NEW$ & VIEW$ (15 OCTOBER 2013)

Senate Nears Deal on Debt, Shutdown

Top Senate leaders said they were within striking distance of an agreement to reopen the government and defuse a looming debt crisis just days before the U.S. could run out of money to pay its bills.

The latest proposal would reopen the government at current spending levels until Jan. 15 and extend the federal borrowing limit until early February, according to aides familiar with the talks. Lawmakers also would begin longer-term negotiations on the budget, with the task of reaching an agreement by Dec. 13. (…)

Still, a deal would mark a major breakthrough in the impasse that has gripped Washington for weeks, shutting federal agencies and threatening the government with a debt default. (Cartoon by Mike Flugennock)

This is the new definition of a “major breakthrough”?

Storm cloud  Here’s a real breakthrough!:


Chain store sales have been weak for a while, +2.0-2.3% YoY since mid-summer, but the 4-week moving average slipped to +1.5% last week, breaking through 1.5% for the first time since February 2010.

Commercial-Property Loans Rise

(…) As of June 30, U.S. banks had $991.2 billion in total commercial real-estate loans, up 3.3% from a year earlier, according to research firm SNL Financial.

J.P. Morgan Chase JPM +0.38% & Co. on Friday reported that outstanding commercial-real-estate loans rose to $61.5 billion in the third quarter, a 12% increase from a year earlier. “The commercial-real-estate business continues to grow strongly,” J.P. Morgan Chief Financial Officer Marianne Lake said during a conference call with analysts, noting loans have increased “every month for the last 13 months.” (…)

Last year’s 2.4% rise in total commercial real-estate loans to $972.7 billion was the first growth in four years, according to SNL. Analysts said the lending rebound, still in its early stages, is being fueled largely by one area: apartment projects. The boom could start to peter out as the single-family housing market recovers, but for now banks are eager to keep lending. (…)


Early report from Factset:

With 6% of the companies in the S&P 500 reporting actual results, the percentage of companies reporting earnings above estimates is below the four-year average, and the percentage of companies reporting revenues above estimates is also below the four-year average.

Overall, 31 companies have reported earnings to date for the third quarter. Of these 31 companies, 61% have reported actual EPS above the mean EPS estimate and 39% have reported actual EPS below the mean EPS estimate. Over the past four quarters on average, 70% of companies have reported actual EPS above the mean EPS estimate. Over the past four years on average, 73% of companies have reported actual EPS above the mean EPS estimate.

In terms of revenues, 52% of companies have reported actual sales above estimated sales and 48% have reported actual sales below estimated sales. The percentage of companies beating sales estimates is above the percentage recorded over the last four quarters (48%), but below the average over the previous four years (58%).

In aggregate, companies are reporting sales that are 0.4% below expectations. Over the previous four quarters on average, actual sales have exceeded estimates by 0.4%. Over the previous four years on
average, actual sales have exceeded estimates by 0.7%.

Heading into the start of the peak weeks of the Q3 2013 earnings season, 110 companies in the index have issued EPS guidance for the third quarter. Of these 110 companies, 91 have issued negative EPS guidance and 19 have issued positive EPS guidance.

If 91 is the final number of companies issuing negative EPS guidance for the quarter, it will mark the highest number of companies issuing negative EPS guidance since FactSet began tracking guidance data in 2006. The current record is 88, which was recorded in Q2 2013.

If 19 is the final number of companies issuing positive EPS guidance, it will mark the lowest number of companies issuing positive EPS guidance
for a quarter. The current record is 22, which was also recorded in Q2 2013.

The percentage of companies issuing negative EPS guidance is 83% (91 out of 110). If this is the final percentage for the quarter, it will mark the highest percentage of companies issuing negative EPS guidance for a quarter since FactSet began tracking the data in 2006.

Call me  If you missed it, I recommend that you read yesterday’s New$ & View$’ EARNINGS WATCH segment.


Home Sales, Prices Slowing in Bust-and-Boom Markets

(…) Phoenix: Investor purchases fell to 20% of sales in September, down from 29% a year earlier, and purchases by nine major institutional investors dropped to 110 sales, down 72% from 398 sales one year ago. Just four of the nine investors bought homes in September, compared with all nine one year ago. Second home purchases dropped by 23%, but purchases by owner-occupants increased by 21%, according to the Arizona Multiple Listing Service.

There were 2.5% fewer homes sold in September compared with a year earlier, even as the number of homes for sale increased by 9.4% over that span, according to the Arizona MLS. (…)  Distressed sales were down 59% from a year earlier.

Sacramento: The number of homes that sold in September fell by 6.8% from a year earlier, and the number that went under contract fell by 3.6%. Listings jumped by 40.3%, according to TrendGraphix Inc. Median prices rose by 1.2% from August and by 36.1% from one year earlier.

Las Vegas: The share of homes that sold in cash last month stood at 47.2%, down from 54.8% in August and one year ago, and down from a high of 59.5% in February, according to the Greater Las Vegas Association of Realtors. Many cash buyers tend to be investors.

Home sales were down 1.2% from a year earlier, even though there were more homes for buyers to choose from. The number of single-family homes listed for sale, at 14,659, stood 12.6% below last year’s levels, but the inventory of “non-contigent” listings—homes that don’t have any offers and aren’t under contract—was 60.5% above year-earlier levels. The median sales price in September fell for the first time in 19 months.

(…) “the market is softening tremendously,” said Bryan Lebo, a local real-estate agent. “Buyers are becoming a lot pickier. They’re more patient.”

In some neighborhoods, he says, homes are now selling for 10% less than they were just a few months earlier, and builders are beginning to offer generous incentives, such as home upgrades to buyers and commissions to real-estate agents, in order to stay competitive.


Official GDP data released later this month looks set to announce the end of the recession in Spain, in line with PMI data covering the manufacturing and service sectors, which in Q3 posted its highest quarterly average since the current recession began in Q2 2011.

One of the most positive aspects of the recent PMI data has been strong growth of manufacturing exports. New export orders increased at the fastest rate in more than two-and-a-half years in August, and maintained this pace in September. Exports have now risen for five months in a row. (…)


Spanish firms have been able to take advantage of recent signs of economic improvement in some of their main export markets. PMI data suggest that the eurozone recovery gathered pace at the end of Q3, while the UK posted particularly strong growth. The Export Climate Index for Spain suggests that conditions for exporters have strengthened in three successive months, largely on the back of these improvements.

Monthly export data from the Bank of Spain also highlight the UK as a key source of current growth in external demand, with rises also seen in the eurozone. However, after increasing strongly towards the end of 2012, exports to the US have shown signs of weakness in recent months.

Further evidence of the recent solid performance of exports in Spain can be seen by splitting the PMI data into exporting and non-exporting companies. This shows that manufacturers that export have recorded growth in overall new orders in recent months, while non-exporters have continued to see falling levels of new business as domestic demand in Spain lags behind. (…)


This over-reliance on external markets is a cause for concern given that economic recoveries in the eurozone and UK are far from assured, and political stalemate in the US has the potential to throw the world economy back into turmoil. It is therefore too early to judge whether the Spanish economy is starting a real recovery or just experiencing another false dawn.

But Spain is not out of the woods just yet (chart from The Economist):


Nor is Europe for that matter (chart from CLSA):


Goldman Sachs: The Growing Income Divide in Four Charts How the rich and poor view the economy has diverged to some of the widest levels in years, data from Goldman Sachs’s latest consumer survey shows.

Pointing up  Chris Wood at CLSA (tks Gary):

Meanwhile, a dramatic social development in America is the ever more glaring extremes in terms of the distribution of income. The latest information on this came from a recently published study by economic professor Emmanuel Saez at University of California, Berkeley, based on income tax data published by the IRS (see “Striking it Richer: The Evolution of Top Incomes in the United States”, 3 September 2013 by Emmanuel Saez, UC Berkeley).

The results are startling and have not surprisingly generated media attention. But the findings are worth repeating for those who missed them. The incomes of the top 1% Americans rose by 19.6% in 2012 while the incomes of the bottom 99% of Americans rose by only 1%. As a result, the top 1% accounted for 19.3% of total household income, excluding capital gains, in 2012, the largest share since 1928. While if capital gains are included, the top 1%’s income share has risen from 18.1% in 2009 to 22.5% in 2012 (see Figure 6).


The above findings provide more evidence that quanto easing is helping the wealthy via asset price appreciation but doing little to improve the overall economy. This is potential politically explosive.


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