Apr 15, 2011

Google and Bank of America Earnings

April 15, 2011

Equity markets are flat this morning after a better than expected Empire Manufacturing report, which measures manufacturing activity in the New York area, of 21.7 vs. expectations of 17.0. CPI came in at 2.7% vs. expectations of 2.6%, with the core measure increasing in line at 1.2%. The Bloomberg chart below shows CPI normalized to 1984 dollars. Industrial production rose slightly faster than the 0.6% estimate at 0.8%. The University of Michigan Consumer Sentiment index snapped back after last month’s drop, beating expectations of 68.8, posting at 69.6.

Commodities are flat this morning, with oil down slightly. Copper continues to be weak on concerns about Chinese inventories and demand. Coffee and sugar are up.

Netflix and Redbox are seeing a new competitor in Corona, CA based startup Flix on Stix, which plans to deploy 2K kiosks by year end which will allow movie rentals onto a USB stick or SD card. There is no need for a return trip as the rentals will have a 72 hour life, then it will disappear from your drive. The company plans to rent games and movies via the kiosks.

BofA posted weaker than expected earnings as one-time charges swamped profitable operations. Google posted weaker than expected earnings on a better than expected sales increase of 27%. Expenses grew twice as fast as sales as the company gave across the board salary increases to employees and invested heavily in growth initiatives such as their browser Chrome.

The $38 billion in spending cuts that U.S. President Barack Obama and House Speaker John Boehner said are in their budget deal would save only $352 million, the non-partisan Congressional Budget Office said. Increased military spending would offset $8 billion in current-year cuts to domestic programs. The Senate approved the plan yesterday.

The President unveiled his plan for reducing the budget deficit over 12 years by asking for $1 trillion in near term tax increases and $3 trillion in longer dated savings. This counters Rep Ryan’s plan which looks to achieve the same savings in a shorter time period with fewer tax increases and more spending cuts. Big government, bigger government, high taxes, higher taxes-the argument never seems to change, just the zeros being debated.

My favorite quote from the budget debate last week came from an old friend, who said "it's like watching a bunch of idiots arguing over the bar tab on the Titanic!" Let’s hope they settle the 2012 budget and the lifting of the debt ceiling quickly.

Robert Zoellick, the President of the World Bank, said that the 36% increase in global food prices has driven an additional 44 million people into poverty. He was critical of the Fed in his commentary. On a counter note, Fed Governor Elizabeth Duke said yesterday that the Fed’s actions have zero impact on global commodity prices and the Fed should stay the course.

APAC markets were weak last night after China announced higher than expected inflation of 5.4%. China’s GDP grew by 9.7%. Premier Wen Jiabao said “Judging from the inflation situation in the first quarter, we are still under great pressure of price hikes.”

The ECB is maintaining its position on inflation. “It is essential that the recent price developments do not give rise to broad-based inflationary pressure over the medium term,” suggesting that the recent rate increase would be the first in a series of hikes.

The chart below, courtesy of Case Shiller, Steve Barry, and The Big Picture, shows the history of US home prices since 1890. The red line suggests that housing still has a way to fall to get back to the long term mean, an aggressive call from my point of view.

Walter Breuning, thought to be the world’s oldest man, died yesterday in a Montana hospital at the age of 114. Some of his secrets to life:

1. Embrace change, even when the change slaps you in the face. “Every change is good.”
2. Eat two means a day. “That’s all you need.”
3. Work as long as you can. “That money’s going to come in handy.”
4. Help others. “The more you do for others, the better shape you’re in.”
5. Accept death. “We’re going to die. Some people are scared of dying. Never be afraid to die because you’re born to die. “

Have a great weekend


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