Oct 14, 2011

Strong Earnings from Google

October 14, 2011

The markets are up this morning on optimism about Europe. The G20 is meeting next week in an effort to work out a long term agreement. Slovakia’s parliament approved the bailout fund yesterday, and the EFSF will be increased by $600 billion. The Euro is having its best week since the beginning of the year.

In the US import prices rose 13.4% vs. an expectation of 12.4%. Retail sales increased more than expected, rising by 1.1% vs. expectations of 1.1%. Retail sales ex-autos rose by 0.6% vs. expectations of 0.3%. The University of Michigan Consumer Confidence index came in below expectations of 60.2 and last month’s 59.4, falling to 57.5.

The Apple iPhone 4s hits store shelves today, and is packed with new features almost worthy of a new phone (i.e. iPhone 5) as opposed to an upgrade. The Siri software, a voice controlled assistant, is getting rave reviews. Additionally, the company launched iCloud, which should help to drive utilization of Apple (AAPL) products and simplify content management. iCloud effectively acts as a NAS to store all your data and digital content in a single repository, and allows all of your devices to access it and automatically be updated without having to continually re-synch each device.

After a relatively unsuccessful bidding process that yielded less than half of what they had hoped for, Hulu cancelled their auction. A large stumbling block was the inability of the company to assure potential buyers that the existing Hulu content agreements would remain in place after the transaction.

Earnings kick into full gear next week, but in addition to Alcoa (AA) reporting earlier in the week, Google (GOOG) reported robust earnings yesterday after the close. The company posted a 24% EPS gain, $1 ahead of consensus at $9.72. Sales increased by 33.4% to $7.5 billion vs. estimates of $7.2 billion. JP Morgan (JPM) also beat estimates yesterday on lower year over year earnings. The stock traded down yesterday.

Raj Rajaratnam, the former head of Galleon, was fined $10 million and sentenced to 11 years in prison for insider trading. Because this is a federal crime to be served in a federal penitentiary, there is no possibility for early release.

The Gap (GPS) announced plans to close over 300, or 20% of their North American stores by 2013. The combination of a lingering economic slowdown and a marked shift towards online sales have conspired to weaken the retail environment, especially for retailers not occupying a unique niche.

Since our regulators are too afraid to address the issue and are too bogged down by Dodd-Frank implementation, European regulators have begun looking at High Frequency Trading (HFT). In my opinion, HFT is akin to stealing money from investors. A high level senior brokerage executive told me that 70%+ of their daily volume now comes from HFT, and that none of those HFT traders had lost money in a single week over the past two years.

The Tigers beat the Rangers, who now lead the series 3-2, and the Brewers beat the Cards to tie their series 2-2. The Trojans pounded a weak Cal team, and the conference musical chairs continued as TCU announced they would leave the Big East before playing their first game there to join the Big 12 (which, only had nine teams).

When people ask where I live, typically no one has heard of it. I have to explain it’s a northern Orange County community between Huntington Beach and Long Beach. Unfortunately I'm guessing that will no longer be the case as our friends and neighbors were the victims of Orange County's largest mass murder on Wednesday. God Bless the fallen.

Have a great weekend


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