditions, recurring Fed stimuli to the economy aside, has officially peaked and is now rolling over. This has huge implications for virtually everything, as it means that after 3 years of layoffs, corporate America has finally cut through all the fat and is now officially chopping into muscle with every additional layoff. It also means that going forward no matter how many workers are laid off, the corporate margin rate wil not increase. Furthermore, if Bernanke or Draghi officially launch another inflationary easing episode which more than anything exports inflation to China, which in turn reexports it back to America in the form of rising COGS, margins will compress even more. In other words, the US economy, which sadly has been "defined" as the Russell 2000 and/or the DJIA, is tipping over. And with companies posting a near record low positive earnings surprise ratio, we are once again amazed how yet another Goldman team may have well called the absolute peak in the market with its long Russell call from two days ago.

The two smoking guns:

And another chart which confirms that the good times are now over:

And the full weekly commentary from Kostin:

S&P 500 index was unchanged this week despite two major positive news announcements that might have been expected to spark an equity rally: Stellar quarterly results for Apple (AAPL) and the FOMC announcement that the fed funds rate would remain exceptionally low “at least through 2014.”

A conditional commitment by the US central bank to follow a zero interest rate policy (ZIRP) for three more years and stocks remain flat? S&P 500 has risen 5% YTD but the absence of a rally this week suggests investors had already priced in an extended easing cycle. In a low-yield world, our dividend yield and growth basket should outperform (<GSTHDIVG>).

The Fed now explicitly intends to target inflation at 2% as measured by personal consumption expenditures (PCE) price index. Goldman Sachs Economics expects another round of asset purchases to be announced by around midyear. Based on the central tendency of the Fed’s economic forecasts, the core of the FOMC is at least as dovish, perhaps even more dovish, than Goldman Sachs Economics had believed previously. See US Daily: A more transparently dovish FOMC, January 26, 2012. Less positive macro news this week included 4Q 2011 GDP growth of 2.8% that missed consensus expectations of 3.0%.

AAPL posted stunning results with sales surging 73% to $46.3 billion and EPS rising 115% versus the comparable year-ago quarter. Net margins reached 28% and the stock alone contributes 44 bp to overall S&P 500 net margins. AAPL shares rose 6% this week. Goldman Sachs analyst Bill Shope has a $600 twelve month price target reflecting 35% potential return.

A total of 195 firms in the S&P 500 have now released 4Q 2011 results representing 53% of the equity cap. Below we highlight eight takeaways:

1. On a quarterly basis, 4Q 2011 EPS are expected to grow by 11% year/year while sales for S&P 500 (excluding Financials and Utilities) will rise by 10%.

2. On a trailing four quarter basis, 4Q 2011 will establish a new EPS peak of $97. Trailing four-quarter net margins for the S&P 500 (ex Financials and Utilities) have been hovering at peak levels of 8.9% for the past three quarters. Full-year 2011 EPS will be 16% higher than 2010 ($84) and full-year sales (excluding Financials and Utilities) will be 12% above last year. S&P 500 revenues including Financials and Utilities have not yet returned to peak levels reached in 2008, but 4Q 2011 sales excluding Financials and Utilities may reach a new quarterly peak level.

3. The percentage of firms beating consensus EPS expectations by more than one standard deviation (our definition of a positive surprise) is well below the historical average. The number of firms missing by more than one standard deviation is above the historical average. The ten year historical average of beat and misses equals 41% and 13%, respectively. So far this quarter just 24% of firms beat expectations and 17% have missed.

4. On an aggregate basis, reported results represent a 3% upside EPS surprise for the quarter ($0.45 per share). However, estimates for firms yet to report fell by 2% resulting in 0.9% change to S&P 500 4Q EPS. The median surprise over the past ten years has been 1.6%.

5. The Information Technology sector contributed nearly all of the S&P 500 upside EPS surprise ($0.43 of $0.45 total). Industrials and Financials contributed about 40% and 30%, respectively, or $0.18 and $0.14. Energy surprises have been negative, lowering the index aggregate by $0.26.

6. Individual companies matter. AAPL represents 18% and 26% of the Information Technology sector’s market cap and expected 4Q 2011 earnings, respectively. The Information Technology sector should grow earnings by 21% year/year, but by just 5% excluding AAPL. Apple is likely to be the top contributor to S&P 500 EPS for this quarter. 4Q 2011 will represent the first time since 2003 that Exxon (XOM) is not the top S&P 500 EPS contributor.

7. Since the start of earnings season, bottom-up consensus full-year 2012 estimates have declined by 0.5% to $106. Our top-down forecast remains $100. Revisions are largest in Materials (-3.5%), Energy (-2.5%), and Financials (-2.3%). Information Technology revisions have increased by 3% and Industrials revisions have been flat.

8. Year to date, 51 firms representing 13% of 2012 S&P 500 earnings have issued full-year EPS guidance. The midpoint of guidance is slightly negative relative to consensus estimates. Firms like JNJ, GD, CB, RTN, KMB, and EBAY guided below consensus while BA, JCP, CAT, TXT, BWA, and APH guided above expectations.

Next week represents the third of the three major weeks of the 4Q reporting season, with 99 firms representing 18% of the S&P 500 equity cap scheduled to release results. 40% of Energy and Health Care market cap reports next week. Key stocks to watch include: XOM, PFE, MRK, QCOM, UPS, AMZN, LLY, and DOW. See pages 5-7 for next week’s calendar.




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Sat, 01/28/2012 - 12:53 | 2105443 LeBalance
LeBalance's picture

(edit) editorial suggestions incorporated: comment removed by author.

this article is awesome. thank you.

(edit) i found this article to be very informative and wished a single grammatical issue not to mar its flow for others.  I apologize to the (neg) voter, if they found my comment out of place.

Sat, 01/28/2012 - 12:41 | 2105446 Irish66
Irish66's picture

From a maufacturing standpoint, you keep lines running, build inventory waiting for the turn and 

when the turn doesn't come, you lay off 25% of the work force.  Then if it still doesn't come, you start

shutting down plants.

Sat, 01/28/2012 - 13:17 | 2105513 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

No matter how much the CBs print, if the population has no money to spend manufacturers cannot stay in business. The growth over the last few years was in banksters and an IT bubble. Both are in a downward spiral. Debt-saturation is here and mass bankruptcy.

Sat, 01/28/2012 - 16:38 | 2105905 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Stocks are lottery tickets.  People that bought apple got lucky.  Apple did not go up because they have a business model that hires cheap labor and sells their products for crazy money (all corporations do that).  They went up because people are not paying their mortgages (rightfully so), or their student debt (rightfully so), or their child support (no comment).  Who knew that this system would not go broke along the way?

There is also the fact that the devaluation of the dollar makes all stocks more expensive.  When energy reports this week (XOM) they will have made more dollars because of the price of the pump (although refinery cost is hurting the margin, so I am not sure how much they will beat).  For finance expectations are so low that when they beat due to insider information and the Fed giving them an unlimited supply of money, they pop back up from their lows they so deserve.

The markets are a sham, but when someone knows how they work, they can play the game.  I may not have seen AAPL coming, but, like Robo, I knew stocks were going higher, if only because of dollar devaluation.

Will the bubble pop?  Well considering these gains are nominal and not real maybe not.  Maybe the dollar goes and goes and goes until one day Americans wake up on the continent their fore fathers built like Atlantis cold and hungry.

Sun, 01/29/2012 - 12:21 | 2107226 SeattleBruce
SeattleBruce's picture

The nominal stock market went up and up in Weimar Germany for years, but in looking at it in retrospect, it lost 33% in absolute terms during those year(s) of hyperinflation.  I like your analogy to the stock market as lotto, or another one I've seen a bunch is as casino...and we're supposed to trust that these guys (and gals) have the best interests of the average person at heart...they are the house, and the house always wins, and the little guy always loses!

Sat, 01/28/2012 - 13:26 | 2105529 Jason T
Jason T's picture

having worked at America's largest PCB manufacturer, that went out of business in May of 2006... been there and done that.  We had a "game room" set up for idle workers to go to where other departments could grab if needed.  sucked to have to lay off workers.  But in the end..things never turned.. PCB's were to be made in China and that was that.  

Sat, 01/28/2012 - 22:32 | 2106415 sethstorm
sethstorm's picture

The mistake was allowing China to have any place in the US.

Sun, 01/29/2012 - 03:22 | 2106860 Stack Trace
Stack Trace's picture

Heck, I have been arguing myself blue in the face with folks for over a decade about asking them to try buying some products (just some) domestically manufactured.

People...don' They don't understand and really don't care. I can say this after having spoken to thousands of people over the years about this this topic.

Furthermore, the problem isn't just China and just manufacturing.

Software development, legal, financial, and software services have moved largely to India. Garment industry to Vietnam. Auto manufacturing to Mexico. Energy production to Canada.

The reality is this country has already crashed. The shockwaves are finally now reverberating through our economy. Soon the cracks will become gaping holes and the cheap Chi-Merica facade will fall off. All the money printing in the world isn't going to stop this from happening. All the belly-aching about lost jobs isn't either. There is NO WAY manufacturing or other good jobs come back to this country as long as bankers run this country. They want mindless drones that are so desperate they will enlist in the military to be used as fodder.

People will have to revolt first. It will happen only once they understand that our democracy is gone and our freedoms completely destroyed. It will be painful. The monetary morphine needs to be removed otherwise our creditors will do it for us later...only it will be more painful then.


Sat, 01/28/2012 - 15:14 | 2105773 grid-b-gone
grid-b-gone's picture

Backlogs and bookings are critical, too. Most investors see margins and earnings, but companies already know if margins are eroding to get new orders.

With nine weeks left in Q1 FY12, companies already know how Q1 results will look. They are looking at Q2. They can build inventory now and use layoffs to offset higher finished goods carrying costs to save Q2 and hope that demand picks up by Q3. Without core demand, Q3 is when sales or margin erosion would hit quarterly reports.

Investors should look at inventory levels, business sentiment indicators like the ISM reports, and insider sales trends.

The JC Penny decision to market more on price is anectdotal evidence that customer demand is weak.

This was one downside risk of the Fed's policy. Consumers could have kept their spending intact with slight deflation to offset stagnant wages. With the Fed's inflationary target and weak dollar stance, companies expected to make up lost domestic sales from high-growth BRIC countries. 

The Fed got away with simiilar policies in short recessions such at '91-'92 and 2001-02. 

By successfully stimulating with each slowdown, Fed policy became less analytical and more kneejerk. Dissenting Fed members were ostracized and the Fed has been hamstrung by ideological groupthink.

At this point, it's up to the market to force a market solution. Our politicians, regulators, and central bankers are sitting on a triple-bogey putting from the rough. 

Sat, 01/28/2012 - 16:43 | 2105912 Irish66
Irish66's picture

Ford's margin was just shy of 6%, quarter before 11%...recollection

Sat, 01/28/2012 - 18:42 | 2106077 DosZap
DosZap's picture


Mickey D's just had their BEST year on record.

I told the spousal unit, well, that is no wonder.

Since they have cut the size/portions by minimum 33-45%, and doubled the prices.

If I could operate a business like that, and STAY in business I would have record years also.

Seriously 98% on here MIGHT eat something Mickey D's once a year.

Just for giggles go into one, and stand near the order filling /cooking sections.

You would not believe your eyes,the difference in portion sizes, and the new prices.

A double mortal sin.

The same thing is going on on ALL the fast food places I swing by.

Even 75yr old Whataburgers....................are pulling the same crap.

Sat, 01/28/2012 - 19:05 | 2106110 Irish66
Irish66's picture

I have one fast food sandwich that I like, Arbie's super no tomato, its about 1/2 the size it used to be.

$1.25 more than 3 years ago.

Sun, 01/29/2012 - 16:19 | 2107853 Tijuana Donkey Show
Tijuana Donkey Show's picture

If thats true, why aren't americans shrinking? They are just getting ready for McDz to take SNAP benefits, and serve in prison. Just think, a dollar menu in every school, prison, and goverment office, we could save a fortune! If you want to see something really shrink, look at coffee at the grocery, a "pound" bag is now 12 oz, at best, but the price is the same. Bernanke doesn't have a printer, he has a shrink ray for the 99%

Sun, 01/29/2012 - 12:29 | 2107236 SeattleBruce
SeattleBruce's picture

"Fed policy became less analytical and more kneejerk. Dissenting Fed members were ostracized and the Fed has been hamstrung by ideological groupthink."


Not to mention unworkable debt based fiat monetary policy.  Time to create non-debt based money, and if Congress won't do it through revamping the Fed, then we need to replace both Congress and the Fed.

Sat, 01/28/2012 - 16:00 | 2105844 Whoa Dammit
Whoa Dammit's picture

It will be interesting to watch the effects of margin compression in the U.S. comapnies on manufacturing in China. Most Chinese plants are on short term contracts with American end marketers. Walmart, etal. comes through on a regular basis with their mantra of "cut prices 10%" when contracts are renewed. 

I figure Chinese manufacturing has 4 choices 1)The Chinese governement will have to provide lower cost/free raw materials-but how long will the Chinese government do so? 2) Go to full on slave labor, with no illusion of a salary-but this will only hold down costs for a little while. 3) Tell Walmart, etal. to stuff it and raise their prices-but that will lead to more margin compression here and thus less buyers for their products. 4) Really stuff Walmart and start their own retail stores here.

Note that I am not holding out for our business leaders to formulate the logical and best solution to this mess which is: American companies begin paying workers enough, so that someone can afford to buy the crap they want to sell.

Sat, 01/28/2012 - 16:33 | 2105892 Marco
Marco's picture

China could do the same thing as your American solution ... they could dump the dollar and just sell their shit in China.

As for America's solution (and most other first world countries). Their current economy is not competitive, wages have to fall ... not go up (of course at the same time costs of living have to fall and equality of distribution of wealth and work has to go up, unless you like violent revolutions).

Sat, 01/28/2012 - 22:37 | 2106427 sethstorm
sethstorm's picture

No, the solution is for the First World to become its own trade bloc to provide a counterbalance to the Third World - not give up freedoms, protections, and wages that have defined the First World.



Sat, 01/28/2012 - 16:47 | 2105915 dizzyfingers
dizzyfingers's picture

...and then you call China? Plenty of excess mfg capacity there.

Sat, 01/28/2012 - 12:42 | 2105448 Dermasolarapate...
Dermasolarapaterraphatrima's picture


Bankers resist regulatory restraint on bonuses

Sat, 01/28/2012 - 12:49 | 2105463 Caviar Emptor
Caviar Emptor's picture

I call for voluntary restrictions on bonuses, sex and food consumption

Sat, 01/28/2012 - 12:53 | 2105470 cossack55
cossack55's picture

I don't believe they have any intention of abstaining from screwing everyone on the planet. That is why someone invented hemp.

Sat, 01/28/2012 - 13:01 | 2105478 Caviar Emptor
Caviar Emptor's picture

True. Bonus addiction is an unrecognized illness. Please give generously to my Bonus Addiction treatment fund. 

Sat, 01/28/2012 - 16:48 | 2105916 dizzyfingers
dizzyfingers's picture

effing effers... sorry if there are bankers among us, but you should be ashamed.

Sat, 01/28/2012 - 17:27 | 2105987 DosZap
DosZap's picture


What is it with BANKERS?.

But do they make MIN wage, or TIPS $ $2.35hr, and must LIVE on these year end Bonus checks?.

It almost seems so.

(NO OFFENSE to Sonic Waitresses),


Sun, 01/29/2012 - 12:31 | 2107238 SeattleBruce
SeattleBruce's picture

Would they rather that or to be put in a little cell in an orange jumpsuit - I vote for the latter.

Sat, 01/28/2012 - 12:42 | 2105449 apberusdisvet
apberusdisvet's picture

This post is especially dire when you realize that the majority of quarterly results are a result of accounting tricks and other BS, whether in the fine print or purposely omitted.

Sat, 01/28/2012 - 12:56 | 2105472 cossack55
cossack55's picture

It matches well with the BDI, which is just off the record 12/08 lows.  I love the BDI because I think it may be too hard for the manipulators to control, thus a little more clarity of vision.  Not to mention trying to hide all the empty and parked ships off Indonesia.

Sat, 01/28/2012 - 15:22 | 2105788 TempFlashback
TempFlashback's picture

BDI may be an indicator of bad things to come but keep in mind that there is a build up of ships on the market right now (excess capacity) likely contributing to the BDI's fall more than anything.

Sat, 01/28/2012 - 19:30 | 2106142 Manthong
Manthong's picture

It would have to be a pretty big misallocation to just be over-ordering ships (a couple of years ago).

Also as noted by another ZH'r a few threads back, similar pattern on container shipping.

Sat, 01/28/2012 - 13:10 | 2105500 JR
JR's picture

Yes, and it’s important to remember that final EPS figures are manipulated in any way possible, even to the point of selling off subsidiaries to subtract losses, to make annual reports look astoundingly good to investors. They are doctored sales pieces.

Sat, 01/28/2012 - 16:51 | 2105923 dizzyfingers
dizzyfingers's picture

A blogger SeekingAlpha said:

There is another way of looking at this issue that suggests weakening profit margins soon. Economic progress-different from what Keynesians call (inflationary) "growth"--depends on saving and capital accumulation, rather than consumer spending. When capital accumulates, because people produce more than they consume, real wealth per capita goes up. Rising real wealth is reflected in rising real wage rates, incomes and rents, all due to one essential: rising productivity.

Now Keynesians may give lip service to the importance of capital investment, but contradict such talk with the basic thrust of their policy prescriptions. They consistently recommend more consumption as the Holy Grail of "growth" and "recovery". They imagine that the only scarcity worthy of attention is of "consumer demand"-- oblivious to the fact that people can consume only if producers FIRST produce REAL GOODS. If "stimulating" consumer demand could usher in prosperity, why did not long lines in empty Soviet stores "stimulate" Russian prosperity?

Economic production requires producer goods--scarce real goods used in the process of trying to make a profit. Producer goods do not rain down on us from the heavens; they must be produced using saved real wealth and requiring great effort. Clearly, the more that people spend and consume, the fewer real goods remain for use in productive activity.

Therefore, all the Keynesian prescriptions for "recovery" undermine our capital foundations, because they foster consumption AND capital depletion. Keynesian "solutions" include government spending on salaries that are mostly consumed; money printing which depletes precious capital by promoting malinvestment and profligate behavior; government borrowing that sucks up precious capital and wastes it on wars, giveaways and regulatory enforecement; and taxes that must be paid from funds that would otherwise be mostly saved and invested.

Keynesians typically reassure us that every thing will be OK, because the government has more Keynesian policies to implement. But the opposite is true: the big government policies are destroying our prosperity by depleting our aggregate fund of real goods.

The fund of real goods is depleting in the US and European economies. This is why, for example, real wage rates are falling. As real savings are depleted, producer goods become scarcer and more costly to replace. Corporate accounting doesn't reflect this harsh and inescapable reality, because depreciation and amortization are understated. Real taxes paid on exaggerated earnings guarantee that real earnings are much lower than what corporations report.

Most analysts believe that consumer spending is 70% or so of total output, but this is a Keynsian myth. Consumer spending is 70% of GDP accounting totals, but arcane GDP accounting does not properly reflect economic reality. In the real world, probably 70% of total production is for subsequent production--meaning producer goods. So when real savings deplete and production necessarily slumps, the demand and pricing of various producer goods also slumps.

Soon prices will begin rising in response to rising money supply (M1 is up 20% over the last year) and the silent but real depletion of real savings and capital goods. As prices rise from money printing, the dollar will continue to get hammered, which will make imported producer goods more costly and therefore less available for production.

Margins will contract and production will fall in a classic case of serious stagflation. This will inflict great damage on corporations and individuals. I think margins will visibly contract in the next year.

Of course, the economics I have outlined doesn't get a lot of respect these days. But anyone who has lived knows that truth depends on careful reasoning and respect for facts, not popularity.

For anyone who is interested in exploring this Austrian outlook, I recommend George Reisman's "Capitalism". Professor Reisman was a disciple of von Mises and began attending Mises' economics seminar at NYU a the tender age of 15. Reisman's magnum ophus very clearly explains economics, in all its complexity, in ways most people have never had the opportunity to grasp: including why inflation destroys capital and production, why most production is for subsequent production rather than immediate consumption; why government spending only benefits government workers and mercantilists who have, in effect, commandeered a sinking ship; why GDP accounting reflects little of economic reality; why free market capitalism cannot yield monopolies or exploit helpless people; why our prosperity and progress depend on capital accumulation and how big government intrusions erode our capital foundations.

I can only recommend Reisman's book with the highest yet inadequate praise.

Sun, 01/29/2012 - 12:30 | 2107237 Marco
Marco's picture

"Keynesians typically reassure us that every thing will be OK, because the government has more Keynesian policies to implement. But the opposite is true: the big government policies are destroying our prosperity by depleting our aggregate fund of real goods."

Reality is depleting our aggregate fund of real goods ... neither Keynesians nor Austrians nor any other economist is going to change the fact that peak oil happened decades ago in the US.

Up till the last couple of years the "Keynesians" seem to have done a pretty good job at holding reality at bay, Austrians would not have been able to do it (I put quotation marks around Keynesians given that Keynes actually fundamentally opposed trade deficits, without which the current situation could not have occurred). Foreign holdings of US debt grew much faster than M1 up to the last couple of years. Basically they have given Americans half a generation of foreign funded high life.

Sun, 01/29/2012 - 12:41 | 2107262 SeattleBruce
SeattleBruce's picture

"But the opposite is true: the big government policies are destroying our prosperity by depleting our aggregate fund of real goods."


The effects of total debt saturation prove that the Keynesians don't have any more bullets in their gun.

Sun, 01/29/2012 - 12:57 | 2107281 JR
JR's picture

“Reality” has been held at bay by the media and to persons of low information who believe the media. In actuality, Keynesian policies supported by bank tyrants have wrecked the economies of the world at an alarming pace.

Sun, 01/29/2012 - 12:41 | 2107258 JR
JR's picture

Keynesianism is sort of like “eating the seed corn.”

Keynes was a Fabian Socialist, a collectivist, an internationalist in the business of molding public opinion in support of globalism and internationalism, away from nationalism—away from the principles that produced the American miracle. In itself, that tells us the direction of the road down which the Pied Pipers of globalism are leading us.

Keynes and Harry Dexter White, a member of a Communist espionage ring in Washington while he served as Assistant U.S. Secretary of State, are fathers of the bancor (SDR) – the unbacked world reserve currency issued by the IMF World Bank to free all bankers and governments from the discipline of gold.

Professor Ralph Raico explains just how far down the road to socialism Keynes was in 1935:

Keynes reviewed the book (the notorious defense of Stalinist tyranny, Soviet Communism: A New Civilization, by Sidney and Beatrice Webb) in a radio address.”  Beatrice, very pleased, noted how their friend had “boosted” their book. Keynes stated:

"…the new system is now sufficiently crystallized to be reviewed. The result is impressive. The Russian innovators have passed, not only from the revolutionary stage, but also from the doctrinaire stage….They are engaged in the vast administrative task of making a completely new set of social and economic institutions work smoothly and successfully over a territory so extensive that it covers one sixth of the land surface of the world….Methods are still changing rapidly in response to experience. The largest scale empiricism and experimentalism which has ever been attempted by disinterested administrators is in operation. Meanwhile, the Webbs have enabled us to see the direction in which things appear to be moving and how far they have got.’”

This provides a clue as to why today's globalists continually decry Hitlerism; it is to divert the eyes from three quarters of a century of communist terrorism in Russia by the internationalist money power to seize all her human and natural resources.

Sat, 01/28/2012 - 12:44 | 2105451 lolmao500
lolmao500's picture

I met Subby's Mom on She was pretty nice but man - she could eat more bratwurst and boiled eggs then any woman I've ever seen.

Oh and we had sex - but she was going on and on about how I wasn't as good as her son.

/they still have profit margins?

Sat, 01/28/2012 - 12:46 | 2105455 RobotTrader
RobotTrader's picture

The market is overdue due for a correction to the 50-day.



So far, I see no negative divergences whatsoever in the NYSE Summation Index.

New 3-year highs:

Advance/Decline line continues to go up faster than the stocks themselves, suggesting that the market internals are very strong:$NYUD&p=D&yr=0&mn=8&dy=0&id=p70273094322&a=122406050

-  No relative weakness seen in XRT or QQQ yet

-  Stocks like POT, TXN, etc. are totally shucking off earnings warnings

-  Muni-bonds still going parabolic, huge amount of money is still chasing Fixed Income, nobody interested in equities yet

-  Gold made a huge statement this week.  Gold $2,500 = Dow 15,000

Any Questions from the "I am 300% short!" crowd?



Sat, 01/28/2012 - 12:51 | 2105466 The Big Ching-aso
The Big Ching-aso's picture



I think you're on a 3-year high.

Sat, 01/28/2012 - 13:05 | 2105487 lolmao500
lolmao500's picture

Robot trader is always high.

Sat, 01/28/2012 - 13:35 | 2105543 Manthong
Manthong's picture

Mr. Trader might be piloting his pretty cruise ship a little too close to the rocks,

Sat, 01/28/2012 - 14:27 | 2105677 LongSoupLine
LongSoupLine's picture

Mr. Trader doesn't have a "cruise ship", but rather a submarine with screen doors.

Sat, 01/28/2012 - 12:47 | 2105458 Caviar Emptor
Caviar Emptor's picture

The magic stimulus has suddenly turned sour: more excess inventory and capacity in the face of a contracting economy.Without the required economic reset after a mega bubble, demand hits a wall and supply-side margins get squeezed. Also there's lack of new business formation and true competition when the Fed keeps zombies alive

Sat, 01/28/2012 - 16:53 | 2105926 dizzyfingers
dizzyfingers's picture

Please repeat that very loudly, in the direction of D.C.

Sat, 01/28/2012 - 12:48 | 2105462 falak pema
falak pema's picture

When the financial economy starts eating up the profits of the real economy, ex-financials profit meltdown, that's when the writing is on the wall. As now the sun sets on precisely those whose unending earnings projections fed the financial bonfire of bonus driven exuberation. 15 T central bank debts, 15 T US public debts, 8 T Eu sovereign debts, 7 T Japan Inc debts, we are now an economy where the only growth is in System D, 10 T of it. Now what country would that be? 

How does it feed the real economy? System D is debt slavery, as for System D to grow all real economies must go further into debt. And we know it. All 99% of the real world. Mafias run the world. But don't tell that to TBTB they would scoff at it. Impossible to arrive at such a dire conclusion in public, when you wear purple and make the rules yourself.

Lets find a scapegoat quick!

Sat, 01/28/2012 - 12:49 | 2105465 Scalaris
Scalaris's picture


Every little helps to improve the dismal margins. In this case cutting the luxury that is the workforce, in order to offset their betting losses.

Perfectly natural since banks can generate money by only using algorithms and future artificial intelligence units for their M&A sector, while everythin else is made in China.

A win win situation really.

Sat, 01/28/2012 - 12:53 | 2105468 disabledvet
disabledvet's picture

there are two evil sides to the media. "the merely evil": "you're invading my privacy, putting my whole life on-line and for anyone to see and you're doing so without even asking." then there's "the truly evil side": "My God, they've convinced the Saudi's that they need snowblowers for Rammadan." In short "your forgetting the cuckoo for coco-puffs effect" here of "final sales." Here's an example:

Sat, 01/28/2012 - 12:53 | 2105469 Caviar Emptor
Caviar Emptor's picture

This dire situation calls for Plan 9, resurrection of the dead. GOP is already on it, and Ronnie will be arriving shortly. Not shortly as in smaller than you remember but soon. 

Sat, 01/28/2012 - 13:01 | 2105476 RacerX
RacerX's picture

but.. but.. didn't Goldman just tell us to go LONG the RUT?

Sat, 01/28/2012 - 13:02 | 2105481 non_anon
non_anon's picture

the Domino theory

Sat, 01/28/2012 - 13:03 | 2105482 dwdollar
dwdollar's picture

Ah... four years of extend and pretend... Something tells me the "pretend" is going to reach a whole new level of ridiculousness.

Sat, 01/28/2012 - 16:57 | 2105933 dizzyfingers
dizzyfingers's picture

They want to extend 75 years or more...

Think of it, 75 years more of this. By next effing year we'll be praying for an emergency big enough that FEMA can come and get us.

Sat, 01/28/2012 - 13:10 | 2105495 DeadFred
DeadFred's picture

RoboTrader's testy today, huh?. Experience from a year a half ago says these synthesized ramp jobs can go a LONG time without testing the fifty, and that includes from Jackson Hole until November with just the hope and expectation of free money. I see QE as a handshake deal between Fed/Treasury and the banks "We'll give you free money, you'll ramp the market up to make the sheep feel good". It feels to me like the hands have been shook (please be sure to wash well afterward) even if the money has yet to be announced. I wonder if the ECB forgot the handshake part when they did the LTRO. Maybe on version 2.0 they'll remember to add the part about buying bonds with the money.

Sat, 01/28/2012 - 16:59 | 2105939 dizzyfingers
dizzyfingers's picture
Steve Thompson on Jan 27, 10:11 AM said: Here is an article that outlines a far more pragmatic rating system for sovereign debt than that provided by S&P, Fitch or Moodys: This small, private ratings agency bases their ratings on how reliant a country is on debt and deficit spending, their reserves and default history, GDP growth and the ability of the government to raise additional funding. In this rating system, the United Kingdom, Canada and the United States rate a very modest and realistic C, similar to most Eurozone debt transgressing nations.
Sat, 01/28/2012 - 13:19 | 2105518 JR
JR's picture

And for the grand finale,’s great Justin Raimondo sums it all up this weekend in The Greatest Threat: It’s not the Mooslims. Here are excerpts (emphasis mine):

These days, however, they (our rulers) are having a harder time convincing us of the reality of the Threat (Nazism, communism, militias, terrorism, etc.). This is true for a number of reasons, but the main source of our skepticism is the overwhelming certainty that the Threat is coming not from without but from within. No, not in the presence of those Mooslims, in spite of the Israel Lobby‘s best efforts: no, not from the long-gone Commie Conspiracy or the “militias” that were the favored bogeyman of the Clinton era. Instead, the Threat springs from something deeper, a force connected to the way our society works and has been working since the inauguration of the modern era: it is the looming threat of national bankruptcy.

We look at Greece in default, at failing France, at Italy in arrears, and see our future: on the left and the right, the voices of panic are rising. Listen to what George Soros has to say:

“’At times like these, survival is the most important thing,’ he says, peering through his owlish glasses and brushing wisps of gray hair off his forehead. He doesn’t just mean it’s time to protect your assets. He means it’s time to stave off disaster. As he sees it, the world faces one of the most dangerous periods of modern history—a period of ‘evil.’ Europe is confronting a descent into chaos and conflict. In America he predicts riots on the streets that will lead to a brutal clampdown that will dramatically curtail civil liberties. The global economic system could even collapse altogether.”

“A period of ‘evil’” – that’s what’s in store for us, says the man who broke the Bank of England and is one of the richest men on earth, an apocalyptic vision that will sweep away all we have known, and loved:

“As anger rises, riots on the streets of American cities are inevitable. ‘Yes, yes, yes,’ he says, almost gleefully. The response to the unrest could be more damaging than the violence itself. ‘It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system, a society where individual liberty is much more constrained, which would be a break with the tradition of the United States.’”

On the other side of the political spectrum, we hear similar prophecies of doom, although there is nothing gleeful about Rep. Ron Paul’s reaction to his own dark vision of the future:

"There’s going to be anger, and there’s going to be riots in the streets as well. But this is all a consequence of the fact that — why and how do governments spend like this? It’s because they don’t have sound money. When we run up deficits, we tax, but never enough. We can’t tax, it would ruin the economy. Then we borrow, and we get away with that for a long time. But we rely on the printing presses from the Federal Reserve to create the money, and that’s where the problem is."

The Pentagon agrees with the Soros-Paul scenario: the threat of an economic collapse has been in their sights since the crash of ’08. The most recent threat assessment points to “economic instability” as our rulers’ chief worry. The Army recently conducted a year-long war game dubbed “Unified Quest 2011,” centered around how to deal with a "large scale economic breakdown" in this country.

The “threats” of the past sixty years have receded: America’s military might is unchallenged. Yet a new Threat is rising, not from without but from within – an economic cancer eating away at the very heart of our society. We had a taste of it in ’08, and in spite of the Obama-bots’ Pollyannaish predictions of “recovery,” ordinary people see nothing but trouble on the horizon. This is a real threat, unlike the others, one that cannot be fought by our matchless military, or even negotiated with – and it is coming.

American’s national security is in danger, but to listen to our politicians (Paul excepted), you’d think we had nothing to worry about: it’s business as usual. Yet as dark clouds gather on the horizon, and lightning splits the sky, we shiver in our homes and wonder when and how the storm will break.

Sat, 01/28/2012 - 17:03 | 2105950 dizzyfingers
dizzyfingers's picture

The other threats are unlikely to disappear in the face of US collapse, but will take advantage of the Rome.

But the sheeple will continue to watch tv.

Sat, 01/28/2012 - 13:27 | 2105530 Miss Expectations
Miss Expectations's picture

What happened to a friend of mine might be considered invisible action.  She was called in to Human Resources and informed that her job was going to be eliminated.  HOWEVER, there was another job in the company that she might be interested in.  They were working on the job description and finalizing the position description and would forward the "job posting" to her shortly. Three weeks later my friend gets handed the new job posting.  It had her CURRENT JOB DESCRIPTION verbatim, except for a salary that was 50% less and with NO bonus.

She ended up leaving, getting 6 months severance.  Did you know that even if you get severance you still get unemployment at the same time?

So, yeah firing people will help margins (up to a point), but I wonder if wage DECREASES are being used to move that muscle cutting part out just a little bit further.


Sat, 01/28/2012 - 13:50 | 2105587 HungrySeagull
HungrySeagull's picture

You wont believe the number in percentage of people who are not in a position to stop and walk away from work at any wage level.

It would behoove the company well to save money by retaining the slaves at half wage.

Sat, 01/28/2012 - 15:14 | 2105770 LowProfile
LowProfile's picture

Wait until enough of them realize the mortgage isn't worth keeping up on. (shrugs, Earth falls off)

Sat, 01/28/2012 - 17:08 | 2105958 dizzyfingers
dizzyfingers's picture

Everyone who has a mortgage should stop paying right now. Don't pay the property taxes either. See what happens then, and yes it's a risk but they can't come for all 330million of us.

Sat, 01/28/2012 - 17:35 | 2105992 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

While we are at it, let's all retire at once.

Sat, 01/28/2012 - 18:43 | 2106078 DosZap
DosZap's picture

Mr Lennon Hendrix

You didn't???...............

Sat, 01/28/2012 - 17:06 | 2105953 dizzyfingers
dizzyfingers's picture

I have a friend in the same position. They haven't heard whether there'll be packages for those who've worked 30 years and more, but for all intents and purposes the higher ups have pulled out. There's no work, just going in everyday and waiting.

Sat, 01/28/2012 - 18:50 | 2106087 EyeQ
EyeQ's picture

Scary stuff in the private sector BUT this is exactly what is needed in the public sector - 50% loss of salary and pensions and remove the cost-of-living pension clause.  There are SO many government employees, making double their private sector equivalents, and look at all the state, city bankruptcies because of pension payments that are unsustainable - this is where the cuts NEED to be made.

Sat, 01/28/2012 - 13:59 | 2105614 dark pools of soros
dark pools of soros's picture

Fuck it, free oil for America and start WWIII and be done with it

Sat, 01/28/2012 - 17:10 | 2105961 dizzyfingers
dizzyfingers's picture

No, no, no. Do NOT waste the children!! That's part of what's wrong, wars waste our seed corn. So to speak.

Sat, 01/28/2012 - 14:09 | 2105635 Market Efficien...
Market Efficiency Romantic's picture

The GS call two days ago just missed the second leg of the trade: Long Russel, short S&P. That would make sense and be in line with Kostin's analysis. Small cap catch up, relatively stronger deleveraging in large caps, and increasing concentration with large caps buying up small caps.

Sat, 01/28/2012 - 14:19 | 2105660 carbonmutant
carbonmutant's picture

All this works until the missing 25% of home owners have to start paying mortgage again...

Sat, 01/28/2012 - 17:12 | 2105965 dizzyfingers
dizzyfingers's picture

Rental units being built; building materials on the move in our area. No more mortgages. Rents offer mobility; mortgages offer slavery.

Sat, 01/28/2012 - 14:31 | 2105685 LongSoupLine
LongSoupLine's picture



The Goldman "long Russell call" has nothing to do with real economics, and is soley based upon it being the Fed's ponzi, driver and benchmark for "recovery".

Sat, 01/28/2012 - 14:47 | 2105723 KickIce
KickIce's picture

There's a reason why they're passing all the unconstitutional legislation for detainment and other controls.

Sat, 01/28/2012 - 15:00 | 2105745 russwinter
russwinter's picture

They've totally milked the tax angle as well. 

Corporate tax revenue in 2010 was 27% smaller than 2000, even though corporate profits are up 60 percent over the last decade.

Sat, 01/28/2012 - 15:22 | 2105765 ebworthen
ebworthen's picture



Hey but CAT had a fantastic earnings surprise (never mind that it is for bulldozing rainforests and century old villages, homesteads, and farms in South America and Asia).

Free beer and wet T-Shirt contests!

AAPL is going to $600 a share!

Happy days are here again!

Mustard seeds!

Green shoots!

> slap!<


Sat, 01/28/2012 - 15:39 | 2105805 AC_Doctor
AC_Doctor's picture

The scab is peeling off...

Sat, 01/28/2012 - 15:41 | 2105813 Sunshine n Lollipops
Sunshine n Lollipops's picture

It won't be long before "A chicken in every pot" returns as a viable campaign slogan.

Sat, 01/28/2012 - 17:15 | 2105969 dizzyfingers
dizzyfingers's picture

I have a really nice chicken dish in my oven right now. Chicken, pepperoni, peppers, red sauce, wine, herbs and spices...

Will the chicken be free?

Sat, 01/28/2012 - 15:58 | 2105839 grid-b-gone
grid-b-gone's picture

One should not put too much emphasis on Apple earnings anymore than they would the earnings of Kodak.

Apple benefits from products that cross business lines into the normal high-margin products that are must-haves (read: "I'd pay anything") for youthful customers.

It would be great to know how much of McDonald's wages paid end up recycled right back into AAPL.

It seems that back in math class and in business a decade ago, we used to toss out the outliers to ensure we were looking at the sustainable portion of bell curve data.

I expect 2012 S&P earnings to end up closer to $90 than $100. A 14 P/E would put it at 1,260, so I expect some downward pressure, but ending the year not far from where we are now.

Sat, 01/28/2012 - 16:17 | 2105866 swmnguy
swmnguy's picture

I was wondering if this is what was going on.  I worked in TV commercial production for a while (scenic, special effects).  Then I moved to corporate events and meetings (I coordinate staging, equipment, labor, setup, logistics, etc. for the big flashy events).  A weird obscure window on corporate culture.

I've done this long enough, 25 years, to have noticed some cycles.  Companies start cutting back on marketing budgets and frilly aspects of big corporate shebangs.  A few months later the rest of us find out there's a downturn in progress.  Layoffs, cutbacks, the works.  Every bit of "non-essential" spending gets hacked.  Clients ask if it would cost less to use 36 lights instead of 48; stuff like that.  Then meetings actually get cancelled.  Things go dormant for a quarter or two.  Only the smallest meetings; mostly "breakout sessions" and training workshops.

Right about the time business for me is the worst, I start getting calls about potential future work, 9 months out or so.  Then I hear in the larger media that we're in the trough of the "recession."  Then I start to get work and the money starts to flow.  Still very cost-conscious; still making penny-wise/pound-foolish decisions.  Eventually the consensus is that we're recovering.  Gradually the work volume piles up and people stop counting the pennies so closely, and the ideas and the production gets bigger.  Locales get more exotic.  Executives again want to ride on stage on a Harley or fly in on a trapeze to give their Q4 marketing preview to the troops.

I can tell we're heading for a downturn when the events start getting lavish and over-the-top again.  When they spend $5,000,000 to have Sting play for an hour at an after-party.  When top execs take helicopters from Montreal to the Gaspe Peninsula to watch the whales cavort in the St. Lawrence; then it's time for me to fill up the Royal Crown Pomade tin with the spare FRN's, get my car tuned up, buy any new software or hardware I need.

So I've went into po' boy mode mid-October, 2008, when I saw the blurb on CNN about the AIG execs, fresh off the emergency bailout, spending $25,000 for a handful of them at the St. Regis Resort's spa.  (I was in Beijing, doing a hair show at the time--talk about excess).  Things had been coming back gradually, so I've been OK.

About last September, all of a sudden the phone started ringing off the hook.  I've got more business doing corporate meetings and shows than I can handle, until at least June.

I sure hadn't noticed the economy taking off like a rocket.  My theory has been that companies knew they had cut all the fat, some of the muscle, and were nicking the bone.  They'd built up huge piles of cash.  They hadn't given what employees they had left any raises in years, and have to at least give them a party.  They have to train people.  They have to whip up whatever morale they've got left.

I interpret the cycle as either they know at that point when things are going to turn around, or they're pump-priming on their own.  The cycle held true in 1987-88, '91-'92, '95-'96, '01-'02 though.  However, this has been by far the longest and deepest trough in my line of work.  Late '08 into '09 my work dropped 65% y.o.y.  In '10 I stabilized, bottomed, and started coming back.  '11 wasn't back to '08 levels, but maybe '06?.  Right now '12 looks like my busiest year ever-knock wood.

We'll see.  I don't see the basis for real improvement.  Could be corporate whistling past the graveyard.  Hoping it isn't the "crack-up boom" the Austrians warn us against. 

Sat, 01/28/2012 - 16:36 | 2105896 falak pema
falak pema's picture

I bought Aapl at 30, then at 50,, then at 70, then at 100 and finally at 200 (round numbers)  back in 1993 onwards to 2009 ... I was told i was a dumbass not to buy Microsoft; so what does that make me?

A Steve Jobsite, a good investor or a luddite? 

It wasn't big amounts more like 5000 $ at a time, a huge amount for a salaried person. I bought my first Aapl lap top in 1992, i've never looked back. The aggregate value of Apple stock I'll leave to my daughter one day. But apart from having made money, the greatest pride I have is the old lap top and aapl printer that are still operational on 64 Mega  memory and 125 khz speed. 

It is an object of a time line, a love affair, that I'll leave to my daughter, now an Apple fan like the whole world; whereas I feel I was a pioneer. My brother a downsizing professional with his own software company never forgave me for buying Apple stock  in 1993 and 1997. He was a BG groupie as he was in that software business. From 2003 he was less hostile. Lol, how people change...

I wonder if my investment in aapl, minor amount, less than 30000 USD overall, as I am no stock exchange hot shot, is not a better placement over time than PMs. I never knew it would turn out this way; I just put my money where my pleasure was! Apparently its worth over 1000 % of its intial value; go figure out for an amateur like me. I haven't even done the math today!

I hope RM won't blast my aapl inclination, its not religion. 

Ps : any resemblance to real people is purely fortuitous. 

Sat, 01/28/2012 - 16:37 | 2105908 slewie the pi-rat
slewie the pi-rat's picture

who coulda seen this coming?

borrowing the "money" [to bail out zombies and pay the interest on what yu've already borrowed. which has been stolen via "captured capitalization" (and monetization)] = saving the econom + green shoots


as benzelbub sputters on about more years of zirp and does theTwist and timmah suggests in public that it looks like prez0 doesn't want him back after "re-election"

this is pretty funny given that that prez0 had recently been denied acces to the election ballot in one state (GA) b/c he was unwilling to walk into a court and answer questions about himself and his Constitutional place of birth

so, the judge ruled against him and the sec0'state is indicating that he does not qualify, at this point, to be put on the ballot in the State, if he can't prove he meets the requirements of the office he's gonna run for, even if he already holds the office

gee~~~Contitutional lawyer, meet Constitution!

now, while we got it out, what does it say, again, about gold & silver, there, too?

Sat, 01/28/2012 - 17:21 | 2105981 dizzyfingers
dizzyfingers's picture
What Really Happened In A Georgia Courtroom On January 26, 2012? Jan 27, 2012 02:50 pm | Miki Booth

Wednesday, January 25, 2012 was the longest day I would never want to re-live but feel it necessary to document for posterity. The day had its ups and downs and ins and outs and Article II, Section 1.5 Constitutionalist, also… Continue to Post

Sat, 01/28/2012 - 19:11 | 2106115 swmnguy
swmnguy's picture

I was hoping this wasn't true, but as it turns out I have to admit it clearly is.  A certain proportion of the populace will never accept the fact that America has a Hawaiian President.

Sun, 01/29/2012 - 01:08 | 2106752 Vendetta
Vendetta's picture

unfortunately, it is the international money power that rules washington, the politicians are simply their puppets, the money power has no allegiance to any country

Sun, 01/29/2012 - 08:42 | 2107009 swmnguy
swmnguy's picture

Well, that's certainly true.  It would be better if more people realized that.  It does seem more and more people do, however.

Sun, 01/29/2012 - 10:57 | 2107110 roadhazard
roadhazard's picture

Right wingers are always good for a laff. God they so deserve Newt and Trump and Palin and the rest of those clowns.

Sat, 01/28/2012 - 16:59 | 2105937 Randall Cabot
Randall Cabot's picture

"And with companies posting a near record low positive earnings surprise ratio, we are once again amazed how yet another Goldman team may have well called the absolute peak in the market with its long Russell call from two days ago."

It looks like Goldman pulled in the last of the suckers with that long Russell call. Even though Dow and S&P were down Friday due to a last minute ramp-rejecting sell off by those-in-the-know the R2K was strong right to the close and finished up .75% nearly twice as high as the AAPL-fueled Nasdaq.

Sat, 01/28/2012 - 21:22 | 2106253 xela2200
xela2200's picture

You know the funny thing is? We know they are lying. They know they are lying. They know that We know they are lying. Still they fool enough sheep to profit from their lying. Just do the opposite of what they tell you to do.

Sun, 01/29/2012 - 01:05 | 2106745 Vendetta
Vendetta's picture

the fat at the top of corporate ladder is fatter than ever. 

Sun, 01/29/2012 - 09:20 | 2107034 overmedicatedun...
overmedicatedundersexed's picture

there is medicine for our economy..the ones the reptile elite Davos and B Grove crowd of CFR thugs have tarnished for years: Tariffs and overturning the "Free Trade" agreements..

America's market place is a jewel that the worlds elite have to remove to move on to the NWO.

tin foil hat stuff? well how's it fit into what has happened to employment and the economy of the USA..

the simple solution is to rid gov of these thugs and criminals..without this all other fixes we so blindly toss out here are window dressing

we must address the idea that America must lose so the 3rd world and or NWO elite can win.

got it? 

Sun, 01/29/2012 - 11:07 | 2107127 ThisIsBob
ThisIsBob's picture

I like to come here and read things that price hasn't firgued out yet.

Sun, 01/29/2012 - 14:48 | 2107596 Let The Wurlitz...
Let The Wurlitzer Play's picture

I would not worry about stock prices declining even though we have the current earnings and dept issues.  I undertstand that Obama is going to pass a new law that only he can decide which stocks go down.  The law is going to be introduced as part of the "Save puppies and feed starving babies act of 2012".  Now who in congress will vote against that?


Tue, 04/10/2012 - 03:54 | 2330581 meredith
meredith's picture

the implication is quite dire. If Konstantin is punish 220-701 then the corporate border power which freshly hit an all second elated in and which has for all 640-822 intents and purposes been the one equilibrize to deteriorating economic conditions 350-030 continual Fed stimuli to the saving excursus, has officially peaked and is now pronounceable over.70-662

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