May 11, 2012
“Happy are those who dream dreams and are ready to pay the price to make them come true. “– Leon J. Suenes
Equity markets are opening soft this morning after JP Morgan (JPM) announced a $2 billion trading loss, characterized by CEO Jamie Dimon as “self-inflicted, egregious mistakes”. In spite of the loss, Dimon says it doesn’t change his stance opposing the Volcker Rule. “This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed.” “in hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored” he said. That certainly seems like a compelling reason to enact the Volcker Rule ASAP.
Europe! No matter how much they try, they can’t seem to keep out of the news. The EFSF approved the release of 5.2 billion euro to Greece, which keeps the country from defaulting on its debt obligations. Meanwhile sovereign-wealth fund China Investment announced that while it is still looking for opportunities to invest in Europe, it has cut off purchases of European government debt. “What is happening in Europe right now is of course of concern” said the fund’s president, Gao Xiqing. The US doesn’t seem immune to this plight as Reuters is reporting that financial advisers are increasingly avoiding US Treasuries for their clients, opting instead for investment grade corporate and emerging market bonds, MLPs, and preferred stocks.
The Bank of England has halted its quantitative easting program early because inflation is proving a bigger problem than anticipated.
The US trade deficit jumped in the first quarter, suggesting 1st quarter GDP might come in lower than the initial estimate of 2.2%. The Commerce Department released the March trade deficit, which totaled $51.8 billion in March vs. $45.4 billion in February.
Fed Chairman Ben Bernanke said that business and consumer lending is loosening up in the US. Corporate bond offerings have been robust at these low interest rate levels. As an example, IBM successfully issued an all-time low for a corporate issued seven year note at 1.875%, just 65 bps above treasuries. He also stated that consumers with good credit have been able to get auto loans and credit cards. What he didn’t mention is that the bulk of the increase in consumer lending over the past three years can be attributed to a jump in government lending to consumers, which comes in the form of student loans. The chart below, courtesy of Bianco Research, shows the jump in student loans outstanding.
Auto sales in the US are on track for their biggest sales year since 2007, driven by record low financing rates and an aging fleet in need of replacement.
China’s trade report reflected the weakening economy as exports increased 4.9% in April, well short of the 8.5% consensus estimate. Imports were also weaker than expected, coming in at a 0.3% increase vs. estimates of a 10.9% increase.
The Facebook IPO is set to price next week, and demand reportedly is building. Reuters is reporting that institutional demand already exceeds the number of shares being offered. I haven’t seen the roadshow yet, but I’d expect the deal to be both upsized and the price range to be raised on this one.
According to Gadget Lab, the latest Apple (AAPL) rumors are for a new iPhone in September and an iPad Mini in August. AAPL hasn’t announced either, however, the video link below demonstrates some potential new technologies for what is being dubbed the iPhone 5. If true, it is an incremental leap from the 4s.
Have a great weekend