Apr 20, 2011

Upside Surprises from Intel and Polaris

April 20, 2011

Equity markets are set to open strong this morning after robust earnings by Intel, which cited improved business demand and robust global demand as key drivers to the surprise. Helping the upside were analyst expectations, which were universally bearish and according to Intel’s CEO, completely missed the international growth story.

Housing Starts came in better than expected at 549K vs. 520K, which is still way off the highs of a 2 million run rate per year. Building permits were also better at 594K vs. 540K. Improvements in housing starts is a mixed positive because it helps the jobs picture, but doesn’t help clear the enormous inventory overhang. The chart below, courtesy briefing.com, shows housing starts and building permits since 1995.

Inflation in Canada accelerated to the highest rate in over two years to 3.3%, well above the 2.8% estimate. Higher fuel prices drove the measure higher. The report showed price increases in every category except tobacco and alcohol.

The chart below, from John Mauldin, shows the strong correlation of Fed treasury purchases and commodity prices over the past two years.

The FBI raided multiple online gambling sites, freezing bank accounts in 14 countries. The founders of PokerStars, Full Tilt Poker, and Absolute Poker, were indicted Friday. All three are based outside the US. By freezing the bank accounts gamblers are unable to access their funds. In response to the shutdown, Disney announced that ESPN would stop airing ads for the companies.

Saudi Arabia announced plans to cut back on oil production due to a glut of oil in the system.

Goldman Sachs beat estimates on stronger than expected trading revenues. Harley Davidson missed estimates, citing domestic sales that were down 0.5% as the cause vs. international retail sales, which were up 11.3%. Johnson & Johnson beat estimates and raised guidance, however, concerns about ongoing recalls and the $20 billion takeover of Synthes continue to weigh on the stock. Most of JNJ’s gains came from currency.

According to the Labor Department, during the 2000s major U.S. multinational corporations have eliminated 2.9 million jobs domestically but created 2.4 million abroad. In 2009, such companies reduced foreign payroll by 1.5% but cut employment by 5.3% in the U.S.

Nobel Laureate Joseph Stiglitz, economics professor at Columbia University in New York:
“I view the ratings agencies as one of the key culprits. They were the party that performed that alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.”

Surveys are showing overwhelmingly that Americans want the budget deficit reduced. The same polls also show that Americans don’t want tax increases, entitlement cuts, defense cuts, or a reduction in government services. The majority assumes that the budget deficit, which has us borrowing $.40 of every dollar we spend, can be cut by eliminating waste and fraud. I'd really love to a dose of whatever it is they are taking.

APAC markets were up over 1% across the board last night on the back of strong earnings by Intel and other US multinationals.

A year after the BP Gulf oil spill, Gulf Coast Congressional representatives are asking the US government to allow BP and others to resume drilling in the Gulf. Lawmakers from both sides of the aisle criticized restrictions on oil production and the slow pace of issuing permits for wells.

Have a great day


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