[youtube:http://www.youtube.com/watch?v=91yHqMc41Xc 450 300] [youtube:http://www.youtube.com/watch?v=ytVzSns8dQ4 450 300]
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Joined Feb 3, 2009
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A Podcast From Peter Schiff on The Economy is Getting Worse… Plus Earnings Highlights: MKC*, RIMM*, RAD*
Scrolling Headlines From Yahoo in Play
MKC
MKC) 34.75 : Reports Q3 (Aug) earnings of $0.57 per share, $0.03 better than the First Call consensus of $0.54; revenues rose 1.3% year/year to $791.7 mln vs the $801.4 mln consensus. Co raises low end of guidance for FY09, sees EPS of $2.31-2.33, excluding $0.05 in restructuring, vs. $2.31 consensus, up from previous guidance of $2.29-2.33. The co reaffirmed its expectation to grow sales 2-3% vs the 1.9% consensus and continues to project a gross profit margin increase of at least 0.5 percentage points for the fiscal year. In 3Q09, sales increased 1% and in local currency rose 6% with increases in both the consumer and industrial businesses. Sales growth for the consumer business was led by the Lawry’s acquisition, pricing actions taken early in 2009 to offset higher costs, and a relaunch of dry seasoning mixes in the U.S. In local currency, industrial sales growth was achieved in each geographic region. As a result, gross profit margin of 40.3% was achieved in the third quarter of 2009 compared to 39.5% in the third quarter of 2008.
NEW YORK (AP) — Drugstore operator Rite Aid Corp. is reporting a smaller second-quarter loss than a year ago, but is lowering its expectations for the fiscal year.
The Camp Hill, Pa., company said Thursday it lost $120.4 million, or 14 cents per share, after preferred dividends in the three months ended Aug. 29. That compares with a loss of $227.4 million, or 27 cents per share, a year ago.
Analysts expected a larger loss of 16 cents a share for the latest quarter.
It says revenue fell 3 percent to $6.3 billion, missing Wall Street estimates of $6.4 billion.
It says the weak economy, high unemployment and weaker profit margins will lead to a bigger loss and lower sales than it previously expected for the full year.
WATERLOO, Ont. (TheStreet) — Research In Motion (RIMM Quote) fell in premarket trading Friday after tumbling after hours Thursday after it missed on sales with its latest results and offered a dimmer-than-expected outlook.
The BlackBerry maker posted adjusted earnings, excluding one-time items, of $1.03 a share for its fiscal second quarter, up from 86 cents a share in the same period a year earlier, and slightly better than the $1 per share profit analysts were looking for.
But sales for the three months ended August 29 came in at $3.53 billion, up from the $2.58 billion level last year, yet below the $3.62 billion in sales analysts expected.
RIM also signed on 3.8 million net new BlackBerry subscribers in the quarter, less than the 4 million Wall Street was looking for. And while gross margins of 44.1% were better than the 43.5% expected, total phone shipments were only 8.3 million, just shy of the 8.4 million anticipated by analysts.
“We are pleased to report a strong second quarter with excellent financial performance, successful product launches and accelerating growth in international markets and new market segments,” RIM Co-CEO Jim Balsillie said in a press release.
Looking ahead, RIM says it expects an adjusted profit for the fiscal third quarter of $1 to $1.08 per share, a range that surrounds the current $1.05 per share consensus estimate. RIM put its sales forecast for the quarter ending in November between $3.6 billion and $3.85 billion. The midpoint of that range is $3.72 billion, well below the $3.9 billion target analysts had for RIM
Comments »Business Headlines For September 24, 2009
Treasury States The System is Still Fragile
WASHINGTON (Reuters) – The U.S. financial system remains fragile a year after a bank bailout program was initiated and the government needs to be ready to step in to help more if necessary, a senior U.S. Treasury department official said on Thursday.
“The recovery has just begun, the financial system remains fragile, and the credit markets are not fully functioning,” Herb Allison, assistant Treasury secretary for financial stability, told the U.S. Senate Banking Committee.
Allison said the Troubled Assets Relief Program, or TARP, had helped stabilize an economy that was in freefall when the Obama administration took office in January.
“We still have a long way to go before true recovery takes hold, but we are now pointed in the right direction,” he said.
Allison said TARP was intended as “an emergency response to a major financial crisis” and Treasury will exit from its bank investments as soon as it can.
Treasury has received over $70 billion in principal payments from banks that received taxpayer bailouts and almost $23 billion in proceeds from the repurchase of warrants by banks that have already repaid the principal investment.
“For those banks that have elected not to repurchase their warrants, Treasury intends to begin auctioning those warrants later this year,” Allison said.
He noted that “significant parts of the financial system remain impaired” and noted falling commercial real estate prices may additionally pressure banks’ balance sheets.
“In this context, it is prudent to maintain capacity to address new developments.” Allison said, a possible sign that Treasury may want to keep the TARP funds available for use if needed for some time.
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Fed Announces A Scaling Back of Emergency Lending Programs
The U.S. Federal Reserve on Thursday said it will offer banks access to emergency short-term funds through its Term Auction Facility at least through January while trimming the sizes and maturity lengths of the auctions in light of healing financial markets.
“These schedules are consistent with the intention … to gradually scale back these facilities in response to continued improvements in financial markets,” the Fed said in a statement.
The U.S. central bank said it has adjusted the auctions to take into account anticipated heightened market pressures at year end.
It also said it will consider putting in place some type of permanent auction facility for short-term funds.
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Asian Stocks Trade Mixed on Lower Commodity & Financial Sectors
By Shani Raja
Sept. 24 (Bloomberg) — Most Asian stock markets fell, led by commodity and finance companies, as raw-material prices declined and Aiful Corp. forecast a full-year loss. Japan stocks rose as brokerages upgraded Toshiba Corp. and Fast Retailing Co.
Jiangxi Copper Co., China’s biggest producer of the metal, lost 3.6 percent in Hong Kong. Aiful, Japan’s second-largest consumer lender by assets, tumbled 24 percent. Toshiba, Japan’s biggest chipmaker, added 3.8 percent after Credit Suisse Group AG more than doubled its price estimate. Fast Retailing, the operator of the nation’s biggest casual clothing chain, jumped 5.3 percent after Goldman Sachs Group Inc. recommended the stock.
Stocks that fell about matched those that that rose on the MSCI Asia Pacific Index, which added 0.3 percent to 119.10 as of 7:14 p.m. in Tokyo. Japan resumed trading after a three-day holiday, during which the MSCI gauge rose 0.3 percent. The measure surged 42 percent in the past six months as stimulus measures around the world dragged economies out of recession.
“The consensus view now is that the worst is over,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “We need further evidence that the underlying economy is more self-sustaining and less reliant on stimulus in order to justify higher prices from here.”
Hong Kong’s Hang Seng Index slumped 2.5 percent as Metallurgical Corporation of China Ltd. sank 11 percent on its first day of trading. China’s Shanghai Composite Index gained 0.4 percent. Japan, India, Pakistan, and Indonesia also fell, while all other markets rose….
European Stocks Fall on Lower Than Expected German Business Confidence
By Daniela Silberstein
Sept. 24 (Bloomberg) — European stocks fell for the first time in three days as German business confidence rose less than forecast, adding to speculation a six-month rally has outpaced prospects for the economy.
Hennes & Mauritz AG led retailers lower as a sales decline worsened. Air France-KLM Group dropped 2.8 percent after UBS AG recommended selling shares of Europe’s largest airline. 3i Group Plc sank 3.3 percent as the pace of new investments dropped. Aiful Corp., Japan’s second-biggest consumer lender by assets, tumbled 24 percent after forecasting a full-year loss.
Europe’s Dow Jones Stoxx 600 Index slipped 0.7 percent to 243.16 at 10:54 a.m. in London as 17 out of 19 industry groups retreated. The gauge has soared 54 percent since March 9 as the Group of 20 nations committed about $12 trillion to revive growth and the Federal Reserve kept overnight borrowing costs near zero to unlock credit markets.
“The market is ripe for a few weaker days in a row,” said Rudolf Buxtorf, who manages about $114 million at RBS Coutts Bank in Zurich. “The advances are saturated and any negative news can trigger momentum to the downside. Stocks are no longer cheap.”
The rally has pushed valuations on the Stoxx 600 to more than 50 times the profit of its companies, the most expensive level since 2003, according to data compiled by Bloomberg.
German business confidence rose to a 12-month high of 91.3 from 90.5 in August, according to the Ifo institute in Munich. Economists had forecast a reading of 92, the median of 40 projections in a Bloomberg News survey showed.
U.S. Futures
Standard & Poor’s 500 Index futures advanced 0.1 percent. The benchmark index for U.S. equities slid yesterday as the Fed signaled it will use fewer tools to bolster economic growth…..
By ALEX KENNEDY p {margin:12px 0px 0px 0px;}
SINGAPORE (AP) – Oil prices dropped to near $68 a barrel Thursday in Asia as an unexpected jump in U.S. crude inventories suggested consumer demand remains in the doldrums.
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Benchmark crude for November delivery was down 76 cents at $68.21 a barrel by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract tumbled $2.79 to settle at $68.97 on Wednesday.
The $70 a barrel level has been a magnet for months, with growing optimism that the global economy is recovering from recession offset by signs that crude demand isn’t picking up.
Crude supplies grew by 2.8 million barrels and gasoline by 5.4 million barrels last week, according to the Energy Information Administration on Wednesday. Analysts had expected crude levels to decline by nearly that much, according to a survey by Platts, the energy information arm of McGraw-Hills Cos.
A weaker U.S. dollar has helped bolster oil prices in recent weeks. Crude is priced in dollars so it becomes cheaper when the dollar falls. The dollar is at a nearly one-year low against the euro, and fell Wednesday after the Federal Reserve said it would keep interest rates at a record low – near zero.
The euro rose Thursday in Asian trading to $1.4749 while the dollar fell to 90.65 yen.
In other Nymex trading, gasoline for October delivery was steady at $1.70 a gallon, and heating oil dropped 0.72 cent to $1.75 a gallon. Natural gas was down 1.9 cents to $3.84 per 1,000 cubic feet.
In London, Brent crude fell 54 cents to $67.45 on the ICE Futures exchange.
By Nicholas LarkinSept. 24 (Bloomberg) — Gold gained in London as the dollar weakened against the euro, increasing the metal’s appeal as an alternative investment.
The dollar fell as much as 0.4 percent against the euro as a report showed German business confidence rose to a 12-month high this month. Bullion has climbed 15 percent in 2009, while the dollar, which yesterday slid to the lowest level in a year against the single European currency, has lost 5.4 percent.
“The dollar and risk sentiment will continue to lead gold in coming sessions,” James Moore, an analyst at TheBullionDesk.com in London, said in a note. Bullion is “well placed to set fresh highs,” he said.
Immediate-delivery bullion rose $6.25, or 0.6 percent, to $1,014.65 an ounce by 11:03 a.m. local time. December gold futures were 0.2 percent higher at $1,016.10 on the New York Mercantile Exchange’s Comex division.
The metal rose to $1,014 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,010.25 at yesterday’s afternoon fixing. Spot prices are trading 1.7 below a record $1,032.70 set in March 2008.
The Federal Reserve yesterday said it would keep interest rates low for an “extended period.” The central bank also said it would slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.
SPDR Holdings
Holdings of bullion in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, were unchanged at 1,101.73 metric tons yesterday, data on the company’s Web site showed. The fund’s holdings reached a record 1,134.03 tons on June 1. Gold held in ETF Securities Ltd.’s exchange-traded products added 0.1 percent to a record 8.377 million ounces yesterday, its Web site showed. The company’s data exclude products listed in the U.S.
Silver for immediate delivery in London slipped 0.1 percent to $16.82 an ounce. Platinum added 0.4 percent to $1,326.15 an ounce, while palladium was 0.6 percent higher at $296.58 an ounce.
ETF Securities’ palladium holdings climbed 1.9 percent to an all-time high 543,204 ounces yesterday, while platinum assets increased 1.7 percent to 360,949 ounces.
U.S. Credit Card Defaults Rise To Record Levels
NEW YORK (Reuters) – The U.S. credit card charge-off rate rose to a record high in August, as more Americans lost their jobs, Moody’s Investors Service said on Wednesday, in another sign consumers remain under stress.
The Moody’s credit card charge-off index — which measures credit card loans that banks do not expect to be repaid — rose to 11.49 percent in August from 10.52 percent in July.
The index resumed an upward trend after declining in July for the first time in almost a year, vanishing hopes of stabilization in the industry after record high credit losses.
“We continue to call for a recovery of the credit card sector to begin once industry average charge-offs peak in mid-2010 between 12 percent and 13 percent,” Moody’s said in a report.
Credit card losses usually follow the trend of unemployment, which rose in August to 9.7 percent, the highest level in 26 years. Moody’s estimated unemployment will peak next year at 10 percent to 10.5 percent.
The Moody’s index showed credit card delinquencies — payments more than 30 days late — rose to 5.80 percent in August from 5.73 percent in July.
“Even early-stage delinquencies rose, ending a trend of four consecutive months of improvement,” Moody’s said in a report.
Data released by companies earlier this month based on the performance of credit card loans that were securitized showed defaults rose to record highs at Bank of America Corp <BAC.N> and Citigroup Inc <C.N>, among some of the biggest card issuers.
Both Citigroup and Bank of America hold the highest exposure to riskier credit card borrowers.
Japan Airlines seeks Its 4th Life Line, Shares Tumble
By Kiyori Ueno and Kiyotaka Matsuda
Sept. 24 (Bloomberg) — Japan Airlines Corp., Asia’s most indebted carrier, asked the government for a fourth bailout since 2001 as the global recession hammers international travel demand.
The airline didn’t give a specific amount in its request, JAL President Haruka Nishimatsu told reporters after a meeting with Transport Minister Seiji Maehara in Tokyo today. He denied reports that the carrier may be split up.
JAL earlier fell a record 16 percent on the city’s stock market after Nikkei said the carrier intended to raise as much as 300 billion yen ($3.3 billion) in capital. The airline, already planning to cut staff and axe routes, has also held talks on selling a stake to an overseas carrier.
Japanese Exports Fall 36% in August
By Jason Clenfield and Kyoko Shimodoi
Sept. 24 (Bloomberg) — Japan’s exports fell for an 11th month in August as the economic recovery struggled to gain traction.
Shipments abroad dropped 36 percent from a year earlier compared with a 36.5 percent decline in July, the Finance Ministry said today in Tokyo. From a month earlier, exports fell 0.7 percent, the second straight decrease.
Today’s report suggests the boost in overseas demand that helped the economy expand in the second quarter may be moderating as governments exhaust stimulus spending. New Prime Minister Yukio Hatoyama meets his counterparts from the Group of 20 nations in Pittsburgh today to discuss how to sustain a recovery from the worst global recession since the 1930s.
“Even with all those global stimulus measures, the recovery in exports has been extremely slow,” said Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in Tokyo. “Final demand worldwide remains weak.”
The yen rose to 91.19 per dollar at 10:22 a.m. in Tokyo from 91.38 before the report. The Japanese currency’s 7 percent gain over the past six months has added another headwind for exporters by eroding the value of their profits earned abroad……
Paper is The Next Item in the China Trade Dispute
PITTSBURGH — Three paper companies and the United Steelworkers filed an antidumping case Wednesday against China and Indonesia, making good on the union’s threat to protect other U.S. industries after winning a recent trade decision against China.
The petitioners said the timing of their complaint, on the eve of the G-20 economic summit here, was coincidental. But it threatens to raise tensions between the U.S. and its trading partners, particularly China, which is smarting from President Barack Obama’s decision this month to place hefty tariffs on imported Chinese tires.
The complaint alleges China and Indonesia have been dumping tons of shiny, coated paper used, for example, in car brochures and annual reports. The case is being pursued through a different legal avenue than the one that yielded the tire tariffs and doesn’t require approval by Mr. Obama.
But it nonetheless puts the White House in a delicate position, especially since Chinese delegates are expected to confront the administration with allegations of protectionist moves by Washington. Leaders of the G-20 have pledged to resist efforts to curb job losses in their countries by restricting access to their markets. A White House spokesman declined to comment.
Gilbert B. Kaplan, a Washington attorney for the petitioners, said the complaints weren’t timed to the G-20 economic summit. He said the four separate petitions alleging dumping and subsidies by the two countries — totaling more than 2,000 pages — “have been prepared for some time.”
The companies need to prove to the Commerce Department that the governments of China and Indonesia provided subsidies to coated-paper producers, and that imports were sold in the U.S. at prices below the home-market price or the cost of production. The petitioners also need to show the U.S. International Trade Commission that the paper imports caused material injury to the U.S. market or threaten to. “We have very strong evidence on all the factors which are necessary to prove this case,” Mr. Kaplan said.
A spokesman for Indonesia’s Trade Ministry declined to comment because the government has not yet viewed the antidumping petitions.
A spokesman at the Chinese Ministry of Commerce said: “The rising trade protectionism is worrying. The U.S. should be aware that trade protectionism is a double-edged sword and will do no good to either side.”
By Janet Ong and Chinmei Sung
Sept. 24 (Bloomberg) — Taiwan’s central bank kept its benchmark interest rate unchanged on signs the export-dependent economy will recover as the global recession abates.
Governor Perng Fai-nan and his board held the discount rate on 10-day loans to banks at a record-low 1.25 percent, the central bank said in a statement. That was in line with the estimate of all 12 economists surveyed by Bloomberg News.
Taiwan, like its Asian neighbors, has slashed borrowing costs to help the island recover from its first recession since 2001. The stock index has risen 60 percent this year on optimism improving overseas demand for electronics products will revive an economy that shrank 7.54 percent in the second quarter after contracting 10.1 percent the previous three months.
“The central bank may continue to keep rates steady through the first quarter of next year,” said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore. “The magnitude of the economic recovery is still too small.”
Central banks across the region have stopped cutting interest rates as they gauge signs of recovery. Japan’s central bank on Sept. 17 kept the benchmark overnight lending rate at 0.1 percent, while the Bank of Korea held its rate at a record- low 2 percent on Sept. 10 for a seventh month.
Taiwan’s central bank said its current monetary policy is appropriate and the growth in money supply has been “reasonable.” The bank will intervene to keep the island’s currency stable and respond to “hot money inflows,” it said…..
Germany Reduces Debt Sale Plan
By Anchalee Worrachate and Brian Parkin
Sept. 24 (Bloomberg) — Germany, Europe’s biggest economy, said it lowered its planned fourth-quarter debt issuance by 22 percent because of a reduction in funding requirements.
The nation will sell 59 billion euros ($87 billion) of debt in the period, the Frankfurt-based Federal Finance Agency said today in a statement. The total includes 33 billion euros in bonds and 26 billion euros in bills, which have maturities of 12 months or less, the agency said.
Unprecedented European government debt sales this year are showing signs of helping the region’s economies recover from the worst global recession since World War II. German business confidence rose to a 12-month high in September, a report from the Ifo institute in Munich showed today.
“The projected funding need was higher than it actually turned out to be,” said David Schnautz, a fixed-income strategist at Commerzbank AG in Frankfurt. “This gave the finance agency room to cut back on supply. It’s quite right they scaled bank bill issuance substantially. The issuer market for the very short-maturity securities is very crowded.”
The Federal Finance Agency said in March it expected to sell 76 billion euros of debt in the fourth quarter.
“This adjustment of issuance planning is based on improved funding conditions and reduced borrowing requirements of the Financial Market Stabilisation Fund,” the agency said on its Web Site…..
U.S. Watchdog Says Some Taxpayer Funds Will Not be Recovered
By David Lawder
WASHINGTON (Reuters) – U.S. taxpayers will probably never recover all of the hundreds of billions of dollars invested to bail out financial firms, automakers and homeowners, a key watchdog for the program said on Thursday.
Neil Barofsky, the special inspector general for the U.S. Treasury’s $700 billion Troubled Asset Relief Program (TARP), said in prepared U.S. Senate testimony that the bailout fund played a significant role in stabilizing the financial system, but it may never fulfill certain policy goals.
“The progress on meeting the goal of ‘maximizing overall returns to the taxpayer’ is unclear,” Barofsky said in testimony to be delivered to the Senate Banking Committee.
“While several TARP recipients have repaid funds for what has widely been reported as a 17 percent profit, it is extremely unlikely that the taxpayer will see a full return on its TARP investment.”
For example, $50 billion in funds allocated to modify mortgages to reduce monthly payments will never yield a direct return, while full recovery of the more than $80 billion spent to prop up the U.S. auto industry “is far from certain,” Barofsky said.
According to the inspector general’s analysis, Treasury has earmarked $699 billion of the funds to 12 different programs, including a $134.5 billion cushion of funds available for future use. It has disbursed or committed to disburse $445 billion.
The program, approved by Congress in early October 2008, was originally intended to buy up the toxic assets weighing down bank balance sheets, but within two weeks idea was quickly dropped in favor of direct capital injections into banks as the financial crisis reached its peak.
Barofsky, who took office in December 2008, said the Treasury has improved its transparency in administering the program, but has repeatedly failed to implement his recommendations to increase disclosures, including detailed reports on what banks are doing with taxpayer funds.
“We remain puzzled as to why Treasury refuses to adopt our recommendations to report on each TARP recipient’s use of TARP funds.”…..
FED Exit Strategy May Include Money Market Funds
LONDON (Reuters) – The U.S. Federal Reserve is studying the idea of borrowing from money market mutual funds as part of eventual steps to withdraw stimulus, the Financial Times reported on Thursday.
The Fed would borrow from the funds via reverse repurchase agreements involving some of the huge portfolio of mortgage-backed securities and U.S. Treasuries that it acquired as it fought the financial crisis, the newspaper reported, without citing any sources.
This would drain liquidity from the financial system, helping to avoid a burst of inflation as the economy recovered.
The FT said Fed officials had in recent days held discussions with market participants on how it might implement such a scheme.
The Fed is considering whether to conduct a pilot scheme, but worries such a test might be seen as a signal that the central bank was about to drain liquidity on a large scale, the newspaper said. In the near term, a big drain remains unlikely, it added.
The central bank held interest rates at close to zero on Wednesday and upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession.
The Fed also said it would slow its purchases of mortgage debt to extend that program’s life until the end of March, in a move toward withdrawing the central bank’s extraordinary support for the economy and markets during the contraction.
The idea of the Fed using reverse repos to help unwind policy is not new; Fed chairman Ben Bernanke identified them as a potential means of soaking up liquidity in July. But the market had previously expected the repos to be done with primary dealers, including former Wall Street investment banks…..
NEW YORK (Reuters) – Citigroup Inc (C.N), the bank bailed out with $45 billion by the U.S. government, plans to cut down its U.S. branch network to six big metropolitan areas, the Wall Street Journal said on Wednesday on its website, citing people familiar with the situation.
Citigroup, the third-largest U.S. bank behind Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N), also plans to limit its consumer lending business in the United States primarily to credit cards and “jumbo” mortgages, catering largely to affluent customers, the Journal said.
The bank would focus in New York, Washington, Miami, Chicago, San Francisco and Los Angeles, but would pare its business in Boston, Philadelphia and Texas, the Journal said.
It that added bank executives were expected to present the details of the plan to Citigroup’s board in October.
Citigroup, once the largest U.S. bank by assets, fell behind last year after a series of acquisitions by rivals.
The bank, hurt by billions of losses and writedowns of bad loans and toxic assets, had to be rescued twice in the last year by the U.S. government, which now owns around 34 percent of Citigroup.
Citigroup could not be reached immediately for comment.
Paul Kasriel Argues No Double Dip Due To Helicopter Ben
One of the most interesting charts and observations from Paul Kasriel’s recent presentation on the economy is the following:
Will the [economic] headwinds prevail, pushing the economy back into recession?
Not likely. Over 50 years of history suggests that the economy does not enter a recession unless the Fed pushes it into one.
Paul’s chart shows that Fed tightening has preceeded every recession for the past 50 years, including the one we’re coming out of. And although SOME people are concerned about inflation, our current Fed chairman is nicknamed “Helicopter Ben.”
Paul doesn’t see the economy doing a double-dip unless the Fed tightens. And Paul doesn’t see the Fed tightening until the middle of next year at the earliest.
Read Paul Kasriel’s full presentation on the economy here >
Can The World Print its Way to Prosperity ?
I am hopeful that yesterday’s Fed meeting marked a change in sentiment. Investors are fed up with seeing the dollar get trashed by the Federal Reserve and wasteful government policies. The boom, bust cycle and blatant manipulation of the capitalist system must not be allowed to continue. This flawed idea that we can somehow print our way to prosperity is finally seeing some resistance. The only way to achieve prosperity is via fiscal prudence, sound monetary policies and free market capitalism. That means keeping your financial house in order – even if you have a printing press in your basement. The citizens of this country should hold our government to a higher standard. They should not be allowed to destroy the money in our pockets just because they can’t manage their checkbooks.
Yes, I know, times are tough. There’s a recession going on. But what do people do in times of recession? They cut costs, maximize income and save cash in case things get worse. Our corporations are doing a fantastic job of this as is seen in corporate earnings. Our citizens are doing an incredible job despite 7MM job losses, stagnant wages and the most challening consumer environment in decades. But for some reason our government has turned to the same flawed tactic that helped cause this mess – the printing press. When times get tough for the government they decide it is wise to take on more debt, devalue the currency and increase the tax burden on their primary income source. Many investors think that we have stared into the abyss and staved off disaster. But what is so different about today than 2008 or 2002? Did we not implement the exact same strategy in 2002? Have we actually fixed our long-term structural problems?
Ben Bernanke thinks the printing press can save us from a repeat of the Great Depression 2. I’ve said it once and I’ll say it again – we were never even close to an economic downturn like the Great Depression. But what we are in very real threat of is Japan 2.0 – a long and drawn out period where real output actually climbs, but a debt burden plagues the entire system. Sounds familiar, right? The data of late appears fine, but under the surface the consumer is still struggling and the system is bloated with debt. As I’ve detailed previously, the cause of Japan’s problems lied in massive government and corporate debts. They implemented nearly identical strategies of low interest rates, quantitative easing and allowing the banks to merge and earn their way out of their problems, but the underlying structural problem of too much government and corporate debt persisted and plagued the system for years to come. Fiscal stimulus and wasteful spending only compounded the problems in the long-run:
We can only hope that yesterday’s dollar reversal was the markets way of telling the Fed: “enough already”. It’s time for our government to stop with the wasteful spending, wasting taxpayer dollars on zombie banks and destroying the currency in our pockets. A dollar rally might kill the stock market rally, but the message it sends to the Fed will almost certainly be in the best interest of every investor in the global economy.
* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.
Editorial: Is Government Stimulus & Back Stopping Creating More Risk ?
When the government supports the debt of financial firms, it actually makes the jobs of its executives much harder if not impossible. Whether the guarantee is explicit or implicit because the bank is Too Big To Fail, the market reacts to the government backstop in ways that make risk management pretty much impossible.
This dynamic isn’t widely understood. The standard story by critics of bailouts is that they create “moral hazard,” tempting banks to take on too much risk because the government will absorb the losses. But this misses something even more fundamental: the government aid distorts the markets and makes it almost impossible for banks to discover when they have become too risky.
That’s because the only real way to run effective risk management is to watch exogenous signals about the risk of a firm. That is, management needs to be able to look to see how the market is reacting to their size, their leverage levels, their trading books, and their business models. These, rather than an academic’s mathematical model of Value at Risk or some other modelled risk profile, are the best guides to risk management.
When the government can be counted to bail out a failing firm, these signals get obscured. Shareholders and creditors stop acting as checks on risk, size, and leverage. The business model’s appropriateness becomes largely unmeasurable. The managers no longer can use the market process as a system for discovery. They are flying blind, without the compass of the market to guide them.
In short, the implicit guarantee enjoyed by the biggest banks does something far worse than incentivize them to take on risk (as the moral hazard theory would have it). It makes them unable to read market signals that would tell them if they are taking on more risk than they should. It fosters an impression that their investments are far less risky than they are–after all, their stock kept going up, their creditors kept lending money! If they were screwing up, wouldn’t the market have told them this?
On today’s edit page, the Wall Street Journal describes how Fannie and Freddie were great examples of how government backing leads to ruin:
Too big to fail also masks the market signals that might warn about the risks of getting too big. Fannie Mae and Freddie Mac are now black holes for taxpayer money because government guarantees juiced demand for their debt and allowed them to grow almost without bound. Even multibillion-dollar accounting scandals didn’t quell demand for their debt or equity because investors were confident the government would never let them default. A private debt issuer receives vital information about market perceptions of the risks it’s taking on from the prices it pays for incremental capital.
Comments »The Federal Reserve Decision
By Craig Torres
Sept. 23 (Bloomberg) — The Federal Reserve said it will slow the pace of its mortgage-backed securities and housing agency bond purchases, ending the $1.45 trillion program three months later than scheduled.
“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,” the Federal Open Market Committee said in a statement after a two-day meeting in Washington. The buying was previously scheduled to cease by the end of this year.
Officials left the benchmark interest rate between zero and 0.25 percent, and said it will stay “exceptionally low” for an “extended period.” The Fed also said the economy has “picked up.”
Chairman Ben S. Bernanke is trying to revive the economy and reduce the 9.7-percent unemployment rate while preventing a surge in inflation from the $1 trillion expansion of the Fed’s balance sheet. The Fed purchases and the Obama administration’s first-home buyers’ tax credit helped stabilize housing and push the Standard and Poor’s Supercomposite Homebuilding Index up more than 30 percent this year.
“Conditions in financial markets have improved further, and activity in the housing sector has increased,” the Fed said in today’s statement. “Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”
Inflation Language
In its unanimous decision, the FOMC said monetary and fiscal stimulus combined with stabilizing financial conditions “will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.”
Policy makers gathered a week after Bernanke told a conference in Washington that the worst recession since the 1930s “is very likely over.” Forecasters anticipate the expansion will be “moderate” because of “ongoing headwinds,” including cuts in lending by banks, he said in response to questions at the Brookings Institution.
Fedex Corp., the second-largest U.S. package-shipping company, reported Sept. 17 the smallest drop in international shipments in a year. United Technologies Corp., the maker of Otis elevators and Carrier air conditioners, can return to profit growth next year as it benefits from cost cuts and a revival in some markets, Chief Financial Officer Greg Hayes told a JPMorgan Chase & Co. conference broadcast on the Internet.
“The key message here is we see tough markets; some signs of improvement on the short cycle; confident in 2009 and confident that we are going to resume earnings growth in 2010,” Hayes said. Hartford, Connecticut-based United Technologies, which also owns Pratt & Whitney jet engines, is eliminating at least 18,000 jobs to reduce costs and boost margins once the economy improves.
Help for Housing
The Fed has bought about $862 billion of its $1.25 trillion agency mortgage-backed securities program, and $129.2 billion of a $200 billion program of U.S. agency bonds. Demand is returning to housing after the industry shaved an average of 1 percentage point from gross domestic product each quarter since the start of 2006.
Home prices rose 0.3 percent in July from the previous month, the third straight monthly gain, according to a Federal Housing Finance Agency index. Existing home sales rose 7.2 percent in July from the prior month to the highest level in almost two years, according to the National Association of Realtors.
The Fed’s purchases “have been essential,” Julia Coronado, senior U.S. economist at BNP Paribas SA in New York, and a former member of the Fed Board forecasting staff, said before the announcement. “Without that liquidity, there would be a much worse outcome in the housing market.”
Mortgage rates for 30-year fixed home loans averaged 5.04 percent in the week ended Sept. 17, down from 5.07 percent the previous week, according to McLean, Virginia-based Freddie Mac, a government-controlled mortgage-finance company.
A sudden end to the Fed’s purchases might push up mortgage rates by a half to one percentage point, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York.
Tapering off — by reducing weekly purchases and stretching them beyond the end of the year — would have a more muted effect, pushing rates up by at least a quarter of a percentage point, Hooper said before the decision. Officials in August slowed the pace of their U.S. Treasury note-buying and considered doing the same with their mortgage-backed security and agency bond purchases, according to the minutes of the meeting.
Walking the Line
Some economists said it will be hard for the Fed to withdraw its stimulus. Keeping it in place for too long, meanwhile, could lead to faster inflation. The U.S. monetary base, the stock of money in the banking system, doubled to $1.70 trillion in August from $842 billion a year earlier.
The Dollar Index, which tracks the value of the greenback against the currencies of six major trading partners, is down about 6 percent this year. The Journal of Commerce Industrial Commodity Price Index, which tracks 18 raw materials such as cotton, burlap and aluminum and rubber, is up more than 30 percent.
“One should always start to be concerned about inflation when you get a weakening currency, rising commodity prices, and rising gold prices,” John Ryding, chief economist at RDQ Economics in New York, said before the announcement. “The Fed’s view that inflation will be kept in check by rising unemployment didn’t work in the 1970s” when both inflation and unemployment climbed, he said.
Fed officials forecast that the personal consumption expenditures price index will rise 1.2 to 1.8 percent next year, within their long-term preference range of 1.7 to 2 percent. Economists say the inflation concerns are more about the risks that the Fed doesn’t shrink the balance sheet in time, or can’t do so because of further job losses.
“Inflation is going to stay low for a while; the real concern about inflation is a long-run issue” Mickey Levy, chief economist at Bank of America Corp. in New York, said before the announcement. “The issue is will the Fed be able to drain and offset the huge increase in the monetary base before it reignites excess demand or inflationary expectations.”
Economists project an annualized growth rate of 2.9 percent in the third quarter, followed by an expansion of 2.2 percent in the final three months of the year, according to the median estimate in a Bloomberg News survey.
Manufacturing is expanding, and rising stock prices and real-estate values boosted household wealth by $2 trillion in the second quarter, the Fed said last week. Gains in household wealth helped support a 2.7 increase in retail sales last month, the most in three years.
“It is a little early for the Fed to implement its exit strategy, but I think they need to be talking about it,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the announcement. “Consumers are starting to push their heads above their foxholes.”
[youtube:http://www.youtube.com/watch?v=_dmPchuXIXQ&feature=PlayList&p=03883D92DD00DEBF&playnext=1&playnext_from=PL&index=4 450 300] Comments »A Triple Play Podcast From Marc Faber… Plus Earnings From GIS*, AZO*, CTAS*, PAYX*, & RHT*
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MINNEAPOLIS (TheStreet) — General Mills(GIS Quote), the maker of such cherished food brands as Cheerios and Yoplait, said profit grew by 51% in its fiscal first quarter.
The company Wednesday said it earned $420.6 million, or $1.25 a share, in the period, up from $278.5 million, or 79 cents a share, in the year-earlier quarter. After excluding certain items, the food concern said profit would have been $1.28 a share.
Sales in the quarter were $3.52 billion, compared with $3.50 billion last year. The slight growth was paced by a 6% jump in retail sales in the U.S. during the quarter.
According to Thomson Reuters, analysts surveyed expected General Mills
to report earnings of $1.03 a share on $3.49 billion in revenue.
General Mills also raised its 2010 earnings outlook to a range of $4.40 to $4.45 a share. The company previously anticipated full-year earnings per share between $4.20 to $4.25.
— Written by Sung Moss in New York
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NEW YORK (MarketWatch) — Auto-parts retailer AutoZone Inc. said Wednesday that its fiscal fourth-quarter profit dropped 3.1% as the company invested in its hub stores and accelerated its store maintenance program.
Net income in the quarter ended Aug. 29 declined to $236.1 million, or $4.43 a share, from $243.7 million, or $3.88 a share, a year earlier. Fourth-quarter sales rose 1% to $2.23 billion while same-store sales rose 5.4%.
Analysts, on average, had estimated the Memphis-based company /quotes/comstock/13*!azo/quotes/nls/azo (AZO 149.01, -3.91, -2.56%) would earn $4.45 a share on sales of $2.22 billion, according to FactSet.
Gross margin was flat at 50.3% after leverage of distribution costs and lower fuel expenses was offset by sales of less profitable products.
Operating expenses rose to 31.6% of sales from 31.4%.
Inventory per store declined 1.4% to $500,000 from $507,000 a year earlier.
AutoZone had 4,229 stores in the U.S. and Puerto Rico and 188 shops in Mexico.
Andria Cheng is a MarketWatch reporter based in New York.
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SAN FRANCISCO (MarketWatch) — Cintas Corp. /quotes/comstock/15*!ctas/quotes/nls/ctas (CTAS 28.80, +0.45, +1.59%) said late Wednesday that its fiscal first-quarter profit fell to $54 million, or 35 cents a share, from $78.6 million, or 51 cents a share, in the year-ago period. Excluding a previously announced legal settlement, the company would have reported earnings of 43 cents a share for the latest quarter. Revenue fell to $891.6 million from $1 billion last year. Analysts surveyed by FactSet Research estimated a quarterly profit of 39 cents a share on revenue of $877.9 million.
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SAN FRANCISCO (MarketWatch) — Paychex Inc. /quotes/comstock/15*!payx/quotes/nls/payx (PAYX 30.10, -0.94, -3.03%) on Wednesday reported a fiscal first-quarter profit of $123.6 million, or 34 cents a share, on revenue of $500.2 million. During the same period a year ago, the payroll and human resources technology company earned $148.7 million, or 41 cents a share, on $534.1 million in sales. Analysts surveyed by FactSet Research had forecast Paychex to earn 34 cents a share on $503.2 million in revenue.
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RALEIGH, N.C.–(BUSINESS WIRE)–Red Hat (NYSE: RHT – News), the world’s leading provider of open source solutions, today announced financial results for its fiscal year 2010 second quarter ended August 31, 2009.
Total revenue for the quarter was $183.6 million, an increase of 12% from the year ago quarter. Subscription revenue for the quarter was $156.3 million, up 15% year-over-year.
“IT organizations continue to move ahead with purchases of high value solutions, and Red Hat is capitalizing on this demand as a result of our strong customer relationships and proven value proposition. These factors contributed to our better than expected total revenue in the second quarter, and drove annual subscription revenue growth of 15% for both the quarter and first half of fiscal year 2010. We continue to be optimistic about Red Hat’s future and believe the company is well positioned when the economic and IT spending environment improves,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “In addition to solid second quarter results, we also marked a new milestone in Red Hat’s ten year history as a public company by our inclusion in July as a component of the S&P 500.”
GAAP operating income for the quarter was $27.5 million, up 29% from $21.4 million in the year ago quarter. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the quarter was $43.6 million, up 21% year-over-year. GAAP operating margin was 15.0%. Non-GAAP operating margin was 23.7%, up 170 basis points from the year ago quarter.
GAAP net income for the quarter was $28.9 million, or $0.15 per diluted share, compared with $21.1 million, or $0.10 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $39.4 million, or $0.20 per diluted share, after adjusting for stock compensation and amortization expenses as detailed in the tables below, as compared to $30.1 million, or $0.14 per diluted share, in the year ago quarter. Both GAAP and non-GAAP net income for the quarter include a discrete tax benefit of $7.3 million, adding approximately $0.04 per diluted share. Excluding this tax benefit, GAAP earnings per share would have been $0.11 and non-GAAP earnings per share would have been $0.16.
Operating cash flow totaled $62.0 million compared to $54.3 million from the year ago quarter, up 14% year-over-year. At quarter end, the company’s total deferred revenue balance was $580.9 million, an increase of 17% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2009 were $911.8 million.
“During the second quarter, Red Hat’s financial performance was strong across all of our key metrics. We delivered double digit growth in revenue and deferred revenue, expanded our non-GAAP operating margins and generated strong cash flow from operations,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “We are particularly pleased with the growth of the current portion of deferred revenue combined with the lengthening of our average subscription duration.”
Additional information on Red Hat’s reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below. A live webcast of Red Hat’s results will begin at 5:00 pm ET today and can be accessed by the general public at Red Hat’s investor relations website at http://investors.redhat.com. A replay of the webcast will be available shortly after the live event has ended.
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