China to the Rescue

February 15, 2012

“Parents aren’t interested in justice, they are interested in quiet.”—Bill Cosby

Equity futures are up this morning after China has pledged its financial resources to help the Euro Zone. This is a large step, but makes sense given the recent slowdown in China being attributed to its largest export market, the Euro Zone. People’s Bank of China Governor Zhou Xiaochaun countered the comments officials made a few short weeks ago by saying they could help through both the central bank the their sovereign wealth fund. US Treasuries are weaker on the news, with the flight to quality trade easing (for at least this morning) as anxiety about the Euro subsides.

January retail sales were reported yesterday, with the headline number coming in at 0.4% vs. a 0.8% consensus. The December measure was revised down from 0.1% to 0.0%. The core measure, ex-autos, was ahead at 0.7% vs. 0.5%, but again the December measure was revised down to -0.5% from -0.2%. Business inventories for December rose by 0.4% vs. the 0.5% estimate.

A new iPad is in the works, so it must be time for the Apple (AAPL) rumor mill to kick into gear. As production of the iPad 3 unofficially ramps in Asia, Verizon and AT&T are unofficially preparing to launch a new 4G version of the device. I find it fascinating that the exact details of every new launch leak out like clockwork, and feel as though the company must selective release the data to whet the appetite of consumers and create a buzz around the new products. The new iPod will reportedly be released the first week of March.

Earnings report continue to come in, with online game maker Zynga (ZNGA) reporting its first quarter since coming public. The company posted better than expected sales, but guided to slower first half 2012 growth, and better back half growth coinciding with the launch of a new game. After jumping 5% yesterday before the close, the stock is bid down hard in pre-market trading this morning. Deere (DE) beat estimates and raised guidance and also predicted lower, wheat and soybean prices for the coming year. That should be good news for consumers.

The Bank of Japan expanded its asset purchases from 55 trillion to 65 trillion yen ($830 billion) after the economy slowed in the 4th quarter. The bank also established a price-stability goal for inflation of at least 1%.

The Wilshire 5000 and the Shanghai index are both facing interesting overhead resistance at the same time. The Wilshire 5000 is bumping up against a resistance line dating back to the 2007 highs, while the Shanghai is bumping up against a falling resistance line that started with that market’s rollover in early 2011. The chart below, courtesy of Kimble Charting Solutions, shows both indices.



The EC has announced plans to review a dozen member nations including both France and the UK due to their economic imbalances. The list does not include Greece, Ireland, Portugal, or Romania. I would assume Germany is excluded from the list.

The White House is asking for $61 billion from a proposed bank tax to pay for the Wall Street bailout, double last year’s request of $30 billion.

Coffee futures are falling on fears of weaker US demand at retail. Some are using this as a sign of economic weakness in the US. Personally, I disagree with that interpretation. People working have less time to gather at Starbucks (SBUX) or other coffee houses, and I truly belief the K-Cup phenomena is resulting in people consuming less coffee due to price (think $25 per pound vs. roughly $9 for beans) and usage patterns. You don’t make a pot of K-Cup, just a single serving, whereas if you made an entire pot, whether you drank it or not, you would use significantly more coffee.

Congress has quietly come to agreement on a compromise that would extend the payroll-tax cut to year –end, extend jobless benefits, and prevent a cut in Medicare fees to doctors. There are no new taxes in the agreement, which may create some issues as it comes up for a vote in the House. The deal adds $160 billion to the deficit.

Option expiration is this week. The rally has come on exceptionally low volume, which should continue as we head into the President’s Day weekend. Deutsche Bank is reporting that volume year to date is the lowest in 14 years.

For the first time I have accepted a sponsor for the site (see ad at top right). Falcon Point Capital is an experienced manager with a solid track record, expertise in small cap and high yield investing, and is run by a team of high quality individuals. Welcome aboard!

Have a great day

Ned