Apr 26, 2011

Strong Earnings from Ford

April 26, 2011

Equity markets are opening up this morning on strong earnings reports and a benign housing report. The February S&P Case/Shiller Home Price Index was in line at 139 vs. 141 the prior month. The price composite declined by 3.3% as the national housing market continues to bump along the bottom. Consumer confidence for April came in at 65.4 versus expectations of 64.5 and the prior month 63.4. Commodity markets are down slightly after gold and silver corrected last night.

Ford posted their best first quarter since 1998, and CEO Alan Mulally said the company has never been in better shape. NFLX beat estimates last night, but gave tempered guidance and the stock is bid down 5% this morning. UPS reported better than expected earnings, but missed the revenue line as they battle rising higher fuel costs. The company boosted 2011 guidance on stronger overseas demand. Coca Cola missed EPS on inline revenues, citing higher commodity prices in packaging and inputs as the cause. Demand was strong as unit volume increased 5%. Tobacco maker Lorillard posted better than expected sales and earnings as demand in the US increased for the first time in a decade.

The dollar hit a record low last week versus the US Trade Weighted Major Currency Index. The dollar fell to 69.0337 against a basket of currencies.

The IMF released a study yesterday that predicted the real economy of China will overtake that of the US by 2016, much sooner than most experts expect. The chart below shows their estimate of the contribution of the US and China to global GDP.

House Speaker John Boehner said Congress should consider cutting subsidies to major oil companies. “I don’t think the big oil companies need to have the oil-depletion allowances” he said. He might also want to look at farm subsidies that pay farmers to leave ground fallow in an effort to boost crop prices.

Gas prices are approaching record highs, and some analysts are calling for $6 per gallon gasoline. Here in California you can already find $5 if you look hard enough and don’t want to get out of your car.

Zillow is reporting that a wave of high end defaults on homes are soaring, with 23% being classified as “strategic defaults”. A strategic default occurs when a borrower is capable of making the payments, but walks away because the debt on the property is much larger than the value of the home.

The IPO filing for Glencore, the huge commodity trader looking to go public, contained some interesting data points. It seems the company was instrumental in Russia’s decision to ban wheat exports, which triggered a sharp rise in global wheat prices.

Lawson Software is down this morning after receiving a takeover bid below yesterday’s closing price.

One of the Fed’s new tools (since 2008) gained during the crisis is the ability to pay interest on bank reserves. Although its impact is unknown, Fed officials may rely upon this capability to keep banks from lending if the economy starts overheating.

The Pew Center released a study saying that at the end of 2009 state pension funds had a total shortfall of $1.26 trillion, up 26% from the end of 2008. My guess is that number will be flat or slightly lower when the 2010 figures are released. Market gains in 2010 will be offset by deferred fund contributions.

APAC markets were weak last night, led by a decline in the Nikkei after weak earnings were reported by companies such as Nintendo. The Nikkei fell 1.1%, Shanghai 0.9%, Kospi 0.7%, Hang Seng 1.1%, Taiex 0.5%, and Indonesia fell 0.9%.

Have a great day


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