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Monthly Archives: April 2013

Michelin Turns In Poor Earnings as Europe’s Recession Grows

Michelin & Cie. (ML)Europe’s largest tiremaker, said first-quarter revenue fell 8.1 percent as a recession reducing car sales in its home region widened to hurt demand at bulldozer and military-plane manufacturers.

Sales dropped to 4.88 billion euros ($6.36 billion) from 5.3 billion euros a year earlier, Clermont-Ferrand, France-based Michelin said yesterday in a statement. Revenue missed the 4.97 billion-euro average of four analyst estimates compiled by Bloomberg. The tiremaker, reiterating forecasts of “steady” volume and “stable” earnings for 2013, said it may look at reorganizing in the absence of a market recovery.

Demand for earthmovers is “falling sharply” in Europe and North America, and sales of farm tractors and defense aircraft are also declining, Michelin said. The manufacturer is seeking more growth outside Europe and marketing more so-called specialty tires used on large vehicles amid a car-market contraction that French auto producer PSA Peugeot Citroen (UG)expects at as much as 5 percent this year.

“If volumes stay at the levels at which they are today, that would imply some European restructuring,” Chief Financial Officer Marc Henry said on a conference call with analysts. “This is under scrutiny of course, but nothing is said yet.”

The shares dropped as much as 2.77 euros, or 4.6 percent, to 57.23 euros and were down 2.3 percent as of 9:22 a.m. in Paris trading. The French manufacturer has declined 18 percent this year, valuing the company at 10.8 billion euros.

Shrinking Market…”

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Eurozone Factory Output Shrinks for a 15th Consecutive Month

“Euro-area services and factory output shrank for a 15th month in April as the currency bloc struggled to emerge from a recession, adding to pressure on the European Central Bank to do more to boost growth.

A composite index based on a survey of purchasing managers in both industries held at 46.5, London-based Markit Economics said today. That’s in line with the median of 26 economists’ forecasts in a Bloomberg News survey. A reading below 50 indicates contraction. The euro area’s woes were compounded today by concern global growth may falter after a report showed Chinese manufacturing expanding at a slower pace this month….”

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The Aussie and Kiwi Fall on Poor China Data

“The Australian and New Zealand dollars fell against most of their major counterparts after a report signaled manufacturing slowed more than estimated in China, the biggest trading partner of both nations.

The so-called Aussie slid for a third day against the U.S. dollar after the data added to signs the global economic recovery is struggling, reducing the appeal of riskier assets. Australian and New Zealand government bond yields touched their lowest levels this year.

“We’re not seeing a sustained period of recovery in the China data, which is a bit of a concern,” said David Forrester, a senior vice president for Group of 10 foreign-exchange strategy at Macquarie Bank Ltd. in Singapore. “It’s a reflection of weaker global growth, and it’s not good news for the Aussie or the kiwi.”

The Australian dollar slid 0.3 percent to $1.0242 at 5:19 p.m. in Sydney after touching $1.0221, the lowest since March 11. New Zealand’s kiwi dollar dropped 0.5 percent to 83.86 U.S. cents after reaching 83.64 cents, the weakest since April 4.

The HSBC Manufacturing Purchasing Managers’ Index for China slipped to 50.5 this month from 51.6 in March. Economists in a Bloomberg News survey predicted 51.5. Readings above 50 signal expansion.

Data on April 15 showed China’s economy slowed in the first quarter. Gross domestic productexpanded 7.7 percent, compared to 7.9 percent growth in the three months to December. Economists projected 8 percent growth in a Bloomberg poll.

Rate Expectations…”

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Samurai Abe Vows to Protect Disputed Islands With China, Will Use Force if Necessary

“Japanese Prime Minister Shinzo Abe vowed to use force if necessary to defend islands also claimed by China as tensions rose over visits by his fellow lawmakers to a Tokyo shrine seen inAsia as a symbol of wartime aggression.

China and Japan each issued formal protests today over the presence of each other’s vessels in waters around the islands, which lie in an area rich in resources including fish and oil. Abe today told a parliamentary committee that the government would not allow any Chinese boats to land on them….”

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China’s Preliminary PMI Contracts More Than Expected

China’s manufacturing is expanding at a slower pace this month on weakness in global and domestic demand, fueling concern that the world’s second-biggest economy is faltering.

The preliminary reading of 50.5 for a Purchasing Managers’ Index (EC11CHPM) released by HSBC Holdings Plc and Markit Economics compared with a final 51.6 for March. The number was also below the median 51.5 estimate in a Bloomberg News survey of 11 analysts. A reading above 50 indicates expansion.

China’s stocks slumped as the data provided further evidence of an economic slowdown after weaker-than-estimated numbers for gross domestic product last week prompted banks including Goldman Sachs Group Inc. to cut full-year forecasts. In Washington, central bank Governor Zhou Xiaochuan said April 20 that a 7.7 percent first-quarter expansion was reasonable and “normal,” highlighting reduced expectations after 10 percent- plus rates during the past decade.

“This paints a picture of a continued painfully slow recovery for China’s manufacturing sector,” said Yao Wei, a Societe Generale SA economist based in Hong Kong. “The government needs to help translate the easy liquidity conditions into real growth.”

President Xi Jinping’s officials are grappling with constraints on export demand, property-market overheating, the risks associated with a surge in so-called shadow banking, and weakness in consumption because of a campaign to rein in official perks such as spending on banquets.

The Shanghai Composite Index fell 2.6 percent, the biggest decline in three weeks.

European Contraction…”

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The Nikkei Falls as the Yen’s Move Slows and the BOJ Finds No More Ability to Ease

“Japanese shares dropped, with the Nikkei 225 (NKY) Stock Average falling from its highest since July 2008, as the yen gained against the dollar and investors await major earnings reports this week.

Sony Corp. (6758), which gets nearly 20 percent of its sales from the U.S., fell 0.6 percent. Yamada Denki Co. dropped 4.8 percent after the electronics retailer missed its profit forecast by 35 percent. Oki Electric Industry Co. surged 21 percent after the Nikkei newspaper said operating profit doubled at the maker of ATMs. Komatsu Ltd., a machinery maker that gets 17 percent of its sales in China, reversed gains after Chinese manufacturing data fell short of estimates.

The Nikkei 225 lost 0.3 percent to 13,529.65 at the close in Tokyo. The Topix Index lost 0.2 percent to 1,143.78, with about three stocks gaining for every two that fell on the 1,698- member index.

“The yen is weakening at a slower pace, and there’s no catalyst for the Bank of Japan to ease further, which is what it would take to send the yen down,” said Ayako Sera, a market strategist in Tokyo at Sumitomo Mitsui Trust Bank Ltd., which manages about $163 billion. “Investors now need to see how the yen’s slide impacts earnings.”

The Topix has climbed 58 percent since mid-November through as Prime Minister Shinzo Abe and central bank Governor Haruhiko Kuroda pledged to defeat 15 years of deflation. The gauge trades at 1.3 times book value compared with 2.3 for the Standard & Poor’s 500 Index and 1.6 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

China Manufacturing…”

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R.I.P. Richie Havens

[youtube://http://www.youtube.com/watch?v=oOQXvUiKnYM 450 300]

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State of the Union: The Decline of Small Business and Self Employment

“Small business is the incubator of employment. As it declines, so too do opportunities for first jobs, second chances and economic independence.

Self-employment and small business are two sides of a single economic coin: financial independence. The Bureau of Labor Statistics (BLS) counts two types of self-employed, the unincorporated and the incorporated. The unincorporated may have employees, but typically do not, i.e. they are sole proprietors. The incorporated have employees, starting with the owner, as the BLS counts the incorporated self-employed as employees of their own corporation.

I know that’s confusing, but it’s important to separate the sole proprietors from those “self-employed” incorporated businesses that have employees: law firms, doctors’ offices, accountants, etc.

When we speak of “small business,” we’re referring in large part to the incorporated self-employed: people who establish corporations as the legal structure for their enterprise.

Nothing is simple when it comes to parsing all the data, of course, but the BLS has a paper that explains the basic categories: Self-employment in the United States(Bureau of Labor Statistics).

The BLS attributes the decline in unincorporated self-employment from 1950 to 1970 to the consolidation of agriculture. As agriculture became more mechanized, small farms were no longer viable and farming required less labor. As a result, many self-employed farmers and laborers became employees or moved to other sectors.

The trajectory of self-employment from 1970 to the mid-2000s tracked general economic growth, which was weak in the 1970s but began a 30-year boom in the early 1980s. Things changed in the recession, as the self-employed ranks have lost 1.6 million from the peak in 2007. The number of self-employed has fallen to early 1980s levels: (All FRED charts courtesy of frequent contributor B.C.)

This chart displays the self-employed as a share of total non-farm employment. The first chart showed a strong rise in self-employment from 1970, but this chart shows that employment rose even faster: the self-employed share of all those employed has been declining for 30 years:

We can attribute this trend to the rise of global Corporate America and government employment. The workforce expanded, and relatively more people became employees of corporations or the government than became self-employed.

It’s important to note here that the BLS does not break down the income of unincorporated self-employed: if millions of self-employed saw their net incomes slashed in the recession, the BLS still counts them as self-employed. So a consultant who earned $100,000 prior to the recession and now scrambles to net $10,000 is still self-employed.

This is the statistical equivalent of 6 million people losing full-time jobs and then 4 million of those people getting part-time jobs. Did employment truly recover most of the losses?….”

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Chinese Sue Fed For Monopoly USD Devaluation

“In what could to grow into a class action in US courts, a Chinese woman is suing the Federal Reserve after discovering that the real value of the USD250 she put in an account in 2006 had shrunk by 30%. She claims it was the result of the Fed issuing too much money, and as The South China Morning Post reports, her son Li Zhen, the lawyer, called the lawsuit “litigation for the public good”. Alleging “abuse of monopoly in issuing currency,” the People’s Court of Kunming has yet to rule on the litigants’ demand that the Fed cease-and-desist from its quantitative easing policy. While this may seem frivolous, there are some interesting points being made that bear watching, as Li notes, since “the Fed is private institution which enjoys monopoly over the issuing of currency, US Dollar holders can sue it for printing too much money.”…”

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Earnings Thus Far Will Make You Queasy

“Through Friday, 104 companies (33% of the market cap) of the S&P 500 have announced there Q1 2013 financial results.

While it’s still very early into the earnings announcement season, the early tally is not very encouraging.

The analysts at Goldman Sachs have compared the earnings announcement surprises to the surprises seen in the last 40 quarters (10 years).

“Positive earnings surprises are tracking below average this quarter (36% vs. 47%),” said Goldman’s David Kostin. “The percentage of firms missing earnings estimates by one standard deviation or more is also below the 40 quarter average (13% vs. 15%) implying more firms have reported results in- line with consensus expectations.” …”

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Divergence Between The S&P and Inflation is Signaling a Third Top for Equities

“As @ParagonCap points out on Twitter, the S&P 500 is now outpacing inflation expectations even more than it did at the market tops of either 2000 or 2007.

The chart below shows that this divergence has been a couple years in the making at this point. However, in recent weeks, a lot of talk about disinflation and deflation has resurfaced.

After taking the prize as one of the worst performing asset classes in the first quarter, the commodity complex has become completely unglued in April. At the same time, there has been a big rally in Treasuries as investors position for a slowdown in global growth….”

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ValueAct Capital Buys a $2B Stake in $MSFT

“Activist hedge fund ValueAct Capital took a $2 billion stake in Microsoft, its CEO Jeffery Ubben announced at an investment a conference in New York, today.

He explained the investment by saying, “In three to five years, which is our time horizon, we’ll stop talking about PC cycles and instead talk about Microsoft as the largest cloud-computing company in the world.”

For his sake, let’s hope so. The PC business is imploding, so Microsoft’s traditionally lucrative Windows business is flattening, and could start shrinking soon.

Microsoft has two other businesses that are doing well — Servers and Tools and the Business Division, which is home to Office. Those businesses are strong enough to offset Windows, for now.

Microsoft’s stock has been flat for the longest time. A lot of investors have been tempted by it, believing there is value to be unlocked. So far, they’ve been wrong.

Microsoft is up 12% year to date, and rose 4% on today’s news. It closed at $30.83….”

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David Woo Says the Markets are Realigning and It will Not Be Pretty

“Different markets sending different signals.

That’s the gist of BofA Merrill Lynch rates guru David Woo’s latest report – titled “The impossible trinity: A tale of three cities” – which begins like this (emphasis added):

The commodity market is saying global growth is slowing. The US equity market is saying US consumers are still going strong. The FX and European sovereign markets seem to believe Mrs. Watanabe is about to embark on a global shopping spree. We think it is unlikely that these markets will all turn out to be right. Something will have to give and a major re-alignment of the markets, the odds of which are rising, will probably not be either smooth or benign, in our view.

“It is probably an understatement to say that lately it has become more difficult than usual to read markets,” writes Woo. “To the extent that these themes reflect market expectations of reality, there seems to be three different versions of reality right now.”

With regard to the first version of reality – that which is evidenced by the commodity market, which has sold off hard in recent weeks and months – Woo says “the body of evidence suggesting that the global economy is slowing is growing almost every day,” making the idea of a global slowdown “difficult to refute.”

Here, Woo points to China and its recent release of weaker-than-expected first quarter economic data. In the past, he says, investors usually took weak data as a sign that Beijing would “unleash more stimulus” on the Chinese economy in response.

“This time around,” he writes, “things may turn out differently as the strong momentum behind recent home price appreciation may hold back policymakers from easing quickly and with decisiveness.”

The chart below shows the home price obstacle facing Chinese leaders weighing any additional stimulus at this stage in the game.

 

China house prices

BofA Merrill Lynch Global Research

 

The second version of reality is that advanced by the rising U.S. stock market.

Not only have U.S. stocks outperformed outperformed other major equity markets around the world this year, but within the U.S. market, consumer staples and consumer discretionary stocks have been leading the way higher. Woo points out that the first quarter of this year was the first time since 2000 that both consumer sectors led a rising stock market.

However, the story on the ground is not as encouraging….”

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$NFLX Crushes Earnings Estimates

“Netflix (NFLX) investors gave the streaming video service rave reviews for its first-quarter results late Monday, driving shares up 24% in after-hours trading.

The Los Gatos, Calif.-based company earned 31 cents a share excluding items, vs. analyst expectations for 19 cents. In Q1 2012, Netflix lost 8 cents a share.

Revenue rose 18% to $1.024 billion, edging past the Street’s forecast for $1.017 billion.

Netflix added over 3 million streaming subscribers in Q1, bringing its total to more than 36 million worldwide. U.S. streaming customers rose by 2.03 million to 27.91 million paid members. In international markets, Netflix added 1.02 million subscribers to 6.33 million.

Netflix shares rose 24% in late trading to 216.46, which would be their best level since late 2011. During the regular session, the stock rose nearly 7%….”

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$TXN Beats the Street With Profits Up 37%

“DALLAS (AP) — Chipmaker Texas Instruments Inc. said Monday that its net income rose 37 percent in the first quarter as lower costs offset a revenue decline.

Profit grew to $362 million, or 32 cents per share, from $265 million, or 22 cents per share. Revenue slid 8 percent, to $2.89 billion from $3.12 billion.

Analysts were expecting net income of 31 cents per share and $2.85 billion in revenue, according to FactSet.

The company’s costs to make chips fell 5 percent to $1.51 billion, research and development spending slid 18 percent to $419 million and acquisition expenses fell 44 percent to $86 million….”

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Respect Your Mother or Die

[youtube://http://www.youtube.com/watch?v=nGeXdv-uPaw 350 400]

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[youtube://http://www.youtube.com/watch?v=sDiPjPG5ArY 450 300]

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Gapping Up and Down This Morning

SOURCE
NYSE

GAINERS

Symb Last Change Chg %
RH.N 38.00 +5.25 +16.03
SEAS.N +2.96 +9.69
TRQ.N 5.64 +0.44 +8.46
EVTC.N 20.84 +1.30 +6.65
AGI.N 11.54 +0.69 +6.36

LOSERS

Symb Last Change Chg %
SBGL.N 3.88 -0.15 -3.72
WAC.N 32.21 -0.83 -2.51
SZC.N 23.79 -0.41 -1.69
MIE.N 20.36 -0.34 -1.64
PANW.N 50.71 -0.79 -1.53

NASDAQ

GAINERS

Symb Last Change Chg %
VRTX.OQ 85.36 +32.49 +61.45
NVDQ.OQ 12.73 +2.51 +24.50
OSTK.OQ 18.73 +3.03 +19.30
HWAY.OQ 12.89 +1.87 +16.97
NETE.OQ 3.19 +0.39 +13.93

LOSERS

Symb Last Change Chg %
ACTG.OQ 21.49 -7.97 -27.05
PRGX.OQ 5.24 -1.00 -15.97
AIRM.OQ 39.76 -6.14 -13.38
VIRC.OQ 2.18 -0.31 -12.45
NSIT.OQ 16.51 -2.02 -10.90

AMEX

GAINERS

Symb Last Change Chg %
ALTV.A 11.03 +1.11 +11.19
AKG.A 2.54 +0.23 +9.96
SAND.A 7.08 +0.06 +0.85
FU.A 3.70 +0.03 +0.82
BXE.A 6.25 +0.05 +0.81

LOSERS

Symb Last Change Chg %
MHR_pe.A 19.42 -1.93 -9.04
OGEN.A 3.64 -0.09 -2.41
ORC.A 13.20 -0.20 -1.49

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