Category: zerohedge

In an age with no earnings growth, the most important thing is the “story”, primarily applicable to early-stage tech stocks, where the only thing that matters is growth potential if not present or near-term revenues, and certainly not earnings. Unfortunately for some more mature companies like Apple, that have lost their innovative flair and creative genius (with the passing of Steve Jobs), they too have no choice but to revert to the “story” meme, such as the one that Apple’s recent and much delayed foray into China with the help of China Mobile, and its 750 million users, would result in a surge in revenue: after all just think of the millions of potential customers – so easy a 5 year old can visualize it. Unfortunately for Apple, even though its stock has gotten a recent boost as a result of the pick up in hopes of what China’s addressable market may mean for the company’s top line, the story is a bust.

The NYT reports that if judging by the initial response to Apple’s expansion into China, then this too latest Apple “rollout” is set to be a major flop. To wit:  ” Apple has been counting on a long-awaited agreement with China Mobile, the world’s largest cellular operator, to reverse its fortunes in China. If the muted reception Friday, when customers were finally able to buy iPhones from China Mobile, is any indication, the companies may have to work harder to whip up enthusiasm. Instead of the round-the-block lines that have greeted Apple product introductions in China and other countries in the past, only about a dozen customers showed up to buy iPhones at the opening of a store in Beijing — despite the presence of a special guest, the Apple chief executive, Timothy D. Cook.“

Why the dramatic cooling toward what was once the, pardon the pun, coolest brand around? Simple: Apple missed its window of opportunity.

Apple was once an iconic brand in China, where its phones have been sold for years by the second- and third-largest mobile operators, China Unicom and China Telecom. But it has lost ground to the market leader in smartphones, Samsung Electronics, and cut-price domestic rivals.

 

Its market share has fallen into the single digits.

A testament to how much the company is betting on its China expansion was Tim Cook’s trip to Beijing. Unfortunately not even his presence did anything to stir spirits and drum up any interest in Apple’s latest (NSA-endorsed) creation.

“Apple used to be the must-have, aspirational brand for all wealthy and middle-class Chinese consumers,” said Shaun Rein, the managing director of CMR, a market research firm, and the author of “The End of Cheap China.” “But over the last year, there has been a real deterioration of the Apple brand.”

 

Apple is just the latest of a number of American technology companies to fall on harder times in China. Google was once a leading search engine in China, but then lost ground to a local rival, Baidu. Motorola was once a power in mobile phones in China, but then lost ground to Nokia of Finland — which, in turn, yielded leadership to Apple, Samsung and others. More recently, Cisco Systems, the maker of telecommunications network equipment, said that sales in China had been hurt by disclosures of surveillance by the United States National Security Agency.

Well if you must blame Big Brother go for it. After all  there is a “story” to defend.

And then there is the whole pricing issue.

On Sina Weibo, a microblogging service, some users complained about the pricing of the iPhone 5S by China Mobile, saying they could get smuggled versions for less money.

 

“The model is the same,” one contributor wrote on Weibo. “I want the cheaper one.”

Even if enthusiasm picks up, the reality is that the bulk of the new user pick up will not be incremental growth but switchover from other networks:

in addition to the agreement with Apple, China Mobile has another big advantage over its two rivals — the fast new network it is building, using so-called 4G technology. China Unicom and China Telecom are still relying on the slower, previous generation technology.

 

But this is a mixed blessing for Apple, because analysts say some China Mobile iPhone sales will come from customers switching from China Unicom or China Telecom. As a result, estimates of iPhone sales by China Mobile, which have ranged from less than 10 million annually to more than 30 million, might overstate the overall benefit to Apple.

 

Over all, including the effect of customers switching from rival networks, Mr. Zhang said he expected Apple to sell about one million more phones a month in China as a result of the deal, on top of the roughly three million it has been selling.

In conclusion, “An Apple spokeswoman, Carolyn Wu, said the company did not plan to report first-day sales figures.” One can see why.

via Zero Hedge http://ift.tt/1b1IKB4 Tyler Durden

• NSA phone data control may come to end (AP)
• China to rescue France: Peugeot Said to Weigh $1.4 Billion From Dongfeng, France (BBG)
• China to rescue Davos: Davos Teaches China to Ski as New Rich Lured to Slopes (BBG)
• Hollande’s Tryst and the End of Marriage (BBG)
• Iran has $100 billion abroad, can draw $4.2 billion (Reuters)
• Target Hackers Wrote Partly in Russian, Displayed High Skill, Report Finds (WSJ)
• Nintendo Sees Loss on Dismal Wii U Sales (WSJ)
• Goldman’s low-cost Utah bet buoys its bottom-line (Reuters)
• Royal Dutch Shell Issues Profit Warnin: Oil Major Hit by Higher Exploration Costs and Lower Oil and Gas Volumes (WSJ)
• EU Weighs Ban on Proprietary Trading at Some Banks From 2018 (BBG) – so no holding of breaths?
• Sacramento Kings to Accept Bitcoin (WSJ)
• In London, ‘Guardians’ Live in Empty Office Buildings (WSJ)
• Fiat Heir Elkann Reshapes Family Legacy With Chrysler (BBG)
• Macau Casino Magnate Lui Passes Li as Asia’s Richest Man  (BBG)
• Boeing Faulted by Norwegian Air on 787 Short Circuit (BBG)

 

Overnight Media Digest

WSJ

* Vice President Joe Biden has resumed a push to withdraw virtually all U.S. troops from Afghanistan at year end, arguing for a far-smaller presence than many military officers would like to see, said officials briefed on the discussions.

* Best Buy Co on Thursday became the latest retailer to chime in with weak holiday results. Like other chains, the electronics retailer blamed the race to offer the deepest discounts, a game of brinkmanship that hurt profit margins and held back revenue.

* President Barack Obama, in a highly anticipated speech that follows a six-month review of U.S. spying programs, is expected to extend privacy protections to non-U.S. citizens and announce measures to continuously evaluate sensitive surveillance, particularly involving foreign leaders, people familiar with the plan say.

* The holiday data breach at Target Corp appeared to be part of a broad and highly sophisticated international hacking campaign against multiple retailers, according to a report prepared by federal and private investigators that was sent to financial-services companies and retailers.

* Congress has turned to a new chapter in its long-running battle over the federal budget, as the Senate Thursday approved and sent to the White House a monumental spending bill that keeps the government running through September.

* Regulators took another swing at tamping down the riskiness of big U.S. banks, proposing new requirements for boards and executives and laying the groundwork for swifter enforcement for missteps. In guidelines proposed Thursday, the Office of the Comptroller of the Currency detailed risk-management standards for firms with more than $50 billion in assets, putting the onus on board members to ensure the rules are followed and requiring banks have independent audit and risk-management officers who can go straight to the board with concerns.

* The Justice Department hasn’t charged employees at two-thirds of nearly 400 companies that have settled criminal investigations or been convicted of crimes in recent years, according to newly analyzed data.

* A federal bankruptcy judge on Thursday delivered a major blow to the only completed deal to cut a portion of the city of Detroit’s estimated $18 billion in long-term debt. Judge Steven Rhodes rejected a proposed $165 million settlement of so-called interest-rate swap agreements that the city used to help fund its pensions, calling the pact financially imprudent.

* Sprint Corp has received proposals from at least two banks on how it could finance a takeover of smaller rival T-Mobile US Inc giving it confidence that a deal could be funded, people familiar with the matter said.

 

FT

Citigroup Inc, the third-largest U.S. bank by assets, posted quarterly results lower than analysts’ expectations on Thursday, as lackluster mortgage banking and fixed-income trading weighed on overall revenue.

Goldman Sachs Group Inc reported a 21 percent drop in quarterly net income on Thursday with its worst year for fixed income trading since 2005.

Buyout firm Carlyle Group agreed to buy Johnson & Johnson’s ortho clinical diagnostics unit for $4.15 billion on Thursday, joining the host of companies making acquisitions as the new year gets under way.

Best Buy Co shares tumbled about 30 percent on Thursday after the world’s largest consumer electronics chain reported disappointing holiday sales, hurt by heavy discounting by its rivals.

Intel Corp’s profits narrowly missed expectations in the fourth quarter, sending its shares down almost 3 percent after-hours with the slide in global PC sales showing signs of slowing.

Big U.S. banks would have to follow tougher standards for risk management and face quicker punishment under new rules proposed by The Office of the Comptroller of the Currency (OCC) on Thursday to help avoid a repeat of the 2007-2009 financial crisis.

 

NYT

* Most banks are not disclosing the overall size of their litigation reserves, which is crucial for assessing their ability to deal with the barrage of litigation that has been raining down on Wall Street banks.

* The Senate on Thursday gave final approval to a $1.1 trillion spending bill for the current fiscal year, leaving behind what might have been the Obama administration’s best chance to overhaul the International Monetary Fund and meet its obligations to the world’s other economic powers. Congressional Republicans did not budge from their refusal to cede some control of the fund to China, India, Brazil and other emerging economic powers.

* A federal judge on Thursday rejected a deal that Detroit had negotiated to help it move forward in bankruptcy, but said the city could borrow $120 million it says it urgently needs to provide services to its residents. He ruled that Detroit could not proceed with a plan to pay $165 million to two big banks to extricate itself from some long-term financial contracts that have been costing the bankrupt city tens of millions of dollars a year.

* The announcement on Wednesday that Yahoo CEO Marissa Mayer had tossed out her top lieutenant, Henrique de Castro, was her first public acknowledgment that turning around Yahoo would be far more difficult than has sometimes been suggested by the media attention she has received.

* The computer network at Neiman Marcus was penetrated by hackers as far back as July, and the breach was not fully contained until Sunday, according to people briefed on the investigation.

* Target, the discount retailer, which has long focused on large stores in suburban markets, completed a lease last week on its smallest store yet, a 20,000-square-foot location in Minneapolis, a test store for a new format called TargetExpress. The new format would allow the company to open more locations in dense urban markets, like New York.

* The European Union is tempering its ambitions and considering turning mandatory targets for renewable energy into just goals in light of a deep and lasting economic slowdown, persistently high prices for renewable energy sources and years of inconclusive international negotiations.

 

Canada

THE GLOBE AND MAIL

* Thomas Mulcair, the leader of the New Democrat party that is the official opposition but has been mired in third place in public opinion polls for many months, is embarking on a tour of Ontario and Western Canada to talk to Canadians about “affordability”.

* Reopening a subject that divided it 21 years ago, the Supreme Court of Canada has agreed to take another look at the right to an assisted suicide.

Unlike the situation in 1993, when the Supreme Court rejected the right to assisted suicide 5-4, the issue has become prominent on the political stage, with several provincial leaders urging that it be taken up.

Reports in the business section:

* Advertising groups are taking steps to address concerns raised by Canada’s privacy watchdog, fearing a backlash that could have a negative impact on the lucrative world of targeted online advertising.

The Office of the Privacy Commissioner of Canada said on Wednesday it found that Google Inc had violated privacy laws by targeting ads based on a person’s medical condition revealed in his online searches for devices to help with the condition.

NATIONAL POST

* Liberal leader Justin Trudeau disclosed on Thursday that he wrongly claimed $840 in MP travel and living expenses incurred while he was actually working as a paid public speaker.

He called them administrative errors and said he repaid the money as soon as he was made aware of the problem.

* Several Prince Edward Island rinks that were convinced to make the expensive conversion to wind power, but never saw the promised savings, are now trying to get rid of the trouble-plagued turbines and win compensation for their troubles.

FINANCIAL POST

* Brian Ferguson, the chief executive of Cenovus Energy Inc , said his company is looking to reach out to a broader audience to counter popular but false perceptions about oil sands, a type of unconventional petroleum deposit.

Like Neil Young, the rock star who opposed the oil sands and began his vitriolic Honor The Treaty tour in Toronto, Ferguson and Russ Girling of TransCanada Corp brought their message to Canada’s largest city at an event on Wednesday.

* The cost of Bombardier Inc’s CSeries program is expected to mount after the manufacturer announced another delay for the delivery date of its transcontinental jet, saying it will now enter service in late 2015.

 

China

SHANGHAI SECURITIES NEWS

– “China’s naked officials”, those who stay in mainland China while their spouses and children reside abroad, shall not be promoted, according to the country’s new regulation on cadre selection.

– Liu Xinhua, vice chairman of China Securities Regulatory Commission, said on Thursday that the CSRC will not tolerate any illegal internet-related securities activities.

– Wang Xiaochu, chairman of China Telecom, said in an annual conference on Thursday that the company forecast 100 million terminal devices to be sold in 2014, including 36 million 4G devices.

NATIONAL BUSINESS DAILY

– China’s eastern city of Suzhou has submitted to the State Council, or China’s cabinet, a proposal to set up a free trade zone, competing with dozens of regions like Tianjin and Guangdong. Shanghai has recently set up China’s first free trade zone.

PEOPLE’S DAILY

– Safe production is a life-and-death matter and shall be given extra importance as the Spring Festival, or the “accident season”, is coming, said a commentary in a paper that acts as the Party’s mouthpiece.

 

Britain

The Telegraph

BANKS MUST SELL ‘SIGNIFICANT’ NUMBER OF BRANCHES, SAYS ED MILIBAND

Ed Miliband will promise to create at least two new challenger lenders by forcing Britain’s biggest high street banks to sell a “significant” number of branches. The Labour leader claims that, if elected, one of his first acts would be to order the Competition and Markets Authority to produce a report on how to cap the market share of the big banks and encourage new competitors. Miliband’s keynote speech at the University of London has been widely leaked in advance, but details released on Thursday made clear the scale and speed of his proposed reforms.

HSBC FACES 70 BLN STG CAPITAL HOLE, WARN HONG KONG ANALYSTS

HSBC could have overstated its assets by more than 50 billion pounds and ultimately need a capital injection of close to 70 billion pounds before the end of this decade, according to an incendiary report published by a Hong Kong-based research firm.

The Guardian

ARGOS AND DIXONS TRIUMPH DURING CHRISTMAS SALES AS ONLINE RETAIL BOOMS

Argos and Dixons have emerged as winners from the Christmas battle of Britain’s retailers, as booming online orders drove sales. Sales at Argos stores open a year or more rose 3.8 percent to 1.8 billion pounds in the trading period covering Christmas while equivalent sales at Dixons in the UK and Ireland jumped 5 percent.

GOLDMAN SACHS PAYS EMPLOYEES AVERAGE OF $383,000 AFTER PROFITS RISE 5 PCT

Goldman Sachs Group Inc paid its bankers an average of $383,000 in 2013, after profits for the year rose by 5 percent to $8 billion. Putting a fresh focus on the debate over bankers’ pay, Goldman’s 32,900 global employees will be told the size of their individual bonuses on Thursday.

The Times

FINANCIAL ADVISERS LOSE THEIR TICKETS TO LUXURY

Overseas junkets, luxury hotel jollies masquerading as “training weekends” and invitations to top sporting events are to be outlawed amid a crackdown on inducements offered by insurers and fund managers to financial advisers.

GROWTH IN CYCLING KEEPS HALFORDS IN GOOD HEALTH

Halfords Group Plc hailed an “excellent” Christmas as festive sales of children’s bicycles kept its recovery firmly on track. The car parts and bicycle retailer, which in November announced a return to profit growth, said like-for-like retail sales rose 5.9 percent over the 15 weeks to January 10 – driven by a 20 percent rise across its cycle ranges.

The Independent

MIKE ASHLEY SWAPS DEBENHAMS SHARE STAKE FOR OPTIONS IN ‘BAFFLING’ MOVE

Newcastle United owner Mike Ashley’s Sports Direct investment in Debenhams took another twist on Thursday as it sold its 4.6 percent share stake in the struggling department stores chain but took a complex financial option, which could see it buy an even larger stake at a cheaper price.

REBALANCING THE ECONOMY WILL TAKE YEARS, WARNS VINCE CABLE

Business secretary Vince Cable has admitted the government’s industrial strategy to rebalance the economy away from its dependence on financial services might need more than a decade to “take root”.

 

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Housing Starts and Permits for December will be reported at 8:30–Current consensus is 985K for starts and 1.02M for permits
Industrial Production for November will be reported at 9:15–Current consensus is 0.3% for the month
Consumer Sentiment for January will be reported at 9:55–Current consensus is 83.5

ANALYST RESEARCH

Upgrades

Allergan (AGN) upgraded to Buy from Neutral at SunTrust
American Express (AXP) upgraded to Positive from Neutral at Susquehanna
Forest Labs (FRX) upgraded to Outperform from Neutral at Credit Suisse
ITT Educational (ESI) upgraded to Buy from Neutral at BofA/Merrill
Maxwell (MXWL) upgraded to Overweight from Neutral at Piper Jaffray
Pioneer Natural (PXD) upgraded to Buy from Hold at Stifel
Seaspan (SSW) upgraded to Hold from Sell at Stifel
Statoil (STO) upgraded to Buy from Hold at Deutsche Bank
Total (TOT) upgraded to Buy from Neutral at Citigroup

Downgrades

Best Buy (BBY) downgraded to Neutral from Buy at Goldman
Best Buy (BBY) downgraded to Neutral from Buy at UBS
Capital Product (CPLP) downgraded to Hold from Buy at Stifel
Clarcor (CLC) downgraded to Neutral from Outperform at RW Baird
Columbia Sportswear (COLM) downgraded to Neutral from Neutral at Macquarie
Foster Wheeler (FWLT) downgraded to Neutral from Buy at UBS
GrafTech (GTI) downgraded to Hold from Buy at Jefferies
Harmonic (HLIT) downgraded to Underperform from Market Perform at Raymond James
Main Street (MAIN) downgraded to Market Perform from Outperform at Raymond James
Navios Maritime Partners (NMM) downgraded to Hold from Buy at Stifel
Nu Skin (NUS) downgraded to Neutral from Buy at BofA/Merrill
People’s United (PBCT) downgraded to Underperform from Market Perform at FBR Capital
QR Energy (QRE) downgraded to Hold from Buy at MLV & Co.
ResMed (RMD) downgraded to Neutral from Outperform at Macquarie
Rocket Fuel (FUEL) downgraded to Market Perform from Outperform at BMO Capital
STMicroelectronics (STM) downgraded to Neutral from Outperform at Exane BNP Paribas
Silver Spring Network (SSNI) downgraded to Neutral from Outperform at RW Baird
Strayer (STRA) downgraded to Underperform from Neutral at BofA/Merrill

Initiations

DCP Midstream (DPM) initiated with a Hold at Wunderlich
Dillard’s (DDS) initiated with a Buy at BofA/Merrill
Magellan Midstream (MMP) initiated with a Buy at Wunderlich
Nike (NKE) initiated with a Neutral at Macquarie
ONEOK (OKE) initiated with an Outperform at Oppenheimer
Paramount Gold & Silver (PZG) initiated with a Buy at Roth Capital
Sinclair Broadcast (SBGI) initiated with an Outperform at RBC Capital
Twitter (TWTR) initiated with a Buy at Stifel
Under Armour (UA) initiated with a Neutral at Macquarie
VF Corp. (VFC) initiated with an Outperform at Macquarie

HOT STOCKS

Bombardier (BDRBF) consortium won contract in Queensland valued at $4.1B
Shell (RDS.A) sees Q4 figures ‘significantly lower than recent levels of profitability’
Florida AG said reviewing Sysco (SYY), U.S. Foods deal, Reuters reports
SLM Corp. (SLM) sees FY14 private education loan originations of $4B
IntercontinentalExchange (ICE) announced IBA to become new administrator of Libor
Google (GOOG) working on smart contact lens
Microsoft’s (MSFT) Hryb said company sold 908,000 Xbox One consoles in the U.S. in December
Elizabeth Arden (REDN) withdrew FY14 guidance

Companies that beat consensus earnings expectations last night and today include:
SunTrust (STI), Schlumberger (SLB), Bank of the Ozarks (OZRK), Skyworks (SWKS), BancFirst (BANF), Bank of Kentucky (BKYF)

Companies that missed consensus earnings expectations include:
SLM Corp. (SLM)), Silver Spring Network (SSNI), American Express (AXP), People’s United (PBCT), Capital One (COF), Intel (INTC)

Companies that matched consensus earnings expectations include:
Associated Banc-Corp (ASBC)

NEWSPAPERS/WEBSITES

• Report says Target (TGT) breach could be part of broader scam, AP reports
• Response to China Mobile (CHL) iPhone (AAPL) launch ‘muted,’ NY Times reports
• Yahoo (YHOO) editor-in-chief Singh departs, Re/code reports
• Yahoo’s (YHOO) pitch to Madison Avenue falls short, WSJ reports
• Sprint (S) gets bank proposals on financing T-Mobile (TMUS) bid, WSJ reports  
• Norwegian Air blames Boeing (BA) for 787 short-circuit, Bloomberg reports
• IBM (IBM) expanding cloud services worldwide, Reuters reports
• Tyco (TYC) has shortlist of private equity firms for Caps unit, WSJ reports
• Twitter (TWTR) near deal with payments startup, Re/code reports
• Deutsche Telekom (DTEGY) denied it’s rushing to unload T-Mobile (TMUS) onto Sprint (S), BGR reports

SYNDICATE

CHC Group (HELI) 31M share IPO priced at $10.00
Cvent (CVT) 5.28M share Secondary priced at $35.50
EP Energy (EPE) 35.2M share IPO priced at $20.00
FuelCell (FCEL) files automatic common stock shelf
ORBComm (ORBC) files to sell 5.5M common shares
Orchid Island Capital (ORC) 1.8M share Secondary priced at $12.50
RSP Permian (RSPP) 20M share IPO priced at $19.50

via Zero Hedge http://ift.tt/1avpRWJ Tyler Durden

Weak results from Intel, American Express and Capital One, not to mention Goldman and Citi? No problem: there’s is overnight USDJPY levitation for that, which has pushed S&P futures firmly into the green after early overnight weakness: because while the components of the market may have such trivial indicators as multiples and earnings, the USDJPY to which the Emini is tethered has unlimited upside. And now that the market is back into “good news is good, bad news is better” mode, today’s avalanche of macro data which includes December housing starts and building permits, industrial production, UofMichigan consumer confidence and JOLTs job openings, not to mention the up to $3 billion POMO, should make sure the week closes off in style: after all can’t have the tapped out consumer enter the weekend looking at a red number on their E-trade account: they might just not spend as much (money they don’t have).

In terms of markets, stocks recovered from a lower open and gradually edged into positive territory, with the DAX index outperforming where ThyssenKrupp shares advanced by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, in spite of consensus beating retail sales data from the UK, the FTSE-100 index underperformed its EU peers, weighed on by Royal Dutch Shell which issued an unexpected profit warning and consequently sent share tumbling at the open. As a result, in spite of higher oil prices, oil & gas was the only sector to trade in the red. Looking elsewhere, GBP surged across the board following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. At the same time, UK rates curve steepened, with Gilts moving into negative territory as a result. Going forward, market participants will get to digest earnings release by MS and GE, as well as Housing Starts and Building Permits from the US.

Looking elsewhere, GBP surged across the board following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. At the same time, UK rates curve steepened, with Gilts moving into negative territory as a result. Going forward, market participants will get to digest earnings release by MS and GE, as well as Housing Starts and Building Permits from the US.

US Event docket

• 8:30am: Housing Starts, Dec., est. 990k (prior 1.091m); Housing Starts m/m, Dec., est. -9.3% (prior 22.7%); Building Permits, Dec., est. 1.012m (prior 1.007m, revised 1.017m); Building Permits m/m, Dec., est. -0.5% (prior -3.1%, revised -2.1%)
• 9:15am: Industrial Production m/m, Dec., est. 0.3% (prior 1.1%); Capacity Utilization, Dec., est. 79.1% (prior 79%)
• 9:55am: University of Michigan Confidence, Jan. preliminary, est. 83.5 (prior 82.5)
• 10:00am: JOLTs Job Openings, Nov., est. 3.930m (prior 3.925m)
• 11:00am: Fed to purchase $2.25b-$3b in 2021-2023 sector

Overnight headline bulletin from RanSquawk and Bloomberg

• The DAX is the outperforming index in the European session after being supported by ThyssenKrupp after their CFO said they have no concrete plans to increase capital and confirmed outlook for EBIT target. Elsewhere, The FTSE is the underperformer following Royal Dutch Shell’s unexpected profit warning.
• GBP saw broad-based strength in the European session after a better than expected retail sales figure from the UK, driven by smaller stores sales.
• Treasuries steady, 10Y notes headed for third consecutive weekly gain after yield rose to highest since 2011 in late Dec. in wake of Fed’s decision to taper bond purchases; 5Y and 7Y yields slightly higher on the week.
• U.K. retail sales rose 2.6% in Dec., more than economists forecast, led by a surge at department stores and smaller shops during the key Christmas season
• The largest banks in the European Union would face a “narrowly” defined ban on proprietary trading from 2018 under draft plans by Michel Barnier, the EU’s financial services chief
• Passage of a $1.1t bill to finance the U.S. government through Sept. 30 clears the way for lawmakers to focus on the next potential fiscal showdown: Raising the federal  debt ceiling
• Enrollment in Obamacare health plans for small businesses is off to a slow start, leaving in doubt whether the U.S. program can attract enough customers to satisfy insurers
• Obama will put off decisions on the most controversial aspects of the U.S. government’s data-collection programs, including those faulted by phone and Internet companies that say customers are losing faith that their privacy is protected
• Cash demand will “substantially increase” as Chinese lunar new year holiday approaches, according to a statement on People’s Bank of China’s website after a credit work meeting
• JPY will weaken to 115 in 2014 and 10Y JGB yields will approach 1% as the Bank of Japan weighs more stimulus to offset a sales tax increase, according to a former BOJ board member
• Sovereign yields lower; EU peripheral spreads narrow. Asian equity markets mostly lower; European equity markets and U.S. equity-index futures gain. WTI crude higher, copper and gold little changed

Asian Headlines

The PBoC said it sees increased positive signals in the economy and that it will maintain appropriate liquidity and credit and social financing growth. (RTRS) PBOC’s Weibo says Jan. lending is rising fast and the PBOC have asked banks to tame pace of lending and adjust banking liquidity at proper time. (BBG)

EU & UK Headlines

UK Retail Sales Ex Auto (Dec) M/M 2.8% vs Exp. 0.3% (Prev. 0.4%, Rev. 0.2%)
UK Retail Sales Ex Auto (Dec) Y/Y 6.1% vs Exp. 3.2% (Prev. 2.3%, Rev. 2.1%)
UK Retail Sales Incl. Auto (Dec) M/M 2.6% vs Exp. 0.3% (Prev. 0.3%, Rev. 0.1%) – Joint highest on record
UK Retail Sales Incl. Auto (Dec) Y/Y 5.3% vs Exp. 2.5% (Prev. 2.0%, Rev. 1.8%) – Highest since October 2004

– The ONS says the rise in sales was driven by smaller stores where annual sales grew more than three times faster than in bigger stores.
Eurozone Construction Output (Nov) M/M -0.6% vs Prev. -1.2% (Rev. -1.1%)
Eurozone Construction Output (Nov) Y/Y -1.7% vs Prev. -2.4% (Rev. -2.3%)

Fitch affirmed Netherlands at AAA; outlook negative. S&P revised Portugal sovereign credit outlook to negative from credit watch negative; rating maintained at BB, affirmed Malta at BBB+; outlook stable and affirmed Slovenia ratings at A-; outlook stable. (BBG)

BofA Merrill Lynch have upgraded its Q4 GDP forecast for the Eurozone to 0.3% Q/Q from 0.1% Q/Q, and its 2014 GDP forecast to 1% from 0.8%. (BofA)

RBC sees the first UK rate rise in November 2015 vs August 2016 previously and says the BOE may lower unemployment threshold to 6.5%. (BBG)

UK Chancellor Osborne has called for an above inflation rise in the minimum wage from GBP 6.31 to its pre-recession value of GBP 7.00 per hour.

French Finance Minister Moscovici is aiming for GDP growth of more than 1% in 2014 and has repeated 2014 GDP growth forecast of 0.9%. (BBG)

A new accounting standard adopted by the EU from September may reduce Italy’s debt-to-GDP ratio – the second highest in the region after Greece, by as much as 2 percentage points, according to an official at Italy’s statistics agency ISTAT.

US Headlines

US Senate voted 72-62 to send the USD 1.1trl government spending bill, which would fund the US government through September 30th, to President Obama to sign. (BBG)

Equities

Heading into the North American open stocks in Europe are seen broadly higher, with the DAX index in Germany outperforming its peers where ThyssenKrupp shares surged by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, oil & gas related stocks failed to benefit from higher oil prices and the sector underperformed its EU peers since the get-go, weighed on by Royal Dutch Shell which issued an unexpected profit warning. Of note, given that today also marks expiration of various equity option contracts may result in erratic, albeit short-lived price action around expiration times.

FX

GBP/USD rallied over 100pips and moved above its 21DMA line following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. Broad based GBP strength saw GBP/JPY also move above its 21DMA line, with the consequent JPY weakness also ensuring that USD/JPY was able to move into positive territory.

French President Hollande has said the EUR rate is particularly high. (BBG)

Deutsche Bank sees Turkish GDP growth at 2.8% in 2014. (BBG)

Commodities

Commerzbank sees gold rising to USD 1,400 by end of year, as well as a revival of commodity investment demand in 2014 and forecasts copper to average USD 7,600 in 2014. (BBG)

Morgan Stanley have said that gold prices look likely to remain under pressure this year with rising US interest rates and we remain firmly of the view that far greater upside lies with the platinum group metals and palladium in particular. (DJN)

South Africa’s National Union of Mineworkers accepts Northam platinum wage offer according to Tantsi and the platinum strike has been called off’. (BBG/Twitter)

Morgan Stanley say Brent to average USD 103/bbl in 2014 on higher supply. Brent crude is to peak in Q1, fall in Q2 on refinery maintenance, according to a Co. report.

* * *

In conclusion here is the tradional wrap up from DB’s Jim Reid

It seems markets are as confused as the weather at the moment and with the first month of the year well into its second half now, consistent trends are struggling to emerge. European (and especially peripheral) equities are hanging onto gains but fixed income seems to be one of the more solid performers of 2014 so far. Even there  we’ve seen a bit of weakness in credit this week after a strong start.

Yesterday was a day of contrasts as strong macro data (in the form of the Philly Fed and jobless claims) stood in contrast to weaker micro data in the form of earnings results and downgrades. At the closing bell, the two factors ended up largely cancelling each other out with the S&P500 (-0.13%). closing only 2 points lower on the day. This was enough however to send the market back into the red for 2014.

Asian equities are also in the red for 2014 and it’s been another fairly weak day in the region as equity markets in China (-1.0%) and Korea (-0.7%) trade lower. The Shanghai Composite (-1.0%) is threatening to slip back below the 2000 mark and there is focus on the Chinese interbank market on reports in the Financial Times and Reuters that ICBC the largest bank in China (and the world) is refusing to use its own money to repay investors in an off-balance sheet “wealth management product”. The $500m product, which matures at the end of this month and which is optimistically called “2010 China Credit / Credit Equals Gold #1 Collective Trust Product”, used the funds it raised from investors in 2010 to fund a loan to an unlisted coal company which now faces solvency issues. The trust offered investors a 10% yield, compared to the benchmark deposit rate of 3%. Onshore interbank rates have spiked upwards (7 day repo +150bp to 5.81%) – but we should highlight that we are re-entering the typically volatile pre-Chinese New Year period when bank funding rates tend to spike. We’ll know for sure what happens when this particular product matures on Jan 31st – which is also the date of Chinese New Year when the onshore demand for bank liquidity is the highest. Certainly one to watch.

US treasury yields have spent the last week bouncing between 2.80% and 2.90% with recent economic data failing provide any clear directional trend after the post payroll rally. Bernanke gave what was billed as his final speech as Fed Chairman before he steps down in less than two weeks, and it appeared that he used the occasion to mount a staunch defence of Fed policy. Perhaps the key excerpt was when Bernanke said that he doesn’t think financial stability concerns should detract from the need for monetary policy accommodation, which the Fed is providing. Bernanke did concede though that the risk that QE could prompt financial instability is the only risk that he
finds credible. He dismissed concerns that inflation was a significant risk, pointing to yesterday’s US headline CPI print of +1.5% YoY (in line with consensus). The core CPI print remained unchanged from November (+1.7% YoY) which is a level that it has been at for the last four months. The tame inflation picture was evident across the pond, with both the German (1.2% YoY) and Euroarea (0.8% YoY) showing little sign of an uptick. On a positive note, the Philly Fed survey beat expectations (9.4 vs 8.7) but there was a small downward revision to the previous month’s data (6.4 vs 7.0 originally). The NAHB homebuilder sentiment index dropped two points (56 vs 58) – slightly disappointing consensus calling for an unchanged number.

On the micro side, the news was a bit more subdued and none more so than in the US retail (-0.65%) and banking (-0.65%) sectors which both underperformed the broader S&P500 (-0.13%). As we’ve been noting this week, there have been a number of disappointments from the US retail and consumer-discretionary sectors and this theme again popped up yesterday with a warning from consumer-electronics retailer BestBuy that holiday sales in the nine-weeks ended Jan 4th fell 0.9%. Investors punished the company’s stock, which ended the day down 29%. This came two days after another electronics retailer GameStop fell 20% after cutting its forecasts. Staying on the retail theme, department store operator JC Penny (-1.6%) announced that it will be closing 33 stores and eliminating 2000 jobs in a bid to turnaround the company’s fortunes (JCP has not posted a profit for nine consecutive quarters).

Turning to the banks, after its recent outperformance versus the broader indices, there was little cheer in the financial space thanks to a high profile miss from Citigroup, whose stock sold off 4.4%, and American Express (- 0.53%) who also missed expectations. Looking at the Citigroup result in more detail, the big disappointment came from both equities trading (-24% q/q) and FICC trading (-15% q/q), which provided a reminder to Q3 last year when the Financial Times warned that Citi had the largest exposure to emerging markets of any US bank. Goldman managed to beat Q4 analyst estimates (EPS 5.13 vs 4.18 exp, revenues $8.7bn vs $7.7bn exp), off the back of strong growth in investment banking (+47% q/q), FICC (+46% q/q) but its stock (-2%) also sold off yesterday. Even those financials who were not reporting, such as HSBC (- 1.04%) had a tough day, with headlines in Bloomberg and the UK Telegraph suggesting the bank faced a multi-billion dollar capital shortfall. At a broader earnings level, it was a mixed day all round with only eight out of the 14 S&P500 companies that reported earnings beating/meeting analyst estimates.

Today’s US data docket is extensive courtesy of a number of data releases which have been pushed forward ahead of next Monday’s Martin Luther King Day holiday.  December housing starts and building permits data will be released today and our economists expect weather-related factors to impact the former, but permits data should be largely immune. Today’s December industrial production may also be weather affected. In the UK, December retail sales will be the main focus. Back in the US, the preliminary UofMichigan consumer confidence and JOLTs job openings round out the week’s data releases. General Electric, Morgan Stanley and BofNY Mellon report earnings today.

 

via Zero Hedge http://ift.tt/1dX4HP1 Tyler Durden

While manufacturing and services PMIs disappointed, the big problem in big China remains that of an out-of-control credit creation process that is blowing up. As we previously noted, instead of crushing credit creation, the PBOC's liquidity rationing has forced distressed companies into high-interest-cost products in the shadow-banking world. Investors on the other side of "troubled shadow banking products" had assumed that 'someone' would bail them out but this evening Reuters reports that ICBC has confirmed that it will not rescue holders of the "Credit Equals Gold #1 Collective Trust Product", due to mature Jan 31st with $492 million outstanding. The anxiet from contagion concerns ofg the first shadow-banking default has driven the Shanghai Composite back near 2,000 for the first time since July – and to its narrowest spread to the S&P 500 in almost 8 years.

 

The Shanghai Composite is tumbling… to six month lows (and back near 2,000 for the firs time since July)…

 

and its closest (nominally) to the S&P 500 in almost 8 years…

 

As we previously noted,

…borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP).

 

Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are.

 

Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes.

 

So the PBOC's efforts are merely exacerbating the situation for the worst companies… for example… Zhenfu Energy…

 

As Reuters reports,

Industrial and Commercial Bank of China, the world's largest bank by assets, said on Thursday that it has no plans to use its own money to repay investors in a troubled off-balance-sheet investment product that it helped to market.

 

ICBC's shares have fallen this week amid speculation that the bank would be forced to help repay investors in a 3 billion yuan ($496.20 million) high-yield investment product issued by China Credit Trust Co Ltd but marketed through ICBC branches. The product is due to mature on Jan. 31.

 

"Regarding this unsubstantiated rumour, a situation completely does not exist in which ICBC will assume the main responsibility (for the trust product)," an ICBC spokesman told Reuters by phone on Tuesday.

 

The trust product, called "2010 China Credit / Credit Equals Gold #1 Collective Trust Product", used the funds it raised from wealthy investors in 2010 to make a loan to unlisted coal company Shanxi Zhenfu Energy Group Ltd.

 

But in May 2012, Zhenfu Energy's vice chairman, Wang Ping Yan, was arrested for accepting deposits without a banking licence.

Which Barclays warns:

In our view, despite the trust issuer, distributor bank and local government perhaps trying to bail out the mining company, the regulators and central government could probably allow the trust product default to happen as:

1. government appears fairly determined to reform the financial system and cut off the implicit guarantee of financial institutions;
2. the State Council is reportedly streamlining regulation of shadow banking including trust business; and
3. the default of trust products could have less social impact than the default of WMPs, bonds and other products sold to the general public or have problematic practices, such as asset-pool investments.

In our view, the default of trust products could trigger some short-term negative impacts on China’s financial sector and the reputation of financial institutions. However, we believe it is positive for the healthy development of financial system in the long run because the default could do the following:

1. Be a step to reduce the implicit guarantee of financial institutions for investment products. Banks could shift their financial liabilities back to the investors.
2. Increase the risk awareness of both investors and financial institutions, which could correct the pricing of investment products to more risk-oriented.

If the trust product goes into default, we believe it would be the first default to test the financial system.

Here is the product…

And the growth of such products has been enormous as we have explained in great detail previously…

 

As Michael Pettis, Jim Chanos, Zero Hedge (numerous times), and now George Soros have explained. Simply put –

"There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years."

The "eerie resemblances" – as Soros previously noted – to the US in 2008 have profound consequences for China and the world – nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector as explained above.

via Zero Hedge http://ift.tt/1j5oUHd Tyler Durden

With the Q4 earnings season beginning, ConvergEx’s Nick Colas reminds that the top of the income statement matters more than the bottom line if we expect further upside to domestic equities in 2014.  Revenue growth has been in short supply over the last four quarters, with the companies of the Dow only able to average a 0.6% top line growth rate over the last year.  If 2013 was all about multiple expansion in equity markets, then, Colas warns this will be the year when revenue growth must fulfill the promise of a U.S. stock market so near all-time highs. Analysts have been perennial over-optimists on revenues every month since early 2012. Maybe they finally have it right, but that is purely a matter of faith at this point; their track record on this count is not good.

 

Via ConvergEx’s Nick Colas,

The Ford Mustang turns 50 in just a few months, but this storied Baby Boomer icon of a car almost never made it into production.  In the early 1960s Henry Ford II, grandson of the Ford Motor Company founder, had just watched the Edsel become the most celebrated flop in automotive history.  It was overpriced, overhyped, launched with poor quality, and suffered from questionable styling – especially its “Toilet seat” grill.  Worse of all, it bore the name of Ford’s own father and “Hank the Deuce” wanted no part of another high profile vehicle launch.  The only thing that kept the Mustang program on track at Ford in 1962-1964 was Lee Iacocca’s constant promotion of the car.  He convinced Henry Ford II that the car was the right product for younger buyers and would use largely off-the-shelf components to keep costs low.

In a recent – and rare – interview with Jay Leno (quoted in the 1/6/2104 edition of Automotive News), Iacocca talked about this now-fabled American sports car and revealed a provocative nugget of information.  Here is what he said, prefaced with a little background:

The basic story is well-known in automotive circles: the original Mustang’s base price was an affordable $2,400 out the door of the dealership and over the first 2.5 years of production Ford sold +1.1 million units.

 

What Iacocca revealed to Leno about these early cars tells us something new about how profitable they were: customers ordered $1,000 of options, on average.

 

The contribution profit margin for a passenger car of the day was about 30%, but options typically carried a 60-70% margin.  Using Iacocca’s anecdote, that made the average profit per unit about $1,370.

 

In the 1966 model year, Ford sold 607,000 Mustangs and – using the profit analysis above – made about $830 million pretax.  That translated into $5.8 billion in 2013 dollars, using the Bureau of Labor Statistics’ CPI Inflation Calculator.

 

Analysts estimate that Ford made $10.8 billion in EBITDA in 2013, which means that the Mustang’s inflation-adjusted profits from 1967 are the equivalent of more than 50% of the company’s earnings power today.  Not bad for a car that almost got canceled.

That’s the power of marginal revenues, both from new products and higher incremental profit margins, and how they can create explosive earnings growth for the company that is smart/lucky enough to have them.  It is also a story which has been in short supply since the initial economic snapback from the Financial Crisis.   Every month for the last few years we’ve tracked both analysts’ expectations and actual revenue growth for the 30 companies of the Dow Jones Industrial Average, and here is a summary of our latest findings:

The just-completed year of 2013 may have been an excellent one for equities, but it was the worst year for corporate revenue growth since the Great Recession.  Assuming that analysts have dialed-in their expectations correctly for Q4, the average year-on-year sales growth for the Dow companies was a paltry 0.6% last year.  Double digit growth did occur – back in 2010 – but that was admittedly against the easy comps of 2009.  Since then, even the mega-names of the Dow – generally well run companies – have had real trouble growing their top lines.

 

Analysts may have set the Q4 2013 low enough so that we might get some upside surprises as earnings season progresses over the next few weeks.  Back in March 2013, the Street thought that the Dow companies could grow revenues by 4-5%. As the year progressed a sluggish global economy poured cold water on those hopes.  Estimates now run 1.5% for the Dow companies, and 1.6% for the non-financial names in the Average.

 

According to their currently published revenue estimates, brokerage analysts expect revenue growth to accelerate from here.  For Q1 2013, that 1.5% Q4 comp becomes 2.5%.  Then, in Q2 2014, that grows to 3.0%.  How about Q3?  Yep, more growth, to a 4.2% comp to last year.

 

 

At the same time, you might look for a salt mine to accompany these estimates, for our tracking of past analyst modeling shows they are prone to excessive optimism.  The now-unimpressive Q4 comp to last year of 1.5% began its life a year ago as a 3.4% expectation.  It peaked in March as a very brave 4.6% expectation.  From there, it slowly crept back into its shell and shrank to its current size.  Which is to say very small indeed.

 

The contours of this year’s quarterly revenue growth expectations are following those of the current quarter.  They coming out swinging in the early rounds, only to be pummeled back into their corner by the brutish form of a global economy barely able to get out of its own way.  For the first quarter of 2014, analysts were printing a 4.5% expected comp in May 2013.  As mentioned, that has shrunk to 2.5% in less than a year.  And that 3.0% growth rate in analyst models for Q2?  It was a much more impressive +4% comp in October.

 

Interestingly, the Street has not yet cut its full-year revenue expectations for 2014.  These still remain at 3.8%, close to where they started life in late 2012.  If you want to know how an analyst can cut their quarterly numbers every month but keep their annual expectations the same, I don’t have an answer for you.

 

To paraphrase a Ford marketing message (although not directly from the Mustang), revenue growth has to be “Job 1” for stock markets and the companies they track in 2014.  Last year’s market, with its above-average gains, didn’t come for free.  If investors want to see further advances – or at least the maintenance of current levels – then revenue growth and its attendant improvements in profits must be part of the picture this year.  It is easy to pick on analysts for their wayward estimates.  Truth be told, it is actually kind of fun.  But inside those numbers sit a fidgety truth: you only get to miss sales expectations so many times before investors grow inpatient.  Equity investing may be an optimist’s game, but it is not supposed to be a sucker’s bet.  This year must deliver on the promise laid out in last year’ stellar investment results, and it must do so both at the bottom AND at the top of the income statement.   

via Zero Hedge http://ift.tt/1me3OsF Tyler Durden

With the Q4 earnings season beginning, ConvergEx’s Nick Colas reminds that the top of the income statement matters more than the bottom line if we expect further upside to domestic equities in 2014.  Revenue growth has been in short supply over the last four quarters, with the companies of the Dow only able to average a 0.6% top line growth rate over the last year.  If 2013 was all about multiple expansion in equity markets, then, Colas warns this will be the year when revenue growth must fulfill the promise of a U.S. stock market so near all-time highs. Analysts have been perennial over-optimists on revenues every month since early 2012. Maybe they finally have it right, but that is purely a matter of faith at this point; their track record on this count is not good.

 

Via ConvergEx’s Nick Colas,

The Ford Mustang turns 50 in just a few months, but this storied Baby Boomer icon of a car almost never made it into production.  In the early 1960s Henry Ford II, grandson of the Ford Motor Company founder, had just watched the Edsel become the most celebrated flop in automotive history.  It was overpriced, overhyped, launched with poor quality, and suffered from questionable styling – especially its “Toilet seat” grill.  Worse of all, it bore the name of Ford’s own father and “Hank the Deuce” wanted no part of another high profile vehicle launch.  The only thing that kept the Mustang program on track at Ford in 1962-1964 was Lee Iacocca’s constant promotion of the car.  He convinced Henry Ford II that the car was the right product for younger buyers and would use largely off-the-shelf components to keep costs low.

In a recent – and rare – interview with Jay Leno (quoted in the 1/6/2104 edition of Automotive News), Iacocca talked about this now-fabled American sports car and revealed a provocative nugget of information.  Here is what he said, prefaced with a little background:

The basic story is well-known in automotive circles: the original Mustang’s base price was an affordable $2,400 out the door of the dealership and over the first 2.5 years of production Ford sold +1.1 million units.

 

What Iacocca revealed to Leno about these early cars tells us something new about how profitable they were: customers ordered $1,000 of options, on average.

 

The contribution profit margin for a passenger car of the day was about 30%, but options typically carried a 60-70% margin.  Using Iacocca’s anecdote, that made the average profit per unit about $1,370.

 

In the 1966 model year, Ford sold 607,000 Mustangs and – using the profit analysis above – made about $830 million pretax.  That translated into $5.8 billion in 2013 dollars, using the Bureau of Labor Statistics’ CPI Inflation Calculator.

 

Analysts estimate that Ford made $10.8 billion in EBITDA in 2013, which means that the Mustang’s inflation-adjusted profits from 1967 are the equivalent of more than 50% of the company’s earnings power today.  Not bad for a car that almost got canceled.

That’s the power of marginal revenues, both from new products and higher incremental profit margins, and how they can create explosive earnings growth for the company that is smart/lucky enough to have them.  It is also a story which has been in short supply since the initial economic snapback from the Financial Crisis.   Every month for the last few years we’ve tracked both analysts’ expectations and actual revenue growth for the 30 companies of the Dow Jones Industrial Average, and here is a summary of our latest findings:

The just-completed year of 2013 may have been an excellent one for equities, but it was the worst year for corporate revenue growth since the Great Recession.  Assuming that analysts have dialed-in their expectations correctly for Q4, the average year-on-year sales growth for the Dow companies was a paltry 0.6% last year.  Double digit growth did occur – back in 2010 – but that was admittedly against the easy comps of 2009.  Since then, even the mega-names of the Dow – generally well run companies – have had real trouble growing their top lines.

 

Analysts may have set the Q4 2013 low enough so that we might get some upside surprises as earnings season progresses over the next few weeks.  Back in March 2013, the Street thought that the Dow companies could grow revenues by 4-5%. As the year progressed a sluggish global economy poured cold water on those hopes.  Estimates now run 1.5% for the Dow companies, and 1.6% for the non-financial names in the Average.

 

According to their currently published revenue estimates, brokerage analysts expect revenue growth to accelerate from here.  For Q1 2013, that 1.5% Q4 comp becomes 2.5%.  Then, in Q2 2014, that grows to 3.0%.  How about Q3?  Yep, more growth, to a 4.2% comp to last year.

 

 

At the same time, you might look for a salt mine to accompany these estimates, for our tracking of past analyst modeling shows they are prone to excessive optimism.  The now-unimpressive Q4 comp to last year of 1.5% began its life a year ago as a 3.4% expectation.  It peaked in March as a very brave 4.6% expectation.  From there, it slowly crept back into its shell and shrank to its current size.  Which is to say very small indeed.

 

The contours of this year’s quarterly revenue growth expectations are following those of the current quarter.  They coming out swinging in the early rounds, only to be pummeled back into their corner by the brutish form of a global economy barely able to get out of its own way.  For the first quarter of 2014, analysts were printing a 4.5% expected comp in May 2013.  As mentioned, that has shrunk to 2.5% in less than a year.  And that 3.0% growth rate in analyst models for Q2?  It was a much more impressive +4% comp in October.

 

Interestingly, the Street has not yet cut its full-year revenue expectations for 2014.  These still remain at 3.8%, close to where they started life in late 2012.  If you want to know how an analyst can cut their quarterly numbers every month but keep their annual expectations the same, I don’t have an answer for you.

 

To paraphrase a Ford marketing message (although not directly from the Mustang), revenue growth has to be “Job 1” for stock markets and the companies they track in 2014.  Last year’s market, with its above-average gains, didn’t come for free.  If investors want to see further advances – or at least the maintenance of current levels – then revenue growth and its attendant improvements in profits must be part of the picture this year.  It is easy to pick on analysts for their wayward estimates.  Truth be told, it is actually kind of fun.  But inside those numbers sit a fidgety truth: you only get to miss sales expectations so many times before investors grow inpatient.  Equity investing may be an optimist’s game, but it is not supposed to be a sucker’s bet
.  This year must deliver on the promise laid out in last year’ stellar investment results, and it must do so both at the bottom AND at the top of the income statement.   

via Zero Hedge http://ift.tt/1me3OsF Tyler Durden

The head of the UN weapons inspectors said that the American case for Syrian government firing chemical weapons was weak, because the rockets can only go 2 miles … but government-held territory is much further away.

Similarly, McClatchy reported yesterday:

A team of security and arms experts, meeting this week in Washington to discuss the matter, has concluded that the range of the rocket that delivered sarin in the largest attack that night was too short for the device to have been fired from the Syrian government positions where the Obama administration insists they originated.

 

***

 

The authors of a report released Wednesday said that their study of the rocket’s design, its likely payload and its possible trajectories show that it would have been impossible for the rocket to have been fired from inside areas controlled by the government of Syrian President Bashar Assad.

In the report, titled “Possible Implications of Faulty U.S. Technical Intelligence,” Richard Lloyd, a former United Nations weapons inspector, and Theodore Postol, a professor of science, technology and national security policy at the Massachusetts Institute of Technology, argue that the question about the rocket’s range indicates a major weakness in the case for military action initially pressed by Obama administration officials.

 

***

 

To emphasize their point, the authors used a map produced by the White House that showed which areas were under government and rebel control on Aug. 21 and where the chemical weapons attack occurred. Drawing circles around Zamalka to show the range from which the rocket could have come, the authors conclude that all of the likely launching points were in rebel-held areas or areas that were in dispute. The area securely in government hands was miles from the possible launch zones.

 

In an interview, Postol said that a basic analysis of the weapon – some also have described as a looking like a push pop, a fat cylinder filled with sarin atop a thin stick that holds the engine – would have shown that it wasn’t capable of flying the 6 miles from the center of the Syrian government-controlled part of Damascus to the point of impact in the suburbs, or even the 3.6 miles from the edges of government-controlled ground.

 

He questioned whether U.S. intelligence officials had actually analyzed the improbability of a rocket with such a non-aerodynamic design traveling so far before Secretary of State John Kerry declared on Sept. 3 that “we are certain that none of the opposition has the weapons or capacity to effect a strike of this scale – particularly from the heart of regime territory.”

 

“I honestly have no idea what happened,” Postol said. “My view when I started this process was that it couldn’t be anything but the Syrian government behind the attack. But now I’m not sure of anything. The administration narrative was not even close to reality. Our intelligence cannot possibly be correct.”

 

Lloyd, who has spent the past half-year studying the weapons and capabilities in the Syrian conflict, disputed the assumption that the rebels are less capable of making rockets than the Syrian military.

 

“The Syrian rebels most definitely have the ability to make these weapons,” he said. “I think they might have more ability than the Syrian government.” [He's right.]

 

***

 

They said that Kerry’s insistence that U.S. satellite images had shown the impact points of the chemical weapons was unlikely to be true. The charges that detonate chemical weapons are generally so small, they said, that their detonations would not be visible in a satellite image.

 

The report also raised questions whether the Obama administration misused intelligence information in a way similar to the administration of President George W. Bush in the run-up to the 2003 invasion of Iraq.  [Correct, indeed.] Then, U.S. officials insisted that Iraqi dictator Saddam Hussein had an active program to develop weapons of mass destruction. Subsequent inspections turned up no such program or weapons.

 

“What, exactly, are we spending all this money on intelligence for?” Postol asked.

 

***

Even the New York Times – one of the main advocates for the claims that the rockets came from a Syrian government base – has quietly dropped the claim.

But the U.S. is still taking the position that the only acceptable outcome for the coming Syria negotiations is for Assad to be replaced by the US-backed transitional government.

As with Iraq, the “facts” are being fixed around the policy.

via Zero Hedge http://ift.tt/1i3nAH6 George Washington

2013 was a brutal year for precious metals investors. Santiago Capital's Brent Johnson begins his excellent presentation "#$1%!k##!!***#$$" with a mea culpa for the worst year in a dozen even as Santiago topped the list of precious metals funds. But crucially, Brent points out, "it is only half-time" in this fight and "if gold investors will stick with the fundamentals – which is very hard to do sometimes – the second half could be very rewarding." Simply put, he notes, the only reason the level of water in our economic bucket has increased slightly is not because the holes are fixed… but because we are pumping dollars in quicker than they are leaking out. "Excess Reserves are a ticking time bomb," Johnson adds, and the second half of this monetary game will be very different from the first.

Part 1 – "The First Half Of This Monetary Game" –

Fund performance, Mea Culpa…

 

What the Fed has done so far, holes in our economic bucket…"the only reason the level of water in our economic bucket has increased slightly is not because the holes are fixed… but because we are pumping dollars in quicker than they are leaking out"

money printing, the housing 'recovery', and stocks vs the real economy… "if you spend $8 trillion and can't throw a good party, you should be thrown in jail"

Part 2 – "How The Second Half Will Play Out"

 

Where has all the QE money gone? Why inflation has remained tame… "excess reseves are a ticking time bomb"

 

Fed reassuranes are bullshit. How reverse repo will work and how the second half of non-expanding monetary base will be a problem. Simply put, if the Fed cannot get monetary velocty to pick back up then they will not be able to continue tapering… and velocity increasing is inflationary.

They can't rase rates as they are now in extreme forward guidance mode that they will keep interest rates low for an extraordinary period of time…

This will end badly – its a matter of "if" not "when"… but as Johnson goes on, there are still challenges (e.g. India) but selling gold now is concentrating assets not diversifying them… and we are going to win in the end.

via Zero Hedge http://ift.tt/1j5ahDv Tyler Durden

While the topic of Howard Marks’ latest letter is the role of luck in everything from the life one leads to investing, the part we found particularly engaging was his discussion of (in)efficient markets, and why according to him inefficient markets are to be cherished, especially if one knows in advance just how rigged the game is and the skill of the other players.  Here is the key excerpt.

Let me say up front that I have always considered the reasoning behind the efficient market hypothesis absolutely sound and compelling, and it has greatly influenced my thinking.

 

In well-followed markets, thousands of people are looking for superior investments and trying to avoid inferior ones. If they find information indicating something’s a bargain, they buy it, driving up the price and eliminating the potential for an excess return. Likewise, if they find an overpriced asset, they sell it or short it, driving down the price and lifting its prospective return. I think it makes perfect sense to expect intelligent market participants to drive out mispricings.

 

The efficient market hypothesis is compelling . . . as a hypothesis. But is it relevant in the real world? (As Yogi Berra said, “In theory there is no difference between theory and practice, but in practice there is.”) The answer lies in the fact that no hypothesis is any better than the assumptions on which it’s premised.

 

I believe many markets are quite efficient. Everyone is aware of them, basically understands them, and is willing to invest in them. And in general everyone gets the same information at the same time (in fact, it’s one of the SEC’s missions to make sure that’s the case). I had markets like that in mind in 1978 when, on going into portfolio management, my rule was, “I’ll do anything but spend the rest of my life choosing between Merck and Lilly.”

 

But I also believe some markets are less efficient than others. Not everyone knows about them or understands them. They may be controversial, making people hesitant to invest. They may appear too risky for some. They may be hard to invest in, illiquid, or accessible only through locked-up vehicles in which some people can’t or don’t want to participate. Some market participants may have better information than others . . . legally. Thus, in an inefficient market there can be mastery and/or luck, since market prices are often wrong, enabling some investors to do better than others.

 

* * *

 

The Current State of Market Efficiency

 

Let’s compare the current environment for efficiency with that of the past.

 

• Data on all forms of investing is freely available in vast quantities.
• Every investor has extensive computing power. In contrast, there were essentially no PCs or even four-function calculators before 1970, and no laptops before 1980.
• “Hedge fund,” “alternative investing,”
  “distressed debt,” “high yield bond,” “private equity,” “mortgage backed security” and “emerging market” are all household words today. Thirty years ago they were non-existent, little known or poorly understood. Today, as I say about the impact of the browsers on our mobile phones, “everyone knows everything.”
• Nowadays few people make moral judgments about investments. There aren’t many instances of investors turning down an investment just because it’s controversial or unseemly. In contrast, most will do anything to make a buck.
• There are about 8,000 hedge funds in the world, many of which have wide-open charters and pride themselves on being infinitely flexible.

It’s hard to prove efficiency or inefficiency. Among other reasons, the academics say it takes many decades of data to reach a conclusion with “statistical significance,” but by the time the requisite number of years have passed, the environment is likely to have been altered. Regardless, I think we must look at the changes listed above and accept that the conditions of today are less propitious for inefficiency than those of the past. In short, it makes sense to accept that most games are no longer as easy as they used to be, and that as a result free lunches are scarcer. Thus, in general, I think it will be harder to earn superior risk-adjusted returns in the future, and the margin of superiority will be smaller.

 

People often ask me about the inefficient markets of tomorrow. Think about it: that’s an oxymoron. It’s like asking, “What is there that hasn’t been discovered yet?” The markets are greatly changed from 25, 35 or 45 years ago. The bottom line today is that there’s little that people don’t know about, understand and embrace.

 

How, then, do I expect to find inefficiency? My answer is that while few markets demonstrate great structural inefficiency today, many exhibit a great deal of cyclical inefficiency from time to time. Just five years ago, there were lots of things people wouldn’t touch with a ten-foot pole, and as a result they offered absurdly high returns. Most of those opportunities are gone today, but I’m sure they’ll be back the next time investors turn tail and run.

 

Markets will be permanently efficient when investors are permanently objective and unemotional. In other words, never. Unless that unlikely day comes, skill and luck will both continue to play very important roles.

* * *

In hindsight, considering just how lucrative the past several years of straight line higher movement in the S&P500 have been to some market participants – especially those E-Trade babies with virtually zero grasp of that fundamental non-common sense concept called valuation (see GMO’s letter earlier) –  one can therefore add one more distinction to Bernanke’s legacy: creating the world’s most inefficient marketplace.

For much more insight from the Oaktree chairman, read the full letter (pdf).

via Zero Hedge http://ift.tt/1dA3tye Tyler Durden

While the topic of Howard Marks’ latest letter is the role of luck in everything from the life one leads to investing, the part we found particularly engaging was his discussion of (in)efficient markets, and why according to him inefficient markets are to be cherished, especially if one knows in advance just how rigged the game is and the skill of the other players.  Here is the key excerpt.

Let me say up front that I have always considered the reasoning behind the efficient market hypothesis absolutely sound and compelling, and it has greatly influenced my thinking.

 

In well-followed markets, thousands of people are looking for superior investments and trying to avoid inferior ones. If they find information indicating something’s a bargain, they buy it, driving up the price and eliminating the potential for an excess return. Likewise, if they find an overpriced asset, they sell it or short it, driving down the price and lifting its prospective return. I think it makes perfect sense to expect intelligent market participants to drive out mispricings.

 

The efficient market hypothesis is compelling . . . as a hypothesis. But is it relevant in the real world? (As Yogi Berra said, “In theory there is no difference between theory and practice, but in practice there is.”) The answer lies in the fact that no hypothesis is any better than the assumptions on which it’s premised.

 

I believe many markets are quite efficient. Everyone is aware of them, basically understands them, and is willing to invest in them. And in general everyone gets the same information at the same time (in fact, it’s one of the SEC’s missions to make sure that’s the case). I had markets like that in mind in 1978 when, on going into portfolio management, my rule was, “I’ll do anything but spend the rest of my life choosing between Merck and Lilly.”

 

But I also believe some markets are less efficient than others. Not everyone knows about them or understands them. They may be controversial, making people hesitant to invest. They may appear too risky for some. They may be hard to invest in, illiquid, or accessible only through locked-up vehicles in which some people can’t or don’t want to participate. Some market participants may have better information than others . . . legally. Thus, in an inefficient market there can be mastery and/or luck, since market prices are often wrong, enabling some investors to do better than others.

 

* * *

 

The Current State of Market Efficiency

 

Let’s compare the current environment for efficiency with that of the past.

 

• Data on all forms of investing is freely available in vast quantities.
• Every investor has extensive computing power. In contrast, there were essentially no PCs or even four-function calculators before 1970, and no laptops before 1980.
• “Hedge fund,” “alternative investing,”
  “distressed debt,” “high yield bond,” “private equity,” “mortgage backed security” and “emerging market” are all household words today. Thirty years ago they were non-existent, little known or poorly understood. Today, as I say about the impact of the browsers on our mobile phones, “everyone knows everything.”
• Nowadays few people make moral judgments about investments. There aren’t many instances of investors turning down an investment just because it’s controversial or unseemly. In contrast, most will do anything to make a buck.
• There are about 8,000 hedge funds in the world, many of which have wide-open charters and pride themselves on being infinitely flexible.

It’s hard to prove efficiency or inefficiency. Among other reasons, the academics say it takes many decades of data to reach a conclusion with “statistical significance,” but by the time the requisite number of years have passed, the environment is likely to have been altered. Regardless, I think we must look at the changes listed above and accept that the conditions of today are less propitious for inefficiency than those of the past. In short, it makes sense to accept that most games are no longer as easy as they used to be, and that as a result free lunches are scarcer. Thus, in general, I think it will be harder to earn superior risk-adjusted returns in the future, and the margin of superiority will be smaller.

 

People often ask me about the inefficient markets of tomorrow. Think about it: that’s an oxymoron. It’s like asking, “What is there that hasn’t been discovered yet?” The markets are greatly changed from 25, 35 or 45 years ago. The bottom line today is that there’s little that people don’t know about, understand and embrace.

 

How, then, do I expect to find inefficiency? My answer is that while few markets demonstrate great structural inefficiency today, many exhibit a great deal of cyclical inefficiency from time to time. Just five years ago, there were lots of things people wouldn’t touch with a ten-foot pole, and as a result they offered absurdly high returns. Most of those opportunities are gone today, but I’m sure they’ll be back the next time investors turn tail and run.

 

Markets will be permanently efficient when investors are permanently objective and unemotional. In other words, never. Unless that unlikely day comes, skill and luck will both continue to play very important roles.

* * *

In hindsight, considering just how lucrative the past several years of straight line higher movement in the S&P500 have been to some market participants – especially those E-Trade babies with virtually zero grasp of that fundamental non-common sense concept called valuation (see GMO’s letter earlier) –  one can therefore add one more distinction to Bernanke’s legacy: creating the world’s most inefficient marketplace.

For much more insight from the Oaktree chairman, read the full letter (pdf).

via Zero Hedge http://ift.tt/1dA3tye Tyler Durden