Conditions Worse Now Than On Black Monday: Safe Haven Flows Moving Into Gold, Not Treasurys, Japan Is In Danger of Imminent Technical Default, China’s Real Growth Is 0%, Stock Market Is Heading To An Earning Shock And Spain Is Totally Beyond Saving
Stock Market Is Going To Crash Tomorrow? Breaking: Apple Earnings Miss, But iPhone Crushes, Cut Q4 Forecast To $11.75 From $15.45, And iPad Is Weak
- Revenue: $36 billion versus $36 billion expected.
- EPS: $8.67 versus $8.81 expected.
- iPhone: 26.9 million versus 25.3 million expected.
- iPad: 14 million versus 15 million expected (See below for explanation on this estimate).
- Mac: 4.9 million versus 5 million expected.
- iPod: 5.3 million versus 5.5 million expected.
- Gross Margin: 40% versus 40.5%
- December quarter revenue: $52 billion versus $54.9 billion expected.
- December quarter EPS: $11.75 versus $15.45 expected.
- Cash, short term, and long term securities: $121.3 billion.
The economic backdrop that sparked the stock market crash of 1987 is still in place and has grown worse, says Peter Schiff, CEO of Euro Pacific Capital.
In 1987, “the market was spooked by concerns over international trade and government debt, which then became known as the twin deficits” — the budget deficit and the trade deficit, Schiff writes an economic commentary.
The deficits together totaled 6.4 percent of gross domestic product (GDP) then.
Flash forward to now: the deficits add up to 13 percent of GDP. “But today’s investors are largely untroubled,” Schiff says.
With the Fed so committed to quantitative easing, stocks might escape a crash, but not the dollar and Treasurys, he notes.
“Black Monday is more likely to occur in the currency and/or bond markets, with safe-haven flows moving into gold, not Treasurys.”
Japan Has Its Own Fiscal Cliff, And People Are Actually Talking About A Risk Of Imminent Technical Default
Japan has no problem with demand for its bonds – the Bank of Japan is buying plenty and there’s tons of demand via domestic savings – but it may be approaching a supply shock if Japanese politicians can’t figure out how to get deficit legislation passed.
That’s the gist of a warning today from BofA Merrill Lynch strategist Brooks Thompson, who sent a note to clients this morning with the title: Did You Know Japan’s Fiscal Cliff is Right Around the Corner?
Here are Thompson’s thoughts on the conflict:
The current political stalemate has delayed legislation to finance the budget and Japan’s coffers are expected to run-out by end of November, which would lead to technical default. I don’t want to overly exaggerate, but I’d say this is a much more current and (somewhat) serious reality than the BOJ buying foreign bonds.
There are a lot of interests or inquiries regarding foreign bond buying by the BOJ, but I have not heard one inquiry about Japan being on the brink of default. We’re not talking about 3yrs, 5yrs or 10yrs from now, this could technically happen as early as December. Of course no one believes that Japanese politicians would actually allow the country to default, but just as the fiscal cliff in the U.S. is a reality, the political stalemate in Japan makes this unthinkable possibility a bit of a reality.
Chinese GDP grew 7.4 percent year-over-year in the third quarter, a number that many have cast doubt on.
Now famous China bear Gordon Chang has jumped on the band wagon.
In an interview with Yahoo! Finance, he said that GDP growth is actually closer to plus or even negative one, or even flat:
“GDP is probably zero, maybe plus one, maybe negative one. This number is not consistent with the Chinese economy. By far the most reliable indicator of Chinese economic activity is the production of electricity and in the third quarter the average monthly increase in electricity production was 2.1 percent. And because electricity historically outpaces the growth of GDP, this means China couldn’t have been growing much faster than zero.”
90% Of Corporate Forecasts See Results Below Wall Street Consensus And A Massive Estimates Cut Across The Board Imminent!!
Halfway through the third-quarter earnings season, one thing is becoming clear: the fourth quarter is likely to be gloomy.
Right now analysts have so many variables going on, they have to run more scenarios than is practicable. The problem with that practice is that the longer analysts wait, the more pronounced an effect it’ll have on markets when they do cut estimates.
“I’m just hoping it will not be a massive one across the board,” Silverblatt said. “That can come somewhat as a shock.”
As of Tuesday midday, among S&P 500 companies, 35 out of 39 firms, or 90%, that gave forecasts have provided an earnings outlook that guides below the Wall Street consensus, according to John Butters, senior earnings analyst at FactSet. That’s even worse than the 78% negative forecast rate going into third-quarter earnings season, which was the lowest recorded by FactSet since it began tracking the data in 2006.
Similarly, among S&P 500 companies, 25 out of 28, or 89%, have said fourth-quarter revenue will come in below consensus.
Most notably, the tech and industrial sectors are calling for a rough fourth quarter.
JUST-IN: AMAZON DIVES AFTER EARNINGS MISS
My prediction regarding the breakup of the EU was obviously way early.
However, the fact remains that the EU will break up in time. And it will likely be Spain that brings this about.
The reasons? Among other things:
- Spain’s private Debt to GDP is above 300%.
- A huge portion of Spain’s banking system (representing over 50% of mortgage loans AND deposits) was totally unregulated up until just a few years ago.
- Spanish banks are drawing over €400 billion from the ECB on a monthly basis (up from €377 in June) to fund their liquidity needs.
- Spanish banks are now net sellers of Spanish sovereign bonds (leaving the ECB as the only buyer in the market)
- Spain’s banking system has lost 18% of its deposits in the last 10 months due to a staggering bank run.
- The economy of Spain is a disaster with total unemployment over 25% and youth unemployment above 50%.
- Spain is now facing a constitutional crisis with various regions looking to secede if they don’t receive bailouts from the Federal Government “without conditions.”
- Spanish banks need to roll over (meaning renew terms on) more than 20% of their bonds this year.
So Spain will suffer a collapse, most likely of its banking system resulting in a sovereign default (barring a bailout). When this happens, some €1 trillion+ worth of collateral (still rated AAA by EU banks) will be sucked out of the system.
This in turn will spur margin and collateral calls on tens of trillions of Euros’ worth of derivative trades.
In precisely the kind of news president Obama does not want heading into the election, Ford (F), Dow Chemical (DOW), DuPont (DD), and Advanced Micro Devices (AMD) all announced mass layoffs this past week as Firings Reach Highest Since 2010.
North American companies have announced plans to eliminate 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg. Firings total 158,100 so far this year, more than the 129,000 job cuts in the same period in 2011.
“Companies are saying, ‘Let’s not build up inventories, let’s be lean and mean until we know until we have a better idea of what 2013 is going to look like,'” said Janna Sampson, who helps manage more than $3 billion for Oakbrook Investments in Lisle, Illinois. “There is a fear now as companies see that the economic recovery is not picking up.”
So far, out of 204 S&P 500 companies that have released third-quarter earnings, 120 have reported sales that trailed analysts’ estimates, according to data compiled by Bloomberg.
Those results, similar to the S&P 500’s second-quarter performance, signal employers may increase firings over the next two quarters, according to John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., a human resources consulting firm based in Chicago.
Sales misses are “a sure prescription for layoffs starting to heat up as companies take immediate action to show their shareholders how responsive they are,” Challenger said yesterday by telephone.
- Ford is closing its first European car-assembly factories in 10 years
- AMD, the second-largest maker of processors for personal computers, said last week it will cut 15 percent of its staff, or about 1,665 jobs, after forecasting fourth-quarter sales that fell short of analysts’ estimates.
- Dow Chemical will close 20 plants in the U.S. and abroad to eliminate about 2,400 jobs
- DuPont plans to trim 1,500 jobs after third-quarter profit trailed analysts’ estimates
- Cummins Inc. (CMI), a Columbus, Indiana-based engine maker, said it expects to erase as many as 1,500 jobs by the end of 2012 and lowered its forecasts for sales and profit.
- Kimberly-Clark Corp. (KMB) said this week it plans to cut manufacturing and administrative operations as it exits the diaper business in western and central Europe
If President Obama is re-elected, he would regard that as a mandate to raise taxes on high incometaxpayers. Some Democrats advocate that the President propose new legislation in January to cut taxes on everyone with income below $250,000, daring House Republicans to vote against a bill that lowers taxes on 97 percent of taxpayers while raising taxes on no one
Here’s the full list:
Bill Ackman, Founder & CEO, Pershing Square Capital Management, L.P.
Samuel R. Allen, Chairman & CEO, Deere & Company
Richard Anderson, Chief Executive Office, Delta Air Lines, Inc.
Steve Ballmer, CEO, Microsoft Corp.
Doug Bergeron, CEO, VeriFone Systems, Inc.
Mark Bertolini, Chairman, CEO & President, Aetna, Inc.
Leon Black, Chairman & CEO, Apollo Global Management, LLC
Lloyd Blankfein, Chairman & CEO, Goldman, Sachs & Co.
Glenn Britt, Chairman & CEO, Time Warner Cable Inc.
Greg Brown, Chairman & CEO, Motorola Solutions, Inc.
Nicholas Calio, President & CEO, Airlines for America
Russell Carson, Co-Founder & Gen. Partner, Welsh Carson Anderson & Stowe
Marc Casper, President & CEO, Thermo Fisher Scientific Inc.
John Chambers, Chairman, President & CEO, Cisco Systems, Inc.
David Cote, Chairman & CEO, Honeywell International Inc.
Alexander Cutler, Chairman & CEO, Eaton Corp.
Richard Daly, CEO, Broadridge Financial Solutions, Inc.
D. Scott Davis, Chairman & CEO, United Parcel Service, Inc.
Steven A. Denning, Chairman, General Atlantic, LLC
Jamie Dimon, Chairman & CEO, JPMorgan Chase & Co.
Scott Donnelly, Chairman, President & CEO, Textron Inc.
Craig Duchossois, CEO, The Duchossois Group, Inc.
Brian Duperreault, President & CEO, Marsh & McLennan Companies, Inc.
Larry D. Fink, Chairman & CEO, BlackRock, Inc.
Martin L. Flanagan, President & CEO, Invesco Ltd.
James Frank, President & CEO, Wheels, Inc.
Kenneth Frazier, Chairman, President & CEO, Merck & Co., Inc.
Paul Fribourg, Chairman, President & CEO, Continental Grain Company
Daniel Fulton, President & CEO, Weyerhaeuser Company
Robert Gasser, President & CEO, Investment Technology Group, Inc.
Donald Gogel, Chairman & CEO, Clayton, Dubilier & Rice, LLC
Evan Greenberg, Chairman, President & CEO, ACE Limited
Robert Greifeld, CEO, The Nasdaq OMX Group, Inc.
Kirk Hachigian, Chairman, President & CEO, Cooper Industries, plc
Ken Hicks, CEO, Foot Locker, Inc.
Glenn Hutchins, Co-Founder, Silver Lake
Jeffrey Immelt, Chairman & CEO, General Electric Company
John Ingram, Chairman & CEO, Ingram Content Group, Inc.
Dr. Paul Jacobs, Chairman & CEO, Qualcomm Inc.
Thomas M. Joyce, Chairman & CEO, Knight Capital Group, Inc.
Mel Karmazin, CEO, Sirius XM Radio Inc.
Klaus Kleinfeld, Chairman, President & CEO, Executive Council, Alcoa Inc.
Jack Leslie, Jr., Chairman, Weber Shandwick Worldwide
Robin Lineberger, CEO, Deloitte Federal Government Services
Andrew Liveris, Chairman, President & CEO, The Dow Chemical Company
Gary Loveman, Chairman, President & CEO, Caesars Entertainment Corp.
Eugene Ludwig, Founder & CEO, Promontory Financial Group
Terry Lundgren, Chairman, President & CEO, Macy’s, Inc.
Frederick C. Maynard, III, Managing Director, HarbourVest Partners, LLC
Lowell McAdam, Chairman & CEO, Verizon Communications Inc.
Michael McCallister, Chairman & CEO, Humana Inc.
William McCracken, Chief Executive Officer, CA Technologies, Inc.
John McGlade, Chairman, President & CEO, Air Products and Chemicals, Inc.
W. James McNerney, Jr., Chairman, President & CEO, The Boeing Company
Thomas L. Monahan, III, Chairman & CEO, The Corporate Executive Board Company
Robert Moritz, Chairman & Senior Partner, PricewaterhouseCoopers LLP
Brian T. Moynihan, President & CEO, Bank of America Corporation
Duncan L. Niederauer, Chief Executive Officer, NYSE Euronext
Douglas Oberhelman, Chairman & CEO, Caterpillar Inc.
Joe Payne, Chairman & CEO, Eloqua
George Paz, Chairman, President & CEO, Express Scripts, Inc.
Joseph Plumeri, II, Chairman & CEO, Willis Group Holdings plc
Thomas J. Quinlan III, President & CEO, R. R. Donnelley & Sons Company
Walter Rakowich, Co-Chief Executive Officer, Prologis, Inc. 3
W. Russell Ramsey, Chairman, President & CEO, Ramsey Asset Management
James Robinson, III, Founding General Partner, RRE Investors, LLC
Brian Rogers, Chairman & Chief Investment Officer, T. Rowe Price Group, Inc.
Tom Rogers, CEO & President, TiVo, Inc.
Steven Roth, Chairman, Vornado Realty Trust
Edward Rust, Jr., Chairman, President & CEO, State Farm Mutual
Gregg M. Sherrill, Chairman & CEO, Tenneco, Inc.
Arne M. Sorenson, President & CEO, Marriott International, Inc.
Jerry Speyer, Chairman & Co-CEO, Tishman Speyer
Paul Stebbins, Executive Chairman, World Fuel Services Corporation
Randall Stephenson, Chairman & CEO, AT&T Inc.
Linda Stewart, President & CEO, Interaction Associates
Thomas F. Steyer, Founder & Senior Managing Member, Farallon Capital Mgmt., LLC
Andrew Tisch, Co-Chairman of the Board, Loews Corp.
James Tisch, President & CEO, Loews Corp.
Frits van Paasschen, President & CEO, Starwood Hotels & Resorts Worldwide, Inc.
Mark Walsh, Chairman & CEO, GeniusRocket
Gregory Wasson, President & CEO, Walgreen Co.
Wendell Weeks, Chairman & CEO, Corning Inc.
Michael White, Chairman, President & CEO, DIRECTV
Robert Wilmers, Chairman & CEO, M&T Bank
Thomas Wilson, Chairman, President & CEO, The Allstate Corporation
Kathy Wylde, President & CEO, Partnership for New York City
Analysis: Americans to face tougher 2013 on rising prices, taxes (Reuters)
Hugh Hendry: “I Have No Idea Where The Stock Market Is Going To Be”… But “I Am Long Gold And Short The S&P”
He summarizes the macroeconomic situation which he sees as juxtaposing the “green shoots” in America, is offset by the “theater of the absurd” in Europe, but as usual focuses on his favorite macroeconomic topic: China: “Like Germany, they have been an operationally leveraged economy, but unlike Germany, have now adopted financial leverage- the sovereign financing of these unproductive investments, so now they have double jeopardy, and if we don’t have a sustained economic recovery I am very fearful of the events that may befall the Chinese.”
Next, Hendry touches on the politically sensitive topic of China selling US Treasurys, which he thinks is ludicrous, explaining that “US Treasuries are not an asset – you can’t sell it to protect yourself”, because selling TSYs would lead to a surge in the renminbi, which in turn would crush Chinese exporting companies.
The bottom line for China, “whose medicine is its poison” is that it has little recourse: it can’t protect itself in a downside case with its $3 trillion in reserves, or by selling Treasurys, and on the other the impact of financial leverage would magnify any economic crash: “UK GDP peak to trough dropped 8%. In the US in 1931 it dropped 23%. That’s the leverage. Now am I sitting here with video cameras saying the Chinese economy is going to contract 23%? Of course not. But if we have coffee later, I may say something different.”
Then from the Q&A we learn the following:
Hendry is long gold and short the S&P. “It was a great trade until 2008.” It has been “profitably but less predictable” since the intervention of QE in 2009. “there is an observation that QE has fortified the S&P versus the performance of gold.”
For the edification of those caught in the endless debate of gold vs gold miners, he says: “I am long gold and I am short gold mining equities. There is no rationale for owning gold mining equities. It is as close as you get to insanity. The risk premium goes up when the gold price goes up. Societies are more envious of your gold at $3000 than at $300. And there is no valuation argument that protects you against the risk of confiscation. And if you are bullish gold why don’t you buy gold ETFs, gold futures or gold bullion.”
And his brilliant conclusion: “I have resigned from the professional undertaking of coin flipping. I am not here to tell you where gold’s going to be. I have no idea. That’s my existentialism. I am a student of uncertainty, I have no idea where the stock market is going to be. So when I am creating trades in my portfolio for my clients, I am agnostic. I just want to enhance the probability that I make money come what may.”