Wolf Richter www.testosteronepit.com [12] www.amazon.com/author/wolfrichter [13]
Alarm bells went off: “Yellen props stocks [14],” the headline read. Somebody needs to. Politicians in Washington are actively contemplating how to most effectively send the largest and brokest debtor in the history of the universe into default. Corporate revenues can’t keep up with inflation. Earnings estimates and actual earnings growth plunge. And the S&P 500 soared 16% year to date.
The first of the S&P 500 companies to report was Alcoa. Its aluminum products are used in autos, air craft, beer cans.... A bellwether. So analysts fawned over its results, and investors swarmed into its stock, surrounded by talk of growing demand, etc., etc. It did report a profit, due to cost cutting, of 2 cents a share, which rose to 11 cents after all the “special items” were backed out, to then exceed expectations, which themselves had been feverishly lowered beforehand. This accomplishment was based on “solid” revenues of $5.765 billion, down 1.2% from a year ago. “Alcoa Gets Earnings Season Off to the Right Start,” is how a headline [15] described the phenomenon. At first, I thought it had been glazed with irony.
Then there was H-P. The computer maker didn’t even report earnings. CEO Meg Whitman hyped the company at a meeting on Wednesday. There’d be “pockets of growth” in 2014, she raved, revenues might actually “stabilize,” and she felt “comfortable” with H-P’s progress. Great news.
In fiscal 2013 ending this month, revenues are expected to skid 7.4%. CFO Cathie Lesjak then explained what Whitman’s “pockets of growth” and “stabilize” meant: revenues would continue to skid in fiscal 2014. On this glorious note, the stock soared 8.9%. It’s up over 48% for the year, after having nearly doubled at its recent peak in August.
“Meg Whitman seems to be a lot more optimistic than we are,” retorted Jim Chanos, President of Kynikos Associates, on CNBC, the morning after. “They’re now talking about revenue declines in 2014. That’s not what they were saying before.”
“So, in effect the guidance keeps coming down at that company,” he said – which has been a pandemic corporate disease over the last few quarters. “They have a lot of different businesses,” he said. “They have enterprise, they have printing, they have PCs, but all of these businesses are declining right now.”
The litany continues. Costco, one of my favorite places to shop – I ram people that clog up the aisles during their Sunday family outings – reported its revenue debacle on Wednesday. Net sales climbed an imperceptible 0.8% in the fourth quarter over prior year, after they’d grown at their more habitual rate of 7.9% in the third quarter. Something was off. The company blamed foreign currency fluctuations, but hey, foreign currencies always fluctuate.
Safeway reported its debacle on Thursday: earnings down 58%. It lowered its earnings estimates. It cut its capital spending target – thereby cutting revenues for other companies; it’s hard to grow an economy on the basis of corporate cost cutting. It has been announcing a slew of strategic moves, including selling its Canadian operations. It threw another goody into the fray: exit the Chicago area. And revenues? Increased 1.1%, about half of the rate of inflation. The stock jumped 6% afterhours, after doubling over the last 12 months.
Gap also entered the confessional on Thursday. September sales were flat. Same-store sales were down 3%, when hype mongers had expected a 1.6% rise. September “proved to be somewhat challenging,” CEO Glenn Murphy said blandly [16].
Nine retailers still report monthly same-store sales, and if that small sample is representative of the larger retail environment, September ended the back-to-school season, the second most important selling season, with a whimper. Together, they posted a 1.6% increase [17] in same store sales, below the rate of inflation, as opposed to the estimated 3.1% increase, and as opposed to the actual 5.5% increase last year. Cited: weak mall traffic, fierce competition, waning consumer confidence, whatever. The month just sucked. Worrywarts are beginning to fret about the upcoming holiday season.
At least one sector is still strong. Auto sales have been booming all year, actually for the last several years, with double-digit year-over-year growth rates, including over 20% so far this year, goosed by ultra-cheap car loans. The auto industry is a huge part of manufacturing, service, and finance. It accounts for nearly 20% of all retail sales. So thank God sales are booming.
I mean, were booming. In September, they dropped for the first time [18] this year, down 4.2%. The industry blamed Labor Day, which was counted in August this year and in September last year (something they largely failed to point out in August). Remains to be seen if this was just a blip related to Labor Day, or if consumers are throttling back their enthusiasm for the one major sector that was still holding up the retail sales – and a good part of manufacturing.
Some companies will report strong revenue growth, and we’re looking forward to that. But there will be many others that will report flat or declining revenues. None of this – not crummy revenues, not the collapsing earnings forecasts, not the government shutdown, not the threat of a politically engineered default by the largest and brokest debtor in the history of the universe – can apparently rattle this stock market.
Because it is now held up by its one and final prop, a jerry-rigged, haphazard device with destructive side effects. Without it, the market would fall over: the vague promise of endless money printing by the Fed. Soon-to-be Chairwoman Janet Yellen is the new incarnation of that religion. She has been a big proponent of the Fed’s QE binges and zero-interest-rate policy. And the markets expect her to prop up trillions of dollars in inflated value with unrelenting enthusiasm. A scary thought.
In its report on shadow banking, the New York Fed buried some nuggets: Hedge funds and banks are bailing out of the highest-risk, “opaque,” but now relatively low-yielding loans – low yielding thanks to the Fed’s repressive monetary policies – by selling them to small investors via harmless-sounding and conservative-appearing mutual funds and ETFs. Read.... Fed: Hedge Funds, Banks Sell Crappiest Debt To Small Investors (Before Credit Bubble Blows Up) [19]