Markets Are On The Verge of Euphoria, Corporate Revenues Are Falling At Wal-Mart, Target, Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM, And Fed Could Taper QE As Soon As June
This is what it looks like.
On its risk appetite index, Credit Suisse views the index value of 5 as “euphoria”. And we are headed there, as markets embrace risk.
Global risk appetite surged to 4.53 (5 being ‘euphoria’), its highest level since the euphoria event of 2006, and up from 1.76 one month ago according to Credit Suisse. Other risk appetite indices, as well as market anecdotes, confirm the “almost euphoric” environment. US credit risk appetite has charged higher and is now at 3.22. Furthermore, as they note, the current risk rally has several unusual features….
Chart: Credit Suisse
Corporate Revenues Are falling at Wal-Mart, Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM
Wal-Mart Warns of Economic Disaster… Are You Prepared?
If you want to get a sense of what’s happening in the world, your best bet is to ignore Government data and focus on corporate revenues.
Why revenues? Because earnings can be massaged any number of ways (depreciation methods, laying off staff to cut costs, depletion of loan loss reserves for banks, etc.). But you cannot fake actual money coming in the door.
With that in mind, I want to draw your attention to the recent drop in corporate revenues at a number of corporations including Proctor and Gamble, Starbucks, AT&T, CB Richard Ellis, Safeway, American Express, IBM.
If this doesn’t serve as evidence that real economy falling to pieces, I don’t know what does. To top it off, we can now add Wal-Mart, the single largest retailer, to the list. Wal-Mart just reported that same-store sales fell 1.4%….
A week ago it was the better than expected weather’s fault for the big Wal-Mart miss. Today, it is the turn of that other retail bellwether, Target, to blame sunny days.
From the release: “Target’s first quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “While we are disappointed in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target’s long-term growth.”
Markets went on a wild rollercoaster ride as Fed ChairmanBen Bernanke addressed Congress’ Joint Economic Committee, first making it clear that tapering QE today would be unproductive, then admitting that it could happen over the next two FOMC meetings if warranted by the data. Channeling his inner Greenspan, Bernanke filled the ether with words meant to mask his underlying intentions, but a few contradictions did make their way into his speech which reveal his easing bias. QE, it seems, is still here to stay.
If the data supports it, “[the Fed] could take a step down in the next two meetings,” Bernanke told Congressman Kevin Brady, who asked if the Fed’s asset purchases could end before Labor Day. Within seconds, bond and equity markets, which had rallied strongly, took a sharp turn to the downside. Minutes later, Wall Street was back in rally mode.
A number of Federal Reserve officials were willing to slow down the pace of the purchases as early as the June meeting if the data continued to improve, according to the minutes of the April 30-May 1 policy meeting released on Wednesday.
The significance of the minutes is that a growing number of Fed officials want to see the rate of bond purchases slow down. But it is likely that process will take a few months at least.
Michael Gregory, senior economist at BMO Capital Markets, said there is no precise definition for “number” of Fed officials in the minutes. He said it was likely 4 or 5, more than a “few” but less than “several.”
Survey after survey shows that the wealthy are back to pre-crisis boom years when it comes to their outlook for their own finances, their investments and their retirements. But many of them are still sitting on lots of cash.
Everyone knows the odds of winning in a casino are worse than 50% (and often much worse depending on the game played). So who wouldn’t rush to a casino, where instead, the odds were overwhelmingly in the gambler’s favor?
That’s the promise of today’s stock market, which has been experiencing an aberrantly high percentage of up days all year. Toss your money into the market, and on any given day, you’re much likelier to make money than not.
This is a new term we haven’t seen before.
Mike O’Rourke of JonesTrading says that we’re now seeing the “Iraq” of monetary policy, meaning the Fed has entered into an extraordinary situation, from which it has no good plan to self-extricate.
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- Bernanke Says Premature Fed Tightening Would Endanger Recovery