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July 15, 2011

“The Dodgers are so broke that three players tested positive for Top Ramen”-The ESPY Awards show

Equity markets opened with a solid bid this morning on the back of strong earnings from Google. On the economic front, CPI was in line at 3.6% while the core number rose 1.6%. The month over month data showed a decline of 0.2% for the headline CPI and a 0.3% increase for the core measure, the biggest back-back gain in three years. Capacity utilization came in slightly less than expected at 76.7% vs. expectations of 76.8%, and industrial production rose 0.2%, in line with consensus. The Michigan Consumer Sentiment Index reading came in at 63.8 vs. expectations of 71.4, taking the steam out of the markets after a robust open.

Moody’s announced on Wednesday afternoon they were concerned about a US debt default and placed the US Aaa rating under review for downgrade. Yesterday S&P announced a similar warning.

“What Obama is trying to do is bring the United States under the European system …Why? Because he believes in them. He believes in the ethics of socialism … The consequence of that is no economic growth. The consequence is that you spread the wealth, but you also diminish it … Nobody can climb up. Nobody can move up the socio-economic wrung.”-former Clinton Adviser Dick Morris

Earnings kicked off this week, with big reports from JPM (a beat), Alcoa (slight beat on reduced forecasts), ASML Holding (beat, with mixed guidance), Capital One (messy), Google (blowout), and Citigroup (beat). Next week the slate of releases is heavy as earnings season kicks into full gear. As the macro data continues to weaken, it may take strong earnings reports to drive the market.

Ed Yardley recently noted that in 1988 Alan Blinder and Ben Bernanke co-authored a paper concluding that quantitative easing wouldn’t have an impact on lending behavior. It seems that the intended goals of QE2, improved lending and lower rates, didn’t come to fruition. As David Rosenberg noted, the Fed has added a third mandate to its charter beyond full employment and low and stable inflation: higher equity valuations.

Miller-Coors lost their license to sell beer in the state of Minnesota due to a technical error. Evidently there is an annual $30 fee per brand (total cost for Miller approximately $1100 per year) for every product sold in the state. The company’s filing was on time, however, due to the state shutdown the paperwork wasn’t processed in time and now the company is being forced to pull all of their product from bars, restaurants, and retail establishments. Talk about prohibition!

Asian markets were mixed last night as concerns about a US debt default dominated the headlines. The Nikkei and NZX each fell 0.1%, ASX 200 -0.7%, Hang Seng -0.3%, and Sensex -0.4%. The Kospi rose 0.2%, Taiex 0.1%, while shares in both Indonesia and the Philippines rose by 0.5% and 0.8% respectively.

The US Women’s Soccer team plays Sunday for the World Cup against Japan.

Have a great weekend

Ned