Jobless Claims Fall to 291k, CPI Unchanged

November 20, 2014 — Initial claims for the week ending Nov 15, was 291,000, a decline of 2,000 from the week prior, according to the DOL. The previous week was revised up to 293,000. 4-week moving average holding steady below the 300,000 mark at 287,500.

The total number of people claiming benefits in all programs for the week ending November 1 was 2,183,590, an increase of 81,659 from the previous week. There were 3,882,383 persons claiming benefits in all programs in the comparable week in 2013.

The Consumer Price Index was unchanged in October, with the energy index falling 1.9 percent.  The gasoline index fell 3 percent in October and has fallen by 8 percent the past 3 months.

OctCPI

The CPI food index rose 0.1 percent. All items less food and gas increased 0.2 percent in October. Apparel declined 0.2 percent while the shelter index (housing) increased 0.2 percent in October.

Overall the report showed slight increases with the big energy decline offsetting shelter, medical, and new vehicles.

All things considered inflation remains below the Fed’s 2.0 percent target rate. Much of the data is consistent with how the FOMC views the overall macro picture. I don’t expect any big changes to policy regarding the CPI report.

Pepsi Crushes Earnings, Silences Foodie Movement

pepsi1October 9, 2014 — Pepsi posted earrings of $1.36 a share vs $1.29 a share estimates. Revenue increased to $17.2 billion up 2% from $16.9 billion the previous year. Revenue topped Wall Street expectations of $17.09 billion. Net income increased to $2.08 billion up 5% from 1.9 billion the prior year. PepsiCo also raised its full-year earnings forecast to 9%.

Revenue from PepsiCo’s North American Frito-Lay food division grew at 3% to $3.52 billion. Revenue from Frito-Lay Latin America food division increased 6% to $2.18 billion. North American beverage sales declined to $5.38 billion from $5.4 billion the previous year. EMEA beverage sales increased 11% y/y to $1.78 billion up from $1.6 billion.

“We delivered good third quarter results in the face of an ongoing challenged macroeconomic environment driven by increasing volatility in the emerging markets and continued sluggish consumer demand in developed markets,” said Chairman and CEO Indra Nooyi.

The strong results from Pepsi rebuffed calls by activist Peltz for PepsiCo to spin off its more profitable snack division from its beverage division.

Pepsi’s third quarter results put the “millennials will refuse to eat junk food and swig sodas” and the “we’re all gonna embrace the hipster fresh eating” narrative to bed. The results are indicative of individuals remaining loyal to the world’s largest snack food maker in the growing cacophony of organic-only, ‘fresh-is-the-best’ eating market narratives.

With a diversified product portfolio and core brands remaining strong, pepsi will continue to navigate the challenging global macro environment. As Chairman and CEO Nooyi noted, “PepsiCo achieved these results because our brands are strong, our product portfolio is on-trend, our geographic footprint is broad and diverse, and we are executing well in the marketplace.”

Entering The Homestretch As Q3 Ends

September 30, 2014 — As the Fed’s much maligned QE program winds down — and I fully expect the completion of said program by the end of October, — it’s important to take stock of where we stand. For me personally it’s been an extremely busy month and even busier quarter, but I’m thankful for the work. While the hours have been taxing mentally and emotionally, I remind myself there are still 9.6 million without a Monday to look forward to.

Since 2009 the bull market has caused a great deal of worry and musing, pondering, and ranting that “the market isn’t the economy” and it’s “manipulated by the Fed.” Daily arguments on blogs, news sites, and social media about why the market is up if the economy is “bad.”

Financial institution disgust and outrage remains palpable. Investment banks primary business is to be the middleman and being that often frowned upon middleman by retail investors and financial media alike undoubtably involves being burdened with conflicts of interest… it’s all market fodder in these interesting times we live in.

Some investors want to have their cake and eat it too. A “weak dollar” equates to the US Federal Reserve debasing it, crushing the purchasing power, and a black swan event will no doubt force yields higher; on the flip side a strong dollar (such as the current performance of the USD) will “crush earnings” and the economy.

That said many seeking seed funding have only known an environment where money is readily available and easy to raise. This won’t always be the case. What happens when this changes? Venture capitalist Bill Gurley says all the giddy silicon valley have taken far too much risk and blowing through cash like a profligate Kardashian.

That leaves us with the market.

The year long strong performance of equities can be attributed to liquidity — corporate buybacks, investor leverage, and the highly criticized POMO by the NY Fed desk. The question remains where we’re going – and how we are positioned – in a world which continues to show signs of destabilization, and investor panic about lift-off from zero-bound.

factsetbuybacks

A run-up in stock valuations has made share repurchases less effective. Quarterly buybacks declined year-over-year (-1.1 percent) for the first time since Q3 2012 to $123.7 billion. We are in my view seeing the apex of corporate share repurchases. (Chart via FactSet)

Secondly the NY Fed desk has drastically scaled down POMO. Last September the desk was purchasing $45 billion in Treasury securities over the month to boost excess reserves in the banking system. This month the desk purchased $15 billion in Treasury’s. October 2014 the desk is scheduled to purchase $10 billion and it is widely expected by November for the Fed to stop adding securities to its portfolio — a welcomed sign by many.

The Russell 200 has experienced a “death cross” where the 50-dma crossed below its 200-dma.  The index  (RUT) has underperformed the broader markets during the quarter. Perhaps crash springs eternal? Either way rising rates and lackluster Q3 results will continue to apply pressure to valuations both SPX & RUT. Market breadth continues to deteriorate paving the way for a new trend in Q4 — stocks pulling back from ATH’s.

Inflation expectations have plunged. European core prices grew at 0.7 percent vs expectations of 0.9 percent — the Euro fell in trading. Consensus expects the first US rate hike to take place at the end of Q2 2015 — I am remaining in the camp of Q1 2016 as in my view a fed hike is not warranted at this time. We aren’t even close to a hike. As the quarter comes to an end we’ll see how earnings play out in the days and weeks ahead.

It’s my view that markets continue to be Fed-dependant, fretting over a single change in FOMC statement wording and overstating just how much monetary policy can accomplish in advanced economies in regards to creating inflation. As market participants continue to be “morally outraged” by events going on in the market and in the world like it or not this is the world we live in.

For better or for worse.

August Pending Home Sales Fall 1%, Consumer Spending Increases 0.5%

September 29, 2014 — According to the National Association of Realtors pending home sales index based on contract signings fell 1.0 percent in August to 104.7, down from 105.8 in July. Northeast sales of the Pending Home Sales Index fell by 3 percent to 86.5 while Midwest sales declined 2.1 percent to 102.4. The West pending home sales increased by 2.6 percent to 102.1 while the South fell a modest 1.4 percent to 117.

NAR chief economist Lawrence Yun pointed to fewer distressed sales and “less investor activity” as the primary driver behind August’s decline. Yun said the market is now shifting towards first-time buyers who rely on mortgages to purchase homes instead of large institutional investors.

Likewise sales of newly constructed homes climbed 18 percent in August to an annual rate of 504,000, the highest level since May 2008, as reported by the Commerce Department. New-home sales only represent 10 percent of all sales with data often volatile.

The share of first-time buyers remains around 29 percent. The housing recovery as many commentators have duly noted will remain “gradual” maybe even glacial with unemployment still high, wage growth sluggish, and in general a still-felt pessimistic view of the overall economy.

The median sales price of new homes sold in August was $275,600, while the average sales price was $347,900.

Finally it’s worth noting that consumer spending rose 0.5 percent in August while wages grew by a modest 0.3 percent. The savings rate fell slightly to 5.4 percent of after-tax income in August, down from 5.6 percent rate in July.

C&I Loans Increase $9.4 Billion per H-8

September 26, 2014 — Per the latest Fed H-8 credit creation increased by $20 billion. Loans and leases in bank credit ended at $7,785.9 billion, up 20.2 billion on the week ended. Commercial real estate loans increased by $4.1 billion.

Customer loans increased by $1.3 billion to $7,765.7 billion outstanding. Commercial and industrial (C&I) loans increased by $9.4 billion.

Credit cards decreased by $100 million to $610.8 billion.

Overall not really anything striking nor cause for concern. C&I loans continue to be the story of the year (+12% y/y) with real estate loans remaining constrained for the time being.

Nevada Gaming Revenue Falls 3.6 Percent in August

September 26, 2014 — The Nevada Gaming Control Board reported today state casinos won $920.2 million in August, compared to $955.2 million in August 2013, a decline of 3.6 percent y/y — the first monthly decline since February.

August Las Vegas strip gaming revenue was $553.2 million, down 6.1%. Vegas slot machines declined 1 percent to $227.8 million with table games declining 9.5 percent to $320.1 million. Strip casino baccarat revenue fell 14 percent to $166.7 million. Hold percentage fell to 15.9 percent off 3 percent from 18.9 percent in August 2013.

Las Vegas strip total gaming revenue for the three month period June-August is up 5.6 percent y/y to $1.6 billion with table games up 7.7 percent to $889.3 million. Likewise, statewide slot machine gaming revenue was $1.65 billion from July-August, an increase of 1.1 percent.

Macau casinos are mired in a slump with gaming revenue in Macau fall 6.1% in August to $3.6 billion, following a 3.7% decline in June and 3.6% decline in July. Despite three consecutive months of declining revenue, overall Macau gaming revenue for 2014 is up more than 8 percent over last year.

Many point to the Chinese government’s recent anti-corruption efforts impacting VIP gamblers in Macau. None are more focused on the developments in Macau than three prominent NV based casinos MGM, LVS, and WYNN which  derive a significant amount of their annual revenue from the Macau market. All three casinos have expansion projects ongoing in Macau — the $4 billion Wynn Paradise, the $2.9 billion MGM Cotai, and the $2.7 billion Las Vegas Sands Parisian.

Earlier this month it was announced that Steve Wynn won a bid to build a $1.6 billion gambling resort in Everett, just north of Boston.

Gold In September

September 22, 2014 Aaron Rodgers is off to a sluggish start this season with the Packers sitting at 1-2 (0-3 ATS), losing to the Seahawks and Lions in embarrassing fashion. On the season Rodgers has completed 62.7 percent of his passes for 697 yards, 5 touchdowns, 1 interception, and he has lost 2 fumbles. The offensive line is a disaster and the offensive play calling has been questionable, predictable, and cringeworthy (has been this way since Joe Philbin took the head coaching job with the Dolphins).

Off the field, Aaron Rodgers and David Gruber partner up for the third season of itsAaron.com. Rodgers, one of the most famous athletes in the country, leverages his fame to help bring awareness to causes and charities. This year Aaron surprises Annie Bartosz, a 6th grader from Wisconsin who lost her twin brother Jack to cancer two years ago. Annie helps lead Gold In September, a charitable trust for childhood cancer research and treatment development.

Childhood cancer is the leading cause of disease-related death among children and adolescents (ages 1 to 19 years) in the United States, although cancer among children is rare. The causes of childhood cancer are not well understood. In 2014 it’s estimated that 15,780 children and adolescents will be diagnosed with cancer with 1,960 succumbing to the disease.

Annie Bartosz is determined to make a difference in the above statistics. With Aaron Rodgers help, getting the word out on Gold in September, and supporting a worthy cause has never been easier.

We have all been impacted by cancer in one way or another… The video is poignant, inspiring, and heartwarming.

Make sure you have the Kleenex nearby. Consider making a donation to Annie and Gold in September to help research and development of treatments for pediatric cancers.

As a devout Packer fan, thank you Aaron for lending your support to such a worthy cause. More importantly, thank you Annie. You’re the real superstar here.