Yesterday’s action was again mixed – the RUT (broader base) saw weakness and didn’t participate as much as the narrower based indices – but for the most part the end of day rally erased earlier losses. The earning season has been in full swing and the stories are as follows:
1. Banks beat estimates (and in some case show profit?) – which it has been heavily criticized. Note bank stocks have stalled after their recent rally as earnings come out.
2. Almost all companies are lowering forecasts considerably – which would imply the recession (or slowdown) will remain throughout 2009.
3. Revenues and profits have been down across the board.
There are some bright spots, this morning’s Ford earnings are looking like they might of found a bottom or at least on the right tract. EBay had record traffic and looks to maintain steady margins. Apple earnings beat substantial and while they lowered their forecast it didn’t suggest as bleak a picture of many in the technology field.
All that being said – it doesn’t seem that the Bulls of the past (looking at steady double digit growth is going to return) are not going to see that kind or growth and the Bears are certainly not going to get a crash. You could say the “summer doldrums” is a period of consolidation and finding balance. There is still many problems and bumps ahead and some companies are finding a “REAL” bottom (without government aid) – and other’s remain murky as to their true financial woes.
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Built Ford Tough!
The good news, Ford went it alone (no government aid). They hunkered down and cut costs considerably they worked through all their problems and trying to find a bottom fast and not shying away from reality. They still have a very tough road ahead, very tough. They cut costs by 50% in a quarter (going from an aprox. $7 billion burn per quarter to a $3 billion), while that certainly doesn’t solve the massive short fall in auto sales, it is a massive step of getting their business model in check. These companies have been running fat with massive debt and deficits – which put them on a permanent borrowing cycle, in some cases borrowing just to pay interest on their previous loans and we know that road ends the company eventually.I don’t know what happen over there, intervention, a come to reality meeting, someone maybe just realized what it meant to be in business. Whatever – they got down, dirty, and have made a huge effort to clean up their balance sheet. And GUESS WHAT? – WITHOUT GOVERNMENT AID! It makes you sick to think of the 100s of billions tosses at GM and Chrysler (which is private). Ford is surviving in the biggest slowdown in auto history! Why can’t GM and Chrysler?
So the bad news? The revenue stream looks very weak, auto sales do not seem in the foreseeable futures to start to pick up. Consumers are still struggling with credit, savings, and jobs. They just don’t have money to spend and the financing of autos has come almost to a halt (for most consumers). That means we should expect to see slow sales for some time.
So what does that mean for Ford? The news today (in the short-term) means Ford is on the right tract, they still have lots to cut to get that burn rate down more. They still have to look at alternative vehicles and finding away to reduce costs in order to reduce prices to consumers. The big threat on the horizon is China and India – which have rolled out new cars in the $2 - $8,000 range and are slowly making a move to bring those low cost vehicles to the U.S. – Ford will need to compete (like back in the 70s vs. Japan).
I am very impressed with their ability to get real, cut costs, and NOT take government aid. It is commendable and while they have a long and very difficult road – I think it shows that a company in the worst situation ever can fix their own problems.
This story really slings mud on GM, Chrysler, Congress, UAW, and the Administration. For all the money we have tossed at Chrysler and GM – they didn’t get real. They kept the status quo and the money was a crutch to maintain a crappy business model. Now even Obama (after tossing billions at these two automakers) has admitted it was all for not and there is a high probability of bankruptcy.
Maybe not getting money, was tough love for Ford. Because it would be quite disappointing for the taxpayer to see Ford (who didn’t get money) survive, and the two that received billions of taxpayer money fail.
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Durable good order fall – less than expected
Orders for durable goods fell .8%, less than expected. The slow down had many economist expect a larger slowdown in orders for goods by manufactures. One economist on Bloomberg made a statement indicating that existing inventories (excluding autos) may have fallen more than expected, which could be one of the cause for it not falling as much.Once we start peering into the numbers we see some areas are worst than others, obviously we all know about the autos (GM is closing plants down for extended periods of time). Transpiration sector saw a decline of 1.4%. Also declines were seen in computer manufacturing after reporting a gain in February. GE on the other hand said that due to their diversification they are seeing a mix bag and their impact to the slowdown is less dire.
We are still in decline and the only bright spot is that it is not as sharp as previously indicated.
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More earnings…
AMZN – Amazon beat estimates and their free shipping has helped captured more market share, while still seeing a slow down. Their electronic book “Kindle” sees better than expected sales. They lower forecasts.
AXP – American Express saw a massive drop in profits (over 50%) and a sharp increase in delinquent payments, but they had significantly lowered their forecast last year and they drew such a dire picture that it was hard not to beat it. Even with the horrible numbers and losses, they were less than expected and beat estimates. Of course they have set their forecasts to even more embarrassing levels, which will be hard not to beat. Stock is up in the pre-market.
MSFT - Microsoft beat estimates and are talking about bigger cost savings for 2009. Tightening the belt, which could be considered that they are lowering expectations. However, MSFT is still moving product – even on the lower cost sub-$500 machines.
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Futures Pre-market
The futures are up slightly in the early session. Ford is helping – but the lowering of forecasts is showing that we may not see a recovery in 2009. There is a small spread in – if it remains – expect ARB traders to short the futures and buy the cash – creating a small pop to the upside at the opening.
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Support / Resistance
Down/Up/Down/Up – are we building a trading range?
INDU 7750 – 8000 (Down getting close to the 7750 level, Up getting close to the 8000 level. Where to next? It seems that Ping-Pong is the market game for now as we absorb the earnings and the lowering guidance going forward.)
NDX 1300 – 1360 (Again – ping – pong. The futures look up compared to the rest – because of MSFT and AMZN which are helping spur the futures in this index.)
SPX 835 – 875 (Ping-pong? Yeah – we are getting a slight pop in the futures – helped by a boost in a couple of techs.)
RUT 450 – 480 (Unlike the other futures – this is fairly flat – since it is broad there is no overweight in the index to drive it up or down in the pre-market.)
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Gold 850 – 900 (Ping pong)
Silver 12+
Oil 50+ (Looks like we broke through 50 – for now. Otherwise maybe we go back to the 45-50 ping-pong game.)
I guess the story for now is – you guessed it – ping-pong!
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Conclusion
The Ford story is putting egg on GM and Chrysler’s face – Ford is not out of the woods, but has been busted hump to get to the bottom and roll this balance sheet – Good Job! AMZN and MSFT looked better than expected – but are also guiding lower (of course with consumers having less to spend – what can they do?). American Express on the other hand is completely embarrassing, I don’t know how anyone can get excited about their story – because it is looking worse not better. Sure they beat kneecap level expectations (but that wasn’t hard) – and they are seeing ramping defaults – GREAT. If you think FOX or CNN “spin stories” – all you have to do is listen in on some of these conference calls to see where “spin” is raised to an art form.
Now we wait for this Stress Test – my guess – Everyone Passed and Everything is FINE!!! Of course they are grading to a serious curve and are using the “No Child Left Behind” model.
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