Little thoughts on Today’s S&P Price Actions

Big surprise today, the S&P finally broke a key technical point and the breakout was to the upside.  At first I thought today was going to be a boring day.  Between the start of the day, 9:00AM and until 3:55pm ET the market just stayed within a range bouncing between –0.3% to +0.3% (roughly).  Thus, what was initially thought to be an indecisive day turned out to be a decisive one when the market pierced through the down trendline, 912 level and closed off strongly at 919 (1.36% gain).  AMAZING!!!

Noticeable in the intraday chart here when the market just just broke through the key 912 level in massive force adding another 7 points in the last 5 minutes before the close.  I bet that caught alot of the bears off guard.  Although this may not be declared an ultimate victory yet for the bulls I would personally say that we are now 75% bullish.  Next Monday and Tuesday will be the day where the price action will be confirmed. 

True fundamentals are still not supporting the bullishness of the market but hey, seems like the market is looking forward to better times ahead.  Say 6 months from now.  Will keep a close eye now on the S&P to maintain itself above 912 levels.

Consumer Sentiment rose 68.7% in May

• Consumer sentiment rose to 68.7% from 65.1 in April which was slightly better than the expected 67.9 by economist.

"While consumers anticipate an improved economy, they nonetheless think that their own financial situation will improve only marginally during the year ahead," - Richard Curtin (director of the survey)

• 36% of consumers said their incomes had decline. 
• Further, only 1 in 10 consumers expect real income gains for 2009. 
• None the less, low prices may be attractive, as a record number of respondents mentioned “attraction of discounted prices” when asked about their next spending plans.

"Consumers still view their finances as out of balance with the economic realities they now face, and want to continue to increase their savings and reduce their debts," - Michigan report.

Source: Barron's & MarketWatch

US GDP –5.7%, quite in line

• Overall US GDP numbers indicated that the rate of getting worst is getting less worst.  GDP numbers were now close to the median of the consensus range.  at –5.5% and the market took unfavorably at first but shrugged it off.  (Sideways is the new UP)
• While the drop was still steep, recent data, such as housing and new filings for unemployment benefits, have hinted at an easing in the rate at which the economy was tumbling and many economist expect growth to resume by the end of the year.

"The recession is easing. The second quarter is shaping up to be a smaller decline of about 3.0 to 3.5 percent. It should be the last of the negative quarters," - Christopher Low (chief economist at FTN Financial in New York)

• None the less, the GDP report also suggested that sharp belt tightening by business was paying off as corporate profits after taxes rose 1.1% in Q1 2009 compared to a –10.7% in Q4 2008, which was noted as one of the biggest decline since 1994.

"It provides some hints that maybe corporations might have the ammunition to put some money to work in the economy. We are seeing some signs that the intensity of the recession is lessening," - Michael Strauss (chief economist at Commonfund in Wilton, Connecticut)

• Q1 2009 economic activity was dragged down by cutbacks in spending in business and government, a further retrenchment in homebuilding and a drop in business investment spending as well as a slump in exports.
• Business inventories fell $91.4 billion after slipping $25.8 billion in Q4 2008. 
• In April, the department reported a record $103.7 billion drop for Q1 2009.
• Inventories subtracted 2.34% of the overall GDP.  So excluding business inventories GDP would have contracted 3.4%
• Exports fell 28.7% largest decline since 1971. After dropping 23.6% in Q4 2008.
• Domestic demand or imports also dropped tremendously at –34.1% in Q1 2009.
• Business investment spending fell –36.9%
• Home building activity fell 38.7%
• Consumer spending which accounts for 70% of US GDP rose 1.5%.  Slightly slower than the 2.2% Retail sales numbers in April.

"The lower consumption figure is a reminder of the fundamental problems that households are facing, and the slower inventory run-down means that there is more to come in the current quarter," - Harm Bandholz and economist  (Unicredit Markets & Investment Banking in New York.)

I think all these developments are showing signs that the US economy is heading to the right direction.  Although we may not get back to peak 2006-2007 levels, US consumers are readjusting their behavior for the better.  The data about business inventories is also a good sign showing that businesses are readjusting their output to meet the current demand and is starting to show signs of leveling.  GDP will be slow for the next few years for the US and probably one of the biggest headwind for that is meeting employment demands for the population as more and more people go out to the workforce every year.  But I took today’s GDP data as a positive.

Source: RTT News, USA Today, Cleveland Fed & WSJ

Food Prices climbing up again.

• First sign of inflation already showing especially in food prices confirmed by the last PPI reading and here’s just a historical graphical representation from the economist.
• I only hold AGU and IPI.  POT is interesting but valuation is more expensive because its the most popular Ag stock out there.

Source: Economist

One month of boredom

It is now May 29th, 2009 and its almost the end of may. This is one boring month especially for professionals who prefer to wait on the sidelines waiting for market direction rather than going in right away.  Key technical resistance was broken on May 4th, 2009 around the 875 area.  Since then we have been trading within a range between 930 and 875.  But looking at the the green downward sloping trend line, it does seem to be a key trend line that the market seems to be following quite narrowly.  One of these lines will break soon which will soon dictate where the market wants to go.  Either way, its going to be HUGE!

I’m 100% sure that the US will go into hyperinflation – Marc Faber

Source: Peter Schiff Blog

Placed a risky bet on Bank of America (BAC) today also

Placed a risky bet on BAC today also at $10.92.  Felt comfortable enough to take it due to today’s price actions.  It has been about 11 days now that the stock managed to keep itself above the prior resistance level at $10.25.  The day that BAC broke out was also confirmed with high volume making that now support level a very defined line.  I also bought this stock near the trendline so I felt that the risk is fairly minimal considering the possible upside of this stock.  Plus I think the selling for BAC has already become exhausted from the $15.00 level to now $11.00.  That’s a 27% drop in 9 days.  None the less this is a risky bet as the fundamentals are not in agreement with the technicals.  Exit strategy will be placed at $10.20. 

Plus I believe that most the equity offering has already been done and I believe the preferred to common stock swap details has already been announced today on Bloomberg so all the unknowns should already be known now. Plus I also agree with the recent post that Jim Cramer posts mentioning Douglas Kass along with it that the market can handle the stock supply. 

Addition:

I like what Fast Money traders said about BAC today in their half time report.

I’m seeing risk reversal in BAC, explains Jared Levy. Options investors are selling the downside puts and buying the upside calls. Synthetically it’s like getting long BAC stock at $9.80. It’s a great way to play it.

Bank Of America hit $10.50 a key level, adds Jeff Tomasulo of SMB Capital. That’s bullish.

Source: CNBC Fast Money Half-Time Show

Went long on Research in Motion today too (RIMM)

Went long on RIMM today too after noticing a favorable breakout around the $78.50 level.  Looks like this tech has retraced considerably well also around the 25% failure level and has now pierce through a very key resistance level.  Will look for a GAP fill to the $92.50 level in the next coming weeks. 

Went long on Apple (AAPL) today

Went long on Apple today at $135.18 after a failed attempt to short them a couple of days ago.  Strong bullish bias is alive in Apple shares especially after seeing the Fibonacci retracement only pulled back to the 25% failure level before rushing back and breaking the $133.35 level.  Sure volume was a little low, but I’m happy enough to see the stock close above the prior resistance. 

Next key resistance will be around the $135 area but based on the rumors circulating around about new iPhones and a possible netbook for Apple by June or July, I believe there’s enough momentum for the stock to keep moving North.

Sold my (SDS), pulled out of my S&P Short at 900

Sold my SDS shares today for a small profit after feeling the total spirit of the market is still fairly optimistic.  Especially after looking at the overall movements of the market for the past 3 days now (especially the intraday), I really feel that the presence of the bulls is stronger than I ever thought it would.  I, among the more heavily weighted bears have started to become a little more bullish.  But this is not to justify that the recession is over, but only because the market is still full of optimism.  Eventually we will have to retrace back, but for now I think there’s a little more room to the upside.   

Thus, I started buying a little more today on the long side.  Which will be mentioned one by one after this post.

April’s Durable Goods Orders

• orders for durable goods rose 1.9% to $161.5 billion. That came after a 2.1% drop in March.
• Shipment of durable goods fell 0.2% in April and total inventories fell 0.8%
• Businesses ordered more fabricated metal products, machinery and motor vehicles.
• Excluding military orders, the number of new durable goods orders increased 1%

Sector breakdown:

Total new orders                1.9%  vs -2.1%
Ex-transportation             0.8%  vs -2.7%
Ex-defense                               1.0%  vs -2.3%
Ex-computer product           2.8%  vs -2.7%
Primary metals                        1.0% vs  -9.0%
Fabricated metals                   3.8%  vs -3.0%
Machinery                                   2.7%  vs -7.1%
Computer, electronic           -2.7%   vs 1.4%
Computers products              -6.4%  vs -4.7%
Communications                      6.9%  vs -2.1%
Electrical equipment                0.3% vs  0.3%
Transportation                            5.4%  vs  0.0%
   Vehicles and parts                   2.7% vs -0.5%
   Nondefense aircraft               -6.8% vs  7.5%
   Defense aircraft                        1.0% vs  6.6%
Other durables                           0.2%  vs -1.0%
Capital goods                                1.8% vs -2.6%
    Nondefense                               -2.0%  vs -0.9%
ex-aircraft                              -1.5%  vs-1.4%
    Defense                                       23.2% vs -11.1%

Source: NY Times & FXDD

April’s new home sales data

 

• Today’s home sales report showed that new homes sales edged up 0.3% in April compared to a revised 351,000 in March but came in slightly below expectations.
  • Economist forecasts were expected to come at 360,000 from 356,000.
• April new home sales by region:
  • South 1.9%
  • West 3.8%
  • Northeast & Mideast unchanged
• The number of homes for sale continued to decline in April, falling to 297,000 as supply continues to be absorbed and builders stop the building. 
• Total for sale was 370,000 in November 2008.

• But was was most alarming is the MBA’s quarterly delinquency survey.  A rise in the number of foreclosures, up 1.37% in Q1 2009 compared to 1.08% in Q4 2008.
• Foreclosure inventory was also up.  3.85% in Q1 2009 compared with 3.3% in Q4 2008.
• The delinquency rate which includes loans that are at least one payment past due but not in foreclosure was up 9.12% in Q1 2009 vs. 7.88% in Q4 2008.

"MBA's forecast, a view now shared by the Federal Reserve and others, is that the unemployment rate will not hit its peak until mid-2010. Since changes in mortgage performance lag changes in the level of employment, it is unlikely we will see much of an improvement until after that, If the peak of unemployment doesn't hit until the middle of next year, it won't be until the end of 2010 or early 2011 that the foreclosure picture could improve. But that timing also hinges on the local pictures in states including California and Florida, which have had an "oversized role" in the increase in foreclosures; the sooner things improve in some of the worst states, the sooner the national numbers could also start to look better. If you work through the foreclosure numbers there... you may still see the national numbers come down," - Jay Brinkmann (MBA's chief economist)

Source: RTT News, FXDD & MarketWatch

April’s existing home sales data

 

• Report showed that existing home sales rose 2.9% annually of 4.68 million units in April from an estimate of 4.55 million units in march.
• Existing home sales were still down 3.5% YoY compared to April 2008.
• Estimates were looking for a 1.8% gain.
• National median existing home-price in April was down $170,200 or down 15.4% MoM from April 2008.
• While the pace of existing home sales increased compared to the previous month, total housing inventories at the end of April represented a 10.2 month supply compared with a 9.6 month supply in March.
• The monthly increase according to region:
  • 11.6% in Northeast
  • West 3.5%
  • South 1.8%
  • Midwest 2.0%
• Mortgage loan application volume fell 14.2% in the week ended May 22.
• Drop in volume was largely due to a 18.9% decrease in refinance activity, which more than offset a 1% increase in purchase application.

 

Source: RTT News & CNN Money

Initiated my short position on the S&P 500 through SDS

Placed a short position of the S&P index right when it touched the 911 levels. This short position was placed because I do not feel that the market is ready to make a new bull market especially with all the fundamentals that’s really telling a different story. 

This is also evident on the daily chart when the market failed to break the long term green downtrend stretching back since October 16, 2008.  Even though I placed a short position today, I am still not a 100% bear yet.  The market is still in a very indecisive mode and the war is still very much even between the bears and the bulls.  The bulls are still very strong especially around the 875 level, evident from the actions in the past 9 days when the bulls fought hard every time the S&P touched the 875 level.  So unless the 875 level is broken this market is still anyone’s game.

I shorted the S&P as close as possible to the down trendline to minimize my risk just incase the market does decide to go bullish.  Will look on the next couple of days’ price actions to readjust this trade when necessary.

US home prices fall a record 19.1%

• Home prices fell at the fastest annual rate on record in the first quarter, but the pace of month-to-month declines continues to slow, a closely watched housing index showed Tuesday.
• Home Prices tumbled by -19.1% in Q1 2009 compared to Q1 2008.
• So far home prices have now fallen by 32.2% since the peak in Q2 2006 and are now at 2002 levels.

"We see no evidence that a recovery in home prices has begun," - David M. Blitzer (chairman of the S&P index committee)

They key to stabilizing the home prices is stabilizing the rate of defaults but according to Fitch report, subprime, pooled loans that have been modified are souring at high rates despite changes in the loan terms.  Fitch said a conservative projection was that between 65% and 75% of modified subprime loans will fall 60-days or more delinquent within 12 months of the loan change.

“One reason for the high redefault rate was public pressure to modify loans even for borrowers who were likely to default whether the loan terms were changed or not. Fitch said another cause was falling home prices. Ultimately, these homeowners, deep underwater, walk away from the home, resulting in the redefault of a loan.” – Fitch Studies

Source: Seattle Times, CNN Money & WSJ

Huge improvement on Consumer Confidence

• After two months of significant improvement the consumer confidence is now at its highest level in eight months. 
• Continued gains in the present situation index indicates that current conditions have moderately improved, and growth Q2 is likely to be “less negative”

Out of the consumers surveyed:

• Those claiming business conditions are "good" increased to 8.7 percent from 7.9 percent.
• However, those claiming conditions are "bad" increased to 45.3 percent from 44.9 percent.
• Consumers' appraisal of the job market was also more favorable.
• Those claiming jobs are "hard to get" decreased to 44.7 percent from 46.6 percent in April.
• Those saying jobs are "plentiful" edged up to 5.7 percent from 4.9 percent.

Consumers' short-term outlook improved significantly in May.

• Those expecting business conditions will improve over the next six months increased to 23.1 percent from 15.7 percent
• While those anticipating conditions will worsen declined to 17.8 percent from 24.4 percent in April.

The employment outlook was also less pessimistic.

• The percentage of consumers expecting more jobs in the months ahead increased to 20.0 percent from 14.2 percent
• While those anticipating fewer jobs decreased to 25.2 percent from 32.5 percent.
• The proportion of consumers anticipating an increase in their incomes edged up to 10.2 percent from 8.3 percent.

fewer intended to buy homes

• only 2.3 percent, a tough break for one of the hardest hit sectors in the country's economic crisis.
• A separate report on Tuesday revealed U.S. home prices dropped 18.7 percent in March compared to a year earlier.

Personally, this data is BS to me.  Nothing is getting better, the number of jobs layoffs are still in the high range, as reported by the weekly unemployment data.  Retail sales are still on a decline based on the latest retail sales numbers and home prices have not stabilized just one bit.  The true report is in this one, by Boston Consulting Group in April.  If consumer confidence is building up because of the stock market’s recently rally, than they better think again because even the stock market is not rallying on fundamentals. 

Source: Conference-Board, Reuters, BCG & FXDD

Year to date World stock market performance

Source: Nathan's Economic Edge

Sold my Gold today (GLD)

Sold my Gold today at $94.25 after noticing heavy resistance that the market is not ready to break.  Will look for a pull back to the $92 area next week before putting more positions back in.  Stochastic looks overbought and bollingers are also confirming its overbought.

Bought Gamestop (GME) Today

 

Bought shares of GME today at $22.68 after noticing a huge sell off yesterday on this stock after their fairly dismal earnings report.  Yesterday’s sell off resulted to a 15% drop from the day before.  Now this one does not have trends just yet but I’m just buying it because it is already at descent value and all the bad news has already been released.  Stop loss will be place at $21.50. 

Fundamentals

• Gamestop reported revenue of $1.98 billion vs. estimates of $1.99 billion
• Comp-store sales fell 1.5% vs. guidance of 0-2% growth.
• Company expects Q2 comp-store sales to go down by –8% to –11%
• Earnings of 28c – 33c, while consensus was at 40c
• Game stop lowered comp guidance to a range of 0-2% for fiscal 2009 down from an expected 4% to 6% growth.
• But EPS is still maintained at 18% to 22% growth or $2.83 - $2.93. 
• Used games sales were the largest bright spot, with sales coming in $549 million, up 32% YoY.  An acceleration from 19% and 31% over the past two quarters.
• Gross Margin was 27.4% vs. 26.0% estimates. 
• Used game gross margin was 48.1%

An explanation of the US DEBT in 30mins.

Source: I.O.U.S.A

Today’s action on S&P 500

Bulls are still fighting back strong, evident in today’s price action when the S&P visited the critical 875 support level before bouncing off at 3PM EST in the last hour of trading.  Personally, I do not have anymore reasons to go long from here, every news that I have been hearing so far is only giving evidence that the economy is still far from any near-term recovery. 

Tomorrow is going to be a half day due to the Memorial Day holiday weekend and I don’t think I’ll be participating at all.  Will wait until Tuesday when full participation returns to start initiating new positions. 

Land prices drop sharply in Center of US farm belt

• Land Prices in the US farm belt showed the steepest quarterly decline in 24 years.
• Value of good agriculture land in the district on April 1 was 6% lower than it was on Jan. 1. 
• Any drop in land prices has negative effect on the agriculture sector because real estate is the largest source of collateral for farmers; their borrowing power is dropping along with the value of their land.
• YoY price of farmland in April 1 was 2% higher than 2008
• Many farmers have less to spend on land because farm incomes are forecast to sink 20% this year.

This will be a key developing story to watch out for in the months to come as it may have a damaging impact  in declaring Agriculture as the green shoot for the future. 

Source: WSJ

Keen interest in AT&T (T)

AT&T looks remarkably interesting from here and I’ve been keeping a close eye on it for a while waiting for it to break either technicals levels for a buy signal.  Finally, the stock broke, but on the downside breaking a key technical level of $24.57.  Will be looking to Short this later on an upside pullback. 

But I am more interested in going long.  Target price will be around $21.57.  My biggest appetite for this stock is the juicy dividend yield currently at 6%.  By the time the stock reaches $21.57 it will boast a yield of 8%.  Plus, seeming that cell phones are becoming more and more like necessities than anything, I have full faith that these guys will be able to pay them. 

Summer is also coming along and a new iPhone is coming.  I think it should help boost the shares abit too.

This will be my safety stock just like GLD and will allocate a large percentage of my portfolio weight into this stock.

Pimco says sell-off driven by fears US could lose AAA

• CIO, Bill Gross, said market fears that US is at risk of losing its AAA credit rating is sending the US dollar, stocks and bonds under severe selling pressure today.

"going the way of the U.K. -- losing AAA rating which affects all financial assets and the dollar."- Bill Gross (CIO PIMCO)

• S&P lowered its outlook on Britain to “negative” from “stable” threatening the nation’s top AAA rating as its debt approaches 100% of UK’s GDP.

Source: Reuters

Week 3 of May Jobless Claims

• Job losses remain severe showing no signs of easing.  Initial claims in May 16 fell 12,000 to 631,000. 
• A small improvement helped by the burst of Chrysler related layoffs in the week before.
• Unemployment rate of the insured labor force rose another 1/10th to 5%

"We expect that the auto shutdowns will be lifting claims for the next couple of months," said Dean Maki (economist at Barclays Capital)

• Among the states, Michigan had the largest increase in claims for the week ending May 9. Claims there rose by 16,817, which it attributed to layoffs in the auto industry.
• The next largest increases were in North Carolina, Virginia, Kentucky and Pennsylvania.
• California reported the largest decrease in claims of 10,052, which it said was due to fewer layoffs in the service industry.
• The next largest decreases were in Wisconsin, Kansas, Oklahoma and Washington.

“While the pace of layoffs may slow, hiring remains weak and the unemployment rate will keep rising. Based on Thursday's data, predicts it could rise to 9.2 percent in May, from 8.9 percent in April.” - Abiel Reinhart (economist at JPMorgan Chase)

Source: Seattle Times & Barron's

The US dollar now at a 4 1/2 month low.

• The US dollar has now hit a 4 month low and has been declining fairly rapidly since the March 9th, 2009 top when the Dow Jones was around 6500. 
• Pretty much, investor confidence is rising and thoughts of a global economic collapse is now off the table.
• Global investors are now starting to focus a little more on growth again rather than capital preservation, and money is starting to move around to areas that have higher growth potential such as China and India. 
• Risk appetite is starting to get back into the market, but unfortunately it is not yet ready in the US equities market yet.
• Other signs of improvements include:
  • Narrowing of TED spread as shown from my earlier post
  • Sharp drop in VIX
  • LIBOR rates
  • Increasing global demand, indicated in the Baltic Dry index.

Pet Smart update (PETM)

Talk about an insane market, this stock dropped –10% today.  Every fundamental aspect of this company was great.  They beat analysts expectations, revenue grew by 10% YoY (which is very rare  in this recessionary environment) and forecasts for future earnings were also upgraded by the company. 

I don’t think I will short this stock going into memorial day weekend but I am going to wait for the stock to reach between $18.50 to $19.00 before I start loading my positions.

Pet Smart (PETM) Q1 Profit rises

• Pet Smart reported a rise in Q1 profits as sales increased by about 10% YoY compared to Q1 2008.
• Earnings and revenue came above analysts’ consensus. 
• Company also lifted guidance for Fiscal 2009.
• Q1 profit came in at $46.3 million or 0.37c per share compared to $41.2 million or 0.23c per share YoY in Q1 2008.  Analyst were expecting the company report earnings of $37.5 million or 0.30c per share. 
• Operations income increased to $89.9 million from $80.3 million in the previous year.
• Q4 2008 reported a net income of $78.4 million or $0.62 per share.
• Net sales increased 10% to $1.33 billion from $1.21 billion Q1 2008.  Analysts were expecting revenue to be $1.32 billion.
• Q4 2008 revenue was $1.36  billion.

Sales Breakdown:

• Comparable store sales grew 3.9% while comparable transactions increased 0.1% compared to Q1 2008.
• Pet services sales increased 10.3% to $142.8 million compared to Q1 2008 which was $128.09 million.

"With a solid first quarter performance, our results continue to validate the strength of our commitment to providing differentiated solutions at a great value.” – Phil Francis (CEO Pet Smart)

Forecasts:

• Company expects Q2 to be in the range of $0.26 to $0.30 per share. Analysts expects Pet Smart to earn $0.30 for Q2 2009.
• For Fiscal 2009 company expects a range between $1.42 to $1.52 per share.  Slight improvement compared to $1.40 to $1.50 per share. Analysts expects $1.47 for Fiscal year 2009.
• Full year comparable sales growth is expected to be within the low single digits.
• Capital spending will be between $115 million to $125 million.
• Total sales growth is expected to be in the mid-to-high single digits.

Technicals

Technicals looks ok, But would hold off buying this share unless it breaks the downward sloping trendline around $23.90 with convincing volume.  If it fails and resumes its downward drift.  I will observe its reaction towards its approach near $20.78.  If that trendline breaks, will look for entry in the long term trendline $19.50. 

Personally, this company is a solid company.  It is highly regarded as a defensive stock just like the WalMarts, Family Dollars and Unilevers of the world as spending on pets is becoming more and more of a need rather than a luxury.  Consumers these days love their pets like their own kids and that is reflected from the growth in PetSmart’s revenue.  This is a nice stock to add to my portfolio as one of those defensive companies as soon as I get the desired entry price.  

Source: CNBC & RTT News

Today’s FOMC minute summary

Federal reserve expects the economy to improve in the coming months even though policy makers downgraded their outlook for all of 2009.

• Fed now expects the economy to shrink between -1.3 and -2% this year, slightly worse than the earlier forecast of -0.5% to 1.3% contraction.
• Unemployment is now expected to hit between 9.2% and 9.6%, up from 8.5% to 8.9% in the January forecasts. (April’s unemployment is already at 8.9%)
• Interest rate remained unchanged at close to 0.25% and took no other actions to boost the amount of money in the economy by increasing the size of the Fed’s balance sheet.
• But Fed is still considering purchases of mortgage agency and government securities to give the recovery an additional push.

“A further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery.  All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases." – One minute member said.

• Treasury prices rallied after the minutes were released around 1PM (EST), pushing their yield, which moves in the opposite direction, down to 3.18%.
• Stocks, which have moved sharply higher during the past two months on hopes that the recession may soon be ending, fell Wednesday afternoon.

 

"I read [the minutes] as 'We think it's working, let's wait a few months to see how it plays out” – Gus Faucher (Director of macroeconomics Moody’s)

Source: CNBC & CNN Money

Deere (DE) Q2 Profit sinks

Not that I own Deere shares, but I am documenting the company’s earnings report as it pertains to be holdings in agriculture industry and Deere is a key player in supplying the equipments.

• Deere posted a steep decline in Q2 profits across all of its business segments due to weak construction activity and consumer spending, in the middle of this economic meltdown.
• Q2 net income dipped 38% to $472.3 million from $763 million in the year-ago quarter. On a per share basis, earnings totaled $1.11, down from last year’s $1.74. 
• Total net sales and revenue for Q2 dropped 17% to $6.75 billion from $8.09 billion reported a year earlier. Analyst Estimates were at $6.60 billion.

"We are benefiting from a strong market for large farm machinery in the United States and from our continued focus on balancing production with retail activity.” – Robert Lane (CEO Deere)

Breakdown of sales

• New sales of worldwide equipment operations amounted to $6.19 billion, down 17% from $7.47 billion compared to Q1 2008. Sales for the quarter included price increases of 6% offset by an unfavorable currency-translation effect of 6%. Equipment net sales in the United States and Canada decreased 8%, and net sales outside the United States and Canada declined 30%.
• Agricultural equipment sales during the latest quarter descended 4% to $4.49 billion from $4.70 billion last year, largely due to the unfavorable effects of currency translation and lower shipment volumes, partially offset by improved price realization. Segment operating profit decreased 19% to $635 million from $782 million in the three months ended April 30, 2009.
• Commercial and consumer equipment sales fell 24% to $1.09 billion from $1.42 billion in the same quarter of last year. Operating profit for the segment was $68 million, compared to $154 million a year ago, due to lower shipment and production volumes, unfavorable effects of foreign exchange and higher raw-material costs, partially offset by improved price realization and lower selling, administrative and general expenses.
• Construction and forestry net sales plunged 55% to $600 million from $1.35 billion in the prior year quarter. The company's construction and forestry division incurred an operating loss of $75 million, compared to a profit of $166 million earned in the prior year quarter.
• The company's credit subsidiary, John Deere Capital generated second-quarter net income of $33.9 million, a decline from the previous year's $77.3 million, primarily due to a higher provision for credit losses, lower commissions from crop insurance and narrower financing spreads.

Future outlook:

• Deere currently projects fiscal 2009 net income to be about $1.1 billion, with equipment sales declining about 19%, including a negative currency-translation impact of about 5%. Previously, the company had expected 2009 net income to be about $1.5 billion, and equipment sales to decline about 8%.
• Deere now expects full year 2009 sales of the agriculture and turf division to drop by about 14%, including a negative currency-translation impact of about 6%.
• Worldwide sales of construction and forestry equipment sales are forecast to decline by about 42%, largely as a consequence of a slumping global economy and low levels of construction activity in the United States.
• Earlier, the company estimated sales of agricultural equipment to decrease by about 2%, and sales of construction and forestry equipment to be down about 24%.
• Full-year net income for the company's credit operations is still estimated to be about $250 million, down from 2008 level, primarily due to narrower financing spreads, a higher provision for credit losses and lower commissions from crop insurance, partially offset by benefits from investment tax credits related to wind energy projects.

Overall, looking at each of their business segments, it is clear that the only segment withstanding the best of is in their agriculture division.  Revenue for that segment appeared to drop by only –4% compared to the same quarter a year ago.  But what was somewhat worrisome was in the outlook of their business going forward.  They do not seem to be optimistic at all.  None the less, this is something to watch out for and will keep an eye for similar trends with my agriculture stocks in the next few earnings report.

Crude Oil Inventories

 

"It's given us a little bit of a boost, but how much further we go is hard to say, I don't believe we should be here in the first place."  ," - Tom Bentz, (a broker and analyst at BNP Paribas Commodity Derivatives)

• The international agency warned in a new report that lower prices have prompted energy companies and investors to defer about $170 billion in investment, equivalent to about 2 millions barrels a day in future supply.

"What we're saying is that come around 2012 the impact of this big recession on oil investment and capacity, if current trends continue, could be severe with much higher oil prices," IEA chief economist Fatih Birol

• Adding jitters to the market, major oil exporter Iran appears to have successfully test-fired a ballistic missile, a U.S. official confirmed. Iranian President Mahmoud Ahmadinejad announced earlier the country had tested a new two-stage, medium-range missile.

For the past three weeks oil has been way ahead of itself and finally it is starting to slowdown after today’s weekly oil reports showing US crude oil inventories remain high and the agency reported demand is still poor down 7.6% from a year ago.  I guess this is a very sensitive balancing market between the future and the current state of the economy.  If oil goes too high now, consumers will be hit hard as alot of them are already having concerns with their financial security.  On the other hand, if oil maintains itself below these levels, investments and explorations become discouraged making way for a huge supply shortfall in the future. 

Source: WSJ & Marketwatch

Mortgage rates falling again compared to week before

 

Source: Zillow.com

The cost of borrowing for banks improving very nicely falling below June 08 numbers.

Source: Economist

April’s Housing starts data

• Initial construction of US homes and building permits both sank to record lows in April.
• The same report also showed  signs of stabilization in the single-family core of the housing market.

"The weakness in April was concentrated in the multifamily sector of the market - condos, apartments, and so on, that likely stems from the ongoing condo glut and the tighter financing conditions we've seen in the commercial real estate arena." – Mike Larson (Real estate and interest rate analyst)

• Housing starts fell 12.8% to a seasonally adjusted rate of 458,000, down 12.8% from a revised 520,000 in March.  Economist were expecting 520,000.
• Privately owned housing starts were 54.2% below the revised April 2008 rate of 1,001,000.
• Applications for building permits were down 3.3% seasonally adjusted to 494,000 in April.

Housing Permits
Nationally

• Single family housing permits -42.3% YoY compared to April 2008

Regionally

• Northeast, single family housing -42.9% YoY compared to April 2008.
• Midwest, single family housing permits -42.1% YoY compared to April 2008.
• South, single family housing permits -42.5% YoY compared to April 2008.
• West, single family housing permits -41.9% YoY compared to April 2008.

Nationally

• Single family housing starts -45.6% YoY compared to April 2008.

Regionally

• Northeast, single family housing starts -34.5% YoY compared to April 2008.
• Midwest, single family housing starts -36.6% YoY compared to April 2008.
• South, single family housing starts -47.6% YoY compared to April 2008.
• West, single family housing starts -50.6% YoY compared to April 2008.

Housing Completions
Nationally

• Single family housing completions -32.1% YoY compared to April 2008.

Regionally

• Northeast, single family housing completions -36.0% YoY compared to April 2008.
• Midwest, single family housing completions -30.7%YoY compared to April 2008.
• South, single family housing completions -294% YoY compared to April 2008.
• West, single family housing completions -37.2% YoY compared to April 2008.

As noticed from these graphs shown above, the only uptick is in the privately owned housing starts or houses.  Commercial residential buildings are still on a decline.   

Source: CNN Money, ST Louise FED & FX Street

Closed the final half of my FCX short

Closed the final half of my FCX trade today as the stock demonstrated its bullishness by fighting off the 20 day MA and the April 13th, 2009 support line around $45.74.  Will look to go long on the pullback soon.