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Archive for May, 2012

FA Observations Vol. 2

May 31st, 2012 No comments


Source: RetailSails Link

The market closed down 23bps in a choppy session. It initially shook off bad jobless claims and ADP jobs data, but dropped after a weak Chicago PMI number. Later in the day the market bounced on a WSJ report saying a department inside the IMF is working on a contingency plan to bailout the Spanish bank Bankia as a last resort if Spain is unable to find funding.

Bankia needs about 19 billion euros to re-cap the bank. Spain has 12 billion left in their bank bail-out fund. The Spanish government floated an idea to fund the bank with Spanish government bonds, which then can be used as collateral to borrow money from the ECB. The ECB reportedly did not like this plan. The other option was to use funds from the ESM bailout fund, however Germany reiterated its opposition of using the ESM for direct bank bailouts.

With the continued euro sell-off, the central banks and governments will eventually have to intervene. The ECB lent out 1.1 trillion euros to European banks through the LTRO in December and February. All it did was buy about 5 months of time before Italy and Spanish bond yields returned back to pre-LTRO crisis levels. In the mean-time as soon as the market pressure subsided thanks to the LTRO, Italy decided to renege on their budget spending promises. There are no easy answers here.

On the positive side, it looks like U.S. May retail sales bounced back after a down-tick in April. If you recall, April sales were a bit lower than expected due to some pull forward from warmer weather earlier in the year. Most retailers were able to beat same-store sales expectations in May with the exception of Costco and Kohls. Lower gas prices helped.

All eyes tomorrow will be on the jobs number at 8:30am and the ISM manufacturing data at 10am. Given that Costco recently talked about some deflationary trends in some food categories and the recent melt-down in corn, copper, and cotton prices, every piece of data is very important going into the Fed meeting on June 19-20. There is nothing Ben Bernanke fears more than deflation.

Macro

-ADP jobs 133K vs. 154K est., prior 119K revised to 113K

-Jobless claims 383K vs. 370K est., 370K prior

-Chicago PMI 52.7 vs. 56.1 est., 56.2 prior. New orders 52.9 vs. 57.4 April

-ECB’s Draghi pleads for a closer fiscal union Link

-Italian leaders presses Germany to back more aggressive efforts Link

-Bloomberg profile on Alexis Tsipras, leader of anti-bailout party in Greece Link

Stocks

-Leap Wireless announces pre-paid Apple iPhone offering for $55/month unlimited talk, text, and data Link

-Talbots finds another buyer in Sycamore Partners at $2.75/share Link

Categories: News

FA Observations Vol. 1

May 30th, 2012 No comments

The market closed down 1.43% today after a slew of negative macro news hit the tape. In a reverse of yesterday’s poll reports where the Greek pro-bailout party led, a poll this morning showed anti-bailout Syriza back on top re-stoking the Greece euro exit fear.

Add a government report from China talking down any large-scale stimulus, Italy/Spain bond yields spiking, reports that the ECB said no to a Bankia recap using ECB lending facilities, and finally Germany reiterating its opposition to using the ESM to recap banks directly, you had a recipe for a weak market.

euro

Although gold did bounce today, oil/copper/euro continued dropping. If the euro continues to fall as the 6-month chart above shows, U.S. multinational companies’ Q2 earnings estimates will be at risk on the FX move alone.

Gamestop executives probably had a sigh of relief as the WSJ reported according to their sources both Sony and Microsoft will include an optical disc drive in their next generation consoles. Apple also had relative out-performance due to David Einhorn pitching the long thesis on the company in his latest investor letter.

I highly recommend reading Mary Meeker’s latest 2012 Internet Trends PowerPoint deck Link. There are loads of interesting charts and data within it. A must read for any data-driven fundamental investor.

Macro

-Italy (10 year 5.93%) and Spain bond yields (10 year 6.65%) soar Link

-Euro-zone business confidence 90.6 vs. 92 estimate Link

-ECB oppose Spain Bankia recap idea through ECB facilities Link

-China state-run media says no plan for large-scale stimulus Link

-Anti-bailout party Syriza leads Greece poll Link

-Germany reiterates opposition to using ESM to re-cap banks directly Link

-Pending Home Sales Index –5.5% vs. 0.5% est., 3.8% prior

Stocks

-Amazon agrees to collect New Jersey sales tax in 2013 Link

-Visa reports April and May numbers. U.S. credit growth 8% and 10% (vs. 11% in Goldman model for the quarter) Link

-Sony and Microsoft decide to include optical disc drive in their next generation consoles according to WSJ sources Link

-Teavana tumbles on a sale miss Link

-Mary Meeker’s latest 2012 Internet Trends Powerpoint deck Link

-David Einhorn’s May 29, 2012 investor letter. He writes about his Apple long thesis Link

Categories: News