NEW$ & VIEW$ (26 OCTOBER 2012)


Apple warns of pre-Christmas profit fall
Gross margins on new models lower than predecessors

Revenues of $36bn for the three months to September 29 came in just ahead of Wall Street consensus forecasts of $35.8bn, while earnings of $8.67 per share were just below expectations of $8.75. Quarterly net profit grew by 24 per cent year-on-year to $8.2bn. (…)

Apple’s gross profit margins on each iPad mini sold are “significantly below our corporate average”, said finance chief Peter Oppenheimer during the company’s results call on Thursday. He added that the new tablet’s $329 pricing is “aggressive”, despite competitive devices from Amazon and Google costing $199. The iPhone 5 is also less profitable than its predecessors. (…)

New products will make up more than three-quarters of sales in the October-December quarter, Apple said, bringing in more than $50bn in revenues.

Surprised smile  Reporting its fiscal fourth-quarter results, Apple said it anticipated earnings of $11.75 a share in the next quarter, below analysts’ expectations of $15.41 and the $13.87 reported a year earlier. Gross margins are expected to decline 400 basis points sequentially to 36 per cent.

Such a rare year-over-year drop in earnings would also reflect a shorter fiscal quarter to December this year than in 2011, Apple said. Its fiscal 2013 will be one week shorter than 2012, due to an accounting technicality.

Pointing up So, analysts need to slash their Q4 estimate by 25% and AAPL’s Q4 will be down 15% YoY. That’s a big deal for the overall earnings picture.

Amazon posts first net loss since 2003
Group writes off most of investment in LivingSocial

For the fourth quarter, including the critical ­holiday shopping period, Amazon forecast earnings ranging from a loss of $490m to a profit of $310m, compared with earnings of $260m a year before.

Some forecast! Q3 revenues rose 27% YoY. The world’s largest online retailer isn’t even sure to be profitable at Christmas! Confused smile


Storm cloud  Durable-Goods Orders Rise

Manufacturers’ orders for durable goods, such as televisions and cars, increased by 9.9% last month to a seasonally adjusted $218.24 billion, the Commerce Department said Thursday. The big gain was driven by a surge in volatile airplane orders and wasn’t enough to make up for an abysmal August, when orders dropped by 13.1%.

Excluding transportation, September orders were up a solid 2.0%. Demand rose for machinery and metals, and fell for computers and communications equipment. But a key barometer of business investment—nondefense capital goods orders excluding aircraft—was flat in September and barely grew in August, a sign that companies remain cautious and a potential drag on third-quarter economic growth figures due Friday.

Here’s the data from Haver Analytics which shows July’s 5.6% drop!


Doug Short updated the chart that Lance Roberts and David Rosenberg use to warn of a pending recession but rightly concluded that data going back only to 1993 and covering 2 recessions is statistically inconclusive:


Pointing up  However, Moody’s warning is clear and frightening:

When core capital goods orders have shrunk on a yearly basis, business sales growth fell by an average of 3.3%. Core capital goods orders held flat on a monthly basis in September; we must soon see them rise — like last month’s new orders subindex from the ISM Manufacturing survey — if we are not to see a deepening business sector slump.



Problem is: Without Demand, Manufacturing Can’t Pump Up Output or Jobs  No matter the state, one consistency in the regional Federal Reserve factory surveys is the falloff in orders this month.

With four of the five Fed reports already released (the Dallas Fed’s report is due next Monday), the readings on new orders are all negative. Surveys done by the Fed banks of New York, Philadelphia, Richmond and Kansas City found more respondents say orders are falling than the share reporting increased demand.

In addition, a third-quarter survey done by professional services firm PwC found 67% of major U.S. industrial multinationals said “lack of demand” was an expected barrier to their company’s growth over the next year.

That was the No. 1 choice among a list of obstacles that included energy prices, regulatory pressures and taxes, and was a jump from 48% pointing to a lack of demand in the second quarter.

The regional Fed surveys all show production and/or shipments contracting in October. That suggests U.S. industrial production started off the fourth quarter weakly.

Fed indexes covering employment were also uniformly negative in October. Another decline in U.S. factory payrolls would follow losses already posted for August and September.

Hmmm…  elections in 2 weeks, then the looming fiscal cliff with all the politics…Hmmm…

Storm cloud  South Korea GDP Growth Slows  The South Korean economy grew at the slowest pace in nearly three years in the third quarter from the prior three months, adding to pressure on the central bank to keep its policy rate low to promote growth.

[image]Gross domestic product rose a seasonally adjusted 0.2% in the July-September period from the second quarter, slowing from the second-quarter’s 0.3% rise.

“Private consumption grew, while exports rebounded from declines in the previous quarter. But facilities investment continued to drop, weighing on the economic activity,” the central bank said in a statement.

Exports, which account for about half of GDP, rose 2.5% on quarter in the third quarter, after contracting 0.6% in the second quarter.

Storm cloud  Singapore, Thailand Post Weaker Output 

Industrial output weakened again in Singapore and Thailand in September, suggesting the appetite for Southeast Asian-made goods has faltered even as other parts of Asia benefit from demand for consumer gadgets.

In Singapore, manufacturing unexpectedly fell for the second straight month as electronics and pharmaceuticals production slipped. Output in Thailand slumped for the fourth straight month, with September production dropping at a faster pace than August.

In September, Singapore’s overall output fell 2.5% compared with the same month a year earlier, extending August’s revised 2.3% fall (…). Electronics contracted 12.2% on-year. The sector accounts for nearly 35% of all Singapore-manufactured products exported from the country.

Preliminary estimates meanwhile showed Thailand’s industrial production index dropped 13.7% in September from the same month a year earlier, after a revised 11.2% decline in August. The data didn’t include a breakdown by industrial sectors, but electronics exports from Thailand have been faltering, with shipments in August declining by 14.5% on-year.

Fingers crossed  The MNI China Business Survey was 51.9 in October, up from September 51.4.

Japan Adds Stimulus Amid Threat of Bond-Sale Disruption  Japan announced 750 billion yen ($9.4 billion) of fiscal stimulus to shore up growth as bond investors told the government they’re worried about delays in financing more spending.

Lightning  Spain’s Unemployment Reaches Record as Bailout Looms

Unemployment, the second highest in the European Union after Greece, rose to 25.02 percent from 24.6 percent in the previous quarter, the National Statistics Institute said in Madrid today. (…)

The Bank of Spain forecast earlier this week that the euro region’s fourth-largest economy will continue to slump following a fifth straight quarter of contraction in the three months through September.

Lightning  Italy Business Optimism Unexpectedly Falls on Recession

The manufacturing-sentiment index declined this month to 87.6 from a 88.3 in September, Rome-based national statistics institute Istat said today.


[image]Private-sector lending fell 0.8% in September from the same period a year earlier, after dropping 0.6% in August, the ECB said.

Lending to households fell by €1 billion ($1.30 billion) on the month, while lending to companies fell by a dramatic €21 billion. (…)

The weak lending data appeared to corroborate an overwhelmingly negative appraisal of business confidence in the euro earlier this week, even in core countries such as France and Germany. The Dutch statistics agency CBS added to that Thursday, saying its business confidence index fell to minus 7.7 in October from minus 6.7 in September. (WSJ)

Fingers crossed  Oil Set for Second Weekly Drop on Demand Outlook, Supply

Production in the U.S. climbed for a seventh week to 6.61 million barrels a day, a 17-year high. Gasoline consumption declined 2.7 percent to 8.49 million barrels a day, the slowest rate since March 16. The four-week average fell to 8.61 million, a six-month low.

Ed Yardeni on oil demand and prices:

(…) I track world oil demand as another useful way to monitor the global economy. Here is what the latest data, compiled by Oil Market Intelligence (OMI), show:

(1) World crude oil usage rose to a record high of 89.5mbd over the 12 months through September. While “Old World” demand remains depressed, “New World” demand rose to a fresh record high. The latter now exceeds the former by 39%;


(2) The y/y growth rate of world crude oil demand fell to a recent low of 0.3% during March, but has edged up to 0.8% as of September. The growth rate of oil demand among the non-OECD economies has stabilized recently around 2.5%, while the growth rate for the advanced economies of the 34 members of the OECD is up from -1.7% y/y during March to -0.8% during September. That’s mildly encouraging and suggests that the recent weakness in the OECD’s Leading Economic Index may be short-lived.

(3) (…) However, the ratio of the OMI’s demand and supply series (based on the 12-month averages of each) is positively correlated with the yearly percentage change in the price of a barrel of Brent crude oil. The normalized ratio fell to 0.99 in September, the lowest since June 2009. That’s bearish for oil prices, suggesting that only fears of a war in the Persian Gulf are propping them up.



U.S. Pending Home Sales Stabilize

Pending sales of single-family homes ticked up 0.3% last month after a sharp and unrevised 2.6% August decline, according to the National Association of Realtors (NAR). While sales have risen nearly one-third from the 2010 low, the trend since March has been sideways.

Raymond James adds (my emphasis):

Non-seasonally-adjusted pending sales dropped 19.9% month-over-month, a notably steeper decline than the average 13.1% seasonal decline posted in September over the last 10 years. We believe existing home sales (and thus, pending sales data) continue to be weighed down by 1) the remarkable tightening of “listed for sale” inventory this year, and 2) an elevated mix of cash transactions completed by investors that may not be fully captured by the NAR’s survey. In our view, existing home sales would be stronger if not for certain markets facing a depleted supply of “move-in ready” inventory, particularly in parts of the West. We have seen this dynamic at work, and our field trips suggest this effect is shifting demand toward new homes due to the lack of competing for-sale inventory.

Seasonally-adjusted pending sales increased in three of the four regions month-over-month. The breakdown is as follows: West (+4.3%), Northeast (+1.4%), South (+1.0%), and Midwest (-5.8%).

Wen Jiabao Family Linked to Billions in Assets, NYT Reports

Chinese Premier Wen Jiabao’s extended family has controlled assets worth at least $2.7 billion, the New York Times reported, citing corporate and regulatory records and unidentified people familiar with the family’s investments. (…)

The New York Times found no holdings in Premier Wen’s name and no evidence that he used his political clout to influence the holdings, the report said.

After the story was published the Chinese government blocked access to the New York Times’s Chinese-language website in China and intermittently to its English-language website, the newspaper reported in a separate article. (…)


Here’s a novel idea: A Finnish parallel currency is imaginable

(…) Take a look, for example, at a recent research paper from Nordea, the Nordic bank. This paper looks at the question of what might happen if Finland ever decided to run a so-called “parallel currency” system. The idea behind this, as Nordea explains, is that at times of stress it can sometimes seem beneficial for countries to maintain more than one currency unit. Most notably, if a country is trying to leave one currency, keeping that as legal tender alongside a second currency for a period can ensure a country honours its old contracts – and thus avoids a technical default. (…) (FT)


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