Tuesday, July 19, 2011
Apple reports surge in third quarter earnings
By Dan Gallagher
Apple Inc. reported a surge in third-fiscal quarter earnings on Tuesday afternoon, solidly beating Wall Street's estimates. For the quarter ended June 25, Apple AAPL reported net income of $7.31 billion, or $7.79 per share, compared to net income of $3.25 billion, or $3.51 per share, for the same period the previous year. Revenue surged 82% to $28.6 billion for the quarter. Analysts had been expecting earnings of $5.80 per share on revenue of $24.9 billion, according to consensus forecasts from Thomson Reuters. For the quarter ending Sept. 30, Apple said it expects revenue of $25 billion and earnings per share of $5.50. Analysts were expecting revenue of $27.7 billion with earnings of $6.42 per share for the period.
Yahoo meets expectations with mixed results
By John Letzing
Visualizing Goldman's Epic Meltdown
by Tyler Durden
No point in discussing Goldman's abysmal earnings. Here is the chart that says it all.
Total Revenue by Segment - this is the worst quarterly revenue for the firm in years. The biggest loser:
Institutional client flow AND Prop (Investing and Lending).
No point in discussing Goldman's abysmal earnings. Here is the chart that says it all.
Total Revenue by Segment - this is the worst quarterly revenue for the firm in years. The biggest loser:
Institutional client flow AND Prop (Investing and Lending).
In tabular format.
At least the compenstation expense margin is a nice and sold mid-40%. As for those 35,500 staffers at the end of the period: that's number is going down.
The reason for all of this - the massive collapse in VaR, as Goldman somehow loses its edge which oddly parallels the unwind of the firm's prop trading division... Gee, we wonder why.
Wells Fargo 2Q profit leaps 30 pct; defaults drop
By EILEEN AJ CONNELLY
Wells Fargo & Co. on Tuesday said that its second-quarter profit rose 30 percent, as the number of uncollected loans and credit card bills dropped sharply, enabling the bank to release a big chunk of the money set aside to cover bad lending.
Its shares rose more than 2 percent in premarket trading.
The San Francisco bank said net income for the three months ended June 30 rose to $3.73 billion, or 70 cents per share, compared with $2.88 billion, or 55 cents per share, in the year-ago quarter.
Analysts, on average, were expecting profit of 69 cents per share, according to data provided by FactSet.
Total revenue fell 5 percent to $20.39 billion from $21.39 billion last year. That was short of the $20.43 billion Wall Street was expecting.
Revenue in its largest segment, community banking, fell 8 percent to $12.57 billion. Total loans fell 2 percent to $751.92 billion, but in a bright spot, core deposits rose 7 percent to $808.97 billion.
Net interest income, or the money earned from deposits and loans, fell 7 percent to $10.68 billion from $11.45 billion last year. Noninterest income, or money earned from fees and investments, slipped 2 percent to $9.71 billion from $9.95 billion last year.
Wells Fargo does not rely as heavily on investment operations as most of the nation's other big banks, which have leaned on gains in that arena to offset weakness in retail banking operations. But it did report a 7 percent rise in trust and investment fees to $2.94 billion, which helped boost noninterest income.
The biggest benefit for Wells, however, came from improvement in its lending business.
The amount of loans it had to write off as uncollectible, known as charge-offs, dropped to $2.84 billion from $4.49 billion last year. Better results came in both commercial and consumer loans, including home mortgages and credit cards. Nonperforming assets, or loans and credit cards considered past due and in danger of default, fell 15 percent to $27.91 billion from $32.81 billion last year.
The sharp decline in write-offs allowed the bank to release $1 billion from its loan-loss reserves, the money set aside to cover bad loans. That provided a significant boost to earnings.
The bank said it has completed the conversion of its Wachovia branches in Pennsylvania and Florida to the
Wells Fargo name, and the remaining branches in Eastern markets will be converted by year end. Wells bought Wachovia in the fall of 2008 amid the economic collapse.
Wells also said it bought back 35 million shares in the second quarter after getting the go-ahead from the federal government to restart its repurchase program.
In premarket trading, Wells Fargo shares gained 55 cents, or 2.1 percent, to $27.43.
Morning markets: surprise drop in crop ratings lifts prices
by Agrimoney.com
Crops in the US were not expected to have deteriorated yet.
Investors had expected, at worst, a 1% decline in the proportion of corn and soybean crops rated in "good" or "excellent" condition over the last week, with the real danger this week – when some forecasters foresee near-record temperatures - and into August, should the heatwave gain fresh legs.
However, the US Department of Agriculture's weekly crop condition report showed a two-point slide, to 64% in the proportion of soybeans rated in the top two bands, and three-point slip to 66% in the number for corn.
"The percentage of the corn crop rated good or excellent fell for the top five producing states, and this is before the heat hitting the Midwest this week," analysts at Australia & New Zealand Bank said.
"If the current deterioration in crop conditions continues over the next fortnight, the ability for the US to produce a 'trend' yield for the corn crop looks increasingly questionable."
'Large areas of above-normal temperatures'
At Commonwealth Bank of Australia, Luke Mathews said: "US corn crop conditions deteriorated markedly last week. And only 35% of the crop is skilling, behind the normal pace of 47%.
"Crop concerns may support values today, particularly given hot weather forecasts."
And the weather outlook remains poor, from a grower's perspective, with a cold front for later this week expected to stay north of the eastern Corn Belt, and hot weather heading into August still on the agenda.
US corn crop conditions deteriorated markedly last week – 66% of the crop is now rated good‑to‑excellent compared to 69% the week prior. And only 35% of the crop is skilling, behind the normal pace of 47%. Crop concerns may support values today, particularly given hot weather forecasts.
Official US meteorologists foresee "large areas of above-normal temperatures covering all of the Rockies, all of Plains regions, all of the Midwest, the deep South and North East" over the eight-to-14 day timespan, WxRisk.com noted.
"Embedded in that region is an area of much-above-normal temperatures over all of the central and lower Plains, all of the Midwest into the North East and all of the deep South."
Below-normal rainfall is expected over western Texas, western and central Oklahoma, all of Kansas, Nebraska, South Dakota, Iowa and Missouri over this period.
Risk appetite
OK, as many brokers have noted, there is little confidence around in further-ahead weather models which, after all, repeatedly forecast rain for drought-beset Plains winter wheat in the spring, only for the precipitation never to arrive.
"Given the uncertainty in the extended forecast, it seems the market doesn't have a big appetite for additional risk at this point," Brian Henry, at Benson Quinn Commodities, said.
"Expect the trade to continue to favour carrying a little bit of length, as opposed to creating new speculative short positions. But the market is going to have to push above the recent highs on its next opportunity to sustain the current upward momentum."
The near-term September corn contract made progress towards last week's highs, rising 1.3% to $7.05 a bushel as of 07:50 GMT (08:50 UK time).
The better-traded December lot gained 1.3% to $6.98 a bushel.
Wheat pulled higher
That helped fellow grain wheat, which added 1.3% to $6.98 ¼ a bushel in Chicago.
Spring wheat added 1.0% to $8.31 a bushel in Minneapolis for September delivery, despite this being one crop which held its condition in the overnight USDA crop report, with 73% rated in good or excellent health.
Soybeans were the least enthusiastic, continuing a recent pattern of less volatility than the grains, adding 0.3% to $13.90 a bushel for August, and the same rise to the same price for the best-traded November lot.
Rebounding bales
Even cotton did better than that, adding 0.9% to 98.82 cents a pound for October and 2.1% to 98.85 cents a pound for the best-traded December lot, and creating some distance from the 10-month lows hit in the last session.
The condition of the US cotton crop was actually stable, at a miserable 28% good or excellent.
But the fibre gained some support from higher prices on the Zhengzhou exchange, where the best-traded January lot added 0.5%. China is the top cotton producer, importer and consumer.
Furthermore, there were signs of a lessening in the macroeconomic fears which gripped markets in the last session, and to which cotton, as a non-food commodity and an item more dependent on discretionary spending, can be more susceptible.
The dollar, a gauge of investor fear, fell 0.4%, while West Texas Intermediate crude added 0.8%.
Coca-Cola 2Q net income rises on overseas growth
by Yahoo! News
See the original article >>
Coca-Cola Co. says its second-quarter net income rose 18 percent as it sold more drinks around the world, especially its namesake brand.
The world's largest beverage maker earned $2.8 billion, or $1.20 per share, for the three months ended July 1.
That's up from $2.37 billion, or $1.02 per share, in the same quarter last year.
Revenue climbed 47 percent to $12.74 billion from $8.67 billion, partly because of Coke's acquisition of its largest North American bottler.
The results beat analysts' forecasts for earnings of $1.15 per share on revenue of $12.39 billion.
The Atlanta company said Tuesday that it sold 4 percent more of its Coca-Cola brand drinks globally.
Coca-Cola has seen consistent growth for years because of steady sales in established markets and faster increases in emerging markets.
J&J 2Q profit drops 20 percent, still beats views
by Yahoo! News
Health care giant Johnson & Johnson says its second-quarter profit fell nearly 20 percent due to restructuring, recall and litigation costs and higher spending on overhead and research. The results still topped Wall Street expectations.
The maker of Band-Aids, biologic medicines and birth control pills says its net income was $2.78 billion, or $1 per share. That's down from $3.45 billion, or $1.23 per share, in the 2010 second quarter.
Revenue was up 8.3 percent, to $16.6 billion from $15.33 billion a year ago.
Excluding one-time items, income would have been $3.55 billion, or $1.28 per share.
Analysts polled by FactSet, on average, were expecting earnings per share of $1.24 and sales of $16.21 billion.
A Sovereign-Debt-Default Survival Kit: The Four Countries That Will Keep Their AAA Ratings
By Martin Hutchinson
Stories about debt downgrades and sovereign-debt defaults are dominating the headlines.
And it's no longer just Europe that we have to be worried about. On Friday, Standard and Poor's warned that there was a 50-50 chance that the United States would lose its AAA debt rating in the next 90 days - even if the debt ceiling didn't result in a U.S. default.
When you get right down to it, we're all asking the same urgent question: Just where the hell can I go for a really safe investment?
Fortunately, I have an answer for you.
With a cut in the country's credit rating, those days would be over.
If you're searching for alternatives to U.S. debt, the good news is that Standard & Poor's has granted 18 other countries that top AAA credit rating. The bad news is that the selection isn't as luxuriant as it first appears.
It's important to separate the prospects from the suspects.
And it's no longer just Europe that we have to be worried about. On Friday, Standard and Poor's warned that there was a 50-50 chance that the United States would lose its AAA debt rating in the next 90 days - even if the debt ceiling didn't result in a U.S. default.
When you get right down to it, we're all asking the same urgent question: Just where the hell can I go for a really safe investment?
Fortunately, I have an answer for you.
The Sovereign-Debt-Default Survival Guide
S&P put us on notice back in April, when the ratings agency affirmed the country's AAA/A-1+ sovereign credit ratings - but also cut its outlook on the United States' long-term debt rating from "stable" to "negative." The last time that happened to the United States was 70 years ago - right after the attack on Pearl Harbor. What S&P is talking about now, though, is a reduction of the country's actual credit rating. For years, investors throughout the world have viewed U.S. government debt as the "safe haven" of last resort.With a cut in the country's credit rating, those days would be over.
If you're searching for alternatives to U.S. debt, the good news is that Standard & Poor's has granted 18 other countries that top AAA credit rating. The bad news is that the selection isn't as luxuriant as it first appears.
It's important to separate the prospects from the suspects.
Casinos are supposed to be highly lucrative, but when you think of the Isle of Man casino, don't think of Macao or Las Vegas. Picture instead the lonely Indian reservation casino in remote Salamanca, NY - host to the occasional half-empty tour bus from Pittsburgh. The Isle of Man has a population of 80,000 - which is much larger than I would have guessed. It also has the world's oldest continuously existing parliament, the Tynwald - which was established way back in 979 AD.
But I still don't think that I'd buy its bonds.
A Global Sovereign-Debt Excursion
Given the lesson we've learned from our close look at the Isle of Man, I think it's worth taking a quick sovereign-debt safari. This is one trip around the world that won't cost you a dime. Indeed, in an era of spiraling fears about sovereign-debt defaults, it should actually bolster your bottom line.Let's take a spin through the list of Standard & Poor's AAA-rated countries - in alphabetical order:
- Australia and Austria have little in common other than their AAA debt ratings. Of the two, I'd trust Australia rather more because of its mineral wealth. However, it has quite high debt and a tendency towards populist governments. Austria has a huge welfare state and a somewhat-shaky economy that's dependent on financial services. I don't see either going bust, but neither would be my first choice.
- Canada is a pretty solid outfit in my view, and one of the world's safest economies - something we've told all of you Money Morning readers on several previous occasions. The fact that Canada got itself into trouble in the early 1990s has proved to be a blessing; it has reduced government spending since then - to the point that, overall, it's slightly lower than in the United States. I'll grant you that Canada has a reputation for being boring. But as you know, for bond investors, boring is good!
- Denmark and Finland would be pretty solid if they were standing on their own. Unfortunately, they are part of the euro community, which means they could get sucked into appallingly expensive bailout schemes. And unlike their German compatriot, Denmark and Finland aren't big enough to say "no."
- France is struggling with big budget deficits. Although there's no "F" in PIIGS (the acronym of dodgy southern European economies consisting of Portugal, Ireland, Italy, Greece and Spain), there probably ought to be.
- Germany is the single-most solid economy in the European Union (EU), and boasts a large export surplus. On its own, Germany is a slam-dunk AAA economy. Even as a euro member, it seems unlikely the EU can do anything too ruinous without Germany signing on, because it would have to pay most of the cost. In my bottom-line view, that means Germany's top-tier credit rating is likely to remain solid.
- Guernsey is an offshore British island and popular tax haven. Its population only totals 66,000, but it has a good offshore-banking business. And being further south, Guernsey also features better weather than its Isle of Man counterpart.
- Hong Kong currently faces a situation in which its government spending is rising faster than gross domestic product (GDP). As it is now part of China, I would also have to say that it now faces a fairly substantial political risk.
- Liechtenstein and Luxembourg have vastly different outlooks. Of the two, Liechtenstein's the one you want, due to its hereditary Hapsburg monarchy, flourishing tax-haven banking industry and truly lovely Alpine scenery. Unfortunately, its population at 35,000 is even smaller than that of Guernsey. Luxembourg is an EU banking center that has the misfortune to be technically the EU's richest country. Suckers!
- The Netherlands offers investors pretty much the same mix of advantages and disadvantages as Denmark and Finland except that it isn't Scandinavian. Expect, therefore, a substantial EU/Eurozone discount.
- Norway isn't an EU member, so nobody can make it bail out Greece. Now you're talking! Plus, it's a major oil exporter, with a huge ($570 billion), well-managed sovereign wealth fund. If you can find any Kingdom of Norway debt, buy it!
- Singapore is the country I would regard as the most solid economy of the S&P AAA-credit-rating club, chiefly because it has a more diverse economy than Norway. Singapore is beautifully run, and one of the least-corrupt countries in the world. In short: It's rock solid.
- Sweden, unlike its Norway counterpart, doesn't have much oil and has no trust. It also has a heavy social welfare system and an expensive government. On the plus side, it had the sense to stay out of the euro.
- Switzerland is basically a Norway - but with banks instead of oil. It, too, is rock solid.
- The United Kingdom is no longer an empire, and has no money these days. There's not much industry left, which leaves it very heavily dependent on a bunch of dodgy hedge funds in the City of London. Unlike the United States, the United Kingdom has made at least some attempt to get its public spending under control. And while I would say it's pretty likely to follow its U.S. counterpart into a credit-rating downgrade, if I were S&P, I'd downgrade France before either of these two.
As you assemble your safe-haven investments, keep in mind a couple of Asian countries that aren't AAA-rated, but also aren't overly indebted. And they're run by grownups. I'm talking about Taiwan (AA-minus) and South Korea (A).
At a juncture in which sovereign-debt defaults are a very real possibility, it's clear bond safety isn't what it used to be.
Mid-Cap Stocks Could Be Ready to Reverse Course
By Jon D. Markman
Mid-cap stocks were one of the hottest investments of the past year until recently.
That is clearly exemplified by the iShares S&P MidCap 400 Index (NYSE: IJH), which jarred investors by sinking 2.3% over the past three trading days. The exchange-traded fund (ETF) had shot up 33% in the 12 months prior.
But the good news is that a reversal could be in the making.
That is, the sharp decline of the past few days may have helped to set the right shoulder of an inverse "head-and-shoulders" pattern. This is a classic reversal pattern that tends to occur at the end of major declines. You can see for yourself on the accompanying chart.
That is clearly exemplified by the iShares S&P MidCap 400 Index (NYSE: IJH), which jarred investors by sinking 2.3% over the past three trading days. The exchange-traded fund (ETF) had shot up 33% in the 12 months prior.
But the good news is that a reversal could be in the making.
That is, the sharp decline of the past few days may have helped to set the right shoulder of an inverse "head-and-shoulders" pattern. This is a classic reversal pattern that tends to occur at the end of major declines. You can see for yourself on the accompanying chart.
I have marked the left shoulder, head and right shoulder of the pattern that is unfolding in the chart above on the right.
This is exactly the pattern that has ended all major declines in the past two years. The most recent example was last summer right around this time. In that case, the market moved up briskly to a high in early August before coming back down to set a second right shoulder. That's a well-known variation that could easily occur this time as well.
The psychology of a head-and-shoulders bottom is what is important: Shares move down to the left shoulder on bad news, rally to a "neckline," then sink deeper than the first low on worse news to a "head." Then they rally back to the neckline before sinking one or two more times on bad news to levels that are equal to the first shoulder and not as low as the head. Finally, a new cadre of buyers come in, believing that prices are finally low enough, and push the market back up to the neckline.
To "validate" this pattern, prices need to shoot back over that neckline on higher-than-average volume and not return. Technical traders argue that the index should follow up with a subsequent advance that is equal to the depth of the move from the neckline to the head.
In case of IJH, the calculation is 101.1 - 92.5 = 8.6. So then you add 8.6 to 101.1 to get a target of 109.7. That would be a 14% move from the current quote, which obviously would be welcome.
It's hard to say whether a similar move could occur in the absence of any extraordinary monetary policy efforts by the U.S. Federal Reserve. But it gives you an idea of what could happen if earnings and outlooks are better than expected this month, or if the market gets a hint that a third round of quantitative easing may be on the way.
And of course, it is possible that the pattern will not be validated.
A move back down, under 96, would invalidate the pattern and set up a test of the 92.5 area. So watch the MidCap 400 carefully, and be prepared to act.
Just keep in mind that a move back to the neckline is not enough. The index needs to move emphatically through that level. If the old high brings out sellers that push the market back down, we'll keep an eye out for the potential of a second right shoulder much like last year.
They never make it very easy on us, but if you stay on your toes and really watch these levels carefully you can pick up a lot of clues that will augment your returns for the year in a big way.
Goldman Sachs profit rises but misses target
By Greg Morcroft
Harley-Davidson 2Q profit jumps on bike demand
by Yahoo! News
Fueled by its first U.S. sales increase in more than four years, Harley-Davidson's second-quarter profit more than doubled, easily beating Wall Street's expectations.
The iconic motorcycle maker also boosted its shipment forecast for 2011 and its shares rose $1.32, or 3.2 percent, to $42.75 in premarket trading.
Harley-Davidson Inc. earned $190.6 million, or 81 cents per share, up from $71.2 million, or 30 cents per share, in the same quarter last year. The 2010 results included losses of 29 cents per share from discontinued operations.
Motorcycle and related product revenue rose 18 percent to $1.34 billion.
Analysts, on average, expected a profit of 72 cents per share on $1.26 billion in sales, according to a FactSet survey.
U.S. retail sales of new motorcycles grew 7.5 percent to 53,599 bikes, marking the company's first domestic sales increase since the fourth quarter of 2006. Globally, sales rose 5.6 percent.
Harley said it expects to ship between 228,000 and 235,000 new bikes worldwide, representing an increase of 8 percent to 12 percent over 2010 levels. The company previously said it expected to ship 215,000 to 228,000 cycles worldwide this year.
Bank Of America Takes Loss, Solid Performance ‘Clouded’ By Mortgage Hit
by Steve Schaefer
A hefty loss of $8.8 billion, or 90 cents per share, was the headline figure in Bank of America‘s second-quarter earnings report Tuesday, but Chief Executive Brian Moynihan stressed that the bank’s underlying business is stronger than it seems on the surface.
“Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues,” Moynihan said in the earnings release, and to be fair he does have a point.
Excluding the mortgage charges, tied to a settlement with investors in mortgage-backed securities related to the firm’s Countrywide Financial business, BofA booked net income of $3.7 billion, or 33 cents per share, up from last year. Revenue came in at $13.5 billion, down sharply due to the $14 billion in rep and warranty provisions taken to resolve the Countrywide issues.
BofA touted $147 billion in credit it extended during the second quarter, and said its balance sheet firmed up with risk-weighted assets declining $41 billion. The bank also said its regulatory capital ratios were better than the 8% its previous guidance indicated, with Tier 1 common equity of 8.2%. There has been some concern that BofA could have as much as a $50 billion capital hole under the new rules prescribed by the Basel Committee, but Barclays Capital’s Jason Goldberg said Monday he expects the bank can meet that mark through retained earnings as the capital rules are phased in.
On the company’s conference call, investors will expect to hear more on the bank’s plans to return capital to shareholders. The bank paid a penny dividend in the second quarter, but the Federal Reserve turned back its plan to hike that payment earlier this year.
Shares of BofA were eyeing a cross back into double-digits Tuesday morning, up 2.4% to $9.95 in pre-market trading. Fellow banks Wells Fargo and Goldman Sachs are also due to report earnings Tuesday.
Didn't Anyone Notice The Seemingly Irreparable Damage To The Eurozone Last Week? Global Short Ban, Here We Come!
Guest Post: An (important) point regarding the Eurocalypse...
When last week's Italian 10Y surged from 5% to 6%, it marked something irreparable, which was not indicated in the extent of the move, but its violence.
Six percent, as we know, is unsustainable for Italy (more than its GDP nominal growth which is closer to 2-3% today, and getting worse...)Whats even more important is that VAR has gone crazy everywhere. Not only banks, even insurers and money managers take volatility of an asset as an input. When you lose 7% in capital in one week, which is 7x the 100bp spread you hoped to make in 1 year, something is very wrong. Even stock market indices failed to sell off as much in a week (and rarely do so)...
Thusly, nobody in their right mind is going to buy Italy (or Spain). The only natural buyers now stem from:
- short covering (profit taking) activity,
- passive buying from Italian accounts for ALM purposes (they must be "invited" to do so)
- and public buying trying to prop up the market, but their pockets aren't deep enough.
As a result, we may have the very few next auctions doing ok (especially if yields go up and short covering continues), but then its chaos Portugal-style.. it could take only a few weeks (or even days!) from here.
The only way I envision it not happening is Euro-bonds gaining traction and actually being implemented (but that doesnt seem likely if you believe the press reports) or financial repression.
The only way I envision it not happening is Euro-bonds gaining traction and actually being implemented (but that doesnt seem likely if you believe the press reports) or financial repression.
Financial Repression???!!!
By financial repression, I mean taking out short sellers,,,, seriously! Not only banking stocks (like was done in 2008:
-
SEC Extends Ban On Shorting Of Financial Stocks - Forbes.com Oct 1, 2008 – Restrictions will expire Oct. 17, about the time a slew of bank earnings are set to be released.
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SEC Halts Short Selling of Financial Stocks to Protect Investors Sep 19, 2008 – SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets. Commission Also Takes Steps to Increase Market Transparency ...
- S.E.C. Temporarily Blocks Short Sales of Financial Stocks ... Sep 19, 2008 – The Securities and Exchange Commission issued a temporary ban on short ... Short selling — a bet that a stock price will decline — is the ..
but on govt debt as well, making void all CDS contracts on sovereigns (or saying they will expire or cash settle at a very soon date) and trying to shut out HFs by increasing regulation, disclosure and taxation on them.
Excess volatility is not good for the markets, and it would surely cause huge short covering, but it could buy some time, and if the move is surprisingly large (bringing us to 4% range...!!!) then maybe it's not just buying time, and we are underestimating the extent of the short sellers which currently have the market in hand (and we know all the "good" reasons why).
Reggie here: Of course, the people who conceive of, and implement these grand schemes tend to be quite shortsighted. This was exemplified by:
- the inability of exchange traded option market makers to hedge their positions, thus instantaneously draining liquidity out of those markets
- the removal of natural buyers in a market crash (short seller covering) causing a floorless plunge
- the extreme jump in option, swap and other synthetic short and bearish trade instruments
- and the most obvious issue - most of the companies covered in the ban deserved to be shorted and once the ban was lifted the party was on, its just that the music was blasted all the much louder!
Now, back to our regularly scheduled, guest writer programming...
Higher taxation is quite evident down the road. After all, there have been many tax cuts here and there to support the FIRE industry; including banks, HFs.... that didn't help the deficits, so the logical thing would be to reverse this, but with QE1,2... govts are doing exactly the contrary, handing more and more money disappearing into corporate bonus pools!!
Reggie Here: I clearly delineated a very practical, market-based solution to this dilemma for the Financial Times about a year and a half ago. See The Financial Times' Banker on Bonuses
The problem is undoing quickly what has been done in 20+ years/ It will not be easy and will not be without unintended consequences. In a paper money system where debt = money, it is no wonder banks are holding tons of sovereign debt, it is not bad bank management, it is almost a FEATURE or RULE of the system.
You cant blame only the bankers or the politicians, or the HFs (SPVs) who bought these debts, everybody is involved. SOMEBODY had to buy it, and it could only be the banks, as long as these were the riskless assets you could refinance at the CB in indefinite amount. States issued more because there was demand (as artificially contrived as said demand was, it was demand nonetheless)... The average person, getting benefits from the state and reelecting all our govts in the last 20 years is responsible as well.
Anyway, were all fucked, but now its almost the common view.
The focus is how to try to cope with this in the short and long term, and prepare for the (hopefully good) things which are beyond.
You cant blame only the bankers or the politicians, or the HFs (SPVs) who bought these debts, everybody is involved. SOMEBODY had to buy it, and it could only be the banks, as long as these were the riskless assets you could refinance at the CB in indefinite amount. States issued more because there was demand (as artificially contrived as said demand was, it was demand nonetheless)... The average person, getting benefits from the state and reelecting all our govts in the last 20 years is responsible as well.
Anyway, were all fucked, but now its almost the common view.
The focus is how to try to cope with this in the short and long term, and prepare for the (hopefully good) things which are beyond.
Berlusconi, like Europe, faces date with destiny
By David Marsh
Commentary: Italy and its prime minister are in the firing line now
It has not been a good week for media moguls — especially those who happen to be prime minister as well. Like most European banks, Silvio Berlusconi narrowly passed his own stress test on Friday when Italy’s latest austerity plan passed a key parliamentary hurdle. But the inexorable rise in Italian bond yields over German levels shows how the Berlusconi system of government seems to be unraveling –— underlining how this most Roman of idols may turn out to have feet of clay.
Italian prime minister for nine of the last 17 years in three spells, Berlusconi — unlike others in the media world who prefer to exert political influence from the boardroom — has added the trappings of high office to his collection of powerful corporations and alluring connections in television, newspapers, publishing, cinema, banking, insurance and football.
Before his latest period as prime minister started three years ago, Berlusconi frequently sniped at monetary union from the sidelines, earning the public disdain of Jean-Claude Trichet, the European Central Bank president, for criticizing the central bank’s interest-rate policies.
But since the financial crisis broke in 2008, sparking off concerted international credit easing, Berlusconi has been on his best euro behavior, helping Italy ride out the capital market storms and leaving the brunt of monetary union wobbles to be borne by the smaller peripheral countries. It was this period of relative calm that helped forge a gradual European consensus that Mario Draghi, the highly esteemed (though not by Berlusconi) governor of the Banca d’Italia, was the best candidate to take over from Trichet when the latter retires in October.
Now that the ECB has started raising interest rates again, Italy — with a largely stagnant, uncompetitive economy and a public debt to GDP ratio of 120% — is back in the firing line.
Berlusconi has shown no great interest in backing the package of tax increases and spending cuts assembled by Giulio Tremonti, his finance minister. In an exceptionally wayward piece of political theatre, the prime minister held up the austerity package by seeking to insert a measure that would have allowed company he owned to defer a €560 million fine.
The prime minister’s contempt for what would rank in other countries as due political process is already well known. Still more damaging for the plan to bring in balanced Italian budgets by 2014 are Tremonti’s new troubles caused by his own set of corruption allegations against him.
Meanwhile, the Italian finance minister has lost none of his penchant for plain speaking. Last week he voiced out loud what many other European ministers are saying sotto voce — that Germany, the most powerful country in monetary union, is placing its own interests a great deal higher than those of its neighbors.
Chancellor Angela Merkel, visiting Africa last week, has stoically refused to budge from her standard position that outer countries must put their house in order. Appearing to compare the Germans with luxury-service passengers on board a doomed ocean liner, Tremonti said Europe faced “an appointment with density …. Just as on the Titanic, not even first-class passengers can save themselves.”
Overt tension between Germany and Italy could accelerate Berlusconi’s fall from grace. If the Germans are vexed by Greek financial malpractice, they are much more infuriated by what appears to be still more visible machinations in Italy. Berlusconi’s hold has been increasingly undermined by a constant drip of revelations about his medieval mix of political, personal and commercial interests.
Like other media magnates, Berlusconi has benefited from decades of internationalization and deregulation to gain reputation, wealth and power. But these same factors, encapsulated in the inexorable force of the international capital markets, also have the capacity to cut larger-than-life characters down to size.
When integrity and straight-dealing manifestly crumble, the financial markets have a habit of passing remorseless judgment on figures who have outgrown credibility and usefulness.
Slumps in Consumer Spending
During economic downturns, consumers usually spend less on what the Fed calls “discretionary services” — items like education, entertainment, restaurant meals and insurance. But in the chart below, it’s clear that consumers today are cutting back much more sharply. Part of the reason: In previous years, households often added debt to continue spending. Now the bill has come due.
Psicoterapie, cure termali e rimborso dei ticket costa 10 milioni l'assistenza sanitaria ai deputati
by CARMELO LOPAPA
Subito la stangata sui ticket per almeno 15 milioni di italiani, 10 euro sulle ricette, 25 per gli interventi in pronto soccorso. Potranno tirare un sospiro di sollievo i 630 deputati e 315 senatori con le loro famiglie, che viaggiano con un’assistenza tutta loro. E per una casuale e beffarda coincidenza, proprio alla vigilia della stretta sulle famiglie, la Camera dei deputati rende pubblici per la prima volta i costi della sanità integrativa sostenuta negli ultimi anni a beneficio degli onorevoli. Sufficiente a svelare un costo per le casse pubbliche che sfiora i 30 mila euro al giorno, quasi 850 mila euro al mese.
Già , perché solo nel 2010 la copertura finanziaria approntata per tutta una serie di interventi non esattamente salva-vita a beneficio dei 630 di Montecitorio, degli “ex” e delle loro famiglie ha toccato i 10 milioni 117 mila euro. Dati – sintetizzati nella tabella ufficiale pubblicata qui di fianco – che finora erano rimasti coperti nelle pieghe dell’amministrazione. Sono stati i sei deputati radicali guidati da Rita Bernardini a portare avanti la battaglia per la pubblicazione della spesa “al dettaglio”, dopo molteplici istanze ai vertici della Camera. Finché il 13 luglio scorso, dagli uffici dei questori, parte con protocollo 19751 la tabella completa. Il meccanismo, va da sé, è analogo a Palazzo Madama per i 315 senatori (e famiglie). Si chiama Asi, Assistenza sanitaria integrativa e stando all’ultima rilevazione dei questori di Montecitorio risulta che ne beneficino oltre ai “630, anche 1.109 loro familiari, 1.329 titolari di assegni vitalizi e 1388 loro familiari, 484 titolari di assegno vitalizio di riversabilità e 25 loro familiari, 217 deputati in attesa di vitalizio diretto e 386 loro familiari, 2 giudici emeriti della Corte Costituzionale e 2 loro familiari, 2 familiari dei giudici della Corte titolari di reversibilità ”. In tutto una platea di 5.574 privilegiati.
Fragilità , insicurezze, disturbi della personalità , delusioni, amarezze. Dura la vita del deputato. Così, l’esborso forse più inatteso è quella che sbuca alla sesta voce della tabella, che rivela come i deputati nel 2010 hanno fatto spendere all’amministrazione 204 mila euro per “psicoterapia”. Ma è solo il dato più curioso e assorbe appena il 2 per cento del totale. Il vero boom è da ricercare alla voce “odontoiatria”, che da sola assorbe il 30 per cento dell’intero budget: 3 milioni 92 mila euro. Carie, piombature, dentiere per sorrisi smaglianti a beneficio di telecamere. Il plafond per 5 anni è di 23.240 euro per ciascun nucleo familire. Un esborso per i conti pubblici che segue di poco quello per “ricoveri e interventi”, costati lo scorso anno alla Camera 3 milioni 173 mila.
Ma ci sono anche i ticket rimborsati agli onorevoli, per 153 mila euro, e gli accertamenti di varia natura per quasi mezzo milione di euro. “I trattamenti termali portano benefici all’apparato locomotore, respiratorio, cardiovascolare, alla circolazione sanguigna, coadiuvano la cura delle stomatologie, delle malattie dermatologiche: incrementano il turismo e creano posti di lavoro” raccomandava giusto ieri il “responsabile” Domenico Scilipoti nel suo milionesimo comunicato stampa. I suoi colleghi deputati lo sanno da tempo e solo lo scorso anno a spese della Camera hanno usufruito di cure termali per oltre 204 mila euro (plafond annuo da 1.240 euro ciascuno). Ma se è per questo, sembra che abbia molto a che fare con la chirurgia estetica (ma non solo quella per la verità ) la chiusura delle vene varicose o comunque malate, così antiestetiche soprattutto per le deputate e mogli di parlamentari: va sotto la voce “sclerosante” e la spesa è di 28 mila euro (plafond da 775 euro l’anno).
Poca cosa rispetto per esempio al rimborso di cui gli inquilini di Montecitorio continuano a usufruire per l’acquisto dei loro occhiali da vista: si viaggia quasi sul mezzo milione di euro, 488 mila per l’esattezza. Ma è un crescendo. Non sarà tanto per l’età media elevata dei beneficiari, più probabilmente perché la voce “fisioterapia” comprende talassoterapia e altri generi di assistenza antistress, sta di fatto che per questo genere di trattamenti sono stati impiegati nel 2010 quasi un milione di euro, il dieci per cento del totale, con plafond annuo di tutto rispetto: 1.860 euro ciascuno. “A noi non interessa la demagogia, ma da anni portiamo avanti la nostra battaglia per la trasparenza delle spese sostenute dal Parlamento” spiega Rita Bernardini, nell’apprezzare il passo avanti compiuto comunque dalla presidenza Fini. È il secondo dossier reso pubblico dopo quello corposo sugli affitti.
Cattle Futures Down As Drought Continues
by TheCattleSite
US - Beef production was up slightly this week in comparison to last years levels, whilst cattle futures saw a sharp decline, write Steve Meyer and Len Steiner.
Beef production for the week rose just 0.2 per cent from a year ago, mostly due to higher cow slaughter levels.
Nevertheless, cattle futures declined sharply this week as market participants fretted over the impact of extremely hot weather on beef demand as well as the pace of cattle auction sales.
Faced with deteriorating pastures and high feed costs, cow-calf operators have been trying to push more feeders into feedlots.
The nearby feeder cattle futures contract (August) lost almost eight dollars per/cwt or 5.5 per cent last week.
Nearby live cattle futures also declined by almost 400 points for the week.
The beef cutout actually managed to gain modestly from the prior week but the heat wave and surging cash corn values were seen as short term negative for feedlot sales.
As the heat wave spreads across multiple states, keep an eye on hog and cattle weights and the resulting impact on overall protein supplies.
On Friday, CME issued a special executive report noting that due to “a prolonged lack of trading volume and after significant discussion with industry participants, CME will be delisting Frozen Pork Bellies Futures and Options effective Monday, 18 July, 2011.”
Many agricultural futures contracts, including hogs and cattle, have been extremely successful in recent years as evidenced by the steady increase in open interest volume.
The delisting of the belly contract shows that, in the end, futures contracts needs to strike a delicate balance between hedgers and speculators.
The frozen pork belly contract was no longer seen by end users as an effective hedging instrument, particularly given the shift towards using more frozen bacon.
Also, the seasonality of pork belly prices no longer is what it used to be, with bacon becoming a staple of foodservice menus year round.
As a result, the industry found the frozen belly contract trading between February - August as insufficient to meet its hedging needs.
The weekly production data showed only modest increases in meat protein supplies for the week ending 16 July.
Nevertheless, cattle futures declined sharply this week as market participants fretted over the impact of extremely hot weather on beef demand as well as the pace of cattle auction sales.
Faced with deteriorating pastures and high feed costs, cow-calf operators have been trying to push more feeders into feedlots.
The nearby feeder cattle futures contract (August) lost almost eight dollars per/cwt or 5.5 per cent last week.
Nearby live cattle futures also declined by almost 400 points for the week.
The beef cutout actually managed to gain modestly from the prior week but the heat wave and surging cash corn values were seen as short term negative for feedlot sales.
As the heat wave spreads across multiple states, keep an eye on hog and cattle weights and the resulting impact on overall protein supplies.
On Friday, CME issued a special executive report noting that due to “a prolonged lack of trading volume and after significant discussion with industry participants, CME will be delisting Frozen Pork Bellies Futures and Options effective Monday, 18 July, 2011.”
Many agricultural futures contracts, including hogs and cattle, have been extremely successful in recent years as evidenced by the steady increase in open interest volume.
The delisting of the belly contract shows that, in the end, futures contracts needs to strike a delicate balance between hedgers and speculators.
The frozen pork belly contract was no longer seen by end users as an effective hedging instrument, particularly given the shift towards using more frozen bacon.
Also, the seasonality of pork belly prices no longer is what it used to be, with bacon becoming a staple of foodservice menus year round.
As a result, the industry found the frozen belly contract trading between February - August as insufficient to meet its hedging needs.
The weekly production data showed only modest increases in meat protein supplies for the week ending 16 July.
Crop Progress: Excessive Heat Diminishes Crop Conditions
by Colvin & Co
The USDA estimates that for the week ending July 17th, 35% of the 2011 corn crop has silked compared to estimates of 62% and 47% for the 2010 crop and 5 year historical average respectively. Of the 18 primary producing states, this past week saw the last three remaining states report silking progress. Missouri is the only state whose corn crop is ahead of its five year average and 2010 pace at 74% silked.
For the 18 primary soybean producing states, crop conditions worsen over the past week. The percentage of crop rated good or excellent decreased two percentage points to 64%. The percentage of crop rated fair remained unchanged at 26%, and the percent rated poor or very poor increased two percentage points to 10%. Compared to last year 67% was rated good or excellent, 24% was rated fair, and 9% was rated poor or very poor.
The USDA estimates that 40% of the soybean crop has bloomed, compared to 58% last year, and a 5 year historical average of 52%. For the week ending July 17th, only Missouri and Louisiana are ahead of their five year average and 2010 blooming pace.
Progress in the winter wheat harvest continued over the past week, with harvest concluding in Texas, beginning in Oregon, South Dakota, and Washington, but harvests in Idaho and Montana yet to start. The USDA reports harvested winter wheat estimates for the week ending July 17th, at 68% of the total crop, compared to a 5 year average and 2010 estimate of 72% and 70% respectively.
The USDA estimates that 73% of the spring wheat crop was rated good or excellent, unchanged from last week, but still below the 82% registered a year ago. Headed spring wheat, is also lagging its five year average and 2010 performance. The USDA reported that 60% of the crop has headed compared to 84% for the same period in 2010 and a 5 year historical average of 88%.
Bullish trend-lines in both old and new crop contracts appear to be forming in corn, soybeans, and wheat after last week’s WASDE Report. We expect this to continue as weather patterns conducive to high yields appear to be nonexistent across most major growing regions. Corn prices rebounded from two weeks ago and were $0.18 higher over the past week closing at $6.97 per bushel, soybeans increased $0.37 to close at $13.83 per bushel, and wheat jumped $0.49 to $6.88. Corn, soybean, and wheat prices all remain higher year-over-year up, 83%, 37%, and 18% respectively.
Next week we will have our first look at the USDA corn crop dough and soybean pod setting estimates, along with the usual estimates provided in this report.
Pork prices to stay 'unusually high' as China buys
by Agrimoney.com
Hog prices are set to remain elevated, and retail pork values "unusually high", thanks to a slide-off in production at a time when demand is being stoked by China, whose own prices have hit record highs.
The US Department of Agriculture warned that expansion throughout the domestic livestock industry was "tenuous", with high grain prices to force a year-on-year drop in broiler production in the second half of 2011, while drought in the South prompts cattle farmers to slaughter cows they had earmarked for breeding from.
"The high rate of cow slaughter will likely limit calf crops for at least this year and next," USDA analyst Rachel Johnson said.
However, she highlighted in particular the squeeze facing the hog and pork markets as a fall-off in output expected to accelerate into a year-on-year decline in the October-to-December quarter, thanks to lighter animals.
'Important outlet'
"While the spring pig crop points to slightly higher fourth-quarter slaughter, dressed weights will likely average below 2010 levels, which were achieved when a combination of corn quality and optimal feeding weather boosted weight gains," Ms Johnson said.
Meanwhile, demand will boosted by exports expected to rise by 12% in the second half of 2011, fuelled by demand from China, the biggest pork consumer.
Since the lifting last year of trade restrictions on US pork, imposed following the swine flu, or H1N1, scare, "China has developed a pattern of consistent purchases of important quantities of US pork products", often ranking in weekly export data in the top five destinations for shipments.
China, already "becoming an important outlet for US pork products", was likely to see its "evolution as an export destination for US pork products… continue to evolve".
The impact in the US meant that "continued year-over-year higher hog prices and unusually high retail pork prices are the most likely outcome for second-half 2011", Ms Johnson said.
'Extreme heat'
The comments come a week after Chinese inflation data showed pork prices soaring 57% year on year, as demand for the meat in a country responsible for half world consumption far outstripped domestic supplies.
The US Meat Export Federation, an industry group, said that US pork exports to China so far this year were, at 99,400 tonnes, "comparable in volume to the record pace of 2008", besides being worth more than $150m.
Meanwhile, US Commodities also highlighted the prospect of a fall-off in hog weights, noting that they had been behind year-ago levels for seven successive weeks.
"The extreme heat in the US will help keep weights below 2010. This will offset the larger slaughter [numbers]," the Iowa-based broker said.
However, lean hogs for August delivery fell 1.5% to 97.45 cents a pound on Monday, a weak day for many commodities and other assets deemed riskier investments.
Belly flops
*Monday also brought the delisting of pork belly futures, made famous by the film Trading Places, which the CME Group scrapped following a drop in investor interest.
Trading volumes in Chicago's near-term contract had totalled two lots, both on January 25, so far this year.
"The frozen pork belly contract was no longer seen by end users as an effective hedging instrument, particularly given the shift towards using more frozen bacon," a report from Steve Meyer and Len Steiner, for the CME Group, said.
"Also, the seasonality of pork belly prices no longer is what it used to be, with bacon becoming a staple of foodservice menus year round."
This meant a gap in contracts between August and February was "insufficient to meet the industry's hedging needs".
Correction in cotton prices 'not over yet'
by Agrimoney.com
The correction in cotton prices may have further to go even after fresh declines on Monday, when New York's best-traded contract fell to its lowest since September, and took to 24% its fall over the last month.
Cotton for December delivery, the first new crop contract, fell the maximum allowed in New York to hit 94.46 cents a pound before recovering some ground in late deals.
The old crop October contract also pared losses amid fears for the crop in Texas – the biggest cotton-producing state in the US, the top-ranked exporting country.
"The terrible Texas drought - which has already caused significant downward revisions to US cotton production prospects and may cause even further future revisions - may start supporting prices," Luke Mathews, at Commonwealth Bank of Australia, said.
"After all, US and global cotton supplies are already extremely tight."
The US Department of Agriculture last week pegged the overall abandonment of US cotton crops at "a record 30%", and is expected by many analysts to cut its yield forecast too, from levels close to last year's.
'Staggering demand losses'
But while some farmers are predicting yields of 50% below normal on non-abandoned land, Texas's "parched crop" can provide only limited support to prices, veteran soft commodities analyst Judith Ganes-Chase said.
"The loss in demand that has occurred as a result of sky high prices this year and uncertain economic conditions has far outweighed any bullishness over the Texas crop woes," Ms Ganes-Chase, at J Ganes Consulting, said.
"The losses in global demand are even more staggering."
New orders from Asian mills, major consumers, has "virtually stopped" after the rise in cotton prices to a record high of 227 cents a pound kept a lid on consumer demand, and encouraged a switch to other fibres.
And inventories in the US, while "still limited", are "just nowhere near as pinched as previously estimated".
'Room on the downside'
The dynamics of pressure on consumption, at a time when mills were being left with high-priced cotton inventories that were difficult to shift, meant that the global stocks-to-use ratio may "jumpy by a disproportionate amount", Ms Ganes Chase said.
The stocks-to-use ratio is a key measure of the availability of a crop, and therefore of its price potential.
For prices, "there still could be plenty of more room left to go on the downside as this historic bull market unravels", she said.
The longer the market remained near current levels, which are still high by a historical perspective, "the more demand is going to be lost and the harder the market will eventually fall".
'Demand is poor'
At PitGuru, Jurgens Bauer said that cotton prices "likely will seek to find a level of support between 90-100 cents a pound".
He added: "Whether or not that market can stage more than a temporary bounce is the question. Supply concerns aside, demand is poor."
US weekly cotton export sales for 2010-11 have been negative - meaning cancelled orders - in 15 out of the last 16 weeks.
New York's best-traded December cotton contract closed down 3.5% at 97.95 cents a pound, with the September lot finishing down 3.5% at 97.95 cents a pound.
Sovereign Debt and Geriatric Deadbeats
By Global Macro Monitor
In the spirit of our earlier post, The Clash of Generations, we point you to an interesting piece, Geiatric Deadbeats, written by Ali Alichi of the International Monetary Fund (IMF). He argues the age of a country’s population is inversely correlated with a sovereign government’s willingness to pay its debt obligations.
Because holders of sovereign loans and bonds generally have no explicit recourse to hard assets or a “sovereign balance sheet” in the event of default, a debtor government’s willingness to pay is almost as important as its ability to pay. Go no further than Europe or the debt ceiling negotiations in the U.S. Congress for confirmation.
Mr. Alichi writes,
Studies have shown that a country’s willingness to repay is as important as whether it has the resources to repay. This willingness deteriorates as voters age because they have a shorter period to benefit from their country’s access to international capital markets and become more likely to opt for default on current debt. Moreover, older voters generally benefit more from public resources—such as pension and health care benefits—which could shrink if debt is repaid. If the old are a majority, they might force default, even if it is not optimal for the country as a whole. Lenders will take this into account and reduce new lending to an aging country.
Thomas Friedman spoke yesterday in his New York Times column of the “powerful sense of ‘baby boomers behaving badly’ and their legacy of the “incredible debt burden and constraints” they will leave on their children. According to Mr. Alichi this bad behavior of the boomers may not end at retirement. He writes,
Now if the old are altruistic and care about their children as much as themselves, they will not vote for default with its negative consequences for future generations. But Altonji, Hayashi, and Kotlikoff (1997) have shown that altruism does not hold at the overall level in the United States—although there are few studies of this sort for most other countries.
The next ten years will surely be interesting. We at the Global Macro Monitor are baby boomers and implore our generation, at least, those who can afford it, to take one for the kids. If this means we have to play muni golf courses instead of Pebble Beach and Pinehurst and hitting Top Fiites instead of Pro V1s (sorry FILA) in our twilight years, so be it.
Mr. Alichi has some good ideas on how to improve our national credit profile. His piece is short and sweet and well worth your time. Click here for the article.
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