NEW$ & VIEW$ (27 Jan. 2012)

Posted on January 27, 2012 by Denis Ouellet

U.S. GDP Rises 2.8%

The U.S. economy grew at its fastest pace in more than a year and a half in the final three months of 2011, rising at an annual rate of 2.8%.

Growth was lifted by a 2 per cent rise in consumer spending, compared with 1.7 per cent in the third quarter.
But cuts to defense spending weighed on the economy, pulling down government spending and investment by 7.3 per cent, more than three times the 2.1 per cent decrease in the third quarter.

Pointing up Defense cuts hurt:

Spending on national defense swung from a 5 per cent increase in the earlier quarter to a 12.5 per cent drop in the final three months of the year. That on its own may have subtracted as much as 0.8 per cent from headline growth, said Ian Shepherdson, chief US economist at High Frequency Economics.

Stripping out those cuts, non-defense spending by the federal government actually rose 4.2 per cent.

Businesses Ramp Up Spending on Goods

New orders for durable goods increased 3.0% last month following a 4.3% rise during November and a 0.1% gain in October. Unfilled orders rose 1.5% in December after +1.4% in November.

The increase in durable goods was spurred by demand for airplanes. However, there were gains in every major category, from primary metals to machinery, with the exceptions being electrical equipment and defense products. Orders for nondefense capital goods excluding aircraft—a proxy for business spending—rose 2.9%, after two months of declines.

REVAMPED U.S. LEADING INDICATOR +0.4 IN DECEMBER

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4% in December to 94.3, following a 0.2% increase in November and a 0.6% increase in October. This month’s data inaugurates a number of major changes to the components and calculation of the LEI.

“Revised figures show that adding the new Leading Credit Index™, in conjunction with other changes, makes the LEI a more accurate predictor of U.S. business cycles since 1990,” said Ataman Ozyildirim, economist at The Conference Board. “The improvement is especially pronounced before and during the 2008-2009 recession, and during the current expansion.

In December, the LEI for the U.S. increased again. The gain was widespread among the leading indicators, suggesting economic conditions should improve in early 2012. However, the LEI gain in December was held back by negative contributions from the new Leading Credit Index — which indicates weak credit and financial conditions — and from consumer expectations for business and economic conditions.”

FIRST REVISIONS TO THE LEI SINCE 1996 (More details)

Pointing up The revised LEI now stands at 94.8, nearly 20% below the old reading for November, a more accurate reflection of the economic reality. The new LEI has actually moved sideways in recent months, something worth watching, especially since the coincident/lagging indicator has been weakening.

The Conference Board has decided to replace three of the ten components and make a minor adjustment to another component. The composition changes reflected in the new LEI address structural changes that have occurred in the U.S. economy in the last several decades. The upcoming changes in the LEI composition include:
1) incorporating the new Leading Credit Index™ (LCI) and omitting the real money supply (M2) component starting in 1990 (real M2 remains in the index before 1990);
2) replacing the ISM Supplier Delivery Index with the ISM New Orders Index;
3) replacing the Reuters/University of Michigan Consumer Expectations Index with an equally weighted average of consumer expectations of business and economic conditions using questions from Surveys of Consumers conducted by Reuters/University of Michigan and Consumer Confidence Survey by The Conference Board (after 1978, Reuters/University of Michigan Consumer Expectations Index remains in the index before 1978 ); and
4) replacing “New Orders for (nondefense) Capital Goods” with “New Orders for (nondefense) Capital Goods excluding Aircraft.”

EUROPE PROVIDES SOME HOPE

TWISTED ARMS GIVING UP, “VOLUNTARILY”

Greece Edges Toward Debt Deal

Talks between Greece and its private-sector creditors edged toward an agreement, with bond holders seemingly willing to accept lower yields on their future holdings of Greek debt.

But Bloomberg notes:

Any agreement between the Greek government and the Washington-based Institute of International Finance on debt writedowns will only bind 50 percent of investors in the 206 billion euros ($270 billion) of notes being negotiated, Barclays Capital estimates. Hedge funds may resist a deal, seeking to get paid in full or compensated from insurance contracts.

EU Official Sees Bailout-Fund Boost

A senior European policy maker said euro-zone governments may have to increase their contributions to Greece’s debt deal, and said he was hopeful agreements could be struck soon to increase euro-zone bailout funds and International Monetary Fund resources.

European Union economics commissioner Olli Rehn also appealed to the U.S. and other countries not to block an expansion in IMF resources—even if they didn’t want to contribute directly.

AND, RIGHT ON CUE:

Geithner Opens Door For More IMF Funds

U.S. Treasury Secretary Timothy Geithner hinted that the Obama administration would support an increase in resources for the IMF to fight the euro crisis – but only if Europe itself puts more of its own money on the line first.

“Without more resources…austerity will feed decline,” Mr. Geithner said.

A meeting of finance ministers of the Group of 20 in late February in Mexico City is the most likely venue for a decision on the IMF.

While Eurozone banks feel somewhat better and dive into the ECB financed carry trade:

BBVA Chief Upbeat on Plans to Fix Bank Sector

Francisco Gonzalez, BBVA’s chief executive, said the new Spanish government is planning a deep cleanup of Spain’s most beleaguered banks in order to permanently renew international confidence in the sector.

A new law that would require banks to take bigger losses on bad assets could be unveiled as early as next week, said a person familiar with the matter.
In the latest round of measures proposed by Spain’s new government, stronger banks are poised to snap up weaker ones unable to swallow the losses needed to fully clean up their balance sheets.

Rainbow Interesting statement:

“The European banking system is no longer facing significant problems today,” he said. “Once you sort out the liquidity and you have enough capital—and you know most European banks will have 9% capital—I don’t think [there is] any serious problem, generally speaking.”

The Bloomberg European Financial Condition Index (above chart) reflects the recent improvements.

Euro banks are indeed buying their countries’ sovereign debt with ECB money:

Mr. Gonzalez said the better condition of the banking system allows banks to support their countries’ sovereign debt. “Sovereign bonds, in my view, are very safe…. The likelihood of Spain having to default is zero,” he said.

Another load of ECB loans is coming at the end of February.

“We are really seeing clear signs that this money is not simply staying in the deposit facility, but is circulating in the economy,” ECB President Mario Draghi said earlier this month, pointing to the declining yields of some European government bonds as a sign that banks are using the funds to buy the bonds. “By and large, the banks that have borrowed the money from the ECB are not the same as those that are depositing the money with the deposit facility of the ECB.”

BBVA’s Gonzalez to conclude:

“The cost of funding is going down very rapidly. That will put more money in the margins of the banking system, which is good because in order to give credit you need strong banks,” said BBVA’s Mr. Gonzalez. “We are in the process of filtering that money down to the real economy.”

Which would be most welcome given:

Spain Jobless Rate Hits 22% The number of jobless Spaniards rose by 295,300 in the fourth quarter from the third, to 5.27 million. That is equal to 22.85% of the work force.

Under intense government pressure, Spanish unions and business leaders have taken some measures in recent weeks that they hope will encourage hiring, including a wage-moderation agreement for the next several years and a commitment to allow more flexible working hours for unionized workers. Analysts say these moves are steps in the right direction but don’t address key problems like Spain’s high cost of dismissal, which discourages hiring, and the inability of companies in difficulty to opt out of sector-wide wage agreements.

MORE EASING COMING: Brazil Bank Warns of Possible Rate Cut

Brazil’s central bank made an unusually forthright statement on interest rates, saying the benchmark Selic rate could be lowered to single digits after a sharp slowdown in domestic economic growth.

ASIA: GOOD AND BAD

Japanese Car Makers Post Output Rises

Japan’s top three car makers Friday reported solid increases in domestic production for December, in a sign that the worst is over after natural disasters both at home and abroad disrupted their supply chain networks most of last year.

CHINA HOUSING REMAINS VERY CHALLENGING FOR BEIJING

China Home Prices Must Fall 30% to Reach ‘Reasonable’ Level, Lawmaker Says

China’s property prices need to decline 30 percent to reach a “reasonable” level, according to He Keng, a deputy director of the Financial and Economic Affairs Committee of the National People’s Congress.
Housing prices will be at a “reasonable” level when they are equivalent to about six years of salary for a family, the senior lawmaker said, according to the transcript of an interview with China National Radio.

EARNINGS WATCH

According to ISI, S&P 500 earnings beats have been roughly 60%. While this is below previous beat rates of 67%, U.S. companies keep beating estimates even in pretty difficult economic environments. Importantly, over the past 2 weeks, the bottom-up estimate for S&P earnings has increased from +9.4% YoY to +11.0%.

Only 38% of companies have beaten on revenues, down from 46% in Q3 and 57% in Q2. Nominal growth in U.S. GDP was a weak +3.7% in Q4 as government spending declined 0.1% YoY, the first decline in over 45 years.

Bespoke Investment looks at all listed companies:

Of the 373 companies that have now reported, just 56.6% have beaten earnings estimates, which is two full percentage points lower than the already very low number that was in place earlier this week. We haven’t had a beat rate below 55% since the first quarter of 2001, but it looks like there’s a real shot for that to happen this quarter.

Caterpillar Voices Optimism

Caterpillar and other big manufacturers, feeling more upbeat about the global economic outlook, are promising further gains in earnings this year.

The debt-repayment trouble in Greece, Italy and other southern European countries “has been going on a long time and hasn’t tanked the place,” Doug Oberhelman, chief executive officer of Caterpillar, told investors Thursday after it reported a 60% leap in fourth-quarter earnings. “We don’t think it will.”
Western Europe will remain in a mild recession in this year’s first half, predicted Alexander Cutler, Eaton’s chief executive officer. But Europe’s recession appears “more mild than some people had feared,” Mr. Cutler said.

APPLE BLA-BLA-BLA, BLAH-BLAH-BLAH

I like Zerohedge, always a good place to find bears on just about everything resembling a rising equity. And when they are short on facts, objectivity or judgment, they are generally entertaining. This one on Apple is none of the above. (Disclosure: I own AAPL). So I thought I could bla-bla-bla on Apple as well but with facts. First, Zerohedge:

In case one was wondering how the Goldman trading team was axed in Apple, we now know that they are pushing their inventory of stock in the name out of the door and to clients harder than ever, having just released a forecast with a $600 price target. However, with nearly 200 hedge fund holders in the name, and pregnant to the teeth in the stock, we fail to find who the incremental buyer of GS’ AAPL stock will be.

The coming shortage of incremental AAPL buyers has been used a lot by the bears during the last, oh! 150 bucks on the stock. A few ideas where new buying may come from, keeping in mind that AAPL is 3.5% of the S&P 500 Index:

U.S. institutional equity portfolios are only 69% invested currently. I bet their balanced portfolios are also low on equities.
Hedge Funds equity exposure is 44%, nearly as low as in early 2009.
Same underinvestment is likely in mutual funds.
Foreign investors could decide that the U.S. is a better place to be than, say, Europe, and buy U.S. market ETFs.
U.S. individual investors could dip again into equities and also buy market ETFs.
Should Apple decide to pay a dividend, many restricted funds might wish to own the name.
Apple may launch a stock buyback program with its $96B in cash.

Were any or, god forbid, all of these ideas materialize, lots of marginal buying would show up, even if only to maintain their current exposure in the best large cap stock around (not that there has not been any lately mind you).

I understand that people can be frustrated not owning a stock that has more than quadrupled in 3 years, more than doubled in 2 years and gained 37% in the last year (when its founding visionary passed away). Still not a reason to write such superficial and biased stuff.

For the record, Apple EPS rose 109% YoY last quarter, beating street estimates by 38%. Sales rose 73% YoY. Not insignificant, total net income was $13 billion and net cash on hand rose $16 billion to reach $97.6B. To save you time, cash is $105 per share, and rising nearly $180M per day. Ex-cash, AAPL shares thus trade at $340 or 10.3x trailing EPS (ex interest income), still a huge discount to the overall market.

15 MINUTES OF YOUR TIME WELL INVESTED: COMING (SOON) MANUFACTURING REVOLUTION: 3-D PRINTING

2012 may be the year of 3D printing, when this three-decade-old technology finally becomes accessible and even commonplace. Lisa Harouni gives a useful introduction to this fascinating way of making things — including intricate objects once impossible to create.

NEW$ & VIEW$ (26 Jan. 2012)

Posted on January 26, 2012 by Denis Ouellet

THE FED WANTS LOWER LONG TERM RATES

Fed Expects Low Rates Through 2014 Fed officials said they expect short-term interest rates to stay close to zero “at least through late 2014,” longer than previously.

Mr. Bernanke said there would be a “very strong case” for even more action by the Fed “if the recovery continues to be modest and progress on unemployment very slow and inflation appears to be likely to be below target for a number of years out.”
Fed officials have become a bit more pessimistic about economic growth, estimating that gross domestic product will expand between 2.2% and 2.7% this year, down from a previous forecast of 2.5% to 2.9%. The 2013 growth projection also was marked down. Fed officials warned that the recovery faces significant risks.(…)

Punch WARNING:

“Our ability to forecast three and four years out is obviously very limited,” Mr. Bernanke said. “It’s certainly possible that we will be either too optimistic or too pessimistic.”

HE SHOULD HAVE SAID: “Our ability to forecast is obviously very limited”.

The Committee expects growth to be “modest” over coming quarters, a downgrade from “moderate,” which was used previously. The Fed’s somewhat gloomier expectations contrast with most private economists projections, which have been mostly revised up in recent weeks.

That said, here’s the Fed’s forecast based on each participant’s own view of Fed funds rates 3 years out. Fed policy is not the average as some members’ votes obviously carry more weight…

CHICAGO FED NATIONAL ACTIVITY INDEX RISES IN DECEMBER

Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index increased to +0.17 in December from –0.46 in November. Two of the four broad categories of indicators that make up the index improved from November, and only the consumption and housing category’s contribution remained negative in December.

The index’s three-month moving average, CFNAI-MA3, increased from –0.19 in November to –0.08 in December—its highest value since March 2011. December’s CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic slack reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.

The contribution from production-related indicators to the index rose sharply to +0.24 in December from –0.28 in November. Industrial production increased 0.4 percent in December after edging down 0.3 percent in the previous month. Similarly, manufacturing production rose by 0.9 percent in December after declining by 0.4 percent in November, and manufacturing capacity utilization increased to 75.9 percent in December from 75.3 percent in the previous month.

U.S. vehicles sales expected to rise in January

Market-research company J.D. Power & Associates projects new-vehicle retail sales will increase on a seasonally adjusted annualized basis to 10.9 million units in January from 10.3 million units a year earlier, but down from 11.3 million units in December. The McGraw-Hill Cos. (MHP) unit forecast total light-vehicle sales growth of 6% to 681,000 units for the month.
Meanwhile, car pricing website TrueCar.com expects January’s seasonally adjusted annualized rate to reach 13.6 million units for the month, up from 12.7 million units a year earlier, and flat from December. Meanwhile, retail sales for January are projected to rise 7.3% from last year, but decline 30% from December.

JAPAN OUTSOURCING MORE TO THE U.S.

Auto Makers Turn to U.S. Plants

Helped by favorable foreign exchange rates and a supply of affordable labor, the U.S. has emerged as a surprisingly competitive producer of cars and trucks, and a favored location for making vehicles to be exported.

Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. are ramping up capacity in their U.S. plants with the intention of shipping U.S.-made models to Europe, Korea, the Middle East and other parts of the world. This comes as all three are seeking relief from the strong yen, now trading at about 77.8 to the dollar, which causes them to lose money on many of the vehicles they export from Japan.

PENDING HOME SALES DECLINED IN DECEMBER

December pending sales of single-family homes fell 3.5% (+5.6% y/y) following two months of strong increase. Sales rose 7.3% in November and by 10.4% during October.

MERKEL SEES THE UNITES SATES OF EUROPE

The German leader said she saw a future Europe with more centralized powers. The European Commission, the EU’s executive arm, would act “more and more like a government with all the powers” needed to govern. The European Parliament would be more important, and national governments would be more like a second legislative chamber. (WSJ)

Banks Hoarding ECB Cash to Double Company Defaults: Euro Credit

Europe’s default rate may soar to 8.4 percent or more, from 4.8 percent at the end of 2011 as the recession bites and company financing dries up, according to Standard & Poor’s. Petroplus Holdings AG became the latest victim of the tough stance banks are adopting when the region’s biggest independent oil refiner said this week it will file for insolvency after losing access to $2.1 billion of credit lines.

Speculative-grade companies have to refinance about 230 billion euros ($300 billion) through 2015, according to S&P. At the same time, banks and loan funds that provided the initial funding are scrambling for capital or reaching the end of their reinvestment periods and may be unwilling to extend loans.

S Korea grows at slowest in two years

Economy likely to dominate run-up to elections

Gross domestic product grew at only 0.4 per cent in the final quarter of 2011, the slowest rate in two years according to data released on Thursday. In the previous three months GDP grew 0.8 per cent.
The central bank figures revealed that exports of goods grew only 5.2 per cent in the final quarter of last year compared with 12 months earlier. The finance ministry has forecast export growth would slow to about 7.4 per cent in 2012 from nearly 20 per cent last year.

MORE EASING ACROSS THE WORLD. ISI’s easing count is now 71 including 9 easing moves over the past 6 days.

Bank of Thailand Cuts Rate

The central bank’s Monetary Policy Committee lowered the benchmark one-day repo rate by 0.25 percentage points to 3.00%—its second consecutive easing move—saying risks to growth have heightened whereas inflation is in check.

NOKIA GETS AN APPLE ON ITS HEAD!

Nokia Posts Huge Loss

Finland’s Nokia, the world’s largest mobile-phone maker by volume, swung to a net loss of €1.07 billion as handset sales dropped 29% from a year earlier.

Apple’s larger-than-life numbers

The tech company sells $150-million worth of product every eight hours, and other iPopping facts

ANOTHER ONE!!

Einhorn Gets Insider Fine

U.K. regulators fined Greenlight Capital and owner David Einhorn a total of $11.2 million for alleged insider trading in shares of Punch Taverns.

NEW$ & VIEW$ (25 Jan. 2012)

Posted on January 25, 2012 by Denis Ouellet

We have seen 3 U.S. regional surveys for January and they are all up. Only the Philly Fed survey showed lower new orders.

RICHMOND FED SURVEY IMPROVES

In January, the seasonally adjusted composite index of manufacturing activity increased nine points to 12 from December’s reading of 3. Among the index’s components, shipments gained fourteen points to 17 and new orders doubled, picking up seven points to finish at 14. The jobs index picked up eight points to 4. Most other indicators also suggested stronger
activity.

THE U.S. ECONOMY KEEPS ON TRUCKING

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index jumped 6.8% in December after rising 0.3% in November 2011.
Tonnage for the last month of the year was 10.5% higher than December 2010, the largest year-over-year gain since July 1998. November tonnage was up 6.1% over the same month last year.(…)
“Not only did truck tonnage increase due to solid manufacturing output in December, but also from some likely inventory restocking. Inventories, especially at the retail level, are exceedingly lean, and I suspect that tonnage was higher than expected as the supply chain did some restocking during the month.” he said.

HUSSMAN’S RECESSION CALL SUSPENDED: John Hussman has been highly vocal on his view of a certain recession in the U.S. Certain no more. Will ECRI also waver?

Dodging a Bullet, from a Machine Gun (John Hussman)

Leading economic evidence continues to teeter at levels that have always and only been breached in recessions, but the sharp deterioration we initially observed late last year has been followed by modest stabilization – though still near the area that has historically marked the entry to economic contraction. (…)
The interpretation best supported by the data is that recession risk remains very high based on the leading evidence and the typical outcomes that have resulted, but that the rate of deterioration has eased significantly, and it is simply unclear whether this is a temporary pause or a reversal.(…)
Despite the record of this and other indicators, we have to suspend the inclination to view recession as a certainty. It’s still possible that this instance is different, and that the modest stabilization we’ve seen in recent economic data will be sustained enough to avoid a recessionary outcome. But in my view, the downside risk is high, and it entirely strains the evidence to say that we can discard recession concerns on the basis of the more comfortable data points we’ve seen in recent weeks.
(…) Even if the economy has dodged a bullet, the bullet is probably from a machine gun.

German business confidence remains bullish

Ifo index adds to evidence that growth is resuming

The Munich-based Ifo institute said its closely watched business climate index rose from 107.3 in December to 108.3 this month – the highest since August.

U.K. Economy Shrinks GDP contracted 0.2% in Q4 after growing by 0.6% in the third quarter. The annual growth rate for 2011 was 0.9%.

The detail of the GDP data showed production industries—in particular manufacturing—were the biggest drag on economic growth, with production falling 1.2% in the fourth quarter. Output in the construction sector decreased by 0.5%, while output in the dominant services sector was flat.

Lagarde presses ECB over Greek debt deal

IMF urges central bank to take hit on Greek bonds

The IMF has turned up the heat on European officials to take on more of the burden of filling a widening gap in Greece’s budget by pressing the European Central Bank over its €40bn in Greek bond holdings, eurozone officials have said.
The IMF has concluded that the €130bn bail-out plan for Greece agreed in October will no longer enable Athens to get its €350bn debt pile down to a sustainable level by 2020 – the plan’s principal goal.
Institute of International Finance Managing Director Charles Dallara, who’s negotiating on behalf of the bondholders, said yesterday that all parties, public and private, should contribute to cutting Greece’s debt. Dallara stressed that private investors hold only about 60 percent of Greece’s 350 billion euros ($454 billion) of debt.

BUT, AS BLOOMBERG REPORTS:

The European Central Bank remains firmly opposed to any restructuring of its Greek bond holdings as the debt was acquired for monetary policy purposes, according to two people familiar with the Governing Council’s stance.

German Chancellor Angela Merkel’s government will oppose any attempt to make the ECB accept a writedown on its Greek bonds, senior coalition lawmaker Michael Meister said in an interview today.

The ECB is in talks regarding a potential swap of its Greek bonds that would ease the country’s debt load and avoid losses at the central bank, the New York Times reported today, citing unnamed officials.

Asking private investors to take a loss on Greek holdings has proved “costly for the euro zone” as it sends a message that “euro zone sovereign debt should no longer be considered a safe asset with the implicit promise that it would be repaid in full,” ECB Governing Council member Athanasios Orphanides wrote in the Financial Times on Jan. 5, calling for the plan to be jettisoned.

Punch They should have thought about that earlier!

IMF Cuts Growth Forecasts The global economy will expand 3.3%, this year, down from 3.8% last year, said the IMF, which in September had forecast 4% growth in 2012.

Europe is likely to experience at least a mild recession this year, but the outcome could be far worse if euro-zone leaders fail to halt the rise of state borrowing costs and growing squeeze on bank credit, the world’s emergency lender said in an update of its World Economic Outlook. Inaction could cause the euro-zone economy to shrink by 4% on average in each of the next two years, and lop two percentage points off global output this year, the fund said.

Italy faces a 2.2% contraction and Spain, a 1.7% fall. Both are expected to continue to be in recession through 2013.

CONSUMERS CONSUME MORE AND MORE APPLEs… and Big Macs

Consumers may be financially strapped but they sure want their Apples and Big Macs.

Sales rose 73% (to $46.3B) during the quarter ended in December, up from $26.7 billion a year earlier. Profits more than doubled to $13.87 per share ($13.1B), up from $6.43 a share a year ago. The figures blew away analysts’ projections, which estimated quarterly profits to hit around $9.6 billion. The performance also raises the bar for both Apple and its peers, setting new highs that may be tough to duplicate or sustain.

“Demand for iPhones and iPads was off the charts for the quarter,” said Apple chief financial officer Peter Oppenheimer in an interview. He added that Apple struggled to meet demand for its iPhones and that the device was on “significant” backlog at the end of the quarter.
Apple said it expects fiscal second-quarter earnings of about $8.50 a share on revenue of about $32.5 billion, above analyst estimates of profit of $8.04 a share on $32.1 billion in revenue, as compiled by Thomson Reuters.

FYI, Apple’s cash on hand rose $16B to $98B or $104 per share!

EARNINGS WATCH

UPDATE FROM BESPOKE INVESTMENT covering all NYSE companies:

As shown in the charts below, 58.5% of companies have beaten earnings estimates so far this season, while 57% have beaten revenue estimates. The earnings beat rate had picked up on a quarter-over-quarter basis in the prior two reporting periods, but this season it has dropped back down to a new bull market low. The revenue beat rate saw its lowest reading of the bull market last earnings season, but it is making a lower low once again this season.
There’s still a lot of time left, but these numbers actually tend to drift lower and not higher as earnings season progresses.

BMO Capital markets has its own tally of S&P 500 companies:

While about 65% of S&P 500 companies so far to report have topped expectations, that share is slightly below the long-run average of 67%. This marks a stark change from the past two years, which saw companies topping the expectations bar in droves. At the sector level, financials have been mixed, while technology and health care continue to see very high upside surprise rates.

With nearly two thirds of S&P companies having reported, the 65% beat rate is pretty good for the current economically-difficult quarter.

This chart from RBC Capital suggests that earnings estimates might be ratcheted up shortly…

…although the sales outlook is worsening:

FYI: OBAMA’S STATE OF THE UNION (WSJ)

Initiatives Outlined in the State of the Union Address:

The President Plans to Ask Congress to:

Create a “Buffett rule,” that would require households who earn more than $1 million per year to pay a minimum 30% federal income tax and limit deductions.
Require U.S. companies with foreign operations to pay a minimum tax on overseas profits.
Bar companies from deducting as a business expense costs associated with shutting U.S. operations to move them abroad.
Create a new tax credit to cover moving expenses for companies that close production overseas and bring jobs back to the U.S.
Reduce tax rates for manufacturers, with extra breaks for high-tech manufacturing.
Pay for proposed $200 billion spending on roads and bridges with some of the savings from the wind-down of the wars in Iraq and Afghanistan.
Reduce federal aid to colleges that raise tuition too high.
Provide funding to help people who have kept up their mortgage payments current to refinance at lower interest rates.
Double the number of work-study jobs for college students.
Ban farm subsidies for millionaires.
Ban insider trading by members of Congress.
Prohibit lobbyists from bundling campaign donations, and bundlers from lobbying.
Require the Senate to give certain presidential nominees an up-or-down vote within 90 days.

..And Do Himself

Create a new trade unit to investigate unfair practices in countries including China.
Set aside more federal land for natural gas extraction and require companies to disclose the chemicals they use in fracking, a method used to extract the gas.
Encourage new partnerships between businesses and community colleges to train workers for needed jobs.
Establish a financial crimes unit at the Justice Department to go after large-scale financial fraud.

NEW$ & VIEW$ (24 Jan. 2012)

Posted on January 24, 2012 by Denis Ouellet

Not A lot of stuff today except for the 33 earnings announcements scheduled for today including big names such as Travelers, DuPont, Verizon, Johnson & Johnson, and
McDonalds’s and Apple, and, of course, Obama’s Stae of the Union address this evening…

ISI notes that earning beats have improved lately after a slow start. They calculate that since last Tuesday, 76% of the releases have beaten expectations.

EQUITY MONEY FLOWING TO THE U.S.. ANYBODY SURPRISED?

In the past two weeks, $6.4 billion of global investor cash has flowed into U.S. stock funds, at a time when $1.5 billion has been pulled from European stock funds, carrying on a trend that began in early December, according to fund-flow tracker EPFR Global.

COMPLACENCY?

Lance Roberts of Streettalk comments on “complacency risk” (via Advisors Perspectives):

Bullish sentiment, as measured by the composite of AAII and Investors Intelligence indexes, is currently at very high levels. While this does not mean that a market correction of some magnitude is imminent, it does mean that further gains are likely to be small and the next correction is likely not too far away.

I don’t know about you but I needed to read again Roberts’ last sentence above to make sure it said was it was not saying, or vice versa!. Or, rather shrewdly, it is saying nothing but also everything. Can’t be wrong with that, can he?

There is a reason why Roberts is totally hedging itself. It is that investor sentiment measures are not very useful when in bullish territory (INVESTOR SENTIMENT SURVEYS: DON’T BE TOO SENTIMENTAL!).

Pointing up Roberts’ post was not all useless however as he quoted David Rosenberg who is not one to hedge himself:

“Most measures of market sentiment are back to where they were last May just when the S&P 500 was peaking.

Short interest has dried up to three year lows.

The VIX closed the week below 20 for the first time since last July.

As Mike Santoli points out in Barron’s, volume in leveraged ETF’s versus bearish ones has risen to levels that in the past touched off interim market pullbacks.

Credit market indicators have lagged well behind the improvement in equity performance.

The S&P 500 is three standard deviation points above its 20-day moving average.

Again, as Barron’s points out, the ratio of the 15-day volume puts on the S&P 100 Index to bullish call volume hit 2-to-1 last week – this happened in the February 2007, February 2011 and April 2011.”

And Roberts to conclude:

The current trend of the market is bullish and the majority of our “buy signals” are aligned. However, the level of complacency that has surrounded this recent rally is getting to dangerous levels, and it is only a function of time before the next “Oh $#@!” moment arrives.

Winking smile Sorry about that. I just could not resist.

That said, U.S. equities are up 13% since Nov. 25., and 9.4%, almost non-stop, since Dec. 19. Safe to say it might rest a bit…

BUT WAIT, HERE’S MORE (from Technical Take)

The “dumb money” indicator has become extremely bullish (bear signal), and this is what one would expect with rising prices. The higher prices go the more bulls that are recruited. But is it the end of the road for the rally?
Not necessarily so. In 1995, 2003, 2009, and Q4 2010/Q1 2011 we saw the phenomenon that I have dubbed “it takes bulls to make a bull market”. It is a market characterized by rising prices and excessive bullishness. In the case of 1995, 2003, 2009, the excessive bullishness and multi-month rally seem to be warranted as the markets were bouncing back from steep losses or a prolong period of consolidation (1995). The Q4 2010/ Q1 2011 version of this phenomenon was a QE2 induced feeding frenzy.
With investors taking their cues from the Federal Reserve and European Central Bank, the current market environment resembles Q4 2010/ Q1 2011. For now, we need to respect this dynamic as we could be witnessing another melt up. The bulls have the ball in their court and are on the cusp of turning this recent price move into a multi-month barn burner.

Sorry for the fuzziness of the chart. Seems to go with the commentary. Anyway, you’ve read it all, literally. BTW, anybody knows what a “melt up” is?

MORE SERIOUSLY

EU Reaches Agreement on Permanent Bailout Fund

The 17 euro-zone countries have reached agreement on the contract for the permanent euro bailout fund, the European Stability Mechanism (ESM), clearing the way for the aid fund to be launched one year earlier than planned. The ESM is now set to replace the temporary European Financial Stability Facility (EFSF) on July 1, a year earlier than originally planned.(…)

Schäuble also said that agreement had been reached on the euro-zone fiscal pact, which would submit members of the common currency zone to stricter budgetary rules. (…)
The ESM will be funded with €500 billion to help struggling euro-zone countries, with Germany providing the largest share — although Angela Merkel’s recent refusal to consider upping that figure seems to be wavering under heavy pressure.

THIS IS VERY SERIOUS:

NATIONALISTIC BANKING IN EUROPE: Financial Smoot-Hawley?

Austria Tells Banks to Rely on Local Funds for East Europe Austrian banks, under orders from the Government, are curtailing new lending to East European economies.

This could be pretty major, especially if it turns into a trend, which is more likely than not. Euro banks, many of which are under some form of state control, have huge cross-border loans. These banks need to beef up their capital and a first step is to reduce outstanding loans . Why not start with neighboring countries rather than chocking off one’s own economy? Also, many of these countries need lower bond rates. Seems a natural that, say, Italian banks sell some of their foreign bonds and buy Italians. What would the French do if they learned that Italian banks are dunking French bonds to load on Italians?

We’ll need to come back to that soon but speaking of Eurozone banks, Siemens today points out that orders for major equipment are becoming harder to secure.

U.S. TREASURIES: HOW LUCKY DO YOU FEEL? (Chart from Scotia Capital)

DELEVERAGING

What’s Going on With Debt in U.S.?

The U.S. financial sector has deleveraged sharply (to 2000 levels), the household sector quite a bit (to 2004 levels) and the nonfinancial corporate sector, which, this time around, wasn’t one of the big sinners, less so (to 2007 levels). By design, the government has offset that with massive additional borrowing in an effort to protect the economy from the pain of a sudden private-sector deleveraging squeeze.

ARE U.S. CONSUMERS GOING ON STRIKE?

Christmas spending was good but weekly chain store sales remain in a stop-and-go pattern. Sales declined 1.4% last week and have dropped 6.6% since Dec. 31 (seasonally adjusted). They are now back to their February 2011 level.

The 4-week moving average has turned down sharply is is now +3.5% YoY after reaching +4.3% at Christmas.

Hopefully, this will help:

Gallup Economic Confidence Index -- Weekly Averages Since January 2011

The Gallup Economic Confidence Index, the chart above, is an average of two components: Americans’ ratings of current economic conditions and their outlook for the economy. Here’s the breakdown:

Gallup Economic Confidence Index Subindexes -- Weekly Averages From Jan. 2, 2008-Jan 22, 2012

MORE ON CHINA LOSING COMPETITIVENESS: China No Match for Dutch Plants as Philips Shavers Come Home

Royal Philips Electronics NV workers in the Dutch town of Drachten who expected to be fired were astonished when the site manager said the company was bringing production of its top-priced electric shavers home from China.(…)

“A product engineer in Shanghai now is just as expensive as in Drachten,” said Karsmakers, who has overseen the plant since 2009, in an interview. “But in China, the headcount turnover is high. That is not sustainable.”

Storm cloud Japan growth forecasts downgraded BoJ predicts 0.4% contraction for year to March

EUROZONE JANUARY FLASH PMI +2.1 TO 50.4

Posted on January 24, 2012 by Denis Ouellet

The Markit Eurozone PMI® Composite Output Index moved into positive territory for the first time in five months in January, according to the preliminary ‘flash’ reading which is based on around 85% of usual monthly replies. The index rose for the third month running, up from 48.3 in December to a five-month high of 50.4. That signalled a marginal increase in private sector economic activity.

Output rose at a robust pace in Germany, which saw the largest increase for seven months, and a modest expansion (the first growth for four months) was also reported in France. In contrast, output continued to fall across the rest of the region as a whole, dropping for the eighth successive month. However, the rate of contraction was the weakest for four months.

Eurozone service sector activity rose very slightly, expanding for the first time since last August. Meanwhile, manufacturing output was unchanged, improving on the declines reported by the goods-producing sector throughout the previous five months.

Incoming new business continued to fall in both sectors, although the rates of decline eased to a five-month low in services and a six-month low in manufacturing. Goods producers also reported the smallest drop in new export orders for six months. Measured across both sectors, new business fell for the sixth month in a row, but at the slowest rate since last August.

With inflows of new orders continuing to deteriorate, backlogs of work fell across the region for the seventh successive month, declining in both manufacturing and services. The overall fall was the smallest for four months, but nonetheless sufficient to lead firms to cut employment for the first time since April 2010 (albeit only marginally). The decline in jobs was driven by services, as manufacturing headcounts rose slightly on average.

Employment growth slowed to the weakest since June 2010 in Germany, and to near-stagnation in France. Across the rest of the region, the average rate of job losses was broadly unchanged from the near two-year record seen in December.

NEW$-TO-U(SE) TRACK RECORD

Aside

NEW$-TO-U(SE) was launched on January 2, 2009. In addition to providing readers with investment-pertinent facts, trend analysis and other expert views and opinions, NTU makes regular assessments of U.S. equity markets, offering detailed and unbiased valuation analysis and clear investment stances taking into account both risk and reward potential. Here’s the record:

And the details:

Pointing up On March 3, 2009, when the S&P 500 Index was below 700, NTU explained and documented why U.S. equities were extremely cheap and offered a very attractive risk/reward ratio. NTU also introduced The Rule of 20 method of valuing equity markets. NTU’s detailed and rigorous analysis concluded that equity markets were clearly undervalued with very little downside risk. (S&P 500 P/E Ratio at Troughs: A Detailed Analysis of the Past 80 Years)

Pointing up On December 8, 2009, NTU explained and documented that, at 1100, caution was now warranted given that

“This is the first time since March 2009 that the Rule of 20 gives such downside against so little upside”. (…) “Given the fragility of the economy, of the banking system (housing and CRE remain dangerous), of the US dollar and the US budget deficit, equity markets that are merely fairly valued are not particularly attractive.

In conclusion, US equities are fairly valued using annualized Q3-2009 eps and 2% inflation. They could rise another 8% to 1200 (S&P; 500) if Q4-2009 reach the expected $67 level but the risk/reward ratio has become unfavorable for the first time since March. (US EQUITIES VALUATION ANALYSIS: DUCK, YOU (HAPPY) SUCKERS!)

Pointing up On June 2, 2010, NTU posted that U.S. equities had become undervalued again at 1090 and that, barring deflation, they could rise to between 1240 and 1320:

Equities are thus currently 9-16% undervalued depending on whether one uses current trailing EPS or “normalized trailing EPS” using Q2 2010 estimates. Using 1.0% inflation, fair value would rise another 5% but such a low inflation rate may be too low for comfort unless monthly core inflation strengthens. (US Stocks Are Cheap But Beware of Deflation).

Pointing up On November 7, 2010, still positive at 1225:

(…) On that basis, the S&P 500 Index at 1225 sells at 15.5 times, right on the historical median, pleasing both bears and bulls. However, the more appropriate Rule of 20 says fair value is at 19x EPS (20 minus inflation of 1%), or 1500 on the Index, a big 18% undervaluation. (…) investors might have the best of all world: a very cheap equity market, rising earnings, no double dip, very low interest rates for as far as the eye can see, reduced probabilities of deflation and, just in case, the Fed unlimited QE puts in the back pocket. (SO! WASSUP? Cheap Markets)

Pointing up On January 28, 2011, even though valuation remained reasonable, the risk/reward ratio turned less attractive at 1285. Economic trends were suggesting muddling-through at best, right when economists were becoming more positive. “Even notable bears have mellowed their stance” and risks of negative surprises were now pretty high.

From a valuation standpoint, the Rule of 20 continues to point to 1500 on current trailing earnings of $79-80, for a 15-20% upside potential to fair value. This remains a good target for this year. However, the risk of a technical correction towards the 200 day m.a. (1170, -10%) is not insignificant, skewing the risk/reward ratio and raising a yellow flag for the shorter term. (YELLOW FLAGS ON EQUITIES)

Pointing up On March 29, 2011, NTU published US EQUITIES: APRIL PEAK?, realistically warning that apparent undervaluation was being threatened by rising inflation and dangerous groundhogs:

While the Rule of 20 provides a rigorous mathematical and time-tested approach to PE multiples on US equities, it does not account for external risks. While many external factors are at play at any given time, it is fair to say that the current environment has more than its fair share of known unknowns (see KNOWN AND UNKNOWN UNKNOWNS (GROUNDHOGS)), many of which are potential game changers (list followed).

Liquidity is currently flowing liberally in the US economy and into its stock market. Yet, many of the above noted groundhogs could quickly change the outlook significantly. In addition, the era of excess liquidity could well end abruptly on June 30th or, more likely, fade away gradually during the summer months.

It is therefore likely that high uncertainty will keep PE ratios below what they would otherwise be in a more “normal” environment.

This is why caution is warranted here. It will be psychologically very difficult for investors to bid stocks up when PEs are no longer terribly attractive and given the number and dangerousness of the groundhogs out there.

Pointing up On August 15, 2011 as politicians on both sides of the pond were playing Russian roulette with already sick economies, NTU pondered whether it was time tp take advantage of the significant undervaluation in U.S. equities at 1180:

Although rare and appealing from a value stand point, the current 21% undervaluation is not a guarantee of positive returns. In the last 90 years, similar undervaluation levels have not been followed by positive returns in the following circumstances:

Major war.

Deflation.

Rapidly rising inflation.

US inflation has been rising at a fast clip in 2011, from 0.8% in January to 3.6% in June (July CPI to be released Aug. 18). This very rapid rise in the deflating component of the Rule of 20 has been a major factor in my downgrading of equities during the early part of 2011. In effect, the S&P 500 Index went from a 21% undervaluation in November 2010 (1185) to a much less appealing 7% undervaluation last June (1320). The rise in the inflation rate cut the Rule of 20 fair PE by 2.8 points, offsetting the 14% jump in trailing earnings during the period.

(…) the way the economy is going, a total surprise to the Fed and to the economist community in general, who also used “transitory” to qualify the spring’s soft economic data. Fortunately, my readers have been repeatedly warned that the world was actually not transiting to anything pleasant (THE ECONOMIC AFTERLIFE (June 6), EQUITIES: TIME TO GO FISHING but NOT BOTTOM FISHING! (June 13), THE US ECONOMY NEEDS ANOTHER “MIRACLE” (June 17), EQUITIES: CAREFUL OUT THERE! (July 7).

I then offered 3 scenarios and took side this way:

For my part, given that we are only in mid-August (see SEASONALITY OF EQUITY MARKETS) with so little visibility and such high volatility, I remain on the sidelines for a while longer even though my fishing season is over (sigh).

Pointing up On November 8, 2011, right in the middle of the Eurozone crisis I began my post (TIME TO INCREASE EQUITY EXPOSURE) with:

I have been very cautious on US equities since April 2011, warning that good apparent valuation would be overwhelmed by the significant macro risks. Recently, the US economy has distanced itself from recessionary risks, at least for the shorter term, and US inflation has started to recede, providing relief to consumers and a more solid background for valuation.

I then explained and documented the reasons why the Euro-scare had reached its high, concluding:

This is a binary situation and Angela Merkel will not want to go down in history as the euro sinker. The writing is on the wall and that German wall will also fall.

Then, I proceeded to explain and document the fact that the U.S. economy was not double dipping and that, in fact, it was doing surprisingly better:

Economic forecasts are more upbeat while inflation is tapering off.

US employment is slowly recovering The U.S. labor market is edging forward, with fresh data suggesting October’s modest job gains are continuing into November.

The US LEI keeps rising, gaining 0.9% in October after 0.1%in September and 0.3% in August. The October advance reflected gains in many areas that have been lagging in the recovery so far.

With the economic background more positive, highly attractive equity valuation levels became irresistible:

At 1221, the S&P 500 Index is selling at 12.9x trailing EPS. The last time the trailing PE fell below 13 was in March 2009. Prior to that, one has to go back to 1989 to find PEs below 13, a period when US inflation was in the 6% range.

The Rule of 20takes inflation into account when assessing equity valuation. Under the Rule of 20, the appropriate PE should be 16.5 (20 – 3.5) which, using $94.75 trailing EPS gives a fair value of 1563 for the S&P 500 Index.

(…) Of course, risks remain, particularly from the political side. This is why valuation is so attractive. However, the Euro risk has entered its “terminal” phase and while US politicians continue to act … as mere politicians, the resiliency of the economy and the easing of inflation, coupled with extraordinarily low interest rates promised for “an extended period” and ample liquidity, provide a good background for US equities.

OTHER STUFF

Tracking all pertinent news and stats, NTU is often among the first to detect trend changes. A few examples:

On June 6, 2011, NTU posted THE ECONOMIC AFTERLIFE which argued that Bernanke and most economists’ reassuring comments that recent poor economic stats were merely a “soft patch” and “transitory” were only wishful thinking and that the transition would in fact be toward a tougher life. By mid-summer, most economists got worried of a double-dip.
NTU was among the first last fall to document that the double dip risk was declining as the U.S. economy was in fact reaccelerating.
NTU was among the first to warn of a significant slowdown in China.
NTU was among the first to warn that U.S. inflation was peaking last summer.
NTU was among the first to spot GREEN SHOOTS IN US HOUSING? in mid-October 2011.

This is what New$-to-U(se) is all about:

NTU publishes (and archives) all pertinenteconomic facts objectively and dispassionately.
NTU analyzes trends and confronts them with conventional economic wisdom and the flavor of the day in the media.
NTU carefully analyzes and monitors equity market valuations using all appropriate tools but placing significant weight to The Rule of 20 which values equities using actual trailing earnings andinflation rates.
NTU assesses equities based on their risk/reward ratio as upside potential needs to always be measured against the downside risk.
Contrary to most people who let their assessments of the economic and financial environments dominate and dictate their valuation work, NTU starts with valuation, then assesses if the economic and financial environments are favorable to a closing of the valuation gaps if any.
NTU also offers competing views and opinions from other analysts and commentators, to challenge and verify my own initial ideas.

Disclaimer

NTU is a personal site used for my personal investments but open to everybody. If you ever invest on the basis of NTU’s analysis, do it at your own risk and peril since there is no guarantee whatsoever about anything, including my own sanity. Remember that past performance is no guarantee for the future, even though I work very hard at it since our lifestyle totally depends on it.

NEW$ & VIEW$ (23 Jan. 2012)

Posted on January 23, 2012 by Denis Ouellet

Big week on earnings, Obama’s State of the Union, plus Davos. Cheers! Mug

David Rosenberg:

A market on wheels! The equity market has gotten off to its best start in a good 15 years and being led by the deep cyclicals and financials.

Ghost [GREEKDEBT] IMF’s Lagarde Sounds Alarm Over Europe

The global economy faces a depression-era collapse if Europe doesn’t quickly act to dramatically boost the size of its debt-crisis firewall, implement pro-growth policies and further integrate the euro zone, the head of the IMF warned.

Ms. Lagarde said unless euro-zone leaders urgently build a bigger emergency bailout fund, two of the euro zone’s largest economies, Italy and Spain, risked insolvency as the cost of financing their debt spikes upward. Insolvency in those two nations “would have disastrous implications for systemic stability,” she said.
“Adding substantial real resources to what is currently available by folding the European Financial Stability Fund into the European Stability Mechanism, increasing the size of the ESM, and identifying a clear and credible timetable for making it operational would help greatly,” she said.

Talks on Greek Debt Hit an Impasse

Greek bondholders draw line in the sand

Private owners of Greek debt have made their “maximum” offer for the losses they are willing to accept, the bondholders’ lead negotiator has said, implying that any further demands could kill off a “voluntary” deal and trigger a default.(…)
Mr Dallara said the IIF’s position tabled with Greek authorities on Friday night – believed to include a loss of 65-70 per cent on current Greek bonds’ long-term value – was as far as his side was likely to go.

If you’re a “private” sovereign bond holder, how do you feel about the possibility of a 65-70% “voluntary haircut”? That’s no haircut, that’s a scalp! Yet, Euro banks surged 9% last week!

Spanish Economy Is Poised to Shrink 1.5% This Year, Central Bank Forecasts

Spain’s economy contracted 0.3% in the fourth quarter and will shrink 1.5 percent this year, the Bank of Spain estimated, undermining government efforts to cut the budget deficit amid the second recession in two years.

Economic output may decline this year as unemployment reaches 23.4 percent, returning to growth of 0.2 percent in 2013, the central bank said. The forecasts are based on the premise that the government will adopt additional austerity measures to “strictly” meet its budget goals.

Confused smile More austerity = return to growth?

A WEAKER EURO HELPS …GERMANY

Weaker Euro Could Turbocharge Auto Profits

German car makers are seen as the biggest beneficiary of a falling euro. Their production is generally in the euro zone, but many of their customers are in Asia and the U.S. A weaker euro could lead to fatter profits when earnings overseas are converted back to the currency.

MEANWHILE, THE U.S. ECONOMY KEEPS SURPRISING

It has now been 4 months of better economic news in the U.S. Citigroup’s surprise indicator generally does not get better than that.

U.S. HOUSING: THE SLOW GRIND CONTINUES

Sales Stir Hope for Housing Market

Existing-home sales increased 5% in December from a month earlier, to a seasonally adjusted annual rate of 4.61 million units. They were +3.6% YoY. For all of 2011, existing-home sales rose 1.7% to 4.26 million from 4.19 million in 2010.

Another sign that demand is strengthening: sales could have been even stronger in recent months. Contract failures were reported by 33% of NAR members in December, unchanged from November; they were 9% in December 2010. Contract cancellations are caused largely by declined mortgage applications and failures in loan underwriting from appraised values coming in below the negotiated price.

Total housing inventory at the end of December dropped 9.2% to 2.38 million existing homes available for sale. Visible inventory has trended down since setting a record of 4.04 million in July 2007, and is at the lowest level since March 2005 when there were 2.30 million homes on the market. (Chart courtesy of NBF Financial)

MIAMI CONDO MARKET HEATING UP.

YES, MIAMI!

Buyers purchased nearly 1,750 new units for a combined $800 million between January and December of 2011 to reduce the number of unsold units controlled by the original developers to eight percent of the nearly 22,250 condos created in Greater Downtown Miami during the South Florida real estate boom, according to a new report based on an analysis of Miami-Dade County Property Appraiser data.

“Buyers are acquiring an average of nearly 150 developer condos per month for $368 per square foot in Greater Downtown Miami,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. “The transaction velocity remains strong in early 2012 even though the average developer sales price has increased from less than $300 per square foot in 2009 and $305 per square foot in 2010. (…)”

NEW CONSTRUCTION UNDER WAY

At the current sales pace, the Greater Downtown Miami condo market could be sold out by the first quarter of 2013.

At least 10 new towers with more than 3,200 units are proposed for Greater Downtown Miami which has been the epicenter of the South Florida crash, according to the CondoVultures.com Preconstruction Condo Projects list.

Car Makers’ U-Turn Steers Job Gains

Auto-industry employment in the U.S. is predicted to jump to 756,800 in 2015 from 566,400 in 2010, with most of that increase in Michigan, according to the Center for Automotive Research in Ann Arbor, Mich. While that falls well short of the 1.1 million workers employed in the sector in 1999, it indicates the hemorrhaging has been stanched. The center also said major auto companies indicate they expect to increase capital spending in the next few years.

RECENT INFLATION TRENDS HAVE BEEN FAVORABLE BUT…

Cattle prices hit record after US drought Livestock sold earlier because of dry spell

Cattle traders and packers believe prices could rise further. “We are on a cycle in which the size of the herd is getting smaller and smaller and prices can only rise,” a senior executive for one of the US largest meat packers said.
“In addition, the drought in southern US, particularly in Texas, is also impacting cattle numbers and that is another bullish factor.”

Orange juice prices squeezed higher

Disease outbreak in Texas pushes futures to daily limit

The Texas Department of Agriculture and other US authorities confirmed midweek the first detection in the southern state of citrus “greening”, a destructive bacterial disease transmitted by an insect called the citrus psyllid. Texas is the third-largest orange producer in the US, after Florida and California.

And oil which dropped just in time for Christmas:

The average price of a gallon of gasoline in the U.S. rose to $3.45 this week, increasing for the fourth straight week.

EU agrees Iran oil embargo Bloc seeks to pressure Tehran over nuclear ambitions

Foreign ministers from the EU’s 27 member states meeting in Brussels decided to begin full implementation of the ban on July 1 after Greece, a big buyer of Iranian crude, reluctantly dropped its demand for an eight-month transition period, diplomats said.

COPPER DEMAND OUTLOOK! FROM WHERE?

Copper Imports by China Surge to a Record in December on Demand Outlook

Arrivals jumped 78 percent from a year ago to 406,937 metric tons, rising for a seventh month, according to an e- mailed statement from the General Administration of Customs today. That was the highest on record, according to Wang Zhouyi, an analyst at Shanghai CIFCO Futures Co.
Surging imports, coupled with a rebound in domestic production, have swelled inventories in Shanghai for a seventh week and widened the local cash discount. Three-month copper on the London Metal Exchange advanced to $8,428.5 a ton yesterday, the highest in four months, after retreating 21 percent in 2011.

GOLD

Year of Dragon lifts China gold demand

Precious metal is increasingly popular as festive gift

The value of sales in 2011 rose 61 per cent from the previous year, hitting Rmb 11.6bn ($1.8bn). The first weekend in January saw sales increase 50 per cent from the previous year, as customers stocked up on new year gifts.

Pointing up China sees 2nd month of net forex sales in Dec Chinese banks sold more foreign currency than they bought from clients in December. The December deficit stood at $15.3 billion, up from $800 million recorded in November.

EARNINGS WATCH

Dow’s Blue-Chip Day

Strong earnings from IBM powered blue-chip stocks even as discouraging quarterly reports from other bellwethers kept a lid on broader market gains.

The Dow rose to a six-month high, with IBM accounting for nearly two-thirds of the index’s gains. Shares rose $8, or 4.4%, to $188.52, after the company’s better-than-expected fourth-quarter earnings late Thursday.
Microsoft advanced 1.59, or 5.7%, to 29.71 after the company late Thursday reported fiscal second-quarter earnings that beat expectations.
Intel gained 75 cents, or 2.9%, to 26.38, after the chip maker late Thursday topped fourth-quarter earnings and revenue forecasts.
Google fell 53.58, or 8.4%, to 585.99, and was the S&P 500′s biggest laggard after reporting late Thursday fourth-quarter earnings and revenue that fell short of expectations.

TECH PROFITS: FROM FT’S LEX COLUMN:

For all big tech companies, the worry heading into the fourth quarter was that sales growth and margin expansion, which have hummed along since the financial crisis subsided, would revert to the mean (as they must, sooner or later). On sales, the worries proved well-founded: at all four companies, the fourth quarter grew more slowly than the third, and (except at Intel) was the slowest quarter of the year. There are specific explanations at each company, of course: both Intel and Microsoft were hit by the floods in Thailand which caused supply problems in a PC market already slowing without the added pain of rising water. IBM is always perfectly happy to sacrifice sales as long as profits grow. The pattern is unmistakable, all the same.
Margins, on the other hand, are hanging in there. Microsoft’s fell but that was to be expected when its PC sales-dependent operating systems business, which absolutely spews profits, shrank. The release of the next version of Windows, perhaps late this year, should help. Intel reported the best gross margin of the year, higher than last year’s fourth quarter, and the company expects a strong margin year in 2012. Margins at IBM continue to tick up as well.

GE Profit Slides on Pricing

General Electric’s biggest industrial businesses are struggling to expand profit despite rising sales as prices for the conglomerate’s products remain under competitive pressure.

Overall, GE said its fourth-quarter profit fell to $3.73 billion, weighed down by lingering costs from a consumer-finance business in Japan that GE has exited and excluding gains from the sale of a Central American bank that helped results in the same period a year earlier.
GE reported new orders rose 15% from a year earlier to $28.6 billion. The company also again reported strong demand in emerging markets, where industrial orders rose 26%.

Johnson Controls Pares Profit View as Europe Slips

Auto industry supplier Johnson Controls Inc. dialed back its full-year forecast, citing weakness in Europe and troubles in China, in a new sign that Europe’s economic weakness is spreading across the global auto industry.
The Milwaukee, Wis., battery maker and auto parts bellwether, said it now expects European auto production to drop 3.5% to 19.6 million new vehicles during its fiscal year which ends Sept. 30. The company originally expected production to increase 1.5% to 20.1 million vehicles.
Johnson Controls now expects its fiscal year earnings to be between $2.70 to $2.85 a share, down from its previous projection of between $2.85 a share and $3 a share. Second-quarter per share earnings are now projected to be between 52 cents and 54 cents, well below analysts’ 70-cent estimate.

Obama Promises Economic Blueprint

Obama in his weekly radio address accused Republicans of dragging their feet on proposals to expand the economy, and said his State of the Union address Tuesday would lay out plans to boost growth. The GOP was skeptical.

NEW$ & VIEW$ (20 Jan. 2012)

Posted on January 20, 2012 by Denis Ouellet

MORE POSITIVE SIGNS FOR THE U.S. ECONOMY

U.S. COMMERCIAL LOAN GROWTH TURNS YoY POSITIVE

Loan demand is recovering, sign that deleveraging is easing and the real economy is bouncing back. (Chart courtesy of RBC)

AmEx Profit Climbs 12% as Cardholder Spending Rises

American Express Co.’s fourth-quarter earnings rose 12% as cardholder spending kept rising and the company booked higher revenue, though loan-loss provisions increased. The company’s cardholders—mostly affluent consumers and businesses—have been pushing their spending to new highs in recent quarters, despite high unemployment and uncertainty in the economy, a trend Chairman and Chief Executive Kenneth Chenault said continued in the most recent period.

DID YOU NOTICE THAT THE TWO BIG LAGGERS ARE OUTPERFORMING THIS RISING MARKET? (Chart courtesy of RBC)

ALSO NOTE THIS:

Smile Homeowners Stop Waiting to Spruce Up Americans are stepping up spending on home improvements for the first time in years, giving a small lift to the beleaguered construction sector.

An index of remodeling activity compiled by BuildFax has climbed steadily from 103.3 a year ago to 137.9 in November, the latest available data.

INFLATION EASING EVERYWHERE:

CANADIAN Annual inflation falls sharply to 2.3%

Prices plunge on gas, food, cars as rate falls in December from 2.9 per cent the previous month.

The 0.6-per-cent decline both in the annual rate, and the actual decrease in consumer prices from the previous month, was among the steepest one-month decline reported by Statistics Canada since the summer of 2009, when the country was in recession. The central bank’s core index, which excludes volatile items such as gas and some foods, dipped below the two-per-cent target to 1.9 per cent.

VERY INTERESTING:

U.K. Retail Sales Rise U.K. retail sales volume rose in December, despite the slowing economy, boosted by record sales of clothing and footwear and mild winter weather, official data showed.

The volume of retail sales including automotive fuel rose 0.6% from November and was 2.6% higher than in December last year, the Office for National Statistics said. Sales in December showed a significant rebound from the previous month’s figures when sales fell 0.5% on a monthly basis and increased 0.4% annually.
The volume of retail sales in the fourth quarter was 1.1% higher than in the third, the strongest quarter-to-quarter growth since August 2010.
(…) sales from nonfood stores rose 1%. Sales of textiles, clothing and footwear increased 1.8%—the highest level since records began in 1988.

Greece Near Deal on Debt Greece and its private-sector creditors appeared to be closing in on a debt-restructuring deal, raising hopes it would pave the way for another bailout.

THE FISCAL COMPACT

One week ago, I posted in NEW$ & VIEW$ that Jörg Asmussen, a member of the ECB’s executive board, rapped drafters of the fiscal pact who were trying to include an “escape clause” that could lead to “easy circumvention of the rule”. Well, the new treaty is tougher on both elements without adopting the full range of the ECB recommendations:

EU Toughens Fiscal Pact Bowing to ECB Objection

European Union governments set tougher rules on budget deficits in the latest draft of a planned fiscal treaty, bowing to some objections raised by the European Central Bank.
The blueprint, to be discussed on Jan. 23 by EU finance ministers, will require a centralized “correction mechanism” to be triggered “automatically” in cases of “significant” deviations from a target structural deficit of 0.5 percent of gross domestic product, according to the draft dated Jan. 19 obtained by Bloomberg News.
The pact also empowers the European Commission to set deadlines for budgetary convergence. It gives the European Court of Justice the power to fine countries whose balanced-budget laws don’t pass muster, while stopping short of the ECB’s request that the court more broadly enforce the budget rules.

Pointing up FYI, In presentations today, four economists at the Washington think tank Peterson Institute for International Economics– two on each side – debated opposing scenarios for how the crisis will play out.

CHINA WATCH

Rainbow There are more and more signs that China is gradually (and silently) easing:

China’s Jan new loans at least 900b yuan The size of new Chinese loans in January could be between 900 billion to 1 trillion yuan ($143 billion to $158 billion), Reuters reported Friday, citing the China Securities Journal.

China’s banks ratcheted up lending in the last month of 2011 on the back of stronger money supply, extending 640.5 billion yuan in new loans in December, up from 562.2 billion yuan in November, data from the People’s Bank of China showed early this month.

PBOC injects more funds into banks to ease liquidity squeeze

With another 126 billion yuan in bills and repos due in January, the amount of cash the PBOC released back to lenders through its open market operations is equivalent to lowering banks’ reserve requirement ratio (RRR) by 0.5 percentage points.
The PBOC’s liquidity injection brought down short-term borrowing costs between Chinese banks, as suggested by Thursday’s interbank market yields. The overnight Shibor fell 1.66 percentage points to 6.49 percent after hitting an all-time high of 8.16 percent on Wednesday. The one-week Shibor weakened by 1.88 percentage points to 6.01 percent, while the two-week Shibor plunged by 220.16 basis points to 6.60 percent.

THERE ARE MANY, MANY REASONS FOR CHINA TO EASE. HERE ARE TWO, on top of the manufacturing slowdown posted earlier this morning:

FDI registers another drop in Dec Fragile world economic recovery and increasing labor costs blamed.

Foreign direct investment (FDI) in China declined by 12.73 percent in December from the year before, the second month in a row that had seen such a decrease, the ministry said. In 2011, the country’s total amount of FDI reached a new high of $116 billion but its growth rate slowed to 9.72 percent from 17.4 percent in 2010, according to the ministry.

Investment from the United States decreased by 26.1 percent in 2011 to $3 billion, while that from the European Union decreased by 3.65 percent to $6.3 billion, the ministry said.

Chinese authorities can only be scared by this chart from B. Scott Minerd, Investment Officer / Managing Partner, Guggenheim Partners Asset Management, LLC

Despite Global Jitters, The U.S. Remains the Best Performer in 2011

PROBLEM COMING FOR THE U.S. BOND MARKET?

China’s US Treasury stock at 16-month low China cut its holdings of United States Treasury bonds to the lowest level in 16 month.

According to data from the US Treasury Department, China’s holdings of US Treasury bonds stood at $1.1326 trillion by the end of November 2011, $1.5 billion down from the previous month. It was the second successive month that the amount had declined, and the lowest reserve level seen since July 2010. China made six monthly cuts of US debt in 2011, the department’s data showed, trimming its holdings by $27.5 billion from the end of 2010.

In December 2011, China’s foreign exchange reserves declined on a quarterly basis for the first time in more than a decade, falling to $3.18 trillion, according to data from the People’s Bank of China, the central bank.

QUOTE OF THE DAY: Appropriate now that everybody is howling the equity rally out…

The rally isn’t “stupid” and making money is the whole reason to invest in the first place. Braying about the idiocy of those who’ve profited from this rally is akin to howling at the moon: it gives you a sore throat and the moon doesn’t care. (Jeff Macke)

By the way: