President Obama declined the allow the Keystone XL pipeline, saying he didn’t have enough time to consider the project, which has been under consideration since he took office three years ago. In my view he decided to make a weak volley to his environmental constituency at the expense of unions and jobs. While officials have cited the need for energy independence, which this pipeline would have helped achieve, we will now be forced to continue buying oil from Venezuela and OPEC as opposed to Canada. The Canadians are now looking to run the pipeline through British Columbia, and offload it primarily to the Chinese, who have expressed an interest in purchasing the crude. Unfortunately, cancellation of the project also results in a massive loss of high paying union construction and refinery related, non-government funded jobs in the US, additional tax revenues, and an thousands of derivative jobs. This President has shown time and again that he'd rather spend $2 to create a government funded $1 job than allow the private sector to spend $1 to create a $2 job. Anyone else wondering why this country is on the path to bankruptcy?
Economic data continues to roll in, but earnings have taken front stage this week. It’s still early in the earnings season but results have been mediocre, with roughly 2/3 of companies beating estimates, well below the prior eight quarters. Less than 60% of reporting companies have beaten sales estimates so far in what appears to be a concerning trend.
Eastman Kodak filed their much anticipated Chapter 11. At one point EK was the 10th largest US company by market cap. Citi (C) is providing a $950 million line of credit for the restructuring. Where did Kodak go wrong? Around 1975 they actually invented the digital camera, but ditched it because they were rightfully concerned it would eventually replace film.
We haven’t discussed mortgage rates for a while. The US 30-year is now at a record low 3.88%, the seventh consecutive week under 4%. Refi activity has been robust, and the Mortgage Bankers Association reporting that applications are up 23%.
Manufacturing data from China fell for the third consecutive month. The purchasing managers’ index, a survey by HSBC, came in at 48.8, suggesting declining production. These diffusion indices indicate growth when they are above 50 and contraction when below. The report is putting pressure on the metals markets, especially copper, this morning.
Bank of America beat estimates amidst a slew of charges, but were able to build more capital in the quarter. General Electric (GE) missed on revenues this morning as did Google (GOOG) last night, citing lower CPCs. IBM and Microsoft (MSFT) both beat on better sales, the later partially fueled by strong X-Box results. Intel (INTC) exceeded estimates slightly. American Express (AXP) is off after a slight EPS beat but revenue miss.
After a day of protests and emails nine of the co-sponsors of the SOPA/PIPA bills have withdrawn their support for the bills. Hopefully both bills will die in the hands of their sponsors and someone will draft legislation that is balanced for all affected parties.
What goes into the price of gasoline? The chart below, from the Global Macro Monitor, shows the breakdown of the process. In California the tax piece is quite a bit larger.
The NY Times as taken a different look at the class warfare battle being staged in Washington. Instead of using income (as the Census does) to measure wealth, they looked at assets instead (as the Federal Reserve’s Survey of Consumer Finances does).
Estimates for the top 1% is a household income of about ~$380,000; ~7.5 times median household income. Measured by net worth, the top 1% = $8.4 million — 69 times median household’s net worth of $121,000.
The wealthiest 1% received 16% percent of income — 8% of salaries and wages, but 36% of self-employment income. 1% controls a third of the nation’s financial assets (equities, private investments), and 28% of nonfinancial assets (RE, cars, jewelry, etc.).
Apple (AAPL) launched their textbook solution yesterday. Their goal is to get rid of the enormous pricing arbitrage in textbooks and make them more available to the public, similar to what they have done with music and movies. In addition to textbooks, lectures, classes, and other materials will be available through their new apps.
Rick Perry is out of the Republican race, and is now supporting Newt Gingrich, even though it appears that his ex-wives won’t. In a less impactful version of the famous hanging chad incident of 2000, Mitt Romney is no longer the winner in Iowa as Rick Santorum benefits from the recount.
APAC markets rose last night as exporters and financial firms drove the gains. The Hang Seng rose 0.9%, the Nikkei 1.5%, Shanghai Composite 1%, Kospi 1.8%, and ASX 200 0.6%.
Have a great weekend