Feb 6, 2012

Super Monday

February 6, 2012

Does it seem like every Monday there is some issue with Greece? What in the world are these people doing every weekend? Leaders in Greece haven’t come to agreement yet on the austerity measures present by Prime Minister Papademos. They have agreed to cuts of 1.5% of GDP this year and a recapitalization of the banks. Meanwhile Angela Merkel is pressuring the country to accept the ECB’s bailout conditions, saying that time is running out.

Operation Twist, the Fed’s plan to purchase long term bonds at the expense of short term bonds, has been helping US corporations. Corporate issuance of 10 year paper has soared with the falling rates. P&G (PG) recently issued $1 billion of 10 year debt at 2.3%; IBM sold $1.5 billion of three year notes at 0.55%; and McDonald’s (MCD) issued $500 million of 30-year paper at 3.7%. Eventually these companies, flush with cash, will find a use for the excess capital in the form of growth, dividends, or share buybacks.

I’ve mentioned the weakness in earnings reports as the market has run up in the first five weeks of the year. According to the WSJ, S&P 500 profit margins fell to 8.2% in the 4th quarter from 9% in the second quarter. So far 66% of companies have exceeded EPS for the calendar 4th quarter and a mere 55% have exceeded sales estimates.

Coinstar (CSTR), the owner of Redbox, and Verizon (VZ) announced plans to launch a video streaming service to compete with Netflix (NFLX). VZ will own 65% of the venture, which is expected to launch service in the second half of the year.

The NY Fed continues to sell mortgage bonds from AIG. After selling $7 billion in bonds to Credit Suisse, they are now auctioning another $6 billion in securities.

Food distributor Sysco Corp (SYY) announced earnings this morning that were essentially in line with consensus. The key take away from the call was the huge jump in food inflation of 6.8% year over year.

As the markets have surged over the past few months, volatility has collapsed. The chart below shows the VIX since 2002, which is nearing its decade lows.

President Obama’s new slogan is “An Economy Built to Last.” I don’t know what that means, but I find it ironic that the slogan is similar to Chevy’s “Built to Last” campaign. Remember, the government owns 500 million shares of GM. Is it a coincidence?

The seasonal adjustment to Friday’s jobs data resulted in an increase in employment of 234K positions, while the non-adjusted number showed a loss of 2.9 million jobs over the past two months. Some analysts have been questioning the reported number as daily income tax collections are not supporting the increase. The next couple of months’ data should give us a better idea of what is really happening in the jobs picture.

The Giants pulled a repeat against the Patriots yesterday in an entertaining Super Bowl that came down to the last play. My wife, a lifelong Giant fan, was happy, which means I’m happy. I thought the commercials were subpar vs. prior years’ effort, but judge for yourself at http://www.hulu.com/search?query=superbowl+commercials&st=0&fs= .

Have a great day


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