Jul 20, 2011

Strong Apple Earnings

July 20, 2011

Please note that I will be on vacation until August 1st. Also, thanks to all of you who have supported my daughter's blog. This first month she has received a ton of support, some great comments, and is quite excited about the few dollars she has earned.

After a somewhat volatile four weeks, we are experiencing a very calm morning. Equity markets are opening flat this morning after strong earnings from Apple (AAPL) but a mixed bag of earnings overall. The macro picture is quiet today, with existing home sales coming in at 4.77 mil annualized vs. expectations of 4.9 million. The political climate is quiet today also as there are no new revelations coming from Europe, and it appears a watered down version of debt reduction and debt ceiling increase will begin making its way through the DC circuit. Bonds are getting a slight bid as the 10 year settles in at 2.90%, and the CRB is down slightly. The Euro is finding a bid vs. both the dollar and the Swiss franc for the second day in a row.

I can’t help but listen to the lunacy coming from Washington, especially when it comes to the discussion about making or not making Social Security payments, and wonder “What about the Social Security lockbox?” You remember the lockbox, right? It’s that place where our 12.9% Social Security withholdings go to be held separately to ensure that budget deficits don’t impact the ability to pay seniors. Looks like someone forgot to hide the key from the politicians because evidently Social Security, like much of America, is just one month of missed income away from insolvency.

Economics professor and former Senior Economist for the President’s Council of Economic Advisers Laurence Kotlikoff: “Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills. ” He calculates that to address our budget issue with taxes only would require an immediate and permanent doubling of taxes (federal, payroll, personal income, and corporate) without impacting GDP.

Earnings have been in full swing this week. Solid earnings were posted by Apple (AAPL), driven by strength in China; Harley (HOG), IBM, Polaris (PII), Coca Cola (KO), Johnson & Johnson (JNJ), and VMWare (VMW).

In line numbers were reported by Bank of America (BAC), although the quarter was quite messy with a record loss in the quarter, $20 bil of which came from bad home loans. Additionally, there are rumors they might sell off Merrill. Yahoo (YHOO) also reported in line numbers.

Goldman Sachs (GS) reported a big miss on lower VAR and trading profits, possibly caused by a reduction in leverage as a result of Dodd Frank. The firm is planning to cut approximately 1K jobs. Historically trading has accounted for 35-48% of the firm’s revenues, but only 22% this past quarter. Chipotle (CMG) also missed for the first time since mid-2008. Riverbed (RVBD) missed, citing weakness in Europe as the source of their ills.

The chart below is from the NY Times, and shows how far consumer spending has fallen, and cites high levels of consumer debt as the reason spending hasn’t rebounded as quickly as other downturns.

Tokyo Electric announced they have achieved stable cooling at the Fukushima nuclear station, and expects to have the station to a safe status by October. They are hoping to begin removing fuel rods in about three years. This type of removal has never been done.

I read that in June automobiles passed cows as the largest consumer of corn in the US. Ethanol production consumes 40% of the US corn crop, up 4x from 2002.

Moody’s put Maryland, New Mexico, South Carolina, Tennessee, and Virginia under review for downgrade due to their dependence upon the federal government for a large share of their funding.

NBA labor talks are scheduled for Friday as rumors swirl that the NFL has come to terms to end their lockout. If true, the NFL deal would require a vote of both players and league owners.

Have a great day.


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