Archive for May, 2014

• Morning News: May 23, 2014
  Eddy Elfenbein, May 23rd, 2014 at 6:30 am

  Putin’s Singapore Dream Costs Crimeans Their Banks and Burgers

  No Weaning Europe Off Russian Gas Says Gazprom

  Spain With Greece Win Higher Debt Ratings on Growth Outlook

  Modi to Use Courtship by World Leaders to Aid India’s Growth

  Unrest Spurs Honda’s Thai Unit to Cut Output, Delay New Plant

  Gain in Existing U.S. Home Sales Lifts Spring Prospects

  Biotech Rally Sends Market Higher

  Mixed Reactions After U.S. Drastically Cuts Monterey Shale Outlook

  Gap Reaffirms Outlook, Focuses on Expansion

  Best Buy Beats Earnings: Turnaround Sign or Short-Term Rebound?

  GameStop Is The Ultimate Bear Trap

  Hewlett Packard Faces The Classic Dilemma, How Do You Thrive In A Declining Market?

  Barclays Fined $44 Million for London Gold Fix Failings

  Cullen Roche: Three Signs the Economy is Doing Okay

  Jeff Miller: The Sound of Silence

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• NSFW: The Penis Wall
  Eddy Elfenbein, May 22nd, 2014 at 9:10 pm

  From Death and Taxes:

  One of the standouts from this year’s ITP Thesis show is this wall of 81 “erectable” penises that, in addition to reacting to the movements of those viewing it, also charts the fluctuations of the stock market.

  According to creator Peiqi Su, the initial motivation was to “study one of the oldest and probably the most attractive thing that humans interact with.” But while it’s easy to poke fun at the novel idea, the wall’s construction is actually quite elaborate and impressive—each dick was 3D printed, and is made of six segments driven by motors and equipped with a sensor to respond to movement.

  It can also be used to represent data, like charting the stock market.

  I’m not sure how that’s better than a simple bar chart, but…to each his own. Good taste bars me from embedding this, but you can see a video here.

• BusinessWeek on IBM
  Eddy Elfenbein, May 22nd, 2014 at 8:29 pm

  IBM is featured on the cover of this week’s BusinessWeek. Here’s Nick Summers’ feature, The Trouble With IBM. It’s harsh but not undeserved.

  That was the IBM Rometty inherited in October 2011, when Palmisano named her the company’s first female CEO. It seemed like a golden moment. IBM was celebrating its centennial with record sales, record profits, and a record share price. An artificial-intelligence project called Watson hit the publicity jackpot by beating human champions on Jeopardy! And in November, IBM received the ultimate financial benediction: Warren Buffett revealed he had broken his rule of not investing in technology stocks with the purchase of a 5.5 percent stake in IBM for more than $10 billion. Buffett liked how entrenched the company had become in the world’s IT departments; he said Big Blue was like an auditor or a law firm—really difficult to break up with. He especially liked the road map Palmisano had pledged before stepping down. “They have this terrific reverence for the shareholder, which I think is very, very important,” Buffett said on CNBC.

  The honeymoon proved short-lived. Rometty is by many accounts a smart, vigorous CEO—who turned out to have inherited a far more dire position than she, or much of Wall Street, may have realized. The megatrend is corporate America’s move to the cloud. It’s not just Amazon that IBM needs to worry about: In an August 2013 study of 15 cloud infrastructure providers, research firm Gartner (IT) rated IBM worst, behind Microsoft (MSFT), Rackspace (RAX), and Verizon (VZ).

  Hardware sales have plummeted 24 percent in two years, turning a manageable decline into a full-on implosion. As a rule, new companies are not buying their own servers and mainframes, and larger corporations, instead of ordering new machines when they reach an upgrade point, are moving their workloads to the cloud, too. Rometty, keeping with Gerstner and Palmisano’s practice of selling businesses with shrinking profit margins, agreed in January to sell IBM’s low-end server business to Lenovo for $2.3 billion. (The deal awaits U.S. government approval.) IBM will attempt to resurrect its hardware sales with a new line of high-end servers unveiled in April called Power8, which it says can churn through massive data sets at record rates.

  As I often point out, attractive investing bargains often appear to be damaged goods. That doesn’t scare me. What I want to see is if management realizes the problems and is working to correct them.

• Ross Stores Earns $1.15 per Share for Q1
  Eddy Elfenbein, May 22nd, 2014 at 8:09 pm

  After today’s closing bell, Ross Stores ($ROST) reported Q1 earnings of $1.15 per share which matched the Street’s estimates. These are decent results and they could have been a lot worse. Earlier this week, TJX reported below expectations. For Ross, revenue was up 5.6% last quarter to $2.68 billion which was just shy of consensus. Comparable store sales, which is the key metric for retailers, were up 1% for the quarter.

  For Q2, Ross sees earnings of $1.05 to $1.09 per share, and comparable stores sales growth of 1% to 2%. The Street had been expecting $1.08 per share. Bear in mind that Ross had a range of $1.11 to $1.15 per share for Q1, so they tended to be modest with their expectations.

  For the entire year, Ross projects earnings of $4.09 to $4.21 per share. That’s an increase of four cents per share to the low end. The consensus on the Street is for $4.21 per share.

  CEO Michael Balmuth said, “First quarter earnings per share performed at the high end of our guidance as strict inventory and expense controls offset the impact from unfavorable weather and a more challenging retail environment. Sales trends improved in April with more seasonal Spring weather that coincided with the later Easter shopping period. Operating margin for the quarter was better than forecasted, declining 25 basis points to 14.6%. A 35 basis point increase in cost of goods sold was partially offset by a 10 basis point improvement in selling, general and administrative costs.”

• The VIX Closes Below 12
  Eddy Elfenbein, May 22nd, 2014 at 10:28 am

  The S&P 500 is up again today, and we’re over 1,890, so we’re not far from another all-time high. It was one year ago today that Ben Bernanke first warned Congress that the Fed would soon taper its bond purchases. Bernanke was careful to say that they wouldn’t move too soon. The Fed finally announced the taper on December 18 to take effect at the start of January 2014. Despite many calls of disaster, the stock market has held up well over the last year. It appears that QE will be all gone by the end of this year.

  Yesterday, the VIX, which is the Volatility Index, closed below 12 for the first time in nine months. If it keeps falling, the VIX could soon hit its lowest level in more than seven years. I don’t think volatility is a good or bad thing for equity prices. Volatility was quite low before the Financial Crisis, so it may be a sign of complacency.

  Ross Stores is set to report after today’s close.

• Morning News: May 22, 2014
  Eddy Elfenbein, May 22nd, 2014 at 6:43 am

  PetroChina, Utilities Stand to Gain From Russia Gas Deal

  Euro-Area Services Surge Aids Revival as Manufacturing Cools

  China, Japan Factory Output Improves, But Still Contracting

  Yen Weakens as China’s Manufacturing Surprise Damps Haven Demand

  Congress Proposes to Eliminate Door-to-Door Mail Delivery for Millions

  Deutsche Bank Sees Pressure Ahead on Regulatory Ratios

  China’s JD.com Prices IPO at $19 Per Share

  Booming High-End Retail, Slumping Low-End: StockTwits

  Unilever to Sell Sauce Brands to Mizkan for $2.15 Billion

  Comcast Investor Meeting Draws Protest Over Time Warner Cable Deal

  New Faces Behind Fed Dots Seen Roiling Markets as Forecasts Move

  McDonald’s Workers Arrested at Protest Near Its Headquarters

  Sears Canada Focusing on Affordable Yoga Gear Market

  Joshua Brown: Scenes from an Independent Brokerage Firm

  Credit Writedowns: On Tim Geithner and My US Bailout Post Mortem

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• Four Years Ago Yesterday
  Eddy Elfenbein, May 21st, 2014 at 1:59 pm

  On May 20, 2010, the S&P 500 dropped nearly 4%. It was one of the worst days of the last five years.

  Nouriel Roubini went on CNBC. I’m not exaggerating when I say that he bombed on every single prediction.

• Bill Dudley on the Fed’s Plans
  Eddy Elfenbein, May 21st, 2014 at 10:48 am

  Bill Dudley, the Grand Poobah of the New York Fed, gave an interesting speech yesterday. It’s long but you might want to check out the whole thing.

  There are a few key takeaways. One is that Dudley said he expects growth and inflation to rise this year and next. I suspect he’s right.

  What caught my attention were his remarks on real interest rates. Dudley said that if inflation gets up to 2%, then he expects interest rates to stay “well below” 4.25% which would be the expected level for a recovery. In other words, he doesn’t think we’ll get back to the normal level of 2.25% for real rates. If that’s the case, then Dudley thinks the Taylor Rule, which uses 2% as an equilibrium, won’t be so useful.

  Dudley lists three reasons for his low-rate forecast. One, he expects “economic headwinds seem likely to persist for several more years.” Secondly, he points to slower labor force growth and an aging population. Finally, he names bank regulation and higher capital requirements.

  Dudley also addressed how the Fed plans to start raising rates. This is a big question mark. The Fed has been testing its reverse repo facility which is a new idea. We’ll find out more sometime next year when it’s time to raise rates.

• Morning Notes
  Eddy Elfenbein, May 21st, 2014 at 10:12 am

  Here are a few notes this morning:

  There have been a lot of poor earnings from retailers recently. TJX ($TJX) had bad earnings that dragged down Ross Stores ($ROST) yesterday, but the stock reports tomorrow. Consensus is for $1.15 per share.

  eBay ($EBAY) told users to change their passwords due to a hacking. The stock is down today.

  Here’s Reuters on Medtronic ($MDT) settling its patent dispute with Edwards Lifesciences ($EW).

  At 2 pm, the Fed will release the minutes from its last meeting.

• Morning News: May 21, 2014
  Eddy Elfenbein, May 21st, 2014 at 6:41 am

  BOE’s Bean Says Central Bank Stimulus Exit May Be Difficult

  BOJ Offers Brighter View on Economy, Dashes Near-Term Policy Easing Hopes

  Fed Repo Program Use Surges as Exit Strategy Speculation Rises

  Netflix Enters Germany, France in Biggest Move Since 2011

  Lenovo Aims to Sell 100 Million Smartphones, Tablets in Coming Year

  Google Needs Up to $30 Billion in Cash Overseas for Deals

  Salesforce Forecast Tops Analyst Predictions on Cloud Expansion

  Maersk Raises Forecast for 2014

  GoPro Going Public: Will You Invest? – Real Time Insight

  Burberry Targets Japanese Growth After Profits Jump

  If You Want a Bargain on Golf Equipment, Now is the Time to Buy

  Credit Suisse Weighed CEO’s Exit

  When Dimon called Gilbert: How a Phone Call Led to $100 Million for Detroit

  Cullen Roche: 10 Lessons to Change the World

  Jeff Carter: Twitter is Dead. Long Live Twitter!

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