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Buzz Bits: Dow, Nasdaq Head Higher

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Earnings Report - MV News

  • Qualcomm (QCOM) reported Q2 reported Q1 EPS of $0.41 (in-line) on revs of $1.83 bln vs $1.81 bln cons.
  • Juniper (JNPR) reported EPS of $0.19 (in-line) on revs of $566.7 mln vs $571.32 mln cons.
  • Intel (INTC) reported EPS of $0.23 vs $0.22 cons on revs of $8.9 bln vs $8.87 bln cons. Gross margin was 55.`% vs 56% exp.
  • eBay (EBAY) reported EPS of $0.24 (in-line) on revs of $1.39 bln (in-line).
  • Apple (AAPL) reported EPS of $0.50 vs $0.43 cons on revs of $4.36 bln vs $4.50 bln cons. iPod shipments were 8.52 mln vs 9.17 mln exp, while Mac shipments were 1.11 mln vs 1.2 mln exp.a



Sweet Demands - Kevin Depew - 3:48 PM
  • I didn't catch her comments because that was around the time when A-Rod was hitting a home run, but IM's and emails are circulating that San Francisco Fed President Janet Yellen told CNBC that high commodities prices including gold are a reflection of geopolitical concerns and strong global economic growth. But not inflation.
  • In a sense, the Fed policy is so far succeeding in its goal of stamping out the Central Bank's most feared enemy: deflation.
  • The key question for the Fed, and one that John Succo alluded to in his mailbag to Minyan G, is whether the fires of inflation can be stoked enough to maintain some semblance of demand as the engine of growth (credit creation) is powered down.
  • The answer? Well, ask yourself this: since at least the 90s, every time the Fed has attempted to decelerate fiscal stimulus - not even stop it, simply reduce the pace at which it has been growing - what has been the end result?
  • On the bright side, the travel agent for MIM3 called to arrange MIM3 accomodations and travel. I think she was a little surprised by my travel requirements.


Mini-Minyan Mailbag - John Succo - 2:36 PM

Prof. Succo -

Is it just me or has it struck anyone else how ironic the comments are by the Fed in that they are SO concerned about going too far - no not the obvious pre-occupation with market reaction that's now old hat, but rather the total lack of understanding that the only power they possibly do have left is to go too far - way too far?

Peace,

Minyan G

MG -

I agree with this and I think it is lost on most. Our economy is so debt laden and so sensitive to changes in rates (remember I have been asking "why" the economy is strong and my answer is free money fueling speculation) it is almost impossible to "soft" land this thing: it is like landing the space shuttle on an aircraft carrier.

If the real economy was not so tied up and reliant on low rates and financial exchanges (as it once was) and so levered, monetary "tweaking" would be less dangerous. I still find it ironic that the response to higher inflation is higher rates when inflation in and of itself is deflationary. Why have a Fed at all? Why not just let the market re-align itself? I have talked about this before: a government with the ability to produce money out of thin air will in the long run make imbalances worse.

And here we are. The U.S. economy over the last decade has seen an unprecedented growth in credit; that is the driver of everything. But the car is uncontrollable now. Where some see Fed control I only see hubris. We will pay for all of this someday, maybe tomorrow.



Financial Earnings - The Fun Is Just Starting - Brian Gilmartin

The one pleasant surprise this week has been the upside strength in financials with Northern Trust (NTRS), State Street (STT), JP Morgan (JPM) today, Fifth Third (FITB) yesterday, all meeting or (handily) beating estimates.

According to my firm's weekly First Call data q1 '06 was supposed to be the low water point for financial earnings this year, and (per the following)the financial sector earnings growth is expected to gain strength through the year:
  • q1 '06 +3% y/y expected eps growth
  • q2 '06 +10% y/y expected eps growth
  • q3 '06 +28% y/y expected eps growth
  • q4 '06 +29% y/y expected eps growth


With accelerating earnings growth, and reasonable valuations, the sector remains a good tell for the general market. I'm amazed the sector has remained relatively immune to the yield curve, although the banking sector as it exists today, isn't at all similar to what we knew in the 1980's and early 1990's. Some of it no doubt is due to the growth in fee-based businesses within the banking industry, but some of it no doubt is due to better management of interest rate risk, and the development of the swap market.

(Financial represent 26% of the S&P 500 by earnings weight, and 21% by market cap, according to First call's data.)

My largest overweight within financials remains the brokerage stocks.

Position in NTRS, JPM, other financials



Whiskey bottles, and brand new cars
Oak tree you're in my way - Todd Harrison - 12:32 PM

I hear ya, Mr. Skynyrd, but I haven't been able to source that smell just yet. In fact, while my nose was to the grindstone--whatever that means--Hoofy has handled the supply rather well. Market internals are workin' 9:5, the semis are up 1.5% (in front of Intel) and the brokers, drillers and Russell are meandering through Matador City.

Over in macro land, the dollar has broken through six month lows while bonds are under more pressure than Tia Russell in a dark Chicago park. The metals? They're hangin' just fine, thank you, despite a 2% cough in silver that halved the day's gains. Metal equities, for their part, have fluxed back to the flat line as the Newmont posturing begins.

Other than add some downside out-month gamma in the financials (I wanna hang onto my situational longs), I've done more prepping than trading today. We've got MIM3 locked and loaded and I'm awaiting word from thy Queen for its official launch. I don't know about you, Minyans, but some vibe time in the mountains sounds pretty good to these old ears.

As always, I hope this finds you well.


R.P.

Position in financials



Agnostic - Herb Greenberg - 10:43 AM

From behind the scenes: In recent days i've written on MarketWatch and talked on TV about True Religion (TRLG). I've pointed out some numbers from the 10-Qs and 10-Ks that suggest stuffing to the company's Japanese distributor. These aren't numbers that you can easily see; they require some work. The story stirred a hornet's nest, including buzzes from several analysts who say, among other things, that the first quarter will be a blowout.

My question: How can they know for sure? All anybody knows is that the company recently reiterated first quarter guidance. But if stuffing was indeed an issue to Japan, how do we know that distributors in other parts of the world haven't been equally stuffed for the company to have such confidence about the first quarter? (Answer: we don't.)

I have still not heard back from the company, which I called before I wrote. Likewise, the company hasn't called to dispute my column's interpretation of the numbers.

And don't go claiming the company is in the pre-earnings quiet period. We're talking prior events that have nothing to do with the first quarter.

In the end this may be making a mountain out of a molehill or spotlighting a molehill that is really a mountain. But the numbers are the numbers.

Will continue to monitor.

Onward...



Looming Collapse - Tom Peterson - 10:03 AM

The Dow held the important trendline we showed on page 13 of the last MSR. The S&P had a spring low on April 17th. Tuesday it gapped higher and the result was the strongest day in almost a year. The S&P slightly exceeded the upper limit of the 1302 zone that we thought would be stiff resistance (and a good place to sell).

See the chart here.

Summary: As often as not, action like Tuesday's marks that we're near the end of a rally and often such action leads to a fizzling-out process later. The S&P is only back to the point just below where it failed in its last breakout attempt on April 7th. We may see slight new highs result from this rally effort, but we don't think there's any reason to abandon our previous strategy of trying to be in the right sectors, especially basic materials, precious metals and energy along with defensive groups like the defense contractors, health care, consumer staples.

Notwithstanding this action, we sent out a list of buy ideas last night (to MSR Subscribers)because our view of the markets having a correction into mid May might be wrong, and we have learned to take buy opportunities (especially into corrections) as they come along and then use strict money management to defend investment capital.

Note: If Tuesday's rally was a result of a huge new injection of liquidity to avert or soften the blow from a hedge fund collapse, then perhaps the market can avoid a failure. I suppose we'll see, but keep an eye on this situation. Check out this article.


Chart of the Day - Greg Weldon - 9:17 AM

Today's focus is on the new highs being set by a pair of Asian currencies, the Korean Won and the Singapore Dollar. In fact, the Bank of Korea has reportedly purchased more than $1 billion in the last two weeks, in a failed attempt to keep the KRW from rising.

The Korean Won is breaking to new highs (USD at new lows) this morning, and is fast approaching the 9.5 level, having appreciated by nearly +10% since the low (USD peak) set in the 4Q of last year.

See the chart here.


Seems like old times - Rod David - 9:04 AM


Last week's consolidation into the Easter weekend needed a "counterweight" - a false rally attempt - to spread buyers thin and to attract serious sellers. The first likely candidate was at SPX 1294 (ESm 1300'50), which held two tests as resistance Tuesday morning. But not a third. The rally extended another 15 points higher into the close. Tuesday's internal spreads and the new high's timing each require higher highs to print Wednesday, and the Globex session overnight has already done this.

But Tuesday's close was at the ever-relevant SPX 1307.50 level, which was the target of March's rally and held repeated probes intraday. The only close above the target was rejected immediately the following day, and the next probe resolved in last week's lows. As for spreading buyers thin, Tuesday's NYSE up volume was nearly ten times down volume, and could have stood alone as an entire session's volume compared to last week's pace. Finally, this is "Wreversal Wednesday," so-named for its ability to promise one thing early, and then deliver something entirely different later. Not always, but it's stunning when it happens.

S&Ps printed higher highs overnight that qualify as a "new Globex trend extreme" that requires being retested during regular trading hours - not necessarily today, but usually. So, this pullback at the bottom of the hour that is now testing yesterday's highs as support should recover. If S&Ps were to retest the Globex high and then reverse back under this pullback's low during the cash session's first half-hour, then SPX 1307.50 will have held again (now equivalent to ESm 1313'50), and probably in a big way. Otherwise, look out above.


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