Saturday, 23 April 2016

Weekend Update 23/04/2016 – Trouble in Casino – Canary Croaks.

Brexit Countdown Clock.

Brexit Quote of the Day.
“I'm not lost for I know where I am. But however, where I am may be lost.”

Dodgy Dave Cameron, with apologies to A.A. Milne, and Winnie-the-Pooh

This weekend, yet more reason to think that the Fedster’s latest stock market bubble is on borrowed time, drinking Kool-Aid in the last chance saloon, and playing Russian roulette with only one chamber empty. This week, NASDAQ “the stock market for the next hundred years,” croaked and joined the Dow Transportation Index in signalling big trouble arriving in spades. Is Donald Trump about to be right in his call of a new recession arriving. Sell in April looks like beating the old Wall Street adage “sell in May, go away, don’t return till Labour Day.” For our non-American readers, Labour Day is September 5th, this year.

“The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market.”

Ludwig von Mises.

Earnings Engine Conks Out in Nasdaq's Worst Week Since February

April 22, 2016 — 9:55 PM BST
Disappointing earnings reports erased $68 billion from shares of Netflix Inc., Microsoft Corp. and Alphabet Inc. and sent the Nasdaq 100 Index to its biggest weekly drop since February.

Netflix saw its stock fall the most among the trio after rattling investors with forecasts for weakening subscriber growth overseas. The Los Gatos, California-based online video provider slid 14 percent, the largest drop since September. Concerns about a turnaround plan sent Microsoft down 7 percent while Google’s parent declined 5.4 percent on margin concerns.

The three stocks accounted for 80 percent of a 1.5 percent retreat in the Nasdaq 100, the biggest decrease since it lost 6 percent in the week ending Feb. 5. The Standard & Poor’s 500 Index added 0.5 percent.

“There was a nice run-up in many of these kind of names last year, but when you have that kind of rally you’re more likely to have a reaction to negative news,” Lisa Kopp, head of traditional investments at U.S Bank Wealth Management in Minneapolis, Minnesota, said by phone. “It does affect sentiment as people look at these.”

While earnings at S&P 500 companies are exceeding analyst estimates by 4 percent on average, the spotty results from mega-cap tech stocks are taking a toll on the broader market. The S&P 500 couldn’t hold 2,100 this week -- a level it’s crossed 40 times since the start of 2015 and a key threshold where JPMorgan Chase & Co. says more buyers could step in.

The S&P 500 couldn’t hold 2,100 in November, either, a concern for bulls worried history will repeat. Back then, it jumped 13 percent from a summer low to peak at 2,109.79 in the span of 10 weeks. This year, the benchmark’s 14 percent rally since Feb. 11 also occurred in a 10-week period.

“The S&P has gone nowhere in the past year and the market keeps running into a valuation ceiling at about 2,100,” said David Lafferty, the Boston-based chief market strategist for Natixis Global Asset Management. His firm manages $966 billion. “Every time we get to that level it sort of tops out.”


By This Measure The S&P 500 Is Overvalued By 72%

by CNBC • 
Are stocks, on the whole, too expensive or too cheap?

There are about as many ways to answer that question as there are investors in the market. But based on one particular measure of market valuation, the S&P 500 is overvalued by 72 percent.

That measure would be the comparison between the S&P’s total market capitalization (that is, the value of all the shares of the companies in the S&P) and the U.S. gross domestic product (which measures the value of the economic activity that has occurred within America’s borders within a certain time period).

Going back to 1964, the S&P 500’s market cap has been 57 percent of annual US GDP on average. If one excludes the tech bubble, that number falls to 53 percent. As of the end of March, however, the stocks contained within the S&P are collectively worth 99 percent of GDP, more than 70 percent above the average level.

Bank of America Merrill Lynch’s equity and quant strategy team, which presented the above numbers in a report Thursday, noted that the S&P/GDP is just one of a bevy of metrics suggesting that “the market is expensive vs. history.” They show that other, better-known indicators such as the S&P’s forward price-to-earnings ratio also suggest overvaluation, albeit to a lesser extent.

On the other hand, a much smaller number of measures, such as price-to-book-value and price-to-free-cash-flow, suggest that stocks are appropriately valued or undervalued.

For Gina Sanchez, who runs asset allocation firm Chantico Global, the S&P/GDP metric is particularly troubling.

“The reality is, there should be a relationship between GDP growth and profit growth, and that has largely been absent,” Sanchez said Friday on CNBC’s “Trading Nation.”

“We’ve been supporting profits growth with things like share buybacks and other unsustainable factors, and fooling ourselves into thinking that that’s actually sustainable profits. What this is pointing out is that… we are paying too much for the growth that we can expect to get out of the S&P 500,” she said.

Caterpillar cuts 2016 sales, earnings outlook, first-quarter profit slumps

Fri Apr 22, 2016 10:04am EDT
Caterpillar Inc. (CAT.N) on Friday chopped its 2016 earnings outlook and posted a lower first-quarter operating profit, reeling from a fall in revenue in its construction, oil and gas and rail business segments.
Caterpillar now expects 2016 earnings per share at $3.00, or $3.70 per share excluding restructuring costs. The previous forecast was $3.50 per share, or $4.00 per share, excluding restructuring costs.

The company also trimmed it its 2016 sales outlook range to $40 billion to $42 billion against a previously forecast $40 billion to $44 billion.

The outlook revision came despite seeing some signs of improvement in construction equipment in China and recent increases in commodity prices, the company said.

"Our sense is that investors will continue to worry that second half of the 2016 forecast are still a stretch as revenue and pricing trends will both need to improve to hit targets," Stephen Volkmann Jefferies analyst said in a note.

The company's shares slipped 0.1 percent to $78.55 in morning trade.

Caterpillar said it saw mining customers were focused on reducing capital expenditures and the oil and gas industry's availability of used products impeded the company's sales of new equipment.

"While first-quarter results were about as we expected, sales and profit were well below the first quarter of 2015," CEO Doug Oberhelman said in a statement.

For the three-month period ended March 2016 the company’s dealers said global retail machinery sales were down 13 percent, compared with he previous year.

The world’s largest heavy machinery manufacturer reported a operating income of $494 million, or 67 cents per share in the first quarter, down from a revised $1.70 billion, or $2.07 a share, a year ago. Analysts had expected earnings per share of 68 cents.

Including restructuring costs, Caterpillar earned 46 cents per share, compared with a revised $2.03 a year earlier. Revenue fell to $9.46 billion from $12.7 billion a year ago.

Microsoft’s stock plunge wipes out over $30 billion in market value

Published: Apr 22, 2016 4:13 p.m. ET
Shares of Microsoft Corp. plunged in active trade Friday after disappointing quarterly earnings, wiping away over $30 billion in market capitalization and cutting the Dow Jones Industrial Average’s gain in half.

As Microsoft is the third-largest U.S. company by market value, the stock’s MSFT, -7.17%  selloff was having an outsize effect on the broader market. It was the biggest percentage decliner in the Dow DJIA, +0.12% the S&P 500 index SPX, +0.00%  and the Nasdaq-100 Index NDX, -1.47%

The stock tumbled $4, or 7.2%, to close Friday with its biggest one-day percentage loss since it tumbled 9.3% on Jan. 27, 2015, also following disappointing quarterly results. Volume of 124.3 million shares, or nearly five times the full-day average of 26.4 million shares, was enough to make the shares the most active on the Nasdaq exchange. Read more about Microsoft’s fiscal third-quarter results.

With about 7.91 billion shares outstanding, according to FactSet, the price decline erased $31.64 billion from Microsoft’s market cap, which fell to $409.54 billion.

The price decline was also shaved about 27 points off the Dow, which closed up 21 points.

China ban on Apple services is a challenge for key growth area

Fri Apr 22, 2016 8:47pm EDT
The blocking of Apple mobile entertainment services in China poses fresh challenges for the tech company as it prepares to report its first-ever drop in iPhone sales.

The news on Thursday that Apple Inc's (AAPL.O) online book and film services had gone dark in China came at a vulnerable moment for the company. Apple executives have said that iPhone sales will fall for the first time in the company's second quarter, and the results for that quarter will be released on Tuesday. Investors are sensitive to any signs of trouble in Greater China, the company's second-largest market by revenue.

Apple executives have flagged the growing services business as a potential source of revenue as sales of the company's flagship devices level off, upping the stakes for success in China, said analyst Bob O’Donnell of TECHnalysis Research.

"It raises questions in an area that we know long-term is going to be very strategically important to Apple," he said.

The New York Times reported on Thursday that a state regulator demanded Apple halt the service. The move came after Beijing introduced regulations in March imposing strict curbs on online publishing, particularly for foreign firms.

---- Apple has a strong track record of working with officials in China, where it has launched a series of services including mobile payment Apple Pay, but some analysts questioned whether the company may receive a chillier reception in the future.

"Is this the beginning of more pressure on Apple by the Chinese government?" asked analyst of Frank Gillett of research firm Forrester. "It's a symbolic turn, and the question is to what extent is it a harbinger."

The company released its book and movie services in China only late last year, leaving Chinese consumers little time to form a habit.
---- Chinese consumers' appetite for the phones themselves will be critical to quarterly earnings. Apple is expected to post its first-ever quarterly drop in iPhone sales, to about 50 million units, reflecting a saturated global market.

Europe Stocks Fall for 2nd Day as Daimler Leads Carmakers Lower

April 22, 2016 — 8:16 AM BST Updated on April 22, 2016 — 5:04 PM BST
European stocks slid further away from a three-month high, trimming a second weekly advance, as carmakers led declines.

Daimler AG tumbled 5.1 percent after its quarterly operating profit fell. Volkswagen AG lost 1.3 percent, paring a drop of as much as 6.1 percent, after more than doubling the provisions toward payments in its cheating scandal. PSA Peugeot Citroen fell 1.7 percent after government fraud investigators searched the group’s premises in France as part of a probe into vehicle emissions.

The Stoxx Europe 600 Index lost 0.3 percent at the close of trading, paring an earlier drop of as much as 0.8 percent. Traders sent the benchmark lower yesterday for the first time in four sessions as they remained unconvinced by the European Central Bank’s stimulus program even after President Mario Draghi urged critics to give it time to work.

----Advances in commodity and energy producers have led a rally in European equities in the past two months. The Stoxx 600 surged 16 percent from a February low to its highest level since Jan. 6 on Wednesday. It’s up 1.7 percent this week.

The gains have come even as analysts slashed their profit estimates for the region’s companies. They now predict an earnings decline in 2016 for Stoxx 600 firms, reversing calls for growth at the start of the year.

Among shares moving on financial results, Kering SA slid 5.4 percent after the Gucci owner reported first-quarter revenue that trailed analysts’ estimates.

----The slide in automakers dragged the DAX Index down 0.7 percent, after the German benchmark came within 1 percent of entering a bull market yesterday. The U.K.’s FTSE 100 Index fell 1.1 percent, the worst performer in Europe. Greece’s ASE Index rose the most, up 1.2 percent, after its creditors signaled a deal on the country’s next bailout installment is in sight.

Airbus to cut output of slow-selling A380 superjumbo

Thu Apr 21, 2016 10:36am EDT
European planemaker Airbus (AIR.PA) plans to cut production of its A380 superjumbo from 2017 as it struggles to revive sales of the world's largest passenger jet, two industry sources said.

It has told its suppliers to slow production to support an assembly rate of 1.7 aircraft per month from next year, compared with production of just over two a month now, the sources said.

The exact month in which the slowdown would be felt in the Toulouse assembly plant was not immediately clear.

Airbus declined to comment on talks with suppliers.

"We can't comment on any discussions which may or may not have happened," a spokesman said.

The company does not publish production figures for its biggest model, but only targets deliveries.

Sales of large four-engine airliners like the 544-seat A380 have been hit by improvements in the range and efficiency of smaller two-engined models, which can be easier to fill.

Airbus, which has delivered 143 A380s since it began service in 2007, says the double-decker is becoming more attractive due to lower oil prices and also helps to solve airport congestion.

But because of long lead times the sources said Airbus had been forced to ask suppliers to slow the flow of parts.
We close for the weekend with the never ending problem of Greece, now the EU’s preferred prison for Merkel’s migrant madness. What did the poor Greeks ever do to the Germans to deserve this, and Yankee Doodle's threat to British voters: "don't think you're anything special."
"If the EU cannot resolve a small problem the size of Greece, what is the point of Europe?"

Romano Prodi, former chief of the European Commission, former Italy Prime Minister.

Euro zone agrees Greece must prepare contingency reform package

Fri Apr 22, 2016 6:50am EDT
Greece should prepare a package of additional measures to guarantee it will reach fiscal targets agreed with international lenders to conclude the bailout reform review, the head of euro zone finance ministers said on Friday.

"We came to the conclusion that the policy package should include a contingent package of additional measures that would be implemented only if necessary to reach the primary surplus target for 2018," Jeroen Dijsselbloem told a news conference in Amsterdam after a meeting of euro zone finance ministers.

Greece has to reach a primary surplus target of 3.5 percent of GDP in 2018, but the International Monetary Fund does not believe it can do that with the current set of reforms.

The contingency measures need "to be credible, legislated up-front, automatic and based on objective factors," Dijsselbloem said.

Obama's amazing THREAT to Britain: UK would be at the 'back of the queue' after Brexit

BARACK Obama was last night condemned for trying to “blackmail” Britain into remaining in the EU.

By Alison Little PUBLISHED: 00:01, Sat, Apr 23, 2016
The US President warned the UK would be “at the back of the queue” for a trade deal with America if it quit Brussels.

But his threat provoked outrage and scorn from pro-Brexit campaigners, who dismissed it as yet another scaremongering ploy from the pro-EU lobby.

Mr Obama, who will no longer be in office when decisions on a trade deal are made, delivered a lecture to the British people on why he thinks it is in the UK’s, America’s and the world’s best interests for Britain to vote to stay in the EU on June 23.

He weighed into the debate despite being warned by a host of anti-EU campaigners to “butt out” of our referendum battle.

He said there could be a US-UK trade agreement “down the line” but warned: “It’s not going to happen any time soon, because our focus is on negotiating with a big bloc, the EU. The UK is going to be in the back of the queue.”

The claim, made during a joint news conference with David Cameron, angered Leave campaigners.

Tory Justice Minister Dominic Raab said Mr Obama had made “a pretty cynical intervention”.

He added: “We’ve got a lame duck president doing an old friend a favour for purely political reasons – and taking a few unnecessary risks, being a bit irresponsible with the special relationship between our two countries.

“You can’t say on the one hand that the relationship is essential and always will be, then say that if you don’t take my advice you’ll be at the back of the queue for a free trade deal. I don’t think the British people will be blackmailed by anyone but he’s entitled to give his view.
True, governments can reduce the rate of interest in the short run, issue additional paper currency, open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression. 

Ludwig von Mises.

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