Month: May 2014

It appears, despite the Dow closing at record all-time-highs, ‘they’ are running out of greater fools. As WSJ reports, Box Inc – the online storage startup – is delaying its IPO plans “after a sudden weakening in demand for technology stocks.” It seems ‘all-time-highs’ is now not enough, as people close to the company said the offering may not happen until June, and no timing has been set… we assume all-time-higher-highs are required as WSJ notes, investors’ love affair with cloud software companies is waning (as the greatest fools are all tapped out… or waiting for Alibaba’s ‘easy money’).

 

 

As WSJ reports,

The online-storage startup is delaying its plans for an initial public offering after a sudden weakening in demand for technology stocks.

 

Box’s March 24 IPO filing made it eligible to list shares as early as April, but people close to the company said the offering may not happen until June, and no timing has been set.

 

A Box spokeswoman declined to comment, citing the IPO quiet period.

 

…

 

“Eighteen months ago that company could have gotten away without a path to profitability,” Kevin Stadtler, principal at investment fund Stadtler Capital Management in Fort Worth, Texas, said of Box. Now, he said, “there’s not a public market for companies like that.“

 

Adding to Box’s challenge, IPOs in the broader software category have struggled. Software-company IPOs in 2014 were down about 20% from where they closed trading in their first session, according to Dealogic.

Of course, growthy firms are not taking this lying down…

“None of the fundamentals have changed, it’s just that the multiples got out in front,” said Tony Zingale, chief executive of Jive Software Inc., a maker of online-messaging tools sold to companies.

Nope – the fundamentals are just as fantastical as ever… and people are realizing.

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With the Chicago PMI yesterday beating wildly, the whisper expectation today, in a world in which baffle with BS is the dominant strategy (aside for “hope” of course), that the manufacturing ISM would be a modest miss. It wasn’t, and instead while consensus expected the April ISM to rise from 53.7 to 54.3, the final print instead ended up being 54.9, with an increase reported in most indexes, except for Production, Prices and and Order Backlogs. Ahead of tomorrow’s NFP, the increase in employment by 3.6 points from 51.1 to 54.7 is notable. Finally, with exports rising only 1.5% compared to the 3.5% increase in imports, the trade component of Q2 GDP is not looking like it is improving much.

 

The full breakdown by ISM component:

Here is the take of ISM’s Bradley Holcomb: “The April PMI® registered 54.9 percent, an increase of 1.2 percentage points from March’s reading of 53.7 percent, indicating expansion in manufacturing for the 11th consecutive month. The New Orders Index registered 55.1 percent, equal to the reading in March, indicating growth in new orders for the 11th consecutive month. The Production Index registered 55.7 percent, slightly below the March reading of 55.9 percent. Employment grew for the 10th consecutive month, registering 54.7 percent, an increase of 3.6 percentage points over March’s reading of 51.1 percent. Comments from the panel generally remain positive; however, some expressed concern about international economic and political issues potentially impacting demand.”

Additionally as the report added, of the 18 manufacturing industries, 17 are reporting growth in April in the following order: Apparel, Leather & Allied Products; Primary Metals; Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Transportation Equipment; Fabricated Metal Products; Machinery; Printing & Related Support Activities; Plastics & Rubber Products; Textile Mills; Chemical Products; Computer & Electronic Products; Wood Products; Paper Products; Petroleum & Coal Products; and Electrical Equipment, Appliances & Components. The only industry reporting contraction in April is Nonmetallic Mineral Products.

Curious what commodities are going up in price? According to the ISM it is Aluminum; Butter; Dairy; Electrical Components; Lumber; Nickel; Plastic Resins; Stainless Steel; Steel; Steel — Cold Rolled; Steel — Hot Rolled; and Wood Pallets. The only commodity reported in short supply is Truck Freight Services.

Finally, the always entertaining and quite cherry picked respondents:

• “Business is strong and continues to grow in my industry.” (Textile Mills)
• “Winter weather has slowed order intake but not inquiries. We think there is pent-up demand waiting for the weather to break.” (Fabricated Metal Products)
• “U.S. remains stable, Asia is increasing in sales dramatically and Europe remains soft.” (Transportation Equipment)
• “Overall business is up. Hiring is also up. Skilled trades in short supply.” (Transportation Equipment)
• “Slight improvement in defense spending and manufacturing.” (Computer & Electronic Products)
• “Export demand picking up but seems to have no leverage to raise prices. Margins are very thin, and concerned about Chinese slowdown effect on our business.” (Chemical Products)
• “China returned from their New Year holiday with brisk demand. Domestic markets are also doing well.” (Wood Products)
• “Softening in bookings, shipments at same level.” (Electrical Equipment, Appliances & Components)
• “Spring of 2014 is 3 to 4 percent better than Spring of 2013 for our company.” (Machinery)
• “Russia may stop importing medical devices manufactured completely outside of Russia. Would have big negative impact — 5 to10 percent lost revenue.” (Miscellaneous Manufacturing)

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February construction spending was revised from a hope-filled 0.1% rise to a “it’s the weather” 0.2% drop – which theoretically should have juiced March’s data even more… but it didn’t. The 0.2% rise in Construction spending in March is the biggest miss (exp. +0.5%) since March of last year.Quite a divergence…

• *GOVERNMENT CONSTRUCTION SPENDING WEAKEST SINCE NOVEMBER 2006
• *PRIVATE RESIDENTIAL SPENDING IN U.S. STRONGEST SINCE MAY 2008

So much for that breathtaking pent-up demand surge post-weather… or we pre-suppose that is coming in April… or May

 

 

Charts: Bloomberg

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Moments ago GM, battered by a recall scandal, reported that in April when public attention to its disgraced executives and business practices was greatest, it managed to beat sellside estimates of 251K units, or a 5.7% increase from a year earlier, and instead sales rose a consensus-beating 6.9%, to 254,076, if still down from the 256,047 sold in March.

And yet, as usual, there was the now traditional book-cooking going on at GM, which only managed to “beat” estimates thanks to the tried and true gimmick of channel stuffing. Indeed: after hitting an all time high of 815K cars parked at dealer lots last month, or 83 days of supply, in April GM’s channel stuffing rose to a fresh all time high of 826K, at 85 days, in effect suggesting that had it not been for the extra 11K parked but “sold” cars, GM sales would really have been up just 2.3% Y/Y, missing estimates, and down 13K from March. Hardly the picture of health the fudged data makes it out to be.

But, like the market, like stock earnings, like the economy, why bother with real unadjusted, “non-GAAP”, ex-Fed and HFT reality when one can just manipulate their way to 100% confidence and complete prosperity.

As for GM, don’t worry – any minute now some Russian oligarch (cause ordinary Americans are once again out of money since their saving cratered in March) will swoop in and buy that almost one million of GM cars parked, and rusting pleasantly, with GM dealers.

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The Markit US Manufacturing PMI printed at an expected 55.4 – flat from March – but under the surface were some troubling trends. The pace of expansion in job creation was the slowest since January (but but but, we are in the post-weather period now?) and weak overseas demand continues to mean export performance disappoints, with only modest growth of new export orders recorded again in April. As Markit warns,  “the underlying growth rate of the economy has weakened since late last year.”

 

Seaonally-adjusted the post-weather jump did not occur…

 

Full subcomponent breakdown…

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As none other than the CEO of Sony explained 11 months ago, with regards Abe’s strategy to weaken the JPY to encourage growth, “we are actually at a disadvantage [with a weaker JPY].. the preconception that a weaker JPY is good for all is, unfortunately for us, not true against the USD.” And so 11 months on and Sony’s profits and revenues are collapsing as the ‘giant’ electronics firm cuts its earnings outlook for the third time in a year. How bad is it? Sony posted a net loss of 130 billion yen ($1.3 billion) in the 12 months ended March… compared with a February loss projection of 110 billion yen, which was itself a reduction from a revised October forecast for profit of 30 billion yen. As one analyst noted, “There is no stop to their downward revision of earnings.” So much for Abenomics?

As Bloomberg reports,

Sony posted a net loss of 130 billion yen ($1.3 billion) in the 12 months ended March, the Tokyo-based company said in preliminary earnings reported today. That compares with a February loss projection of 110 billion yen, which was itself a reduction from a revised October forecast for profit of 30 billion yen.

 

The wider loss is a setback to Hirai’s plan to revive the fortunes of the Japan technology icon with new game consoles, smartphones and cost cuts. While the PlayStation 4 has won sales, Sony is struggling to come up with other hits as demand for traditional products like televisions, cameras and personal computers decline.

 

“There is no stop to their downward revision of earnings,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co. “They can’t get into a growth stage, and it’s difficult to recover. Unless they announce sales of the TV business, the market won’t think Sony is serious.”

Which comes just 11 months after the Sony CEO warned the world that a weaker JPY – the ubiquitous strategy for growth of Shinzo Abe – was actually a disadvantage for the giant Japanese firm (forward to 9:15)… in a brief moment of truth on CNBC, the CEO of Japan’s mega corp Sony admitted that while, “the preconception is that a weaker Yen is good overall. Unfortunately for us, versus the USD, it goes the other way.”

The Guardian adds that the firm is now actively trying to sell off less profitable businesses…as suggested by Dan Loeb

Sony’s chief executive, Kazuo Hirai, has spent the last two years selling off key assets in a bid to restore profitability at the firm’s struggling electronics division, where TVs have lost $7.8bn over 10 consecutive years.

The sell-offs included the sale of its US headquarters building in New York for $1.1bn as well as two major buildings in Tokyo for $1.2bn.

…

Sony said it would spin off its TV division into a separate business and sell its Vaio PC business when it announced its third-quarter earnings in early February. A further write-down of the PC division would add another ¥30bn in costs for 2013-14, Sony announced on Thursday.

Well played Abe… of course – none of that profitability stuff matters…

The stock is down 1 % so far this year after surging 90 % in 2013

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There was good and bad news in today’s personal spending report. First the good: US consumers saw their personal income rise by 0.5%, or $78 billion, in March to a $14.5 trillion SAAR, driven mostly by a $32 billion increase in service wages, as well as $16 billion from government transfer receipts.

Now the bad (or, if one is a Keynesian, doubly good) news: personal spending more than offset the increase in income, rising by 0.9% or the most since August 2009, which rose to $12.3 trillion SAAR, driven roughly equally by an increase in spending on Goods ($53 billion) and Services ($54 billion). Curiously the increase in goods spending was the single biggest monthly increase also since August 2009. As for services, the systematic increase on spending over the past several months is unmistakable as far more money is allocated toward healthcare, that one major spending category which rescued Q1 GDP.

Goods spending:

Services spending:

 

It would appear there was no “harsh weather” effect in March, even though corporations, and not to mention the Q1 GDP, can’t complain fast enough about how horrible the month and the quarter both were.

End result: since spending was so much higher than income for one more month, at least according to the bean counters, the savings rate tumbled once more, and at 3.8% (down from 4.2% in February), was the second lowest since befire the Lehman failure with the only exception of January 2013 after the withholding tax rule changeover.

 

So for all those clueless sellside economists who are praying that the March spending spree, funded mostly from savings, will continue into Q2 (because remember March is in Q1, which as we already know had an abysmal 0.1% GDP growth rate), we have one question: where will the money come from to pay for this ongoing spending spree?

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It seems the decision to launch a full ‘independence’ referendum has stoked even more division in the Donetsk region of Ukraine as rocks, smoke grenades, and flash-bangs are being exchanged between pro-Russian separatists and a suddenly invigorated (after folding the last few days) riot-police force in the city center.

 

 

 

Ahora: fuertes choques con policía. Manifestantes toman fiscalía #Donetsk. http://ift.tt/1mgROF6

— Mauricio Ampuero (@MauricioAmpuero) May 1, 2014

#BREAKING: Clashes are happening now in #Donetsk between activists and security forces guarding the building. http://ift.tt/SdBIDB

— PaulaSlier_RT (@PaulaSlier_RT) May 1, 2014

Riot police being forced back , windows smashed http://ift.tt/SdBITU

— Simon Denyer (@simondenyer) May 1, 2014

 

Live Feed:

 

Live streaming video by Ustream

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The last 2 weeks have seen initial claims surge by almost 40k back (the most in 5 months) above 2013’s closing levels. This post-weather-recovery “ignore Q1 GDP” pent-up demand is absolutely not evident in the jobs data as the 344k print for initial claims is the highest since Feb. This is also confirmed by the 5.7% rise year-over-year in Challenger job cuts which has left the year-to-date job cuts at their worst for an April since the recession ended… But didn’t everyone tell us that April was looking good and that Q1 GDP was in the past and we should for get about it?

 

Initial Claims… ugly

 

Challenger job cuts… ugly…

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