S&P Earnings Analysis

“The first quarter earnings season is almost done. We now have 458 (91.6%) of the S&P 500 reports in. We have enough of a sample now to be pretty sure this will be a good earnings season.

So far, we have income growth of 17.9%. While that is down from the extremely strong 32.4% those same 458 firms posted in the fourth quarter, it is still a very strong growth rate. Almost all of the growth slowdown is from a failure of the Financial sector to repeat the massive growth they posted in the fourth quarter.

Tougher Comps for Financials

It’s not that the Financials are having a bad quarter, but they do face much tougher comps this time around. It is not like the 8.7% year-over-year growth they are reporting is awful (although it is below the rest of the S&P 500), it is that it pales in comparison to the 161.8% growth posted in the fourth quarter. That is despite a very strong sequential growth of 22.0%.

If we back out the Financials, total net income is up 19.9% so far, down just slightly from the 20.4% those firms reported in the fourth quarter. Looking ahead to the second quarter, growth is expected to continue to slow, but remain in the double digits at 10.7%. Back out the Financials and growth is expected to be 13.1%.

Revenue growth is also very strong at 9.38%, up from the 9.03% growth they posted in the fourth quarter. Financials are a major drag on revenue growth; if they are excluded, reported revenue growth is 12.14%, up from the 9.26% growth posted last quarter…….”

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“The largest tailwind for the commodity bull market is set to continue according to FX analyst Kit Juckes at Societe Generale.  Juckes believes the Euro is headed back to 1.55 EUR/USD:

“When the dam breaks you get washed out. Taking out position concentrations is a favourite sport in a range trading environment and the world is certainly heavily USD short. As the Fed stays on hold more than is currently expected, EURUSD is likely to once again overshoot and head for 1.55, the top of our now higher EURUSD forecasts….”

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By ELIZABETH WILLIAMSON

“WAShINGTON—Senior Obama administration officials will demand Republicans forge an agreement to extend assistance to workers displaced by trade agreements before the White House moves ahead on pacts with South Korea, Colombia and Panama.

The move, expected in a call Monday morning, sets up the latest game of partisan brinksmanship in passing the agreements. But some Democratic leaders say that without renewal of the Trade Adjustment Assistance program, the three pacts will not garner enough support from pro-labor Democrats to pass, particularly in the fractious Senate.

The administration could hold up from sending final-draft agreements to Congress for passage unless officials are assured of a deal.

Some Republicans object to the TAA program’s cost, calling it a long-term entitlement program. The administration and some rust-belt Republicans view the assistance as important for workers in states dominated by manufacturing.”

Full article

“NEW YORK (Reuters) – PIMCO’s Bill Gross, manager of the world’s largest bond fund, said on Monday it was a “misconception” the firm was short on U.S. Treasuries, saying the fund never actually bet against U.S. Treasuries.

Gross told CNBC the firm was “very underweight” the U.S. Treasury market and holds other bonds that are doing better than Treasury securities.

The company’s website in May showed PIMCO’s $240 billion Total Return fund (PTTRX.O) was short U.S. government-related debt — this includes Treasuries, TIPS, agencies, interest rate swaps, Treasury futures and options, and FDIC-guaranteed corporate securities.

PIMCO started betting against U.S. government-related debt in April, with a short position equivalent to 3 percent of the assets in its Total Return fund, on concerns about the U.S. fiscal outlook.

The fund increased that short position to 4 percent this month as the Federal Reserve’s bond purchase program neared its scheduled end in June, raising worries as to who will support the government bond market after that.

(This story was corrected in the first paragraph to refer to “U.S. Treasuries” instead of “government debt”)

(Editing by Padraic Cassidy)”

Full article

No. Ticker % Change
1 ZSL 5.58
2 BAL 4.33
3 TYP 3.13
4 DIRT 3.05
5 SCO 2.95
6 QID 2.74
7 FAA 2.58
8 TZA 2.56
9 SRTY 2.55
10 LBJ 2.31
11 CZI 2.28
12 SOXS 2.19
13 DAG 2.11
14 SDK 2.09
15 CORN 1.89
16 DHY 1.86
17 GAF 1.82
18 CQQQ 1.80
19 TWM 1.74
20 SDD 1.74
21 EWD 1.72
22 EGPT 1.70
23 XRU 1.69
24 ULE 1.68
25 NIB 1.66

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No. Ticker % Change
1 AGQ -6.03
2 GRN -5.82
3 FOIL -5.80
4 UGA -4.26
5 TQQQ -4.00
6 TYH -3.60
7 DBS -3.23
8 UCO -3.14
9 SLV -2.91
10 PSLV -2.74
11 FCGS -2.73
12 QLD -2.70
13 TNA -2.62
14 BRIS -2.57
15 CZM -2.55
16 SOXL -2.52
17 UVG -2.48
18 DUST -2.46
19 BDD -2.39
20 ROM -2.33
21 JJT -2.07
22 UWM -1.95
23 LD -1.86
24 FDN -1.79
25 EFR -1.75

WASHINGTON (AP) — Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to borrow money.

Geithner informed Congress of his decision in a letter stating that the government had officially reached its $14.3 trillion borrowing limit. He repeated a warning that if lawmakers do not increase the borrowing limit by August 2, the government is at risk of an unprecedented default on its debt.

The debt limit is the amount of money the government can borrow to help finance its operations. The nation has reached its debt limit because the federal government has grown accustomed to borrowing massive amounts of money. The latest estimate is that it borrows 40 cents for every dollar it spends.

Barron’s has issued an insightful article on the mortgage market back in its apogee.

Back when thrift institutions were the main provider of home mortgage loans, it was said their executives had a very specific management strategy. Long before there was Six-Sigma, thrift managers had perfected the Three-Six-Three System. That could be summarized as paying 3% on deposits, make mortgages at 6%, all so they could be on the first tee by 3 PM.

Those were the halcyon days of the mortgage business. Thrifts could count on an assured profit margin between the cost of deposits, which were capped by regulators, and simple, fixed-rate loans that, more often than not, went to customers the thrift’s officers knew personally. And after 30 years, the loan would be paid off. But that’s been relegated to sepia-toned memories of when gentlemen wore ties and jackets, even to ball games, and for ladies they opened doors to big cars with tailfins.

Of course, the mortgage market has been transformed in ways of those 3-6-3 bankers could never imagine. Mortgages have become “products” that are sold and repackaged as securities. Then they were sliced and diced in ways that defied comprehension, so that subprime loans got turned into triple-A-rated derivatives. And we know what happened when that house of cards collapsed in 2007 and 2008.

An excerpt from the speech has been included below. The rest may be found here.

Chairman Ben S. Bernanke
At the Conference on “New Building Blocks for Jobs and Economic Growth,” Washington, D.C.
May 16, 2011
Promoting Research and Development: The Government’s Role

I am pleased to speak at this conference on new building blocks for jobs and economic growth. The conference organizers have gathered an outstanding group of participants and have set an ambitious agenda. The topics you will address today and tomorrow, bearing on innovation and intangible capital, are central to understanding how we can best promote robust economic growth in the long run.

I won’t have to spend much time convincing this audience of the importance of long-run economic growth. The Nobel Prize-winning economist Robert E. Lucas, Jr., wrote that once one starts thinking about long-run growth and economic development, “it is hard to think about anything else.”1 Although I don’t think I would go quite that far, it is certainly true that relatively small differences in rates of economic growth, maintained over a sustained period, can have enormous implications for material living standards. A growth rate of output per person of 2-1/2 percent per year doubles average living standards in 28 years–about one generation–whereas output per person growing at what seems a modestly slower rate of 1-1/2 percent a year leads to a doubling in average living standards in about 47 years–roughly two generations. Compound interest is powerful! Of course, factors other than aggregate economic growth contribute to changes in living standards for different segments of the population, including shifts in relative wages and in rates of labor market participation. Nonetheless, if output per person increases more rapidly, the prospects for greater and more broad-based prosperity are significantly enhanced.

Over long spans of time, economic growth and the associated improvements in living standards reflect a number of determinants, including increases in workers’ skills, rates of saving and capital accumulation, and institutional factors ranging from the flexibility of markets to the quality of the legal and regulatory frameworks. However, innovation and technological change are undoubtedly central to the growth process; over the past 200 years or so, innovation, technical advances, and investment in capital goods embodying new technologies have transformed economies around the world. In recent decades, as this audience well knows, advances in semiconductor technology have radically changed many aspects of our lives, from communication to health care. Technological developments further in the past, such as electrification or the internal combustion engine, were equally revolutionary, if not more so. In addition, recent research has highlighted the important role played by intangible capital, such as the knowledge embodied in the workforce, business plans and practices, and brand names. This research suggests that technological progress and the accumulation of intangible capital have together accounted for well over half of the increase in output per hour in the United States during the past several decades.2

Innovation has not only led to new products and more-efficient production methods, but it has also induced dramatic changes in how businesses are organized and managed, highlighting the connections between new ideas and methods and the organizational structure needed to implement them. For example, in the 19th century, the development of the railroad and telegraph, along with a host of other technologies, were associated with the rise of large businesses with national reach. And, as transportation and communication technologies developed further in the 20th century, multinational corporations became more feasible and prevalent.

Economic policy affects innovation and long-run economic growth in many ways. A stable macroeconomic environment; sound public finances; and well-functioning financial, labor, and product markets all support innovation, entrepreneurship, and growth, as do effective tax, trade, and regulatory policies. Policies directed at objectives such as the protection of intellectual property rights and the promotion of research and development, or R&D, promote innovation and technological change more directly.

In the remainder of my remarks, I will focus on one important component of innovation policy–namely, government support for R&D. As I have already suggested, the effective commercial application of new ideas involves much more than just pure research. Many other factors are relevant, including the extent of market competition, the intellectual property regime, and the availability of financing for innovative enterprises. That said, the tendency of the market to supply too little of certain types of R&D provides a rationale for government intervention; and no matter how good the policy environment, ultimately, big new ideas are often rooted in well-executed R&D.

Northeast Utilities And Its Subsidiaries Are Raised To ‘BBB+’ 16-May-2011
12:37 EST

Ratings On New South Wales Affirmed On Continuing Sound Financial Position; Outlook Is Stable 16-May-2011
01:02 EST

Do you really want to know ?

“A blood test that can show how fast someone is ageing – and offers the tantalising possibility of estimating how long they have left to live – is to go on sale to the general public in Britain later this year.

The controversial test measures vital structures on the tips of a person’s chromosomes, called telomeres, which scientists believe are one of the most important and accurate indicators of the speed at which a person is ageing.

Scientists behind the €500 (£435) test said it will be possible to tell whether a person’s “biological age”, as measured by the length of their telomeres, is older or younger than their actual chronological age.”

Full article

“The leader of the International Monetary Fund now embroiled in a criminal assault case in New York City was cleared in 2008 of harassment charges after an affair with an IMF economist.

But it’s that kind of behavior that should make the world wonder about trusting the IMF, Rep. Ron Paul said Sunday.

The 2008 Republican presidential candidate told “Fox News Sunday” that Dominique Strauss-Kahn, who was pulled off an Air France flight moments before take-off from New York Saturday and arrested on charges of a criminal sex act, attempted rape and unlawful imprisonment, said the whole course of events “is a bit ironic.”

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“(NaturalNews) A new study out of the University of Washington (UW) provides even more evidence that taking over-the-counter painkillers can kill you. Published in theJournal of Clinical Oncology, the study explains that taking acetaminophen, the active ingredient in Tylenol, for extended periods of time can increase a person’s risk of developing blood cancer.

Dr. Roland Walter, an assistant professor of medicine at UW, and his colleagues examined data on nearly 65,000 men and women between the ages of 50 and 76 who participated in the Vitamins and Lifestyle (VITAL) study, which was published in theAmerican Journal of Epidemiologyin 2004. They found that participants who tookacetaminophenat least four days a week over the course of four years were twice as likely to develop certain bloodcancerscompared to people who took less or none of thedrug.

“We found that high use of acetaminophen, one of the most frequently used medications worldwide, was associated with an almost twofold increasedriskof incident hematologic malignancies,” said Walter, referring to non-Hodgkin lymphomas, plasma cell disorders, and myeloid neoplasms. “Acetaminophen use on the majority of the days over many years appears to be associated with this new adverse effect….”

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“Defense attorneys for Thomas Drake, a former National Security Agency employee facing trial for allegedly disclosing government secrets, are outraged by the Obama administration’s attempt to block unclassified information in federal court.

Drake is accused of leaking classified information to the Baltimore Sun about the Bush administration’s warrantless wiretapping program in 2006-2007.

Prosecutors from the U.S. Department of Justice have asked the court to protect certain secrets, as well as unclassified information, from disclosure at trial. Drake’s public defenders, James Wyda and Deborah L. Boardman, called the government’s request unprecedented and outrageous, adding: “There is no authority for this unprecedented assertion in the context of a criminal trial.”…”

Full article

“Sandisk

this morning saidit agreed to buy Pliant Technology, a developer of enterprise solid state drives, for $327 million in cash plus certain equity-based incentives. The deal is expected to close by the end of the second quarter.

The company said Pliant is a leader in the use of multi-level cell – MLC – NAND in enterprise SSDs.

“Flash memory is making significant inroads into the enterprise by dramatically increasing application performance and reducing power consumption,” SanDisk CEO Sanjay Mehrotra said in a statement. “We believe that the combination of Pliant’s innovative technology and enterprise-level system expertise with SanDisk’s high-quality, large-scale MLC memory production is a winning value proposition for customers.”

SanDisk expects the deal to be dilutive to its non-GAAP earnings by 2% to 3% in fiscal year 2011 and accretive to non-GAAP earnings in fiscal year 2012.

Investors in Milpitas, California-based Pliant include Arcturas Capital, Divergent Ventures, Lightspeed Venture Partners and Menlo Ventures.

SNDK this morning is up $1.77, or 3.8%, to $48.26.”

Full article

“John Hussman has some good data from Nautilus Capital regarding the average duration of cyclical bull markets within secular bear markets.  If we indeed remain in a secular bear market then the current cyclical bull run could be nearing its end or even extended:

“You might expect that when the market is gradually working down from a high level of overvaluation, bull markets would tend to be shortened, and bear markets would tend to be deeper. In fact, that’s exactly what we observe. As the guys at Nautilus Capital note, cyclical bull markets within secular bears have tended to average just 26 months, with an average gain of 85%, while cyclical bears within secular bears have averaged 19 months, with steep average losses of -39%. So market cycles tend to be truncated during secular bears, averaging a full bull-bear duration of just 3.75 years, for a full-cycle average gain of just over 12% (3.3% annualized). Of course, fundamentals still tend to grow faster than 3.3% over the cycle, resulting in valuations that are lower at each bear market trough, even if prices are higher in absolute terms. I recognize that outcomes like these are unpleasant and inconvenient to contemplate, but denying the possibility doesn’t make anyone a better investor.”

Full article & Chart

“Larry Summers, the former chief economic strategist for President Barack Obama, says the massive economic stimulus package passed by Congress at the urging of the White House should have been even larger.

The stimulus bill passed in 2009 ended up at $787 billion and a lot of that money is still being doled out. Yet Summers contends in a recent interview that the figure the administration wanted — $1.2 trillion — would have been the better choice. ”

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“Japan increased its holding of U.S. Treasury securities in March, the same month it was hit by a devastating earthquake.

The Treasury Department says Japan, the second-largest foreign holder, boosted its holdings by $17.6 billion to $907.9 billion. There had been concerns that the March 11 earthquake and tsunami would lead Japan to scale back its purchases so it could use the money for reconstruction.

China, the largest foreign holder, cut its holdings by $9.2 billion to $1.14 trillion. It was the fifth straight month that China reduced its purchases of U.S. debt….”

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“At 9 am, Treasury released its March TIC (international funds flow) data. While the headline number of $116 billion in total net TIC flows was slightly higher than February at $116.0 billion compared to $97.7 previously, the net number (offset by US transactions in foreign securities) missed expectations of $33 billion, printing at $24 billion. Notably, of the $116 billion in foreign flows into US securities, foreign central banks were ($10) billion (and privates were $126 billion), indicating that the central banker cartel may be in need of some additional funding soon. Net foreign purchases of long-term U.S. securities were $54.7 billion. Of this, net purchases by private foreign investors were $44.9 billion, and net purchases by foreign official institutions were $9.9 billion. Foreign holdings of dollar-denominated short-term U.S. securities, including U.S. Treasury bills and other custody liabilities, decreased $18.3 billion. Foreign holdings of U.S. Treasury bills decreased $21.9 billion…..”

Full article & Chart