The Need for 24-7 Stimulus: Someone please help me with this... I sat down to an absolutely amazing dinner last night. Brielle had gotten me a bone-in rib-eye (my favorite) and she prepared it French style, marinating it in dijon mustard and coating it with herbes de provence... add an artichoke, a green salad, and perfectly cooked new potatoes, and you have one of my favorite all-time "comfort food" meals. The meat was cooked perfectly - slightly charred on the outside and medium rare on the inside - and led me to open a 2006 Chateauneuf-de-Pape to take it over the top. In short, it was heaven. (And this was a Monday night, btw...maybe we need to re-think weekends and weekend eating, because I might looove Mondays if this became the normal routine.) But here's where the needle skips and the record comes to a screeching halt. Get this: sitting by myself (Brielle was feeding the baby in the other room and I had the "ok" to get started alone) with all of this in front of me, I actually stood up and started to walk into the other room to get the recent copy of The Economist that I am halfway through. Thankfully, however, I caught myself. Why is this significant? It boils down to this...given the perfect meal and a quiet setting in which to enjoy it, I once again fell into the trap of "fill every waking moment of my free time with something substantial and meaningful," i.e. finish the magazine, or the paper, or answer an e-mail. So I ask myself, what is so wrong with just "enjoying the moment?" I love Rudyard Kipling's If...it is probably my favorite poem. But do I really need to "fill the unforgiving minute with sixty seconds worth of distance run" all the time? Really? When did that happen? Am I a product of my environment, wherein there is so much information overflow that I simply need to be keeping up with it all the time? Does this make my life better in any meaningful way? I don't know - maybe the article on gold that I was reading in The Economist is entirely useful and I really should be reading it. Or maybe - like so much in today's world - it's more white noise. In the end, you really never know, so I seek to consume as much as possible. I operate under the assumption that got me through Amherst College: "I am the dumbest guy in the room...everyone else is brilliant...I need to read more and work harder." What I do know, however, is that I miss being a kid...and in particular I miss being a kid in a non-internet, non-information-overload world. I miss playing outside, and then tiring out and just plopping on my back on the grass and looking up at the sky, the clouds, and the birds passing through my line of vision. How long did I do that for? Hours? Minutes? Did I fall asleep sometimes? Did I ever feel the urge to get up or fill that time with a magazine article or by clicking a link I had emailed to myself to read later on? No, I didn't...I would just lay there until I was ready to move on to the next thing...or until I regained my energy and went back to kicking the ball or shooting the jumper or whatever. But my mind was quiet. It was ok to do nothing... And it still should be. So I sat back down last night, dispelled all thoughts of "catching up on reading" and enjoyed the incredible meal my wife had made. The world was ok for a brief time as I savored each and every bite while simply staring at the wall, letting my mind go blank...and I vowed to try to do this much, much more often...
Courageous Authors: I recently read Hari Kunzru's My Revolutions (recommended) and found myself relying on the oft-necessary book-reading side-job: I kept a dictionary on hand as my Dad had always urged me to when I was younger (well, now it's websters.com) and found myself looking up quite a few words. Kunzru is a talented writer and I really enjoyed his novel, which is set in the U.K. and centers around a former Vietnam-era student protester (finding himself swept up into more-and-more violent forms of protest before ultimately going into hiding and taking on a new identity) who is suddenly confronted with his past after 30 years. It offered what I assume to be a very real and authentic glimpse into the world of extremism, and the shades of gray that can take one on a path from peaceful marching to terrorist bombing. But getting back to the dictionary look-ups, I found myself thinking about whether or not authors are truly courageous in their use of language, or whether perhaps they are just that much smarter than us all. Here's what I mean: there's generally a process when I learn a new word...there's a delay before I ever have the guts to use it in writing or in public. First I need to be sure what it means, then I need to probably overhear someone use it in a sentence so I know how it is actually pronounced, then I might see it in writing again, and then - finally - I might find myself needing to sound smarter than I actually am after a few beers and saying something at a dinner event somewhere like "no, no...I don't mean that in the pejorative sense." It's a lengthy process from start to finish. And that makes me wonder if people like Hari Kunzru are similar or entirely different. If he's similar to me, that means he actually mingles with people who use words like "elided" or "prurient" or "oleaginous" (to name three that I remember looking up) at parties, right? Doesn't that blow your mind? Or, maybe he's just different...and he reads dictionaries for fun and stumbles on words that suit his needs and he uses them without ever speaking them. Maybe that ability is in part what makes an author an author... Regardless, it's impressive and intellectually courageous in my opinion. Either guys like Hari Kunzru hear these words within a conversational circle of friends and they are part of his world...or he has the daring-do to use them without prior experience with them. In any event, he kept me busy with the dictionary, and it may be a while before I casually request a more prurient attitude from my wife...but ya never know.
Ethnic Food: Have you ever had this conversation?
Person A: What do you feel like for dinner? I am thinking Thai food.
Person B: Nah, I had Thai for lunch. How about Indian?
A: I had Indian last night. What about Japanese?
B: No, I'm having sushi for lunch tomorrow. Maybe Italian?
And so on... anyway, this got me thinking about how silly that all sounds. I mean, what do you think people in China or Thailand say? Nah, can't have food for dinner, I had food for lunch...?? It's kind of funny how entitled that all sounds, I guess. We really do live in the most affluent and entitled age in the history of the planet as we know it. (Unless, of course, the crazies at the Church of Scientology are right and there were aliens here first or something.) We probably have it better than 99.999999999% of humans who have ever been born. And as a result, we get to decry food choices for fear of...duplication and boredom. Where is it written that you can't have a type of food back-to-back? I am pretty sure something like 4-5 billion people (in other words, everyone other than the US, Canada, and Europe) do this everyday, lol. It's all comedy.
LeBron: It's all good, King James...I am fine with your right to pursue free agency and your choice of the Heat. But just remember that actions have consequences. And as Michael Jordan hinted at yesterday (and as Charles Barkley has outright said), you just no longer belong in the MJ-Larry-Magic-Kobe conversation. Your bar has been re-set at "Pippen." Good luck with that, but know that as a fan, I am disappointed. Meanwhile, this Heat season could go one of two ways...a 10-10 start due to "gelling together" and "getting used to each other" issues, followed by Spoelstra going the way of Stan Van Gundy in 2006 and some media panic before righting the ship...OR...the NBA and in particular the Eastern Conference just bows down to these guys and they go like 72-10 and roll through the regular season. I bet on the latter. Unfortunately today's NBA just doesn't seem to have many...ummm...well...MEN. The Jordans and the Oakleys and the Xavier McDaniels and the Akeem Olajuwons and the Alonzo Mournings and the Anthony Masons and the Rick Mahorns of the past would be saying, "ok Heat...let's see what you got...bring it." But today's NBA? Have you heard a peep from Dwight Howard and Vince Carter? Nope, and don't expect to. Or the Celtics? I mean, Dan Gilbert - despite crossing the line in his open letter to LeBron - seems to be the only person in the NBA actually possessing testicles. The NBA today is like Pedro Cerrano in Major League II. Fat and happy and not interested in hard fouls or serious rivalries. Ah, maybe I am off-base here...but I can make at least one relatively sure prediction: The 2010-2011 Miami Heat will break the all-time NBA record for least flagrant fouls against. No one will touch, or test, these guys...either because today's NBA player is softer than past players, or because the NBA and David Stern's WWF referees won't allow it. Either way, it's a shame. And thank goodness for football...
Economics: Found myself wondering the other day whether Capitalism simply moves into Socialism with age...kind of the same way young liberal thinkers become more conservative with age. Could this be why
Europe is mostly socialist at this point? Because they are just older than us? Didn't - for example - European nations start out as utterly capitalist (Columbus seeking America, the Dutch East Indian Company, Francis Drake bringing back tobacco from North Carolina) and - after wars, famine, crises, aging populations, etc - ultimately went down the road of debt which led to something akin to today's "new normal" of unemployment and government spending as necessary to maintain a functioning society? If so, do all great powers morph into socialism eventually? I feel like there is simply an arc - a lifespan - to modern empires...and that there is
not much that can be done about it. Thus begging the question...is the current reality of our deficit, government spending, and reliance on debt just a step along that inevitable path to socialism and - ultimately - irrelevance? Of course, if we are heading in this direction, there is one side benefit - our soccer team will surely improve...
That's all for now, stay in touch,
Tuesday, July 20, 2010
Futures ~95bps lower as Q2 earnings disappointments outweigh positive European bond sales. The recent stream of earnings – which kicked off last night with IBM – have certainly given investors pause this morning. IBM (-5%) and Texas Instruments (TXN; -6%) reported after the bell yesterday and immediately took futures lower. Tupperware (TUP; -8%) also lowered full-year forecasts after missing Q2 estimates. This morning’s news is not much better as pharma giant Johnson & Johnson (JNJ; -2%) and Goldman Sachs (GS; -2.6%) both failed to impress. Zions Bancorp (
; -8.5%) reported a Q2 loss. Additionally, Steve Forbes was on CNBC this morning claiming that the recent FinReg bill amounts to a gradual socializing of the ZION financial system over time. All this has outweighed neutral- to positive-news overseas, as U.S. successfully auctioned EU1.5B in five- and ten-year notes at a higher bid-to-cover ratio than expected. Ireland also sold the maximum targeted amount (EU6B) of 12-month and 18-month bills. In economic news, month-over-month housing starts were down 5% (vs. the -2.7% estimate) yet month-over-month building permits surprised to the upside at +2.1% vs. the +0.2% estimate. In political news, Obama meets with British PM David Cameron today – surely BP will be a topic of discussion. In other news, speculation around European stress tests (results are expected Friday) continues. Bank of Canada raises rates by 25bps but also cut 2011 growth forecasts. Spain
Worth noting that the EUR traded up to 1.30 against the USD overnight, but has since pulled back this morning. Given that move, here’s the Gartman Letter on the euro (bold is original formatting):
THE EUR IS TRADING UPWARD THROUGH 1.3000 in early European dealing this morning and we stand in wonder and abject amazement at its ability to continue to rise, just as we stand in wonder at the Yen’s continued strength. We still rely upon the 200 day moving averages to define major trends and for that reason we still define the major trend for the EUR vs. the US dollar to be downward and we view the recent rally in the EUR from 1.1900 back in mid-late June to the present 1.3000 as a “bounce,” but let us not mince words here: this is one stunning bounce. For the record, the 200 day moving average for the EUR is this morning at 1.3665 so it is still quite some long distance above where the EUR stands this morning, and although we are philosophically and technically bearish of the EUR we’ll not stand in the way of the currency if it wishes to push higher. If it does so, it shall do so without us aboard. However, should it show even the first modest sign of weakness… perhaps doing so by trading upward through 1.3000 today and then closing lower on the day in N. American dealing… we’ll not hesitate to sell it short. On this we wish to be quite clear. We trust that we are.
Regarding yesterday’s action and after-market earnings disappointments, here is BTIG’s overnight note from Mike O’Rourke:
The earnings reports from IBM and
Instruments cemented the theme for Q2 2010 earnings season - bottom line beats on earnings and top line revenue misses. It does make one wonder what was going through the minds of corporate managers failing to communicate the sales misses. Granted, the misses are slight so maybe it was a close call as to where the numbers would land as the quarter drew to a close. Maybe they thought the big earnings and great margins would score points with investors. Regardless, managers have lost the psychological benefit in the minds of investors of good bottom line results. Obviously the first response to any type of shortfall is the "shoot first selling" that has been occurring in the market place. Then what? Despite the revenue misses, are investors going to continually sell cheap stocks simply because they are cheap? Why? To favor the low yields of cash, or bonds or instead to purchase another inexpensive company equally as susceptible to these prevalent revenue shortfalls? For sustained selling to be maintained, investors will have to believe that a double dip in the economy is likely and that this is a peak in earnings being registered. It is hard to believe that just over a year removed from an environment where the financial and economic world was ending that an earnings peak is being registered. It is also worth noting that companies are not providing earnings warnings for the out quarters. Texas
Overall, it was a quiet Monday with volumes down 25% from Friday’s expiration session. The lack of enthusiasm among investors for earnings reports is keeping the pressure off investors from participating. It appears many investors are defensively positioned and are very comfortable watching from the sidelines and have those feelings confirmed every time a company trades down following a report. As a result, it feels like August in July and it will take a divergence from this earnings theme to break the monotony.
SOA announces expansion in
. NY Post reports NTY may receive a higher bid than the $55/share from Carlyle. RSH is lower after TPG reportedly drops out of the bidding for the company. WEFA cuts MANT. JPHQ ups STR. MSCO ups PPG. RBCM ups PLD. MSCO cuts SHW. DBAB ups HURN. KBWI ups BMRC. BofAMLCO cuts BAP, SHW. BCAP cuts CCH. OPCO cuts RBA. SocGen cuts INFY. Harley-Davidson beats and raises guidance. ATHR lower on earnings. CRUS lower on earnings. GLW downgrade at China Ticonderoga. MTG higher on earnings. NE lower on earnings. NOK reportedly searching for new CEO. PII beats by 7c. UNH beats and trades higher. ING cuts VOD to Hold. WHR beats by 51c. misses by 29c. ZION
Asia was higher overnight, save for
, which was weaker after yesterday’s holiday and was catching up to Friday’s global weakness. Japan Europe ~1% lower this morning. Oil -50bps. Gold flat. USD +40bps. EUR/USD 1.2866.
S&P 500 PreMarket 8:30am (last/% change prior close/volume):
RADIOSHACK CORP 19.70 -8.2 % 327368
ZIONS BANCORP 19.75 -7.8 % 225885
MARSHALL &ILSLEY 7.24 -6.1 % 13732
GANNETT CO 13.25 -5.29% 1000
HARLEY-DAVIDSON 24.80 +5.04% 9219
IBM 123.35 -4.96% 158567
NOBLE CORP 29.23 -4.73% 4000
DYNEGY INC 3.42 -4.47% 10800
MGIC INVT CORP 8.15 +4.22% 641817
JOHNSON CONTROLS 27.47 -4.05% 200
WEATHERFORD INTL 15.58 +3.45% 922306
ADV MICRO DEVICE 7.20 -3.23% 33416
MORGAN STANLEY 24.00 -3.15% 60944
CINTAS CORP 26.48 +3.12% 200
ANHEUSER-SPN ADR 51.46 -3.07% 15247
COGNIZANT TECH-A 52.20 -3.06% 200
CORNING INC 16.46 -3.06% 7598
Today’s Trivia: What percent of a jellyfish is made of water?
Yesterday's Answer: There are 147 subway stops in
, and 171 Subway sandwich shops. Manhattan
July 20 (Bloomberg) -- Moody’s Investors Service, Standard & Poor’s and Fitch Ratings can’t be happy.
Last week, the world’s credit-rating giants got scooped on the biggest rating decision: whether to strip the U.S. of AAA status. Worse, the
was downgraded by a company that few people have ever heard of, and a Chinese one at that. U.S.
While Moody’s and S&P ignore the wreckage that
’s finances have become, Beijing-based Dagong Global Credit Rating Co. is uncorrupted by the system that enables developed-world debt addicts to appear fiscally clean. It rates America debt AA, two levels below the top grade. U.S.
Dagong is right to turn the world of A- and Baa1 on its head even though rating
China higher than the is hubristic at best. Anyone who thinks U.S. deserves a top rating or is devoid of debt landmines isn’t looking very hard. China
In its first foray into sovereign problems, Dagong raises some vital questions. One is whether ideology in favor of the West has more to do with ratings than the ability of governments to repay debt.
An alien arriving from outer space might take one look at
’s balance sheet, conclude it’s an emerging nation and buy Indonesian debt instead. The same goes for America and its demographic time bomb. Japan France, Germany and the possess challenges that might necessitate lower ratings if true objectivity were to enter into the mix. U.K.
Dropping the Ball
It has been a humbling 15 years for credit raters. They completely missed the 1997 Asian crisis. They were asleep at the controls as the dot-com bubble burst. They lavished top ratings on junk and helped turn the
subprime crisis into a global one. They were slow to fathom U.S. Europe’s debt fiasco.
Dagong Chairman Guan Jianzhong is absolutely right when he
says: “The essential reason for the global financial crisis and the Greek crisis is that the current international rating system cannot truly reflect repayment ability.”
It’s the right message, wrong messenger. Hedge-fund managers aren’t betting against
gratuitously. It’s in no one’s interest to see the third-biggest economy crash. The idea that China ’s national balance sheet is sound is a reach, though. China
New York-based hedge-fund manager Jim Chanos of Kynikos Associates Ltd. says the massive stimulus efforts that saved
from the global crisis of 2008 are creating unbalanced growth. They are fueling bubbles and may be setting China China up for a bad-loan debacle worse than ’s, he says. Japan
A report by Fitch last week makes for interesting reading.
The epic credit boom of 2009 was so successful that
is struggling to keep a lid on growth. Herculean efforts didn’t stop the economy from zooming along at 10.3 percent in the second quarter. The concern is that data are understating the long-term costs of this growth. China
In the first half of this year, Chinese bank lending was 28 percent higher than official numbers suggest, Fitch says. The
reason: more and more loans are being repackaged into investment products, distorting the data.
doesn’t have a housing bubble on its hands may want to reconsider. We don’t know how far the Enronization of Chinese credit goes. It seems clear that financial institutions have been engaged in complex deals that hid the nature and size of lending. China
Repackaging loans and moving them off balance sheet is exactly what got corporate
into trouble and almost killed Wall Street. Such practices raise the odds that America is paving the way for a wave of bad debts. China
No one doubts
is booming. Less clear is the quality of that growth. It’s one thing if stimulus efforts create a broad middle class of consumers to replace exports. It’s quite another if China ’s growth rests on a shaky foundation of soaring asset prices. China
It may not be a coincidence that Agricultural Bank of China Ltd. didn’t impress the bulls last week after its initial public offering. Investors may be wondering about the ability of lenders to collect on loans. If you think Wall Street lacks transparency, just imagine investors trying to get to the bottom of
’s state-owned banks. China
The biggest problem with Dagong’s decision to rate China above the U.S. -- AA+ with a stable outlook versus AA with a negative one -- may be its faith in the power of growth. Just because
is booming today doesn’t mean it will be five years from now. Japan, remember, assumed that accelerating growth would lighten its debt load. As if. China
Few trust our system of rating debt. Even fewer should view
’s bright fiscal outlook as a given. China
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)