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GARY SHILLING: This Is What Will Tip The Economy Into Recession

Source

“The Federal Reserve raised its growth forecast for the U.S. economy yesterday, and investors continue to be relatively bullish on the stock market.  However, Gary Shilling says it’s consumers that set the tone for the economy, not investors.

The U.S. economy has been driven by strong consumer spending in recent months, Shilling writes in The Christian Science Monitor, but this spending is not sustainable. He points out 4 key signs

  • Consumer spending increased 0.8 percent in February and retail sales rose 1.1 percent. But this pace isn’t sustainable since personal income growth is still weak and “consumer spending is being fueled largely by increased debt and further dipping into savings.”
  • Housing activity is still weak and homeowners are still losing their homes to foreclosures. Moreover, they’re losing their “desire to buy an asset that continues to fall in price.”
  • Employment has increased because American businesses have run out of productivity enhancement that previously let employers increase productivity with a smaller workforce. But there were only 120,000 non-farm jobs created in March, against expectations of 205,000.
  • GDP growth has picked up in recent quarters but in the last quarter for instance this was driven by inventory growth which isn’t necessarily desirable

So Shilling reverts to his main point:

“…Consumer spending is the only major source of strength in the American economy this year. On the other side of the scale several weaknesses are piled up: State and local government spending remains depressed by deficit woes and underfunded pension plans; excess capacity restrains capital spending; and recent inventory-building appears involuntary.

So it should not come as a surprise if a consumer retrenchment tips the balance toward a moderate – and overdue – recession.”

 

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Gapping Up and Down This Morning

Gapping up

SKX +16.9%, LOGI +11.7%, STMP +11.3%, CYTK +10%, EA +9.9%, GPRC +9%, EQIX +8.7%,

ARRS +8.5%, CRUS +7.8%, ACOM +7.6%, CTXS +7%, XLNX +6.4%, WPI +6.2%, NTGR +4.8%,

MX +3.9%, RDS.A +3.1%, UL +3%, LSI +2.6%, AOSL +1.8%, BP +1.4%, EBAY +1.4%, NVS +0.6%

Gapping down

HURN -14.2%, ALU -13.8%, TSPT -13.6%, TQNT -13%, HRB -10.4%, CROX -9.3%,

LEAP -7.9%, MKSI -5.9%, DB -5.9%, SYNC -5.1%, AKAM -4.9%, IDCC -4.5%, CS -3.8%,

VAR -3.3%, BVSN -2.4%, EXPD -1.8%, CLF -1.7%, KBR -1.4%,

 

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U.S. Equity Preview: $WPI, $VAR, $TQNT, $SKX, $NTGR, $LVS, $HRB, $CROX, $CTXS, $CRUS, $CVX, $CELG, $CDNS, $ELX, $ARRS, $ACOM, $AKAM, & $AET

Source

Aetna Inc. (AET) fell 9.8 percent to $44.50. The third- largest U.S. health insurer reported first-quarter earnings excluding some items of $1.34 a share, falling short of the average analyst estimate of $1.40.

Akamai Technologies Inc. (AKAM) declined 4 percent to $37.20. The operator of a server network said Chief Executive Officer Paul Sagan will leave by the end of 2013.

Ancestry.com Inc. (ACOM) : The world’s largest online provider of family histories reported first-quarter earnings of 30 cents a share, beating the average analyst estimate of 23 cents.

Arris Group Inc. (ARRS) : The maker of Internet equipment forecast second-quarter revenue of at least $330 million, exceeding the average analyst estimate of $313.6 million.

Cadence Design Systems Inc. (CDNS) : The provider of software for creating computer chips reported first-quarter sales were $315.8 million, topping the average analyst estimate of $309.7 million.

Celgene Corp. (CELG) dropped 3.7 percent to $75. The biopharmaceutical company reported first-quarter earnings excluding some items of $1.08 a share, missing the average analyst estimate of $1.13.

Chevron Corp. (CVX) : The second-largest U.S. energy company boosted its quarterly dividend to 90 cents a share from 81 cents.

Cirrus Logic Inc. (CRUS) : The supplier of parts for Apple’s iPhone and iPad posted fourth-quarter profit of 36 cents a share, beating the 34-cent earnings estimate by analysts on average.

Citrix Systems Inc. (CTXS) surged 9.4 percent to $84.39. The software maker forecast earnings in 2012 will be at least $2.75 a share, topping the average analyst estimate of $2.72.

Crocs Inc. (CROX) fell 7.7 percent to $20.35. The plastic-clogs maker projected second-quarter adjusted earnings of no more than 63 cents a share, falling short of the 65-cent profit estimated by analysts on average.

Emulex Corp. (ELX) : The chipmaker forecast fourth- quarter earnings of at least 21 cents a share, exceeding the average analyst estimate by 1 cent.

H&R Block Inc. (HRB) plunged 16 percent to $14.02. The biggest U.S. tax preparer plans to cut 350 jobs and close about 200 company-owned offices as part of a realignment. The Kansas City, Missouri-based company also forecast sales in 2012 will be about $2.9 billion, missing the average analyst estimate of $3.11 billion.

Las Vegas Sands Corp. (LVS) decreased 1.3 percent to $58. The U.S. casino company posted a first-quarter profit of 70 cents a share, exceeding the average analyst estimate by 10 cents.

Netgear Inc. (NTGR) : The maker of modems and routers posted first-quarter sales of $325.6 million compared with the average analyst estimate of $317.3 million.

Skechers U.S.A. Inc. (SKX) gained 11 percent to $16.51. The maker of Shape-ups toning shoes reported a first-quarter loss of 7 cents a share, narrower than the 27-cent loss predicted by analysts on average.

TriQuint Semiconductor Inc. (TQNT) plunged 12 percent to $4.85. The chipmaker forecast a second-quarter loss of at least 10 cents a share, compared with the 4-cent profit estimated by analysts on average.

Varian Medical Systems Inc. (VAR) : The maker of radiation equipment forecast third-quarter profit of no more than 95 cents a share, missing the average analyst estimate of $1.02.

Watson Pharmaceuticals Inc. (WPI) increased 6.9 percent to $74.50. The Parsippany, New Jersey-based generic-drug maker said it will acquire closely held Actavis Group HF for 4.25 billion euros ($5.62 billion).”

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Eurozone Consumer Confidence Falls Out of Bed

Economic confidence in the euro region declined more than economists had forecast in April, as the region’s slump showed signs of deepening.

An index of executive and consumer sentiment in the 17- nation euro area fell to 92.8 from a revised 94.5 in March, the European Commission in Brussels said today. Economists had forecast a drop to 94.2 from a previously reported 94.4, the median of 29 estimates in a Bloomberg News survey showed.

Europe’s economy is faltering as spending cuts across the region undermine hiring andconsumer confidence. Deutsche Bank AG, Germany’s largest bank, today reported a 33 percent drop in first-quarter profit, with Chief Executive Officer Josef Ackermann calling investors’ “risk appetite markedly lower.”

“With more austerity in the pipeline and the debt crisis still unresolved, any significant pickup in economic confidence in the remainder of this year might fail to occur,” said Martin van Vliet, an economist at ING Group in Amsterdam. “This could jeopardize a return to modest positive growth later this year.”

Read more

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Will Obama Do a Merlin on CISPA ?

Source   

 

“The White House has officially announced that the Obama administration is opposed to the controversial Cyber Intelligence Sharing and Protection Act, or CISPA, expected to go before Congress this week. But does it really matter?

The Obama administration has formally condemned the latest Internet legislation up for vote, but this week a top White House official confirmed that the commander-in-chief’s closest officers are opposed to the bill. If Americans learned anything from the president’s under-the-table signing of the National Defense Authorization act last year though, it’s that decrees from underneath President Barack Obama can be reversed as quickly as announced.

The United States Congress could vote on CISPA as early as this week, which is the next step towards sending the bill to the White House for the president to sign into law. Alec Ross, a senior adviser for innovation to Secretary of State Hillary Clinton, reiterates to the Guardian this week that top officials underneath President Obama are pushing to keep the legislation from being signed.

“The Obama administration opposes CISPA,” explains Ross. “The president has called for comprehensive cybersecurity legislation. There is absolutely a need for comprehensive cybersecurity legislation.”

What CISPA’s supporters are asking for in Congress does much more than just implement measures to make America’s online infrastructure safe for terrorism threats, though. If approved, CISPA will let both private companies and the federal government alike infiltrate personal conversation carried out over the Internet and eavesdrop on Americans from coast-to-coast under the guise of cybersecurity.

Ross adds to the Guardian that the White House is telling Congress, “we want legislation to come with necessary protections for individuals,” which, as other anti-CISPA critics will vouch for, won’t be a reality if lawmakers approve the bill this week.

Despite insistence from the Obama administration though, will the president follow through with plans to push CISPA off Capitol Hill?…”

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Heads Up: Two Recent IPOs For Your Consideration – $SPLK & $BLOX

I have mixed feelings over IPOs in general. It depends on my mood.  BI  has presented two companies that recently went live and seem to be doing well. You of course must do your own homework, but they appear to be very intriguing business models and as with many IPOs if they peak my interest i track them for a while to see what develops.

BI Piece

 

 

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Meredith Whitney: State Finances Are Still Doomed, And These Three States Are In The Most Trouble

Source

“Meredith Whitney was on CNBC’s Closing Bell today.

Jeff Cox at CNBC.com spotlights one area where she’s wildly bullish. She likes the agriculture and commodity states that are ‘right-to-work’ where businesses are creating jobs:

“I am wildly bullish on the U.S. in particular markets…I think the U.S. market looks terrific (though) as a collective the U.S. market is not going to grow all together,” she said during a “Closing Bell” interview.

“There’s opportunity from Texas all the way up to North Dakota, and you can play every industry on that basis,” she added. “It’s the agriculture-commodity belt — also the Right to Work states. That’s where businesses are moving because it’s easier to operate and create jobs. So you see a massive demographic shift to those areas.”

But there are three stats in particular she doesn’t like: California (which is the worst) followed closely by Illinois and New Jersey. In Illinois, in particular, she cited something new about parents being forced to pay for school busses because finances have gotten so bad.

Some other points she made: (video)

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BoA: This Historical Pattern Says We’re Going To Get A ‘Full-Blown Rally’ Very Soon

Source

“Just like every other election year, we’re due for an April-May pull-back in the markets and a rally from June through August, argues Bank of America Merrill Lynch analyst Stephen Suttmeier in a note published today.

The market is in a “confirmed correction” right now, he writes, but just like every other election year, this will turn into a full-blown rally come summer:

On average, the April-May period is the weakest two-month period for the Presidential election year and this is followed by the strongest three-month period in June-August. This supports the case for buying on dips, and diverges from the non-Presidential election year and average seasonal patterns.

The market direction for the Presidential election year in the April-August period is similar to the 2 Year of the Decennial Pattern, which also supports the case for a correction into late spring/early summer, ahead of a summer rally.

According to average monthly data for election years appears to also predict a slight market pullback in September and October after a strong summer rally.

 

election year versus normal year market data

Bank of America Merrill Lynch

 

Admittedly, 2012’s rally is a little bit off the scale, with movements since March looking more dramatic than a typical election year:”

 

election year versus normal year market data line graph

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Bernanke Points to ‘Increased Possibility of a Sudden Fiscal Crisis’

“(CNSNews.com) – Federal Reserve Chairman Ben Bernanke said that the current trajectory of the federal budget – marked by large annual deficits – was “clearly unsustainable” and that “serious economic consequences” could result.

“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the Senate Budget Committee Tuesday.

“Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy.”

Bernanke said that while nobody knows when a fiscal crisis will come, it is surely “ever closer.”

Watch and read more

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America’s False Autism Epidemic

NYPOST.com COMMENTARY

The apparent epidemic of autism is in fact the latest instance of the fads that litter the history of psychiatry.

We have a strong urge to find labels for disturbing behaviors; naming things gives us an (often false) feeling that we control them. So, time and again, an obscure diagnosis suddenly comes out of nowhere to achieve great popularity. It seems temporarily to explain a lot of previously confusing behavior — but then suddenly and mysteriously returns to obscurity.

Not so long ago, autism was the rarest of diagnoses, occurring in fewer than one in 2,000 people. Now the rate has skyrocketed to 1 in 88 in America (and to a remarkable 1 in 38 in Korea). And there is no end in sight.

GETTY IMAGES
The 10th Annual Walk Now for Autism Speaks on Saturday in Pasadena, California.

Increasingly panicked, parents have become understandably vulnerable to quackery and conspiracy theories. The worst result has been a reluctance to vaccinate kids because of the thoroughly disproved and discredited suggestion that the shots can somehow cause autism.

There are also frantic (and probably futile) efforts to find environmental toxins that might be harming developing brains, explaining the sudden explosion of autism.

Anything is possible, but when rates rise this high and this fast, the best bet is always that there has been a change in diagnostic habits, not a real change in people or in the rate of illness.

So what is really going on to cause this “epidemic”?

Perhaps a third of the huge jump in rates can be explained by three factors: the much-increased public and provider awareness of autism, the much-reduced stigma associated with it and the fact that the definition of autism has been loosened to include milder cases.

Sixteen years ago, when we updated the DSM (the official manual of psych diagnoses) for the fourth edition, we expanded the definition of autism to include Aspergers. At the time, we expected this to triple the rate of diagnosed cases; instead, it has climbed 20 times higher.

That unexpected jump has three obvious causes. Most important, the diagnosis has become closely linked with eligibility for special school services.

Having the label can make the difference between being closely attended to in a class of four versus being lost in a class of 40. Kids who need special attention can often get it only if they are labeled autistic.

So the autism tent has been stretched to accommodate a wide variety of difficult learning, behavioral and social problems that certainly deserve help — but aren’t really autism. Probably as many as half of the kids labeled autistic wouldn’t really meet the DSM IV criteria if these were applied carefully.

Freeing autism from its too tight coupling with service provision would bring down its rates and end the “epidemic.” But that doesn’t mean that school services should also be reduced. The mislabeled problems are serious in their own right, and call out for help.

The second driver of the jump in diagnosis has been a remarkably active and successful consumer advocacy on autism, facilitated by the power of the Internet. This has had four big upsides: the identification of previously missed cases, better care and education for the identified cases, greatly expanded research and a huge reduction in stigma.

But there are two unfortunate downsides: Many people with the diagnosis don’t really meet the criteria for it, and the diagnosis has become so heterogeneous that it loses meaning and predictive value. This is why so many kids now outgrow their autism. They were never really autistic in the first place.

A third cause has been overstated claims coming from epidemiological research — studies of autism rates in the general population. For reasons of convenience and cost, the ratings in the studies always have to be done by lay interviewers, who aren’t trained as clinicians and so are unable to judge whether the elicited symptoms are severe and enduring enough to qualify as a mental disorder.

It’s important to understand that the rates reported in these studies are always upper limits, not true rates; they exaggerate the prevalence of autism by including people who’d be excluded by careful clinical interview. (This also explains why rates can change so quickly from year to year.)

So where do we stand, and what should we do? I am for a more careful and restricted diagnosis of autism that isn’t driven by service requirements. I am also for kids getting the school services they need.

The only way to achieve both goals is to reduce the inordinate power of the diagnosis of autism in determining who gets what educational service. Psychiatric diagnosis is devised for use in clinical settings, not educational ones. It may help contribute to educational decisions but should not determine them.

Human nature changes slowly, if at all, but the ways we label it can change fast and tend to follow fleeting fashions.

Dr. Allen Frances, now a professor emeritus at Duke University’s department of psychology, chaired the DSM IV task force.

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Durable Goods Show The Economy Fell Flat

“Demand for long-lasting U.S. manufactured goods was the weakest in three years in March and a gauge of business spending plans fell, suggesting the economy lost momentum as the first quarter drew to a close.

Durable goods orders dropped 4.2 percent, the largest decline since January 2009, the Commerce Department said on Wednesday after a downwardly revised 1.9 percent increase in February.

Economists had forecast orders for durable goods, which range from toasters to aircraft, falling 1.7 percent after a previously reported 2.4 percent rise in February.

“This adds to the evidence that momentum in the economy sort of fell flat in March,” said Ellen Zentner, a senior U.S. economist at Nomura Securities in New York.

The data came as officials at the Federal Reserve met for a second day to deliberate on policy. The U.S. central bank is not expected to make any policy changes and will issue its statement at the end of the meeting around 12:30 p.m. (1630 GMT)

U.S. stock index futures pared gains on the data, while prices for Treasury debt pared losses to stand little changed. The dollar extended losses against the yen.

The report was the latest to show the manufacturing sector losing a step in March and it added to signs that the economy ended the first quarter on a soft spot.

Data last week showed industrial production was flat in March for a second straight month, while some gauges of regional factory activity weakened in April.

In addition to weakness in factory gauges, U.S. jobs growth slowed sharply last month and consumer confidence ebbed.

Manufacturing has been one of the main sources of economic growth, but is slowing as euro zone economies slide into recession and China cools.

Even though there are signs of some weakening in economic data early in the second quarter, economists believe the bar remains high for the Fed to ease policy further through a third round of bond purchases or quantitative easing….”

Read more

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Doug Kass Changes His Tune: Four Reasons The Stock Market Is Ready To Surge

Source

“Earlier we mentioned a tweet from Doug Kass where he said that “frankly” the bears might be screwed.

The reason? It was all looking bad for the market a few days ago, but suddenly the bearish momentum has stopped. And if the bearish momentum can’t continue in this environment, then there’s really no hope for those on the short-side.

In a post up at RealMoney, Kass identifies 4 things that have changed.

  1. Overall earnings and forward guidance were far better than many of the pessimists expected.
  2. Apple remains a pivotal stock and an important contributor to aggregate corporate profits, and its blowout results cannot be overstated in consequence and on investor sentiment.
  3. The general concerns regarding domestic economic weakness might have been overstated — my baseline expectation of a muddle-through 2% real GDP trajectory still seems likely.
  4. Lower market prices began to discount the known economic and market headwinds and threats.”

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Richard Russell Says the VIX is Giving Us a Clear Signal

Source

“Richard Russell the bearish author of the Dow Theory Letters, has yet another reason to be bearish: the VIX.

The VIX, aka the fear index, is a measure of implied volatility.

He writes in King World News:

Starting in August the VIX headed down again as investors’ nerves settled down.  The VIX hit a low in April.  But the latest reading is a sudden surge above the 50-day MA.  This suggest that investors are getting a bit nervous again, and that some rocky weather may lie ahead.  I think hat the dividing line for the VIX is around 25.

If the VIX climbs above 25 I take it as a sign of forthcoming trouble.  The latest VIX is around 18.23 — basic complacency, but the complacency has probably dropped as low as it’s going to go.  ‘After the calm comes the storm.’

Russell’s piece was accompanied by this VIX chart from StockCharts.com.

 

chart

StockCharts.com

 

Russell also warns that Brazilian, Chinese, and Russian markets don’t look that great either.”

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TOP BANK ECONOMIST: ‘The Financial System Is Increasingly Being Rigged’

“Stephen King, the top economist at UK bank HSBC, is out with a new note on the popular topic of “financial repression.”

The main ideas are basically distilled in these bullet points.

chart

In other words, with the governments of big Western nations running up so much debt, they’re resorting to various tricks to keep funding themselves — tricks like QE and so on, which hurt savers, etc.

He also recorded a video to explain his thoughts on the matter. It may take a minute to load.”

 

Watch the interview here

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U.S. Equity Preview: $USNA, $SMCI, $RFMD, $PNRA, $NSC, $LIFE, $IGT, $GNC, $DAN, $BA, $BIDU, $AAPL, $AMGN, & $AFL

Source

Aflac Inc. (AFL) : The world’s biggest seller of supplemental health insurance said first-quarter profit doubled as investment results improved.

Amgen Inc. (AMGN) gained 3.8 percent to $71.23. The world’s largest biotechnology company reported first-quarter profit that beat analysts’ estimates as sales increased of its drugs to treat infections in cancer patients.

Apple Inc. (AAPL) surged 8.8 percent to $609.40. The world’s largest company by market value posted profit that almost doubled last quarter, reflecting robust demand for the iPhone in China as well as purchases of a new version of the iPad tablet.

Baidu Inc. (BIDU) declined 6.8 percent to $126.60. The owner of China’s dominant Internet search engine forecast second-quarter revenue will be no more than $867 million, falling short of the average analyst estimate of $869.2 million.

Boeing Co. (BA) rose 2.1 percent to $74.77. The world’s biggest aerospace company reported first-quarter profit that beat analysts’ estimates as it delivered more commercial jets while pushing production to record levels.

Dana Holding Corp. (DAN) increased 4.3 percent to $14.50. The maker of vehicle axles and other driveline components reported first-quarter earnings excluding some items of 44 cents a share, beating the average analyst estimate of 41 cents.

GNC Holdings Inc. (GNC) climbed 4.3 percent to $37. The operator of health and wellness stores reported first-quarter earnings excluding some items of 60 cents a share, exceeding the average analyst estimate of 53 cents.

International Game Technology (IGT) rose 4.7 percent to $16.65. The world’s biggest maker of slot machines forecast profit in 2012 of 99 cents to $1.04 a share, compared with the average analyst estimate of 99 cents.

Life Technologies Corp. (LIFE) : The provider of gene- analysis tools reported first-quarter earnings excluding some items of 99 cents a share, topping the average analyst estimate by 6 cents.

Norfolk Southern Corp. (NSC) : The second-biggest eastern U.S. railroad posted first-quarter profit that topped analysts’ estimates as increasing automotive deliveries helped counter falling coal shipments.

Panera Bread Co. (PNRA) : The bakery chain based in St. Louis reported first-quarter earnings of $1.40 a share, beating the $1.34 projected by analysts on average.

RF Micro Devices Inc. (RFMD) : The maker of chips and radio systems for mobile phones reported fourth-quarter revenue of $187.9 million, exceeding the average analyst estimate of $185.2 million.

Super Micro Computer Inc. (SMCI) : The maker of computer servers and accessories reported third-quarter earnings excluding some items of 19 cents a share, missing the average analyst estimate by 15 percent, according to data compiled by Bloomberg.

USANA Health Sciences Inc. (USNA) : The vitamin maker lifted its profit forecast for 2012 to at least $3.60 a share from an earlier projection of no more than $3.45, topping the average analyst estimate of $3.44.”

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