Category: zerohedge

Thanks to a 3.2% rise in state and local government spending – the most since 2009 – the “public” construction spending lifted the headline data to beat expectations overall. However, a small scratch below the surface an it is clear that residential construction spending is not playing ball. Having fallen for 3 of the last 4 months, residential construction spending dropped 0.5% (the most since July) and private construction spending overall (residential and non-residential) dropped 0.5% – the most since at least April.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rWOSzJijbOo/story01.htm Tyler Durden

If last week’s Durable Goods miss was great news for stocks, today’s latest surge in the manufacturing ISM contrary to recent diffusion indices suggestion a whipser print of about 53, may be just what the Chairwoman did not order. With a December print of 57.3, up from last month’s 56.4, and well above expectations of a modest decline to 55.1, this was the highest headline Manufacturing ISM print since April of 2011, just when QE2 was about to end and the economy was said to enter the virtuous cycle.

Looking at the internals, the New Orders print of 63.6, up from 60.6 is what led the headline higher. This was the highest print since April 2011.

What was worse for Taper watchers is that the Employment index jumped from 53.2 to 56.5, the highest since April 2012, and indicative that the November NFP number on Friday, perhaps the most critical data point ahead of the December FOMC announcement, may surprise well to the upside. In that case, the Fed may have no choice but to finally do what it threatened it would do in September and adjust the monthly flow lower by $10-$15 billion especially since as we will show momentarily, the Fed now owns one third of all marketable 10 year equivalents!

From the report:

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI™ registered 57.3 percent, an increase of 0.9 percentage point from October’s reading of 56.4 percent. The PMI™ has increased progressively each month since June, with November’s reading reflecting the highest PMI™ in 2013. The New Orders Index increased in November by 3 percentage points to 63.6 percent, and the Production Index increased by 2 percentage points to 62.8 percent. The Employment Index registered 56.5 percent, an increase of 3.3 percentage points compared to October’s reading of 53.2 percent. This reflects the highest reading since April 2012 when the Employment Index registered 56.8 percent. With 15 of 18 manufacturing industries reporting growth in November relative to October, the positive growth trend characterizing the second half of 2013 is continuing.”

Of the 18 manufacturing industries, 15 are reporting growth in November in the following order: Plastics & Rubber Products; Textile Mills; Furniture & Related Products; Primary Metals; Food, Beverage & Tobacco Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Transportation Equipment; Chemical Products; Computer & Electronic Products; Nonmetallic Mineral Products; and Fabricated Metal Products. The three industries reporting contraction in November are: Apparel, Leather & Allied Products; Wood Products; and Machinery.

The respondents this time, unlike last time when the print once again surged despite pervasive government shutdown pessmism, are almost uniformly optimistic:

• “Seasonal demand has not decreased at the typical pace.” (Primary Metals)
• “Incoming order rate remaining strong.” (Fabricated Metal Products)
• “Outlook for the remainder of the year and into 2014 is trending positive.” (Chemical Products)
• “Overall business climate is good. Business is steady.” (Transportation Equipment)
• “Sequestration and cutbacks in defense spending continue to impact business.” (Computer & Electronic Products)
• “Market continues to be stronger than normal for this time of year.” (Wood Products)
• “Getting much busier toward the end of the year.” (Furniture & Related Products)
• “Seeing consistent uptick in demand.” (Food, Beverage & Tobacco Products)
• “Federal debt, deficit and inefficiency are causing a level of caution and uncertainty.” (Machinery)
• “Ordering for 2014 seems to be increasing in comparison to the past six months.” (Miscellaneous Manufacturing)

Finally, breaking down the commodities up and down in price:

Commodities Up in Price

• Steel Coil; Steel — Cold Rolled; Steel — Hot Rolled; and Wood.

Commodities Down in Price

• Aluminum; Caustic Soda (2); Corn Based Products; Fuel; Polypropylene Resin; and Sulfuric Acid.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/OWipqCykAg8/story01.htm Tyler Durden

When even the big banks are openly mocking price targets and resorting to sheer gimmickry (recall Topeka’s AAPL price target of $1,111) it may be time to take a long, hard look at the sell button. However, since only the rise in the Fed’s balance sheet matters, that long, hard look will end up with precisely zero action.

From Morgan Stanley:

Since last March, we have been sanguine on US equities. Our logic has been driven more by lack of a bear case than the strength of the base case. We have seen 3 turns (12.0x to 15.1x) of multiple expansion in the last 2 years, only the 4th period with this level of expansion over the last 40+ years. Obviously, a sample size of three isn’t statistically significant, but the prior three periods were all followed by a continuation of the rally for another 12-24 months, as momentum typically persists. The only thing people are worried about is that no one is worried about anything. That isn’t a real worry.

Sheer brilliance (but yes: one can thank the Fed for drowning all “worries” with record liquidity). The brilliance goes on.

We are raising our 12-month S&P 500 price target from 1840 to 2014, representing 11.5% upside from the market’s current level (Exhibit ). In our base case, we are forecasting 6% earnings growth in 2013, 2014, and 2015. We expect the multiple to expand moderately (the index currently trades at 15.6x our 2014 earnings estimate) to 16.4x. For our bull case target of 2414, we see 8% earnings growth in 2013, followed by 10% EPS growth in 2014 and 2015, and strong multiple expansion to 17.9x. Our bear case is 1519 and assumes a 5% earnings decline in 2014 accompanied by multiple contraction to 14.9x.

 

 

 

Why a 9.5% increase in our price target?

 

1) We raised our earnings numbers for Q4 2013: The Q3 numbers were better than we expected, again primarily driven by the financials sector. Generally, while the bottom-up estimates have consistently been too high, our top-down model for forecasting earnings has been consistently too low. When we update our 2013 numbers for a stronger Q3 and add to our Q4 forecast, we now estimate $109 in 2013 EPS. This is well above our initial forecast from two years ago of closer to $100, but well below the initial consensus bottom-up estimate of nearly $123.

 

2) Roll forward: We also rolled forward our 12-month forward target from end of Q3 to year-end 2014. This has the effect of adding our Q4 2015 EPS estimate, as our target is set off of earnings months 13-24 in the future. Our Q4 number for 2015 adds $2.90 more in EPS to the outlook. So this makes our 2015 EPS full-year forecast $122.9 in earnings, roughly equal to the consensus bottom-up view for 2014 EPS and likely about $8 below what will be the 2015 consensus bottom-up number when the estimates are fully fledged out early in 2014.

 

3) Multiple expansion: For our base case we have raised our PE assumption by about 3/4 of a turn. Our fundamental view is that a steeper curve and the lack of a bear case forming will cause multiple expansion, consistent with what we have written about in several recent notes.

 

4) Net earnings: It is important to note that there is a 3% per year net share count reduction ongoing right now, likely meaning 5-6% total share reduction between now and year-end 2015. My sense is some investors may not realize that net earnings growth will be closer to 9% per year, even though the exhibit above, which is OPERATING earnings, shows 6% growth. All individual stocks are typically evaluated by analysts (with targets) on net earnings, not operating earnings, and in this environment of huge repurchases this is an important distinction.

About that multiple expansion, recall:

… multiple growth has already been thoroughly abused as a source of stock market “growth”, and accounts for over 80% of the market upside in the past two years, and is responsible for 75% of the S&P increase in 2013. Excluding the 2009 “outlier” event, this is the greatest contribution to the S&P from multiple expansion in 15 years.

 

So will Morgan Stanley’s price target for 2015 be 2015, and so on? Said otherwise, when things like fundamentals and technicals no longer matter, things get silly fast.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cT-24RdW4Tc/story01.htm Tyler Durden

When even the big banks are openly mocking price targets and resorting to sheer gimmickry (recall Topeka’s AAPL price target of $1,111) it may be time to take a long, hard look at the sell button. However, since only the rise in the Fed’s balance sheet matters, that long, hard look will end up with precisely zero action.

From Morgan Stanley:

Since last March, we have been sanguine on US equities. Our logic has been driven more by lack of a bear case than the strength of the base case. We have seen 3 turns (12.0x to 15.1x) of multiple expansion in the last 2 years, only the 4th period with this level of expansion over the last 40+ years. Obviously, a sample size of three isn’t statistically significant, but the prior three periods were all followed by a continuation of the rally for another 12-24 months, as momentum typically persists. The only thing people are worried about is that no one is worried about anything. That isn’t a real worry.

Sheer brilliance (but yes: one can thank the Fed for drowning all “worries” with record liquidity). The brilliance goes on.

We are raising our 12-month S&P 500 price target from 1840 to 2014, representing 11.5% upside from the market’s current level (Exhibit ). In our base case, we are forecasting 6% earnings growth in 2013, 2014, and 2015. We expect the multiple to expand moderately (the index currently trades at 15.6x our 2014 earnings estimate) to 16.4x. For our bull case target of 2414, we see 8% earnings growth in 2013, followed by 10% EPS growth in 2014 and 2015, and strong multiple expansion to 17.9x. Our bear case is 1519 and assumes a 5% earnings decline in 2014 accompanied by multiple contraction to 14.9x.

 

 

 

Why a 9.5% increase in our price target?

 

1) We raised our earnings numbers for Q4 2013: The Q3 numbers were better than we expected, again primarily driven by the financials sector. Generally, while the bottom-up estimates have consistently been too high, our top-down model for forecasting earnings has been consistently too low. When we update our 2013 numbers for a stronger Q3 and add to our Q4 forecast, we now estimate $109 in 2013 EPS. This is well above our initial forecast from two years ago of closer to $100, but well below the initial consensus bottom-up estimate of nearly $123.

 

2) Roll forward: We also rolled forward our 12-month forward target from end of Q3 to year-end 2014. This has the effect of adding our Q4 2015 EPS estimate, as our target is set off of earnings months 13-24 in the future. Our Q4 number for 2015 adds $2.90 more in EPS to the outlook. So this makes our 2015 EPS full-year forecast $122.9 in earnings, roughly equal to the consensus bottom-up view for 2014 EPS and likely about $8 below what will be the 2015 consensus bottom-up number when the estimates are fully fledged out early in 2014.

 

3) Multiple expansion: For our base case we have raised our PE assumption by about 3/4 of a turn. Our fundamental view is that a steeper curve and the lack of a bear case forming will cause multiple expansion, consistent with what we have written about in several recent notes.

 

4) Net earnings: It is important to note that there is a 3% per year net share count reduction ongoing right now, likely meaning 5-6% total share reduction between now and year-end 2015. My sense is some investors may not realize that net earnings growth will be closer to 9% per year, even though the exhibit above, which is OPERATING earnings, shows 6% growth. All individual stocks are typically evaluated by analysts (with targets) on net earnings, not operating earnings, and in this environment of huge repurchases this is an important distinction.

About that multiple expansion, recall:

… multiple growth has already been thoroughly abused as a source of stock market “growth”, and accounts for over 80% of the market upside in the past two years, and is responsible for 75% of the S&P increase in 2013. Excluding the 2009 “outlier” event, this is the greatest contribution to the S&P from multiple expansion in 15 years.

 

So will Morgan Stanley’s price target for 2015 be 2015, and so on? Said otherwise, when things like fundamentals and technicals no longer matter, things get silly fast.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cT-24RdW4Tc/story01.htm Tyler Durden

The chart below showing where Europe’s wealthiest earning bankers can be found should come as no surprise.

… Especially to those who recall this chart from a few years back.

And some commentary from Bloomberg:

The number of bankers in the European Union who earned at least 1 million euros a year rose 11 percent in 2012, the EBA says, as bonuses exceeded caps set to take effect next year. The U.K. accounted for 77 percent of the 3,529 bankers paid at least a million, while Germany and France accounted for 6 percent and 5 percent, respectively.

As for the US, well that’s what the Fed’s wealth effect is for.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xmvAF5TrB2I/story01.htm Tyler Durden

The chart below showing where Europe’s wealthiest earning bankers can be found should come as no surprise.

… Especially to those who recall this chart from a few years back.

And some commentary from Bloomberg:

The number of bankers in the European Union who earned at least 1 million euros a year rose 11 percent in 2012, the EBA says, as bonuses exceeded caps set to take effect next year. The U.K. accounted for 77 percent of the 3,529 bankers paid at least a million, while Germany and France accounted for 6 percent and 5 percent, respectively.

As for the US, well that’s what the Fed’s wealth effect is for.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xmvAF5TrB2I/story01.htm Tyler Durden

What a difference 35 years of zombie capitalism makes…

 

 

h/t @AndyJamesHicks

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EX5hJs74ZpY/story01.htm Tyler Durden

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-xRDhoXc45k/story01.htm williambanzai7

While the abundance of commercials for cars across all media this time of year is nothing new, the manufacturers (and even more so the dealers) are likely getting more desperate. As Bloomberg reports, inventory climbed to almost 3.4 million cars and light trucks entering November – at 76 days of supply, that was the highest for the month since 2005. This should come as no surprise as we previously noted GM's post-crisis highs in channel stuffing as hope remains high that the recent slowdown in sales does not continue. The question, of course, is, "will manufacturers be responsible and curb production to keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them." We suspect we know the margin-crushing answer.

 

Via Wards Auto,

the levels harken back to early in last decade when steep price discounting was used to prop volumes,…

 

Excluding 2008 when the industry was heading into recession, LV inventory totaled 3.397 million at the end of October, highest for the month since 3.803 million in 2004. October’s 76-day supply, was the highest for the month since 77 in 2005.

 

By comparison, sales in 2013 mostly have run at highs dating to 2007, suggesting inventory is getting ahead of the curve.

GM just saw the biggest two month jump in inventory in the restructured company's history.

 

 

Via Bloomberg,

Carmakers have boosted production to meet demand that has left the industry on pace for the best sales year since 2007. Swelling supply raises the stakes for sales in November after deliveries missed estimates in October and slipped in September for the first time in 27 months. If buyers don’t absorb enough inventory, more automakers, including Toyota Motor Corp. (7203) and Honda Motor Co., may need to follow Ford Motor Co.’s lead by trimming production to avoid margin-slicing discounts.

 

“Inventory has been so tightly managed, and it has been because demand has been there and production hasn’t been able to keep up,” Jeff Schuster, an analyst with researcher LMC Automotive, said in a telephone interview. “If you change that scenario around, the question is, does the discipline that we’ve seen the industry operate with lately stick around?”

 

…

 

“As the market begins to slow down and begins to peak, it’s going to get tougher for everybody,” Joe Langley, the head of North American vehicle production analysis for IHS Automotive, said by telephone. “Are manufacturers going to be responsible and curb production and keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them? That’s what’s going to be interesting, to see how that plays out.”

 

…

 

Wesley Lutz, a Chrysler dealer in Jackson, Michigan, said his store has about 120 days supply of vehicles in stock, roughly double what he usually likes to carry. Lutz cited his anticipation of strong winter and spring selling seasons and his ability to borrow at less than 2 percent to finance the inventory on his lot.

 

“I’m probably not managing my inventory as well as I do at 8 percent, but I’m willing to roll the dice and stock some inventory in December and January, because I think we’re going to have a great market in February,” Lutz said by telephone. “We’re borrowing money so cheaply.”

 

…

 

“If it’s an underwhelming month, we’ll need to look to see if there are any decisions to start to ratchet back” production this month or in January, LMC’s Schuster said. “It could end up being the first real test that the industry’s faced since the restructuring.”

Sadly, there it is – due to intervention-driven low rates, mal-investment occurs from the bottom-up – and now we have the most inventory in 8 years… car makers and dealers (perhaps more so) will be hoping hard this season… the 'field of dreams' economy continues

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UZVRiwUQC_A/story01.htm Tyler Durden

While the abundance of commercials for cars across all media this time of year is nothing new, the manufacturers (and even more so the dealers) are likely getting more desperate. As Bloomberg reports, inventory climbed to almost 3.4 million cars and light trucks entering November – at 76 days of supply, that was the highest for the month since 2005. This should come as no surprise as we previously noted GM's post-crisis highs in channel stuffing as hope remains high that the recent slowdown in sales does not continue. The question, of course, is, "will manufacturers be responsible and curb production to keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them." We suspect we know the margin-crushing answer.

 

Via Wards Auto,

the levels harken back to early in last decade when steep price discounting was used to prop volumes,…

 

Excluding 2008 when the industry was heading into recession, LV inventory totaled 3.397 million at the end of October, highest for the month since 3.803 million in 2004. October’s 76-day supply, was the highest for the month since 77 in 2005.

 

By comparison, sales in 2013 mostly have run at highs dating to 2007, suggesting inventory is getting ahead of the curve.

GM just saw the biggest two month jump in inventory in the restructured company's history.

 

 

Via Bloomberg,

Carmakers have boosted production to meet demand that has left the industry on pace for the best sales year since 2007. Swelling supply raises the stakes for sales in November after deliveries missed estimates in October and slipped in September for the first time in 27 months. If buyers don’t absorb enough inventory, more automakers, including Toyota Motor Corp. (7203) and Honda Motor Co., may need to follow Ford Motor Co.’s lead by trimming production to avoid margin-slicing discounts.

 

“Inventory has been so tightly managed, and it has been because demand has been there and production hasn’t been able to keep up,” Jeff Schuster, an analyst with researcher LMC Automotive, said in a telephone interview. “If you change that scenario around, the question is, does the discipline that we’ve seen the industry operate with lately stick around?”

 

…

 

“As the market begins to slow down and begins to peak, it’s going to get tougher for everybody,” Joe Langley, the head of North American vehicle production analysis for IHS Automotive, said by telephone. “Are manufacturers going to be responsible and curb production and keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them? That’s what’s going to be interesting, to see how that plays out.”

 

…

 

Wesley Lutz, a Chrysler dealer in Jackson, Michigan, said his store has about 120 days supply of vehicles in stock, roughly double what he usually likes to carry. Lutz cited his anticipation of strong winter and spring selling seasons and his ability to borrow at less than 2 percent to finance the inventory on his lot.

 

“I’m probably not managing my inventory as well as I do at 8 percent, but I’m willing to roll the dice and stock some inventory in December and January, because I think we’re going to have a great market in February,” Lutz said by telephone. “We’re borrowing money so cheaply.”

 

…

 

“If it’s an underwhelming month, we’ll need to look to see if there are any decisions to start to ratchet back” production this month or in January, LMC’s Schuster said. “It could end up being the first real test that the industry’s faced since the restructuring.”

Sadly, there it is – due to intervention-driven low rates, mal-investment occurs from the bottom-up – and now we have the most inventory in 8 years… car makers and dealers (perhaps more so) will be hoping hard this season… the 'field of dreams' economy continues

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UZVRiwUQC_A/story01.htm Tyler Durden