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Buzz Bits: Bernanke Speaks


An evening recap of the daily Buzz...


Earnings Report - MV News

  • Hewlett-Packard (HPQ) reported Q1 EPS of $0.48 vs $0.44 cons on revs of $22.66 bln vs $22.55 bln cons.

  • Applied Materials (AMAT) reported Q1 EPS of $0.19 vs $0.17 cons on revs of $1.86 bln vs $1.80 bln cons. Gross margins were 44.4% and orders were $2.04 bln.

  • Biogen (BIIB) reported Q4 EPS of $0.48 vs $0.47 cons on revs of $632.9 mln vs $625.5 mln cons.

  • Office Depot (ODP) reported Q4 EPS of $0.43 vs $0.32 cons on revs of $3.70 bln vs $3.60 bln cons. Comps, ex-53rd week, were +2%. ODP increased its share repurchase program by $500 mln.

Texas Flea! - Todd Harrison - 3:06 PM

Note the harsh slippage in crude (-3%). Man, when energy (and metals) correct, they really correct. Just remember, the sharpest corrections always occur in the context of a bull market.

Now, in all fairness, there's a chance that these are early (yes, early) indications that a bigger problem is at hand--that of deflation. I'm conscious of that possibility although, in my humble opinion, I'd only assign a 25% probability to it. More likely, these sectors have long-term secular winds at their backs. Why? If deflation was truly at hand, it would manifest in other asset classes---and sectors---in synch. And it's not. Yet, at least.

This is, of course, one man's humble opinion. And I'm watching CRB 320 (multiyear support, 200-day) as a proxy of sorts.


Flashback! - Bill Meehan - 2:17 PM

This day in market history...

  • Closing levels 6 years ago found
    • DJIA: 10,718.09
    • S&P 500: 1402.05
    • Naz: 4,420.77
    • Crude: 30.17
    • Gold: 301.50

This day in Minyanville history...

In other news...

  • Happy 52nd birthday to Matt Groening! It's crazy to think I was in grade school when The Simpsons debuted, and mom wouldn't let me watch, and it's still going strong.

Mini-Minyan Mailbag - Jeff Macke - 2:06 PM

Minyan Kneel! writes:

"It seems like the 'Big Retail Sales' announced yesterday morning are a bit misleading with all the gift cards redeemed over the holidays. Sound logical?"

Sounds tremendously reasonable. Remember also that January is one of the lowest dollar retail months. Between gift cards and other "Christmas Flattening" macro trends, we should have "HUGE January sales" following "somewhat disappointing" Decembers for pretty much the rest of our lives.

I'm not sure how long we'll actually be able to TRADE this trend (woulda been nice to have the longtrade on in front of the release yesterday, which I... Um... For sure would have done, had I not been traveling) but, as a "read on the economy" I would take yesterday's release with a whole salt-lick worth of skepticism.

Say What? - Kevin Depew - 1:01 PM

A look at opinion, analysis and commentary from around the world:

Biotech Quickie - David Miller - 12:45 PM

Just a quick note before I run out and tell some undergrads how stupid the Efficient Market Hypothesis is...

  • The bid under biotech seems to be more stable than in the past, though I don't mean to suggest it is bullet-proof from disturbances in the rest of the market.
  • Looks like we goosed Myogen (MYOG), though the acquisition rumor did not start with us. We said their Ambrisentan drug fit the profile Pfizer (PFE) implied for a product in-licensing. Myogen's ambrisentan appeared with a number of other companies on a quick, non-exhaustive list we compiled over the weekend for a note put out late on Sunday.
  • Biotech this week has seen broader participation. We still see the very smallest (too small for the NBI, even) stocks outperforming but the rest of the NBI seems to be looking better.The more consistent outperformance of smaller names over larger names, the healthier the sector is in our view.
  • My faithful 12-year old monitor is finally giving up the ghost. The entire screen turns red. Hoofy doesn't much like it; Boo think's it's hysterical. Jokesters, those two.

Bernanke, sobriety and value - somehow it's all related - Vitaliy Katsenelson - 11:33 AM

Mr. Bernanke just discussed the issue of transparency of Fed's policy. Well, the fact that I can actually understand what he is saying without a need for a dictionary is a step in the right direction.

On a less sober note: I'd like to direct readers' attention to this WSJ article on the state of the booze sector. This article inadvertantly makes a very good case for my favorite counter-cyclical stock - Diageo (DEO). I mentioned DEO several times before on the Ville. It owns four of the ten top selling alcohol brands, including Jonny Walker, Smirnoff, Guinness, and Baileys and many others. It is putting a lot of pressure on U.S. distributors and has being gaining market share in the U.S.

Also, the contrarian inside of me is trying desperately to get out seeing Cendant (CD) sinking into oblivion. I just ran a discounted cash flow analysis factoring almost no growth and much lower cash flows and still get a price that is much higher. Is it a value trap? Or just plain value? Time will tell.

Position in DEO

"Bernanke says inverted yield curve not signaling slowdown" came the scrolling headline across my Bloomberg. - Scott Reamer - 11:29 AM

Talk about your conundrum. The new Fed chairman is now arguing – using what logic or data I cannot glean – that the Fed's own study by Arturo Estrella and Frederic S. Mishkin on the yield curve, and subsequent economic activity that confirmed the curve as the single best predictor of future economic growth and corporate profits, is wrong. If anyone thought they were getting an apolitical, reasoned academic as a Fed Chairman, I would think they must be squirming right now. And I can only wonder how Arturo and Frederic are feeling; perhaps muttering something about "memory hole" perhaps?

For you see, the data is very clear on this: an inverted yield curve presaged a recession in all but one of the contractions since 1951 and 100% of corporate profit recessions in that same time. But the Princeton professor turned Fed Chairman now says otherwise (whether he actually believes this is another matter altogether). Irrespective of his true beliefs, if this isn't an indication that Bernanke has the political 'skills' necessary to manage, well, not the economy, but at least the job of Federal Reserve Chairman, then I say that none exists. This is after all, as close as one gets to a bald-faced lie in economics. It is not dissimilar to various commentators on TV proposing that stocks are up "because oil prices are declining" when, in fact and as clear as day, the relationship is quite the opposite. Probably so.

So perhaps this is the clue that Mr. Bernanke is as much a vulture on the body politic as any pork barrel spending congressman. The agenda, it seems, is paramount to truth: keep hope alive, even if contravening the facts of your own economists is necessary. Let us not be surprised when Mr. Bernanke shares the coveted seat beside the First Lady at next year's State of the Union speech. With his very first official speech, he just earned it.

Subterfuge - Kevin Depew - 11:18 AM

Note the dip below the flatline here is accompanied by some strength in the Russell 2000 (RUT) still holding on to almost a half a percent gain in the face of weakness in the Dow And SPX.

Energy continues to underperform here as well, and note the OSX is now approaching PnF trendline support at 135. There are daily DeMark TD-Sequential "buy" setups almost across the board in this space suggesting at least a moderation of the decline we've seen the past week.

As I noted yesterday, I'm looking for a bounce in energy soon to setup pairs similar to the RUT/SPX pairs.

Position in SPX/RUT equivalents

You tricked me....not fair! - Bennet Sedacca - 10:24 AM

Part of this business is admitting when you are wrong. Yesterday, we wrote that the UTY had broken the uptrend (it had), but that it had to close there - it didn't - it closed above the trendline.

It is now rallying strongly and is back above 200 day. For now a classic false breakdown. The lesson here is to never be stubborn and recognize when you may be wrong. This keeps losses small, even though we never took the position, because it did not close there

Rumor Mill - John Succo - 9:45 AM

There is heavy call buying in JP Morgan (JPM) off of rumors that Morgan Stanley (MS) will merge with them.

This makes little sense to us, as it would duplicate many areas similar in both firms.

But stranger things have happened. The dealer business is under pressure to restructure as it continues to experience shrinking margins as commissions continue to drop and dealers are too levered to facilitate risk appropriately.

Position in JPM, MS
No positions in stocks mentioned.
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