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$JPM’s Adam Crisafulli Discusses a Potential Black Swan
” From JPMorgan’s Adam Crisafulli:
The “macro” is fading – the last several years have seen markets swing violently in reaction to a succession of tail-events and while future problems are a certainty there seems to be too much of an eagerness to search out the next big “macro” event. At this point the next big “tail event” could be an extended period of no tail events.
To some extent, this is the story of the past few years. Ever since the financial crisis, we’ve seen a series of expected blowups that never materialize.
For more of Crisafulli’s 7 big stories in the market right now, see here….”
Comments »Fed’s Evans: U.S. Economy to Grow 2.5% This Year, 3.5% Possible
“HONG KONG (Reuters) – The U.S. economy is expected to grow by 2.5 percent in 2013, improving to 3.5 percent growth in 2014, top Fed official Charles Evans said on Monday.
Evans also forecast the U.S. unemployment rate would be 7.4 percent this year, easing to about 7 percent in 2014.
“One good indicator of labor market improvement would be if we saw payroll employment increase by 200,000 each month for a number of months. We’ve been averaging about 150,000, but it’s been very uneven … we need a higher pace of employment growth and less volatility in that pace,” Chicago Fed President Evans said.
The creation of 1 million jobs over six months would be a “substantive” improvement, but bringing unemployment down to the key level of 6.5 percent was likely to take much longer, probably until mid-2015, he said, speaking at the Asian Financial Forum in Hong Kong.
The U.S. Federal Reserve’s decision last year to tie monetary policy to specific economic conditions should help boost the recovery without letting inflation take hold, said Evans, a chief architect of the policy.
It also provides additional accommodation by assuring markets that rates will remain low even after the economy perks up, he said.
“Given more explicit conditionality, markets can be more confident that we will provide the monetary accommodation necessary to close the large resource gaps that currently exist,” he said. “Additionally, the public can be more certain that we will not wait too long to tighten if inflation were to become a substantial concern.”
Last month, the Fed ramped up asset purchases aimed at spurring growth, and pledged to keep rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation expectations do not climb above 2.5 percent.
Evans, who rotates into a voting spot on the Fed’s policy-setting panel this year, had been pushing for exactly such a threshold-based policy for more than a year, saying the Fed needed to take a much more activist role in trying to meet its mandate to boost employment….”
Comments »The Fed’s Evans Spoke in Japan, Comments Helped to Boost Equities in Asia and Europe
Most European stocks rose after Federal Reserve Bank of Chicago President Charles Evans said the central bank should continue to support economic recovery. U.S. index futures were little changed, while Asian shares excluding Japan climbed.
Electricite de France SA jumped 4.4 percent after the French government agreed to compensate EDF fully for the deficits incurred from its mandatory public-service investments. Cie. de Saint-Gobain SA advanced 2.7 percent after Ardagh Group offered to buy its glass-container unit for $1.7 billion. TNT Express NV (TNTE) plunged 40 percent after United Parcel Service Inc. said it expects regulators to block its takeover of TNT.
The Stoxx Europe 600 Index added less than 0.1 percent to 287.29 at 11:27 a.m. in London as two shares on the measure gained for every one that fell. The equity benchmark dropped last week amid the highest valuation in 11 quarters and concern that quickening inflation in China will limit the scope for economic stimulus. Futures on the Standard & Poor’s 500 Index expiring in March climbed less than 0.1 percent today, while the MSCI Asia Pacific Excluding Japan Index advanced 0.5 percent.
“Despite the Federal Open Market Committee minutes earlier this month giving traders a shock reminder that the unlimited quantitative easing wasn’t a permanent monetary policy and may one day end, Evans reassured traders that the policy would remain in place until well after the economy got back on track to self sustainability,” Jonathan Sudaria, a trader at Capital Spreads in London, wrote in a note.
The number of shares traded on the Stoxx 600 companies was 30 percent higher than the average of the last 30 days, according to data compiled by Bloomberg.
The U.S. government should put “in place policies that slowly but surely bring the prospects of future revenues into balance with future spending,” Evans said in remarks in Hong Kong today. “Under this scenario, monetary policy has an important contribution to make.”
Comments »Nikkei Newswire Reports $AAPL is Scaling Back Production, Stock Drops Hurting NASDAQ Futures
“Apple Inc. (AAPL) shares declined after the Nikkei newswire reported that the company scaled back production plans for the iPhone because sales have trailed expectations.
The stock fell as much as 4.5 percent to $497 in early U.S. trading. It dropped to $520.30 at the close in New York on Jan. 11 and has lost 26 percent from a September record.
Apple, based in Cupertino, California, reduced its original targetto order 65 million iPhone 5 displays this quarter by about half, Nikkei said, citing an unidentified senior executive at a component maker it didn’t name. IPhone sales are slowing because smartphones have saturated developed markets, where Apple is strongest, said James Cordwell, an analyst at Atlantic Equities Service in London.
“We’re getting close to saturation,” said Cordwell, who ratesApple shares “overweight” and doesn’t own any. “The real growth is going to come from emerging markets, and Apple’s share in emerging markets is much lower than it is in other markets at the moment due to such high prices.”
Bethan Lloyd, a spokeswoman for Apple in the U.K., didn’t immediately return calls seeking comment.
Android Rivalry…”
Comments »China’s Xinhua Slams $YUM, $CA, & $VOW for Poor Quality Standards
“Yum! Brands Inc. (YUM) and other foreign companies are “digging their own graves” in China by failing to ensure quality standards in the nation, the official Xinhua News Agency said in an editorial.
These companies “risk losing the profits they came to China to seek if they don’t correct their practices,” Xinhua said. The government is serious about cracking down on illegal activities by all companies, including international ones, according to the editorial.
Yum’s vice chairman apologized on Jan. 10 after the Shanghai Food and Drug Administration said in December it found antibiotic levels that didn’t meet prescribed standards in batches of chicken supplied to the Louisville, Kentucky-based company between 2010 to 2011. French hypermart chain Carrefour SA (CA) and Germany’s Volkswagen AG (VOW) were also singled out by Xinhua, which criticized multinational firms for “capitalizing on loopholes in Chinese law and regulations to escape punishment.”
“Yum’s understated apology is rooted in its arrogance and propensity for unfairly treating Chinese consumers, who usually regard foreign brands as being safer and of higher quality than domestic brands,” Xinhua wrote in the editorial.
Sam Su, vice chairman of the operator of KFC and Pizza Hut stores, said in a letter posted on KFC’s official microblog the company’s self-inspection processes and internal communications had been lacking. Amy Sherwood, Yum’s Kentucky-based spokeswoman, didn’t immediately respond to an e-mail sent by Bloomberg News after regular office hours….”
Comments »Analysts Warn Over China Statistics
“China’s unexpected surge in exports last month renewed concern from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) that statistics from the nation can be unreliable.
The 14.1 percent jump from a year earlier was the biggest positive surprise since March 2011, according to data compiled by Bloomberg. The increase didn’t match goods movements through ports and imports by trading partners according to UBS, while Goldman Sachs and Mizuho Securities Asia Ltd. cited a divergence from overseas orders in a manufacturing index.
Smaller trade gains could signal a less robust recovery from a seven-quarter slowdown just as Australian Treasurer Wayne Swan says the economic rebound is a sign of improving global demand. Accurate statistics from the world’s second-biggest economy are increasingly important for domestic and foreign investors and for China’s government, ANZ’s Liu Li-Gang says.
“China’s influence on the global economy has become bigger, so not only Chinese policy makers but also business people and the rest of the world need better data,” said Liu, Hong Kong- based chief economist for Greater China, who formerly worked for the World Bank. “Unreliable data could have a negative impact on resource allocation and business planning.”
The Beijing-based customs administration, which reported the December trade figures on Jan. 10, said it couldn’t immediately respond to a faxed request from Bloomberg News for comment on the banks’ skepticism.
The Shanghai Composite Index, China’s benchmark stock gauge, rose 3.1 percent after the head of the securities regulator said the nation can increase the amount foreigners can invest in Chinese securities….”
Comments »Chart Guru Tom Fitzpatrick Overlays the DOW With Initial Jobless Claims; A 20% Correction Could Be in the Making
“We recently saw U.S. initial jobless claims tick up a bit.
While it’s far too early too call it a trend, we can certainly think in terms of hypotheticals.
Enter Citi chart guru Tom Fitzpatrick, who presented some eerie charts of initial jobless claims and the Dow to King World News.
“Initial Claims, one of our favorite leading indicators of the overall economic picture, appear to be bottoming, pointing to a deteriorating employment situation in the US,” said Fitzpatrick. “Fitting with idea that a low could be forming just as it did in late 1978.”
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Again, it’s too early to call a turn in jobless claims.
Here’s Fitzpatrick’s chart overlaying the Dow today with the Dow during the 1970’s
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Fitzpatrick concludes….”
Comments »“Get Long, Get Loud”
“Haven’t blogged in a while. So I decided to look back and pull out one of my first blog posts, from 2004. An oldie, but goodie !
The Number I recommend that anyone with an interest in the market jump at the chance to buy it.
In 1990, I sold my company, MicroSolutions which specialized in what at the time was the relatively new business of helping companies network their computer equipment to CompuServe. After taxes, I walked away with about $2 million. That was going to be my nest egg, and my goal was to protect it at all costs, and grow it wisely.
I set about interviewing stockbrokers and settled upon a broker from Goldman Sachs, Raleigh Ralls. Raleigh was in his late 20s, and relatively new to Goldman. But we hit it off very well and I trusted him. As we planned my financial future, I made it clear that I wanted my nest egg to be invested not like I was 30 years old, but as if I were 60 years old. I was a widows and orphans investor.
Over the next year I stuck to my plan. I trusted Raleigh, and he put me in bonds, dividend-paying utilities and blue chips, just as I asked.
During that year, Raleigh began asking me a lot of questions about technology. Because of my experience at MicroSolutions, I knew the products and companies that were hot. Synoptics, Wellfleet, NetWorth, Lotus, Novell and others. I knew which had products that worked, didn’t work, were selling or not. How these companies were marketed, and whether or not they were or would be successful.
I couldn’t believe that I would have an advantage in the market. After all, I had read A Random Walk Down Wall Street in college. I truly thought that the markets were efficient, that any available knowledge about a company was already reflected in its stock price. Yet I saw Raleigh using the information I gave him to make money for
his clients. He finally broke me down to start using this information to my advantage to make some money in the market. Finally after more than a year, I relented. I was ready to trade.
Notice I didn’t use the word invest. I wasn’t an investor. I just wanted to make money. The reason I was ready to try was that it was patently obvious that the market wasn’t efficient. Someone like me with industry knowledge had an advantage. My knowledge could be used profitably. As we got ready to start, I asked Raleigh if he had any words of wisdom that I should remember. His response was simple. “Get Long, Get Loud”.
Get Long, Get Loud. As we started buying and selling technology stocks, most of which were in the local area networking field that I had specialized in at MicroSolutions, Raleigh put me on the phone with analysts, money managers, individual investors, reporters, anyone with money or influence who wanted to talk technology and stocks.
We talked about token ring topologies that didn’t work on 10BaseT. We talked about what companies were stuffing channels – selling more equipment to their distributors than the distributors really needed to meet the retail demand. We talked about who was winning, and who was losing. We talked about things that really amounted to the things you would hear if you attended any industry trade show panel. Yet after hanging up the phone with these people, I would watch stocks move up and down. Of course as the stocks moved, the number of people wanting to talk to me grew.
I remember buying stock in a Canadian company called Gandalf Technologies in the early 90s. Gandalf made Ethernet bridges that allowed businesses and homes to connect to the Internet and each other via high-speed digital phone lines called ISDN.
I had bought one for my house and liked the product, and I’d talked to other people who’d used it. They had decent results, nothing spectacular, but good enough. I had no idea Gandalf was even a public company until a friend of Raleigh’s asked me about it. What did I think about Gandalf Technologies? It was trading at the time at about a buck a share. It was a decent company, I said. It had competition, but the market was new and they had as much chance as anyone to succeed. Sure, I’ll buy some, and I would be happy to answer any questions about the technology. The market size, the competition, the growth rates. Whatever I knew, I would tell.
I bought the stock, I answered the questions, and I watched Gandalf climb from a dollar to about $20 a share over the next months.
At a dollar, I could make an argument that Gandalf could be attractive. Its market was growing, and compared to the competition, it was reasonably valued on a price-sales or price-earnings basis. But at $20, the company’s market value was close to $1 billion – which in those days was real money. The situation was crazy. People were buying the stock because other people were buying the stock.
To add to the volume, a mid-sized investment bank that specialized in technology companies came out with a buy rating on Gandalf. They reiterated all the marketing mishmash that was fun to talk about when the stock was a dollar. The ISDN market was exploding. The product was good. Gandalf was adding distributors. If they only maintained X percentage of the market, they would grow to some big number. Their competitors were trading at huge market caps, so this company looks cheap. Et cetera, et cetera……”
Comments »Ireland Lobbies to Have Europe Share Banking Risk
“Ireland took over the presidency of the European Union on January 2013 for six months. Prime Minister Enda Kenny is thus in a unique position to try to find a solution to the banking crisis that has bedeviled Ireland since 2008. However, the job at hand is not going to be an easy one as reported by Christoph Pauley of Spiegel Online on the 7th. January:
“Ireland’s reform policies have been widely praised for helping it emerge from the crisis, but the truth is bleaker. If the government fails to get European taxpayers to assume some of the risk of its ailing banking sector, the country could soon require another bailout….”
Comments »Trade the Flu
“The 2012 to 2013 Flu Season is in full force and it looks stronger than we have seen in years. If you look at the Google map of the Flu season the outbreak map of the lower-48 states shows that “High” is for only 7 states and “Intense” is used for the other 43. That is bad news for you, your families, and for me. Flu season deaths are classified as being at epidemic levels right now. It is hard to take the financial angle of many tragedies, but the current flu season is likely to act as a boost for cemetery owners, funeral homes, and those supplying the death care industry…”
Comments »Will Semi Symmetry Continue ?
“Despite the supposed end of the PC, I’ve been noticing some very interesting behavior in the semiconductor space, as its performance echoes the late-2010 period of strength in risk assets.
Semis are generally perceived to be an aggressive way to play equities because of their more cyclical nature within the technology space, and their outperformance provides some insight into the nature of risk-sentiment, as well as the potential duration of strength.
Markets love symmetry, and to that end, the relative behavior of the industry now is important to watch. Take a look below at the price ratio of the Market Vectors Semiconductor ETF SMH -0.12% relative to the S&P 500SPY -0.15% . As a reminder, a rising price ratio means the numerator/SMH is outperforming (up more/down less) the denominator/SPY. For a larger chart, visithttps://twitter.com/pensionpartners/status/289704766269956096/photo/1 .
Leadership off of the mid-October low has been fairly powerful as semis began leading, and the trend higher appears very much to be intact…”
Comments »Peter Schiff: Inflation Running at 7% or Higher
“The government reports that consumer prices rose 1.8 percent in the year through November. But don’t believe that hype, says Peter Schiff, CEO of Euro Pacific Capital.
“The CPI [consumer price index] isn’t an accurate measure of inflation,” he tells Yahoo.
“It’s sheer propaganda. Prices are rising at a much more rapid rate than the CPI would suggest.”
He offered the example of the prices of newspapers and magazines. The government says their prices have risen 35 percent over the last 12 years. But looking at cover prices, Schiff and his colleagues found that prices rose 135 percent.
“How can you believe the statistics when the numbers are so flawed?” Schiff says. To be sure, it’s possible that the newspapers and magazines lifted their subscription prices far less than their newsstand prices.
“I don’t care what the government is telling me. If the government weatherman tells me it’s a sunny day and I can see it’s pouring rain, I’m not going to believe the government, I’m going to go outside with an umbrella.”
As for the true level of inflation, “If it’s not 10 or 11 percent, it’s certainly 7, 8 or 9 percent,” Schiff says. “It’s going to get a lot higher. If we keep printing money, … we’re going to have a huge inflation problem.”
Plenty of economists disagree with Schiff….”
Comments »Gapping Up and Down This Morning
In Play and On the Wires
Fed Hawks Fear Inflation as Bernanke Backlash Might Build
“Two top Federal Reserve policymakers expressed discomfort on Thursday with the U.S. central bank’s easy monetary policy, in comments suggesting Fed Chairman Ben Bernanke may face more dissent this year.
In remarks that stamped her as a hawk on the Fed’s policy-setting committee, Kansas City Federal Reserve President Esther George warned that the Fed’s near-zero interest-rate policy — aimed at boosting the economy — could spark inflation.
“A prolonged period of zero interest rates may substantially increase the risks of future financial imbalances and hamper attainment of the 2 percent inflation goal in the future,” she said in her most extensive remarks in a year on policy….”
Comments »$BAC Has a Dozen Stocks for Your Consideration, Companies That Could Miss Earnings Estimates
“Earnings season started Tuesday, when Alcoa announced its quarterly results after the closing bell.
The aluminum giant had revenues that beat expectations while earnings came right in line.
How about the other 499 of the S&P 500 companies?
Bank of America’s equity strategy team, led by Savita Subramanian, identified 12 stocks that they believe will most likely miss consensus forecasts this quarter.
Among other things, these are all sell-rated stocks that missed consensus estimates for either earnings or revenue in the previous quarter.
Comments »Investors Inaugurate the New Year by Stuffing the Second Largest Amount of Money on Record into Equities
Draghi Begins to Focus on Recession, As He Has Done ‘What Ever it Takes’
“European policy makers are shifting focus from a financial crisis to an economic-growth crisis.
“We are now back in a normal situation from a financial viewpoint, but we are not at all seeing an early and strong recovery,” European Central Bank President Mario Draghi said yesterday. Luxembourg Prime Minister Jean-Claude Juncker, who leads euro-area finance ministers, echoed that by saying, “the worst is over, but what we still have to do is difficult.”
As the Euro Stoxx 50 (SX5P) posts its best start to a year since 2003 and bond yields fromGreece to Spain recede from euro-era highs, markets are endorsing last year’s ECB-led rescue efforts and rebutting warnings of an imminent euro breakup. The next test for authorities will come if the economic slump reignites investor doubts about cash-strapped governments.
The ECB “may be unhappy with the current economic situation of the euro zone, but optimism about the future is growing,” said Christian Schulz, a former ECB official and now an economist at Berenberg Bank in London.
The central bank yesterday held off doling out more recession-fighting medicine, keeping its benchmark interest rate at 0.75 percent in a unanimous decision a month after calls for a cut from some of its Governing Council. It maintained its so- far untapped offer to buy the bonds of sovereigns acquiescing to reform demands and will hand banks further cheap long-term funding….”
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