Yesterday was mixed – down – up – down – flat. There was some follow through in the financial sector as some rumors came out pre-Goldman release that they were going to be released early (as possibly better than expected). That spurred Goldman higher and took some of the financials with it.
We have PPI and CPI this week and retail sales this week. It would seem the financials are getting on their feet – let’s see if the consumers can.
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Goldman – the Gold Standard
Goldman for a long time has been considered the Gold Standard of the investment banking community. Sure they suffered with other financial firms in the recent months and received TARP funds (even though it didn’t want it). They want to pay back the TARP because there are many strings attached. There is mixed feeling that Goldman should vs. should not pay it back. The “shoulds” believe that if they didn’t need it they should pay it back (since the government is over-extended), the “should nots” have two beefs – first that it may make those that have received the TARP look worse (like they may need it) – the second is that it is (or should be) a government mandated insurance policy that also keeps salary caps in place. We know Goldman’s feeling – they want to get rid of it.
Goldman (like Wells) – shocked expectations with more than doubling the estimates. Sure there was some short-falls in certain sectors – but one argument being made is that they have picked up business from Lehman and Bear Stearns – but how much is hard to quantify.
It would seem that the banks are doing very well (doubling expectations) and in some cases have record revenues. Goldman would like to pay back the government by selling shares. Financial stocks have been rallying – but after Goldman came out with the rock star results the stock had sold off. Maybe it has been “priced in” to the stock price. You know the old saying “Buy the Rumor, Sell the News!” – could it be that financial stocks have rallied on the belief of the new accounting standards and that maybe their balance sheets were not as bad as they thought – then when the results come out its profit taking? Well that’s what is being reported this morning on Goldman as the stock is down $3 points from yesterday’s close.
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Retail Sales Down?
The retail sales number was down 1.1% - just like the estimates in Goldman were off by double, the forecasts in retail sales were off as many analyst expected it to INCREASE – not DECREASE. It would seem that the analyst don’t have a clue what is going on – if they are off 100% or more on everything from financial stocks to retail sales.I think as soon as we see the credit flow to the consumers (not just the banks) and we see the bottom in the jobs numbers – with return to the strength. Then we may see some spending.
We need to get the consumer right before we see any longer term strength in the economy.
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Producer Prices Fell !
Just like with Goldman earnings, Retails Sales, now analyst are way off on their expectations of the Producer Price Index (PPI). There was a small gain in February (.1%) and expectations were for another slight increase to flat – certainly not a drop of 1.2%. Washington pundits have already been pointing to the PPI and saying that inflation is at bay and nothing to worry about.
While the PPI is certain one of the leading indicators to measure inflation – and I will agree that the PPI certainly doesn’t show inflation (as a lagging indicator). I would say that with a global slowdown that companies may be reluctant to raise prices because of decreased demand. They need to move inventory. We certainly saw that in the car market as they lowered prices to move inventory.
I think we have two forces at work and inflation can certainly be created by more than one force. I would say we currently are NOT seeing inflation because while the dollar’s faith is shaky on the larger global stage, domestically it is still the primary source of doing business (from the consumer to company level). While true the government is printing money out of control, businesses still need to sell goods and with consumers losing jobs and very little access to credit, the companies need to lower prices or keep them flat to move inventory. So we may not see inflation (locally) – but at some point we have printed lots of money (enough so that China and others are very concerned – concerned enough to demand a new reserve currency).
So who wins the tug of war between FAITH and MATH?
At some point it is coming – maybe not for months – it could be 2010 or 2011. However – just like TIME – we can’t stop the math.
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Johnson & Johnson
Reported that first-quarter profits slipped by 2.5% from a combination of generic competition and the stronger dollar in the first quarter hurt international sales.
The stock initially rallied this morning to 54 before it came off - currently slightly above yesterday’s close.
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Futures Pre-market
The futures saw some serious volatility – first down over night, then rallying this morning on Goldman (even though Goldman was down), then the Retail Sales came out a shocker – and we headed right back down. The ARB traders probably made some free money on a futures scalp this morning – as they shorted futures into the spread and now the futures are coming over and the spread has fully inverted.
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Support / Resistances
After a terrific run last week and a neck-stretcher through resistances it looks like we are seeing some sell pressure.
INDU 8000! (We dipped below it yesterday before rallying back up and closing above it. Can we hold again today? It seems a struggle this morning – but watch the close.)
NDX 1300! (We are certainly fairly well above it – but it could be tested – that will be the question.)
SPX 825 / 850+ (We are above 850 even though I put that on the resistance side. Do we close above 850 – or do we break down through it?)
RUT 450! (This is a big question – 450! We are well above it – but I would say that it is short-term support.)
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Gold 900? (We are making a move back up to 900 – do we get back above it again?)
Silver 12+ (We did see a good up move yesterday in silver – relative to Gold – but again I think Silver is way undervalued compared to Gold)
OIL 50 ? (We are back down right at 50 this morning – hold or not?)
Currencies – I just wanted to point out that US Dollar slid hard at the opening this week against the global currencies.
Treasuries – Yield came off as the FED again purchased billions of treasuries – wonder how much they’ll buy when all is said and done?
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Conclusion
Goldman was not as big of a surprise as Wells – but it did surprise. Of course we also knew they wanted (and could) pay back the TARP in some form or another. I am still skeptical on the Wells news and a little about Goldman – mainly because it seems these toxic assets have all overnight become a non-issue. I was certainly more surprised about Wells because they became (overnight) the 2nd biggest lender after they acquired Wachovia which was about to fail – if not for the emergency last minute merger. The CFO telling the world that mortgages were strong? That was certainly a head scratcher for me. I won’t question the trade desk revenue increase with the acquisition, but even Goldman pointed out the retail side of the business (as far as commissions and assets under management) has seriously slipped. So if we KNOW that A. Mortgage businesses are really not that good and B. Retail commissions and assets under management business has slowed – the question is where did the billions of dollars in one quarter get made? A mark on those all but forgotten toxic assets could?
Call me skeptical – but there is some math that just doesn’t add up. I’ll give a friend a call that loves to drill through the 10ks at the end of the month and see what he has to say. But I think everyone is surprised – let’s just hope there is ENOUGH math to hang our collective hat on and not just some mark-to-myth.
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