NEW$ & VIEW$ (30 MAY 2013)

Surprised smile  Tokyo Shares Down Sharply Tokyo stocks fell sharply again, with the Nikkei losing 5.2% to land decisively in a correction. It has now lost 14.7% over the past week.

Lightning  EUROZONE RETAIL PMI AT 46.8 IN MAY

Survey data indicated a further sharp year-on-year drop in eurozone retail sales in May. Sales have fallen continually on an annual basis for the past two years, the longest sequence since the survey began in January 2004. That said, the rate of decline slowed sharply from April, to the weakest in five months. This reflected slower contractions in Italy and France, although Germany still posted the weakest overall rate of decline.

Retailers cut employment for the fourteenth month in a row in May. The rate of job shedding eased further from March’s 43-month record, however, to the weakest in that sequence. German retailers increased staffing at the strongest rate in nine months.

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Spain Recession Eases as Consumers Offset Faltering Exports

Gross domestic product fell 0.5 percent from the fourth quarter, in line with a first estimate on April 30, the Madrid-based National Statistics Institute said today. Output dropped 0.8 percent in the final three months of last year, the sharpest decline since 2009 when the global economy was plunged into a recession following the collapse of Lehman Brothers Holdings Inc.

Household spending contracted 0.4 percent from the previous quarter, when it shrank 1.9 percent, while exports further dropped, by 1.3 percent after 0.9 percent.

Confused smile  What offset? Spending contracted 0.4% QoQ.

Brazil raises interest rates to 8%
Central bank attempts to tackle rising inflation as growth undershoots forecasts
 
India’s power shortage is economic drain
S&P says electricity crisis could affect credit rating

 

EARNINGS WATCH

Q1 earnings season is essentially over. Of the 489 companies having reported May 27, S&P calculates that 65.9% beat and 26% missed. Q1 EPS are now seen at $25.76, up 6.3% YoY. This would bring trailing 12 months earnings to $98.34, up 1.6% from 3 months ago but still within the $97.40-97.69 range of the last 5 quarters.

Q2 estimates are $26.57, +4.4% YoY. Q2 estimates keep coming down as analysts adjusts to slower economic data and company guidance. Q2 estimates were shaved another $0.12 in the last 2 weeks, in line with the average weekly decline since March 28 when Q2 estimates were $27.46. Full year earnings are now estimated at $109.56, down 1.4% from $111.14 on March 28.

So far, 106 companies have pre-announced Q2 results, the same number as at the same stage last quarter. 86 (81%) were negative compared with 82 (77%) as of Feb.28.

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Revenues were up a meagre 1.3% in Q1, down from +5.6% in Q4’12. Sectors with the weakest revenue growth rates were Energy (-7.7%), Industrials (0.5%), Utilities (1.2%), Materials (1.5%) and Consumer Staples (2.3%). The highest growth rates were in Consumer Discretionary (6.5%), Financials (4.3%) and Telecom (4.0%).

Operating margins rose to 9.6% in Q1, a new record, but this was essentially due to Financials which saw their margins jump from 11.1% to 14.1%

Sarcastic smile  Consumer Confidence: A Contrarian Indicator

Last week I wrote about the uselessness of the Consumer Confidence data (FEELING GROOVY!). It seems I was wrong after all: it can be a great contrarian indicator. Mark Hulbert in Yet another reason to be scared:

(…) I know it strikes many as counter-intuitive to worry about a big jump in consumer confidence. But that’s what I am doing after analyzing the Conference Board’s Consumer Confidence Index over the last three decades. Specifically, I correlated each month’s change in that index with how the stock market performed in subsequent months.

The biggest monthly jumps in the consumer confidence index were, on average, followed by sub-par returns. Conversely, big drops in the index were typically followed by above-average returns.

Pointing up  The most robust statistical patterns in the data, however, arose when I measured the impact on the consumer confidence index of the stock market’s performance in prior months. I found that the index tends to rise following periods in which the stock market is strong, and vice versa.

So, given that the stock market is surging to successive new all-time highs, it is not a huge surprise that consumer confidence would strengthen.

Following the lead of the consumer confidence numbers is therefore like driving by looking in the rear view mirror. Consumer confidence tells us more about how the stock market has already performed than it does about the future. But insofar as consumer confidence tells us anything about the future, it’s that stronger readings are more negative than positive for the stock market. (…)

US shale output boost ‘temporary’
Prices will remain high, says trader dubbed ‘God’

 

The oil trader known by rivals as “God” predicts the US shale revolution will only “temporarily” boost production and oil prices will remain high, siding with Saudi Arabia and the Opec cartel in a debate gripping the energy market.

Andy Hall, whose lucrative bets on oil prices earned him a $100m salary at Citigroup in the 2000s, told investors that the rapid decline in output suffered by shale wells is “likely [to] mean that the bounty afforded by shale resources is temporary”. (…)

The trader told investors in his $4.5bn Astenbeck hedge fund, which he runs alongside the Phibro commodity trading house, that while output from shale oil wells is initially prolific, production declines rapidly because each well only taps a single pool of rock-trapped oil, rather than an entire reservoir.

In a letter to investors seen by the Financial Times, Mr Hall said that makes it “impossible to maintain production . . . without constant new wells being drilled [which would] require high oil prices”.

Burton G. Malkiel: You’re Paying Too Much for Investment Help

(…) Why do investors continue to pay such high fees for financial services of such questionable value? (…) Outperforming the consensus of hundreds of thousands of professionals at the world’s major financial institutions is next to impossible. It has been for decades. Over long periods, about two-thirds of active managers are outperformed by the benchmark indexes. The one-third that may outperform the passive index in one period are generally not the same as in the next period. But investors can benefit from low-cost index funds and their exchange-traded cousins.

The lesson for investors is very clear: You can’t control what markets can do, but you can control the costs you pay. The less you pay to the purveyors of investment services, the more there will be for you. The quintessential low-cost investment vehicles are index funds, which should comprise the core of every investment portfolio. The high fees charged for active management cannot be justified.

NTU remains free!

 

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