symbol
stringlengths 1
9
| title
stringlengths 1
701
| text
stringlengths 1
140k
|
|---|---|---|
MS | Stocks Decline Broadly Dollar Weakens Ahead Of The Fed | All ten industrial sectors declined on Monday and the dollar weakened against the entire basket Financials led the way with J P Morgan Chase falling 7 5 after being downgraded to underperform from neutral by Merrill Lynch analyst Guy Moszkowski who cited near term pressure on earnings due to a worsening outlook for everyday consumers Traders were also worried about earnings reports from Goldman Sachs and Morgan Stanley which are reporting Tuesday Shares of the former investment banks turned bank holding companies were down 1 46 and 1 52 respectively
At this point a rate cut is little more than symbolic said Matthew Carniol chief currency strategist at TheLFB forex com The effective funds rate was kept between 0 11 and 0 14 last week Of greater import will be whether the FOMC announces a conditional monetary policy in terms of either borrowing costs or the various liquidity facilities The market needs to hear the Fed is committed to maintaining these programs for as long as necessary
The dollar moved lower as traders speculated the Fed could signal its intention to extend its quantitative easing policy which means the Central Bank prints money in order to expand its balance sheet It recently announced a plan to purchase up to 600 billion in Fannie Mae Freddie Mac Ginnie Mae and Federal Home Loan bank securities in an effort to drive longer term rates down and free up lending
At the close of floor trading on the NYSE the DOW was on 8629 68 after falling 64 59 points 0 75 The S P closed on 879 73 down 6 14 points 0 70 while the NASDAQ finished the day s trading on 1540 72 with a loss of 32 84 points 2 18 Treasuries rose on speculation the Fed would lower borrowing costs by another 50 basis points on Tuesday The yield on the 2 year note fell 2 4 basis points to 0 740 while yield on the benchmark 10 year note lost 5 2 basis points to 2 519 The dollar was weaker across the board ahead of tomorrow s rate decision falling 2 46 against the euro 0 55 against the yen 2 19 against the pound and 0 41 to Australia s dollar
NYMEX crude oil for January delivery fell 1 79 3 87 to 44 49 per barrel COMEX gold for February delivery rose 14 20 1 73 to 834 70 per ounce |
MS | WRAPUP 1 China capital spending weakens tough months ahead | Jan Nov urban investment growth slows to 26 8 pct
C bank chief says faces pressure to cut rates
Economists divided on outlook but expect further
measures
By Jason Subler
BEIJING Dec 16 Reuters China s capital spending slowed
in November rounding out a weak batch of monthly data that has
pointed to an abrupt slowdown in the world s fourth biggest
economy and a challenging policy task in the months ahead
Spending in urban areas on fixed assets from apartments to
factories rose 26 8 percent in the first 11 months of the year
compared with the same period in 2007 down from 27 2 percent
in the first 10 months and roughly in line with expectations
The slowdown in spending was one of the more modest
disappointments in a month that saw exports and imports
contract for the first time in years and factory output grow at
its slowest pace on record
Economists and officials are now more concerned than ever
that growth will fall well short of the 8 percent pace that
Beijing considers necessary to create enough new jobs to absorb
the millions of people entering the workforce each year
raising stirring worries about social stability
Economic growth had already slowed to a 9 percent annual
clip in the third quarter before the impact of the financial
crisis became fully apparent compared with 11 9 percent in
2007
This is a challenge for China Managing the down cycle is
not something that your companies your leaders your policy
makers have much experience doing Stephen Roach Asia
chairman for Morgan Stanley told a financial conference in
Beijing on Monday
MORE RATE CUTS
Beijing has already started to take action
The government last month unveiled a 4 trillion yuan 586
billion fiscal stimulus package the central bank has sharply
cut interest rates and the cabinet recently announced plans to
make financing more readily available to firms
Zhou Xiaochuan governor of the People s Bank of China
PBOC said on Tuesday that the central bank will face
pressure to cut interest rates further until the middle of
2009 although rate decisions will depend on the pace of
consumer inflation
First we care about the cost of capital for enterprises
and secondly the interest rate should be linked with CPI Zhou
told reporters in Hong Kong ID nHKG176526
Consumer inflation fell to 2 4 percent in November which
many economists said gives the PBOC further scope to cut rates
But despite policy action the outlook appears to be
darkening prompting some economists to further cut their
growth forecasts
Factory output expanded just 5 4 percent in the year to
November the worst figure on record Exports dropped 2 2
percent from a year earlier while imports fell 17 9 percent
The head of the International Monetary Fund Dominique
Strauss Kahn went so far as to estimate that China s economic
growth could slump to around 5 percent next year ID nLF40653
We are facing an unprecedented decline in output and we
have evidence of substantial uncertainty limiting the
effectiveness of some fiscal policy measures he said in
Madrid on Monday
QUANTITATIVE EASING
The key for Beijing will be to maintain the necessary
policy flexibility to deal with new challenges as they crop up
World Bank President Robert Zoellick said during a visit to
China
Whether it be China or the globe I think everyone
recognises that the first six months of 2009 are going to be
very difficult Zoellick told a news conference in Beijing on
Monday
Perhaps more important than rate cuts will be the
government s efforts to stimulate lending formulated in the
State Council s recent directive on easing monetary conditions
in which it targeted 17 percent money supply growth in 2009
ID nSP361299
Combined with the announced massive fiscal boost this
aggressive quantitative easing in credit once it feeds in is
likely to lift the GDP growth to well over 8 percent in the
second half of 2009 though we should prepare ourselves for
more bad news on growth in the coming quarters Qu Hongbin
with HSBC in Hong Kong said in a report
Even with exports expected to decline in 2009 further
fiscal stimulus could enable economic growth to reach 8 percent
for all of next year Tomo Kinoshita and Mingchun Sun with
Nomura in Hong Kong said in a research note
The biggest risk in our opinion lies in external demand
given China s high dependency on exports they wrote
Longer term policymakers need to do more to carry out the
rebalancing of the economy that they have been talking about
for years Morgan Stanley s Roach said
Quite frankly I am not particularly thrilled with the
policy recipes so far he said
China needs to shift its growth dynamic away from
investment and exports increasing consumption It needs to
increase it by building out its safety net
For a graphic of China s growth data click on
Additional reporting by Kirby Chien and Eadie Chen in Beijing
and Chen Xi and Joseph Chaney in Hong Kong Editing by Ken
Wills and Tomasz Janowski |
MS | Aussie dollar may fall below 0 50 Morgan Stanley | SYDNEY Dec 17 Reuters The Australian dollar may
fall below 0 50 in the first half of 2009 as falling commodity
prices and a shortage of funds for private firms tip Australia
into a recession Morgan Stanley said on Wednesday
Gerard Minack a Sydney based Morgan Stanley analyst said
Australia may fall into a deep recession despite an expected
fall in interest rates to 2 5 percent from 4 5 percent and
government spending to boost growth
I am more convinced than ever that there will be a
recession possibly a deep recession Minack said
The economy boomed higher so the risk is it will bust
harder Our global foreign exchange team expects the Australian
dollar to fall below 0 50
The forecast is one of the most bearish among private
sector economists A Reuters monthly poll of 44 strategists in
December showed a median forecast for the Aussie of 0 62 in
the next three to six months ID nSYD309906
Minack said Australia s current account deficit may balloon
and could be more difficult to finance as local banks struggle
to raise money abroad as seen in the September quarter when
global investors were a net seller of Australian debt
Cheap foreign funds had played a key role in Australia s
booming economy in the last few years and had helped fuel its
red hot housing market
He said Australia s terms of trade a measure of trade
profitability is expected to drop to 2005 levels in the next
12 18 months Minack now expects the economy to contract by 1 2
percent in the fourth quarter of next year
Minack said the global credit crunch had made it hard for
Australian firms which needed almost 7 5 percent of
Australia s GDP in funding in the last financial year to
borrow money This will force firms to either cut costs raise
equity or go bust he said
Next year we will likely see a sharp increase in corporate
failures he said
Reporting by Koh Gui Qing Editing by Mark Bendeich |
MS | POLL S Africa Nov credit growth M3 seen slower | WHAT South Africa credit money supply M3 and trade
data
WHEN Credit growth M3 at 0600 GMT on Wednesday Dec 31
Trade account data at 1200 GMT on Wednesday
Credit growth and money supply seen easing
By Phumza Macanda
JOHANNESBURG Dec 24 Reuters Growth in credit extended
to South Africa s private sector is likely to have slowed in
the year to November as households hold back on taking on more
debt due to higher borrowing costs
The central bank cut interest rates for the first time in
more than three years earlier this month reducing its repo
rate by 50 basis points after a series of rate rises totalling
500 basis points since June 2006
Households have been feeling the pinch scaling back
spending and consumer confidence fell deeper into negative
territory in the fourth quarter
A Reuters survey of eight economists showed growth in
private sector credit extension PSCE was seen slowing to 15 1
percent year on year in November from 16 17 percent in
October
The rate of growth of the broadly defined measure of money
supply M3 was seen slowing to 14 65 percent in the period
from 15 59 previously
PSCE data should continue losing steam alongside the
ailing economy The growth in PSCE could moderate quite
meaningfully in November said Elna Moolman economist at BJM
The economy slowed to a decade low of 0 2 percent in the
third quarter partly as a result of depressed consumer
expenditure while household debt as a ratio of disposable
income moderated to 75 3 percent in the period
Moolman said next week s credit data should be give comfort
to the central bank that credit growth will fade rapidly
Economists say these signs of depressed consumer spending
and a struggling economy should lead to more rate cuts next
year
Forecasts for the trade balance a highly unpredictable
figure put it at a deficit of 6 billion rand 617 8 million
in November from 9 8 billion rand in October
The forecast risks are exceptionally high in light of
sharp adjustments in commodity prices and the fire at an
Engen oil refinery that will likely necessitate more refined
oil imports said Moolman
As a net importer of oil South Africa s trade balance has
been mainly driven by oil imports and capital goods to drive
government s multi billion infrastructure programme
Reuters has surveyed 8 economists and publishes the median
for their forecasts below
INDICATOR PERIOD DAY GMT CONSENSUS RANGE PVS
PSCE NOV WED 0600 15 1 14 5 17 0
16 17
M3 NOV WED 0600 14 65 13 6 15 3
15 59
Trade R bln NOV WED 1200 6 0 7 0 4 5 9 8
INSTITUTION PSCE M3 TRADE
y y y y R bln
Barnard Jacobs Mellet 14 8 14 0 6 0
Citadel 17 0 13 6 5 0
Efficient Group 15 5 15 0 6 5
ETM 14 5 13 8 6 0
IDEAglobal 15 9 15 3 4 5
Morgan Stanley 14 9 15 1 5 0
Standard Bank 15 3 14 9 7 0
Thebe Securities 14 7 14 4
Private Sector Credit Extension
1 9 711 Rand
Editing by Lincoln Feast |
JPM | U S charges Florida man in case linked to JPMorgan hacking probe | By Nate Raymond NEW YORK Reuters A Florida man is the latest individual to face criminal charges in connection with what U S prosecutors say was an illegal bitcoin exchange owned by an Israeli accused of being behind hacking attacks on companies including JPMorgan Chase Co NYSE JPM Ricardo Hill 38 was arrested last month in Florida and charged in a criminal complaint filed in federal court in Manhattan with conspiring to operate an unlicensed money transmitting business A federal magistrate granted Hill s release on Thursday on a 75 000 bond following a court appearance in Manhattan court records show A lawyer for Hill declined to comment Hill a resident of Brandon Florida is one of nine people to face charges following an investigation connected to a data breach that JPMorgan disclosed in 2014 involving records for more than 83 million accounts According to court papers the charges stemmed from Hill s employment as a finance support manager and business development consultant for an unlicensed bitcoin exchange called Coin mx Prosecutors have said Coin mx was operated by another Florida man Anthony Murgio and owned by Gery Shalon an Israeli accused of orchestrating a massive hacking scheme involving JPMorgan and other companies Prosecutors contend Shalon along with another Israeli Ziv Orenstein and an American Joshua Samuel Aaron ran a criminal enterprise that hacked into a dozen companies networks stealing the personal information of over 100 million customers While Hill and Murgio were not accused of roles in the hacking offenses prosecutors said they committed crimes linked to the operation of Coin mx which exchanged millions of dollars of the virtual currency bitcoin for customers The complaint against Hill said that he and others profited from numerous bitcoin transactions conducted on behalf of victims of schemes involving ransomware which locks up computer systems and then demands payments to remove the restriction To date two individuals have pleaded guilty in connection with the Coin mx case Murgio and two other men have pleaded not guilty and are scheduled to face trial in February Shalon and Orenstein pleaded not guilty following their extradition from Israel in June Aaron is currently in Russia
The case is U S v Hill U S District Court Southern District of New York No 16 mj 6437 |
JPM | JPMorgan Nintendo console to benefit from low expectations | Nintendo OTCPK NTDOY 1 3 should benefit from what are still low expectations for its new Switch hybrid console JPMorgan NYSE JPM says in a new note With more details expected Jan 13 neither the pricing nor the title lineup will disappoint says analyst Haruka Mori The new console is key to the company s medium term potential Mori writes Hands on promotional events will help as they show off the new user experience vs the short teaser video unveiled in October Mori also sees close links between the new console and the upcoming mobile game Super Mario Run The firm revised its forecasts based on new information and new contacts and boosted its price target to 30 000 from 28 000 nearly 25 upside Shares closed at 24 100 Friday in Tokyo Nintendo is ceasing sales of its Wii U in Japan soon working to shift users to the new SwitchPreviously Nintendo Switch part of bigger hardware plans Oct 27 2016 Previously Jefferies Nintendo Switch an important software showcase Oct 20 2016 |
JPM | Monte dei Paschi board to meet Monday on debt conversion plan source | MILAN Reuters The board of Banca Monte dei Paschi di Siena MI BMPS will meet on Monday to set the terms for a bond to equity conversion that is part of the lender s capital boosting plans a source familiar with the matter said on Sunday Italy s third biggest bank is planning to lay off a tenth of its staff shut branches and sell assets to win investor backing for a 5 billion euros 5 4 billion cash call its third recapitalization in as many years To help limit the size of the share sale it is studying a voluntary conversion of its subordinated debt The conversion operation will kick off after the shareholder meeting and there will obviously be a premium offered to market price the source said The conversion plan will also include the Fresh hybrid instrument used to partly finance the costly acquisition of rival Antonveneta in 2007 the source said Senior debt is not included in the plan The bank assisted by JP Morgan N JPM and Mediobanca MI MDBI is due to hold an extraordinary shareholder meeting on Nov 24 to approve the turnaround plan that also includes the sale of some 28 billion euros in bad loans at below book value To underpin the cash call management at the 544 year old lender has been on road shows to drum up support from potential anchor investors Qatar s sovereign wealth fund has expressed a preliminary interest sources said earlier this month Next week the road show will continue with a video call with U S and Asian investors the source said On Sunday Il Sole 24 Ore said the bank was reaching out to Asian investors especially Singapore wealth fund Temesek According to the source the board meeting on Monday will also take a decision on the sale of the lender s non performing loans servicing platform known as Juliet Last week Italian Information Solutions company Cerved said it had presented an offer for the platform
1 0 9217 euros |
JPM | Wall St mixed after bond sell off Dow hits record on banks | Investing com U S stocks were mixed early Monday as the bond sell off continued The DJI was up 0 21 at 10 30 ET while the S P 500 put on 0 08 The tech heavy Nasdaq composite was down 0 17 The 30 year Treasury yield hit 3 on bets Trump s stimulus plans will stoke inflation Banks help push the DJI to record high of 18 934 as JPMorgan NYSE JPM added 3 51 to 79 38 Exxon Mobil NYSE XOM down 0 66 as oil fell 1 on supply concerns and as dollar index tops 100 |
JPM | China finance ministry says France to encourage panda bonds | SHANGHAI Reuters France will encourage its institutions to issue yuan denominated panda bonds as part of efforts to boost financial cooperation with China China s Ministry of Finance said on Tuesday following a meeting between the two countries governments
In a statement published on its website the ministry also said the two sides would continue to support the development of Paris s offshore yuan market
The basis of local China France economic and trade cooperation is good and the potential is large it said
The joint statement followed a one day bilateral dialogue in Paris on economic and financial issues attended by Chinese Vice Premier Ma Kai and French Minister of the Economy and Finance Michel Sapin it said
France s pledge to push panda bonds yuan denominated debt issued by foreign entities in China comes after Ma visited London last week and China said it would grant British banks licenses to underwrite the bonds
Pioneered more than a decade ago Panda bonds have only taken off over the last couple of years as Chinese policy makers have allowed foreign issuers into their domestic bond market
In the first nine months this year panda bond issuance amounted to 84 2 billion yuan 12 28 billion compared with 89 4 billion yuan for dim sum bonds statistics from Bank of China International showed
JPMorgan NYSE JPM said in a note in June that 12 billion yuan worth of panda bonds had been sold in 2015
Companies represent almost two thirds of that issuance the data showed although most of these were overseas offshoots of Chinese firms Foreign governments accounted for 14 percent of the total while financial firms and supranationals made up 12 and 9 percent respectively
Earlier this month National Bank of Canada TO NA issued a 3 5 billion yuan panda bond becoming the first North American financial institution to do so
The Chinese and French delegations discussed a range of other issues and China said it would welcome more French institutions to apply for RQFII status and would also consider increasing France s RQFII quota in accordance with investor demand the statement said |
C | Citigroup Q3 earnings revenue miss estimates shares fall 1 2 | Investing com Banking conglomerate Citigroup reported worse than expected third quarter earnings and revenue on Tuesday sending its shares lower in pre market trade Earlier in the day in its third quarter earnings report Citigroup said adjusted earnings per share came in at USD1 02 below expectations for USD1 04 per share The bank s third quarter revenue totaled USD17 9 missing forecasts for revenue of USD18 2 billion Immediately after the earnings announcement Citigroup shares dropped 1 2 in trading prior to the opening bell Meanwhile the outlook for U S equity markets was mixed The Dow Jones Industrial Average futures pointed to a gain of 0 1 at the open S P 500 futures indicated a decline of 0 1 while the Nasdaq 100 futures indicated a gain of 0 1 at the open |
C | European stocks open higher on China GDP Dax up 0 15 | Investing com European stocks opened higher on Friday supported by upbeat Chinese economic growth data although concerns over the effects of the two week U S government shutdown lingered During European morning trade the EURO STOXX 50 rose 0 27 France s CAC 40 gained 0 33 while Germany s DAX 30 edged up 0 15 Market sentiment found support after official data showed China gross domestic product grew by 7 8 in the third quarter in line with expectations and up from 7 5 in the three months to June The data eased concerns over the strength of the recovery in the world s second largest economy But investors remained cautious amid fears over the impact of the government shutdown on the already fragile economic recovery which could prompt the Federal Reserve to delay plans for scaling back its stimulus program until at least the start of next year The possibility of another debt crisis also loomed as the temporary debt ceiling agreement reached early Thursday does not resolve the underlying budgetary issues dividing Republicans and Democrats Financial stocks were broadly higher as French lenders BNP Paribas and Societe Generale climbed 0 48 and 0 39 while Germany s Deutsche Bank added 0 29 Among peripheral lenders Spanish banks Banco Santander and BBVA rose 0 28 and 0 34 respectively while Italy s Intesa Sanpaolo and Unicredit gained 0 77 and 0 80 Elsewhere Ziggo NV surged 2 32 after reporting third quarter revenue of EUR391 million compared with analysts estimate of EUR393 million In London commodity heavy FTSE 100 added 0 24 supported by sharp gains in the mining sector Mining giants Rio Tinto and BHP Billiton edged up 0 11 and 0 35 respectively while Glencore Xstrata rose 0 36 and Polymetal rallied 3 36 Polymetal Chief Executive Officer Vitaly Nesis said that the gold and silver miner will probably refrain from paying a special dividend this year because of a worsening outlook for commodity and gold prices Meanwhile financial stocks were mixed The Royal Bank of Scotland added 0 13 and Lloyds Banking jumped 1 14 while Barlays and HSBC Holdings slipped 0 11 and 0 12 Bloomberg reported earlier that U K regulators investigating potential manipulation of the foreign exchange market are scrutinizing an instant message group involving senior traders at lenders including Barclays the Royal Bank of Scotland and Citigroup In the U S equity markets pointed to a higher open The Dow Jones Industrial Average futures pointed to a 0 10 rise S P 500 futures signaled a 0 13 gain while the Nasdaq 100 futures indicated a 0 33 increase |
C | U S stocks open higher after mixed data Dow Jones up 0 05 | Investing com U S stocks opened higher in thin trade on Wednesday ahead of the Thanksgiving holiday as markets eyed the release of upcoming U S data after investors shrugged off mixed economic reports released earlier in the day During early U S trade the Dow Jones Industrial Average inched up 0 05 the S P 500 index added 0 11 while the Nasdaq Composite index rose 0 27 The Department of Labor said the number of individuals filing for initial jobless benefits last week declined by 10 000 to a seasonally adjusted 316 000 Economists had forecast an increase of 4 000 A separate report showed that U S durable goods orders fell 2 in October worse than expectations for a 1 9 decline while core durable goods orders were down 0 1 compared to expectations for a 0 5 increase The mixed data did little to shift expectations that the Federal Reserve will start to taper its stimulus program at one of its next few meetings while trade volumes remained thin ahead of the U S Thanksgiving holiday on Thursday In the financial sector JPMorgan Chase climbed 0 75 amid reports the lender is being pressured to turn over a draft complaint used as the lender negotiated a USD13 billion deal to settle probes of its mortgage bond sales and identify an employee who cooperated with the U S investigation Other U S lenders added to gains as Citigroup edged up 0 04 and Goldman Sachs gained 0 45 Among tech stocks BlackBerry jumped 1 26 after the company announced the departure of three top executives as new Chief Executive Officer John Chen attempts to turn around the struggling smartphone maker Elsewhere Cox Communications the third largest U S cable television provider was little changed down 0 01 as it was said to be considering a bid for Time Warner Cable joining a growing number of prospective bidders Also in company news Crocs was reportedly in talks with buyout firms including Blackstone Group LP about a possible investment The news sent the shoemaker s shares up 3 47 Among earnings Hewlett Packard reported revenue and profit above expectations sending shares soaring 7 89 Across the Atlantic European stock markets were lower The EURO STOXX 50 climbed 0 50 France s CAC 40 gained 0 41 Germany s DAX advanced 0 48 while Britain s FTSE 100 rose 0 22 During the Asian trading session Hong Kong s Hang Seng Index climbed 0 53 while Japan s Nikkei 225 Index slid 0 42 Later in the day the U S was to release data on manufacturing activity in the Chicago area |
C | European stocks rise as markets focus on Germany Italy Dax up 0 26 | Investing com European stocks were higher on Thursday as markets remained focused on political developments in Germany and Italy while trade volumes were expected to remain thin with U S markets closed for the Thanksgiving Day holiday During European morning trade the EURO STOXX 50 added 0 26 France s CAC 40 edged up 0 19 while Germany s DAX 30 rose 0 26 Investors remained focused on events in Germany after Chancellor Angela Merkel s Conservative party reached a deal on Wednesday to form a coalition government with the Social Democrats following weeks of negotiations The Italian political front was also in focus a day after the expulsion of Italian politician and three time former Prime Minister Silvio Berlusconi from parliament following a vote in the Italian Senate Separately speaking to journalists on Wednesday European Central Bank Vice President Vitor Constancio downplayed speculation that the ECB was preparing new long term loans for banks Financial stocks were broadly higher as French lenders BNP Paribas and Societe Generale rose 0 07 and 0 36 while Germany s Deutsche Bank gained 0 30 Among peripheral lenders Spanish banks BBVA and Banco Santander climbed 0 39 and 0 41 respectively while Italy s Unicredit and Intesa Sanpaolo advanced 0 33 and 0 71 Elsewhere Repsol shared added 0 32 amid reports the Madrid based oil company plans to start negotiating final terms of a compensation deal with Argentina to end a 19 month conflict over the seizure of its YPF unit In London FTSE 100 inched up 0 03 although gains were capped by losses in Kingfisher down 4 73 after the home improvement retailer gave a gloomy outlook for the business climate in France where a weakened consumer economy weighs on its Castorama and Brico Depot chains Also on the downside catering company Compass tumbled 1 12 after Citigroup cut its rating on the stock to neutral from buy Meanwhile Thomas Cook saw shares soar 10 04 after the travel operator reported a 49 increase in full year profit Financial stocks were also broadly higher Shares in HSBC Holdings gained 0 31 and Barclays climbed 0 50 while the Royal Bank of Scotland and Lloyds Banking advanced 0 88 and 1 12 In the mining sector stocks were mixed as Glencore Xstrata rose 0 28 and Rio Tinto rallied 1 20 while Vedanta Resources and Randgold Resources lost 0 23 and 0 57 respectively Rio Tinto earlier said it will cost USD3 billion less than previously expected to meet its goal of increasing iron ore output capacity to 360 million metric tons In the U S equity markets pointed to a higher open The Dow Jones Industrial Average futures pointed to a 0 23 rise S P 500 futures signaled a 0 24 gain while the Nasdaq 100 futures indicated a 0 85 climb Later in the day Germany is to release preliminary data on consumer inflation in addition to data on the change in the number of people unemployed |
C | Here s Why Oil Prices Jumped 27 Percent In Three Days | Oil prices have posted their strongest rally in years jumping an astounding 27 percent in the last three trading days of August
While much of the recent price movement defies reason and is enormously magnified by movements by traders to take and cover their bets on oil still there were a series of rumors events and fresh data that helped contribute to the spike
For example on August 31 the oil markets woke up to the that Russian President Vladimir Putin will meet his counterpart from Venezuela to discuss possible mutual steps to stabilize oil prices The meeting will take place in China on September 3 Venezuelan President Nicolas Maduro has already of OPEC a call that has fallen on deaf ears at least in the most important country of Saudi Arabia
It is still highly unlikely but the one country that might be able to change the minds of Saudi oil officials is Russia Again even if Russia promised to cut back oil production to boost prices which it has not shown a willingness to do Saudi Arabia has little trust in Moscow to follow through on those promises Similar understandings to cooperate in the past have fallen apart making coordinated action unlikely
Moreover it is not at all clear that Russia s best move is to cut back on production Sure it wants higher oil prices but selling less oil will arguably offset price gains And the depreciation of the ruble has cushioned the blow of low oil prices Gazprom MCX GAZP just a 29 percent gain in net profit for the second quarter compared to a year earlier largely due to a weaker ruble So Russia is eager for oil prices to rebound but the Kremlin is not as desperate as Venezuela
Yet bringing Russia to the table was enough to raise the prospect of OPEC production cuts at least for oil traders which bid up the price of oil on August 31
Adding to the speculation was a new which included a commentary about the state of the oil markets entitled Cooperation holds the key to oil s future Most of the article was unremarkable analysis about rising oil demand but the article concludes with this
Cooperation is and will always remain the key to oil s future and that is why dialogue among the main stakeholders is so important going forward There is no quick fix but if there is a willingness to face the oil industry s challenges together then the prospects for the future have to be a lot better than what everyone involved in the industry has been experiencing over the past nine months or so
In all likelihood that is a throwaway line paying lip service to collective action with no substance behind it But the oil markets saw a glimmer of hope in a reevaluation of the group s strategy possibly portending a production cut No doubt the Venezuela Russia meeting added fuel to that speculation Oil markets as irrational as they are don t need confirmation to bid up prices Oil prices jumped by more on the last day of August
But another major reason that oil prices shot up at the end of August was due to very significant revisions by the EIA on U S oil production data pointing to sharper contraction than was previously assumed The EIA new survey based data which is more accurate than their mere estimates based on extrapolation and the new data showed that between January and May the U S actually produced 40 000 to 130 000 fewer barrels per day than the agency previously reported Then in June oil production dropped by 100 000 barrels per day from the month before hitting just 9 3 million barrels per day mb d
The largest downward revision came from Texas which has been producing 100 000 to 150 000 fewer barrels than previously reported for the first half of this year
To put that in perspective consider the agency s own weekly data which comes out every Wednesday and although it is less accurate than the retrospective looks oil prices move up and down in response to the results In its weekly data the EIA shows U S oil production above 9 5 mb d through the middle of July For the week ending August 21 the EIA says the U S is producing 9 33 mb d above what the agency now says the U S produced in June
In other words for several months the oil markets had believed the U S was producing much more oil than it actually was Instead of continuing to climb through much of the spring and leveling off into the summer oil production actually peaked in April and has declined consistently since then When the EIA released this latest revision on August 31 oil prices shot up
Finally although probably not quite as important as the OPEC rumors and the EIA data revisions Canada suffered some outages at its oil facilities that could lead to a Canadian Oil Sands TO COS had to shut down production of its synthetic crude oil facility after a fire damaged equipment And Nexen Energy an oil producer in Canada and subsidiary of China s CNOOC NYSE CEO had to close 95 pipelines after inspectors found problems with them Neither company offered specifics on what the disruptions mean for their production levels but if the outages persist they could cut down on supplies Canada s benchmark for synthetic crude rallied on the news
Citigroup NYSE C analysts think the recent is overdone calling it a false start and the 27 percent gain in just three days was driven by a misread of market data and financial headlines Indeed the largest three day price rally since 1990 was driven by headlines but given the severe volatility and huge price swings oil prices are not trading on the fundamentals right now Nobody knows what will happen next |
C | International Economic Week In Review Additional Volatility Ahead | With all the recent negative news centered on China it was probably only a matter of time before an analyst argued China would cause the next recession Citigroup issued such a report
Citigroup Inc NYSE C is sounding the alarm bells for the world economy
In an analysis published late on Tuesday the New York based bank s chief economist Willem Buiter said there is a 55 percent chance of some form of global recession in the next couple of years most likely one of moderate depth and length
He bases his argument
The cause of his consternation is the immense debt that Chinese non financial companies have racked up in a short period of time Over the past decade the indebtedness of China s private sector has exploded and exceeded that of the U S which Buiter pointed out has a much more advanced economy and sophisticated financial system
Citigroup isn t the first firm to raise alarms about China McKinsey and Co often touted by the FT which states Chinese debt is now 262 of overall Chinese GDP And other FT articles written over the last 12 18 months voiced the same concerns Don t be surprised if other companies make the same prediction in the coming weeks The impact of slower Chinese growth is already apparent in the emerging market slowdown
Chinese export and import statistics released this week confirm a slowdown Exports dropped 5 5 Y Y while imports declined 13 8 A longer term view of both statistics shows a worrying trend Let s start with exports
Exports always drop sharply in the first part of the year due to the Chinese New Year Exports were flat for 2013 and the first of 2013 They rose at the end of 2014 but have returned to weaker levels in the last four readings Imports raise more serious questions
This year s readings are down sharply potentially indicating a deteriorating consumer demand scenario Declining commodity prices could be responsible for some of the drop However it s difficult to believe Chinese consumers haven t taken a sentiment hit this year especially with the Shanghai market s volatility
About a year ago analysts argued the US and UK were in a race to see which bank would raise rates first Low inflation has taken the BOE off the list in their latest policy statement
Twelve month CPI inflation rose slightly to 0 1 in July but remains well below the 2 target rate Around three quarters of the gap between inflation and the target reflects unusually low contributions from energy food and other imported goods prices The remaining quarter reflects the past weakness of domestic cost growth and unit labour costs in particular Although pay growth has recovered somewhat since the turn of the year the recent increase in productivity means that the annual rate of growth in unit wage costs is currently around 1 lower than would be consistent with meeting the inflation target in the medium term were it to persist Additionally sterling s appreciation since mid 2013 is having a continuing impact on the prices of imported goods A combination of these factors has meant that the average of a range of measures of core inflation remains subdued although it picked up slightly in July to a little over 1
Above the BOE argues the sources of low inflation are entirely situational the bank simply has to wait for an oil price rebound and drop in the Sterling and inflation will move closer to policy maker s 2 target Most major central banks subscribe to this analysis which intuitively makes sense But central banks have missed some major developments over the last 10 15 years and their current models continue predicting a higher inflation rate than the macro economy is delivering
The report noted the strong sterling contributed to weaker manufacturing numbers over the last 6 months The latest production and manufacturing numbers confirmed this slowdown manufacturing dropped 5 Y Y although production increased 8 Y Y This chart from the report shows manufacturing s decline since 02 15
This slowdown is another factor that is probably keeping the BOE on the sidelines for now
The Bank of Canada maintained interest rates at 5 this past week Their release contained the following observations about the Canadian economy
Inflation has evolved in line with the outlook in the Bank s July Monetary Policy Report MPR Total CPI inflation remains near the bottom of the target range reflecting year over year price declines for consumer energy products Core inflation has been close to 2 per cent with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector specific factors The dynamics of GDP growth in Canada outlined in July s MPR also remain intact The stimulative effects of previous monetary policy actions are working their way through the Canadian economy
Like the Bank of England the Bank of Canada s statement implies the effects of low energy prices are transitory But unlike England Canada s weaker currency is aiding inflation by increasing import prices For example the USD is up 20 versus the CAD over the last year
And the EUR increased a little more than 14 over the same time period
As a result import prices increased 7 over the last 12 months
The Bank also noted its rate cut earlier in the year was working through the economy The strong increase in housing starts in the latest release and over the last 6 months confirms this observation
Japanese numbers continue to worry Although authorities revised 2Q s GDP higher the economy still contracted at a 1 2 annualized pace Household consumption contracted 4 Q Q while private non residential investment decreased 1 The 3 inventory and 1 residential construction increase were the sole positive private sector numbers
And this week s flash LEIs and CEIs declined 1 and 1 6 respectively he was concerned about Abenomic s potential success
I m still really really worried Krugman said at a conference in Tokyo on Wednesday A big problem remains building enough momentum in the economy to escape deflation he said
Krugman said he is concerned that Abenomics is getting bogged down as the Bank of Japan fails to spur inflation to a 2 percent target hampered by falling oil prices The economy is struggling to rebound after a contraction last quarter while the central bank s main gauge of inflation fell to zero for a third time this year in July
And other members of the Japanese government
I ll cover US news in tomorrow s US Equity and Economic Review
There has been a slight but important shift in news coverage over the last few months It started with the wild gyrations of the Chinese stock market which in retrospect granted journalists permission to write more negative stories about the global economy Since then we re seen more discussion about EM capital flight the fiscal troubles of Brazil and the potential issues related to Russia The news is hardly catastrophic it simply represents the natural ripples flowing out from China s attempt to change its economic model and the potential Fed rate hike coming down the pike But it is fundamentally changing the global economic model The markets are reacting to this change by reallocating capital increasing volatility And considering China is still changing its model we ll probably see additional volatility in the coming weeks |
C | Book Review Wall Street Wars | In Wall Street Wars The Epic Battles with Washington That Created the Modern Financial System Regan Arts 2015 Richard E Farley takes us back to the 1930s to the Emergency Banking Act the Glass Steagall Banking Act of 1933 the Securities Act of 1933 the Securities Exchange Act of 1934 and the creation of the Securities and Exchange Commission A lively account the book adds flesh and bones to the politicians responsible for ground changing financial legislation
In the early years after the Crash and Depression the public blamed the country s political leaders Hoover in particular and renegade Wall Street pool operators and short sellers Remarkably the nation s banking establishment had successfully avoided the worst of the public s wrath p 37 But Ferdinand Pecora the fifth lawyer in less than a year to fill the position of chief counsel to a subcommittee of the Senate Banking and Currency Committee investigating stock market practices changed all that Pecora questioned Charlie Mitchell chairman of the board of directors of National City Bank the predecessor of Citigroup NYSE C and showed both that he was a monumental tax evader and that he had duped the investors in National City After several days of questioning other National City executives and exposing their gross misconduct Pecora became a celebrity the face of justice for the average man against the malefactors of Wall Street p 52
Just exposing and punishing Wall Street banksters was not of course enough to get the financial system on firmer footing Congress needed to draft sweeping legislation Carter Glass senator from Virginia was the man to get the job done He was to put it mildly a difficult man He was ill tempered racist and often in poor health physically and mentally suffering frequent nervous breakdowns and hospitalizations He had never held a job in a private sector financial institution and what limited formal education he had ended when he was fourteen He is also the single most important lawmaker in the history of American finance He drafted and shepherded through Congress the legislation creating the Federal Reserve System and later served as President Wilson s secretary of the Treasury p 31
Glass was an advocate of large banks with many branches These banks might behave badly but they were smart and they were solvent Glass believed that too many banks that were too small to save were a far greater risk than banks that were too big to fail p 79
Here I ve given but a tiny glimpse into the thinking behind and the wrangling over the legislation that shaped and in some cases still shapes our financial system Farley s account is illuminating and as such valuable reading for anyone who cares about how we got to where we are today |
C | International Economic Week In Review Asian Slowdown Edition | The negative impact of China s slowdown continued this past week as the OECD
Global growth prospects have weakened slightly and the outlook is clouded by important uncertainties said OECD Chief Economist Catherine L Mann Emerging economies have vulnerabilities that could be exposed by rising US interest rates and or a sharper than expected slowdown in China giving rise to financial and economic turbulence that could also exert a significant drag on advanced economies Continued policy stimulus is warranted to support global demand but the mix of policies will differ by country and choices need to be consistent with financial stability and reviving long run growth
While their analysis focuses on the now familiar triangle of China emerging economies and Fed policy the OECD emphasizes emerging economies dual economic vulnerabilities to China s slowdown and US interest rate policy The former began within the last 12 months while the latter is an ongoing threat The OECD analysis also noted the US continues to grow solidly They were somewhat disappointed in the EU commenting Growth in the euro area is improving but not as fast as would be expected given the falls that have been seen in oil prices long term interest rates and the value of the euro China s slowdown was bound to increase downside economic predictions Citigroup NYSE C led the charge last week and now the OECD is following suit Expect further negative revisions over the next few weeks and months
The Fed s policy decision was the main news item this week While they slightly broadened focus to include international developments They first noted the US continues to expand Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace But the risk from non U S markets increased
Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad
Finally the statement tied international weakness into US economic performance when they noted exports were soft Overall the Fed s non action wasn t surprising especially considering recent international developments And as I noted earlier this week this remains the most over hyped interest rate in history
Clearly China is now the Fed s top international concern last week s economic events didn t calm any Fed nerves As noted in a previous column the Shanghai Index continues stabilizing in bear market territory finishing a routine sell off from bubble heights Last week s economic releases continued to show a slowing economy While industrial production retail sales and capital investment increased all Y Y 6 1 10 8 and 11 3 respectively the long term trend for all three continues lower
The Chinese die is cast their economy is slowing
Australia changed prime ministers for the fifth time this past week Analysts as a deeper more nuanced thinker who views China as a key component to Australia s future He inherits an economy in transition As noted in the the Australian economy is growing below potential While other business fares moderately well mining remains the primary problem
Members began their discussion of the recent economic data by considering indicators of business conditions Surveys of business conditions generally had shown further improvement over recent months and conditions were clearly above average levels in the household and business service sectors Although survey measures suggested that business profits had increased to above average levels ABS data showed that relative to nominal GDP mining profits had declined further following falls in commodity prices and non mining profits had remained relatively stable
The ABS capital expenditure survey had suggested a further fall in mining investment in the June quarter and investment intentions in that sector implied a further sizeable fall in 2015 16 which was consistent with the Bank s current forecasts Members discussed the implications of the recent emphasis on cost cutting in the mining sector noting that it would probably lead to mining investment eventually stabilising at a lower level than had previously been expected The capital expenditure survey also pointed to a decline in non mining investment in 2015 16 but by less than implied by the survey taken three months earlier Approvals for non residential building also remained weak
As this graph from the latest capital expenditure survey shows overall capital investment has declined since 2012
In contrast consumption growth is positive
Members observed that recent indicators of consumer sentiment and retail sales had been consistent with some increase in consumption growth
Retail sales have consistently increased for the last two years
And housing remains a strong source of growth
The Australian economy continues to change from an export to a consumer growth modality Export industries which were largely raw material extraction companies decreased capital expenditures in 2012 Ancillary industries slowed their spending in response These events created economic headwinds but not to the point of contraction Unfortunately no new sector sufficiently fills the economic void nor provides broad enough stimulus to hasten the desired transformation Housing has partially replaced the lost growth but as the U S U K and Europe will attest housing can t sustain an economy over the long term
The BOJ maintained their current interest rate and asset purchase policy They also released their latest meeting minutes While the minutes contained moderately positive descriptions of the Japanese economy the statistical story provides a less hopeful picture Both the leading and coincident economic indicators compiled by Statistics Bureau of Japan paint a zero sum economic picture of the economy
The LEIs moved sideways for most of 2014 then rose in early 2015 But the latest readings are down indicating a loss of momentum The coincident indicator continues in a sideways pattern for the last two years The Conference Board s LEIs and CEIs paint a similar picture
The CB LEIs decreased 4 of the last 6 months while the CEIs dropped 5 of the last 6 A variety of LEI index components contributed to recent declines
Only money supply and yield spread contributed positively to the index over the last six months In contrast dwelling investment dropped 3 6 business failures were down 4 6 and overtime worked decreased 5 6 The Conference Board s Coincident Indicators show a similar problem
Employment and wages are down 3 6 of the preceding months while industrial production is down 4 6 Retail sales decreased 2 6 month When combined into a coherent statistical picture the above data show an economy that at best is standing still unable to achieve enough systemic momentum to move forward
Analysts recent adjustments lowering global growth projections are in line with recent events China s economy continues slowing This lowers commodity prices which decreases economic growth of commodity exporting countries Hence the primary causation of Australia s below trend growth and Japan s weaker economic performance The US is somewhat immune Chinese trade accounts for a fraction of US GDP limiting the impact The EU is a bit more exposed due to their increased reliance on trade But the longer this trend continues the higher the probability of increasing negative feedback loops hurting a larger percentage of economies lowering overall global growth |
MS | GLOBAL MARKETS Selling frenzy persists as confidence crumbles | Panic selling hits U S European Asia bourses
MSCI world equity index sees five year low
Dash for cash even hits government bonds
Dollar rises on scramble for hard currency
Recasts lead updates prices
By Pedro Nicolaci da Costa
NEW YORK Oct 10 Reuters Global stocks dove head first
to five year lows on Friday at the end of a brutal week as even
the traditional safe havens of gold and government bonds
suffered as fear stricken investors sought refuge in cash
U S stock markets recouped a good portion of their losses
late in the day as investors looked to an imminent meeting of
Group of Seven finance ministers for a policy response to the
deepening global credit crisis
The dollar rose to a 15 month high against a basket of
major currencies as investors scrambled for cash preferably in
the world s reserve currency The euro capped its worst
two week period against the collar since the introduction of
the single currency in 1999
Oil fell below 80 for the first time in a year and gold
slid
It s total panic People are so scared that they are
looking to liquidate everything that has cash value and to stay
away from everything said Bruce Dunn vice president of
trading at New Jersey based Auramet Trading
In U S equities the Dow Jones slid as much as 8 percent
to break below 8 000 for the first time since April 1 2003
before paring losses to close down 1 5 percent A late pop in
technology shares helped the Nasdaq eke out its first gain of
the month on Friday
The broad S P index had its worst week ever while the Dow
was down 18 percent for the week
The new lows we ve seen in stock markets this week are the
result of panic selling said Joost van Leenders asset
allocation specialist at Fortis Investments
The Dow Jones industrial average finished the day
down 128 00 points or 1 49 percent at 8 451 19 The Standard
Poor s 500 Index was down 10 70 points or 1 18
percent at 899 22 The Nasdaq Composite Index managed
to squeak 4 39 points higher to 1 649 51
Morgan Stanley the No 2 independent investment
bank plunged 22 3 percent on doubts that a planned 9 billion
cash injection from Japan s Mitsubishi UFJ Financial Group Inc
would be enough to enable it to ride out the current crisis
European shares closed out their worst week ever with the
pan European FTSEuroFirst 300 index shedding 22
percent for the week after closing down 7 6 percent The
FTSEurofirst 300 closed at 851 23 points its lowest close
since July 2 2003
The DJ Stoxx European bank index fell 10 6 percent
with Royal Bank of Scotland down more than 20 percent
while Credit Suisse and Deutsche Bank lost
over 16 percent each
The MSCI world equity index fell more than 4 0
percent at one point to a five year low losing a fifth of its
value this month alone The index has lost 43 percent since
January on track for its worst yearly performance in 20
years
In U S government bonds only short term Treasury bills
which are considered pretty much a cash equivalent were able
to catch a bid
The benchmark 10 year U S Treasury note was
trading 24 32 lower in price for a yield of 3 88 percent from
3 78 percent late Thursday The only buying of debt was on the
very short end of the Treasury curve where one month T bill
yields were trading all the way down near 0 07 percent
We are not used to seeing stocks implode and Treasuries
sell off said Josh Stiles senior bond strategist at
IDEAglobal People are saying they don t even want to be in
Treasuries now they need the cash
The U S dollar rose as investors moved out of riskier
markets Earlier the flight to safety sent the yen to a more
than six month high against the U S dollar and a three year
peak versus the euro The Japanese currency also rose sharply
against higher yielding units such as the Australian and New
Zealand dollars as carry trades were unwound
As long as markets remain risk averse to this degree it
is difficult to see the U S dollar making a material reversal
despite many of the issues currently gripping global markets
being home grown said Dustin Reid senior currency strategist
at RBS Global Banking Markets in Chicago
Tensions persisted in the money market where the cost of
borrowing dollars for three months rose to 4 81875 percent at
the fixing in London
In foreign exchange increased risk aversion left the yen
as the currency of choice with the euro earlier falling to a
three year low of 132 80 yen and the dollar hitting a
6 1 2 month low of 97 92 yen
In New York the Intercontinental Exchange s U S dollar
index which tracks the value of the greenback against a
basket of six currencies was up 1 22 percent at 82 422 after
rising as high as 82 223 the strongest level since June 2007
The euro fell nearly 1 0 percent against the dollar at
1 3468
Fears about Britain s vulnerability to the financial crisis
sent the pound tumbling to a five year low of 1 6802
U S crude oil fell slumped 8 9 percent to settle at
77 70
Gold prices slid as the equities rout sparked a sell off in
commodities Spot gold was down 1 8 percent at 870 an ounce on
the rally in the dollar and profit taking
G7 TO THE RESCUE
Investors are looking to the weekend s meeting of leaders
from the Group of Seven major industrial nations However
hopes for a comprehensive deal to help to solve the crisis were
fading fast
It is not clear we will see much from the G7 meeting and
this will probably keep risk appetite under pressure said Rob
Minikin senior currency strategist at Standard Chartered
Coordinated interest rate cuts by the Federal Reserve and
other major central banks this week failed to relieve investor
fears that the freeze in credit markets will damage banks
further and provoke a deep recession around the world
Essentially we re flying blind No one has a clue what s
going on DZ Bank currency strategist Sonja Marten said The
uncertainty is too great and volatility is incredible It s a
question of market confidence and somehow we re going to have
to get it back
Earlier Friday Europe and Asia saw panic selling of stocks
while oil prices fell to a one year low as fears grew
policymakers are not making enough efforts to contain the
financial crisis
Equity trading in Russia Iceland Romania Ukraine and
Indonesia was halted Emerging stocks fell nearly 5 percent to
a fresh three year low
Additional reporting by Ellis Mnyandu Kristina Cooke and
Chris Reese in New York and Steve Slater Rebekah Curtis and
Jessica Mortimer in London Editing by Leslie Adler |
MS | UPDATE 3 China okays 586 bln spending plan to bolster growth | Adds further reaction background in paras 8 11
By Alan Wheatley China Economics Editor
BEIJING Nov 9 Reuters China has approved a 4 trillion
yuan 586 billion government spending package to boost
domestic demand and help the world s fourth largest economy ride
out the global credit crisis Xinhua news agency said on Sunday
The State Council or cabinet also announced a shift to a
moderately easy monetary policy possibly foreshadowing
further reductions in borrowing costs on top of three interest
rate cuts made since mid September
The People s Bank of China had already relaxed its monetary
stance to prudent and flexible from tight in the summer as
inflation crested and economic growth started to slow
With the deepening of the global financial crisis over the
past two months the government must take flexible and prudent
macro economic policies to deal with the complex and changing
situation according to a statement relayed by Xinhua
Officials have been flagging measures to pump up demand
since gross domestic product growth slowed unexpectedly sharply
to 9 0 percent in the third quarter from 10 4 percent in the
first half
Economic conditions took a further turn for the worse in
October Still analysts were impressed by the size of the
stimulus package which amounts to nearly 15 percent of annual
economic output spread over little more than two years
This is pretty major said Arthur Kroeber head of
Dragonomics a Beijing economic consultancy It reflects the
official view of how serious this problem is and shows that this
is a government that can mobilise enormous resources to
stimulate the economy when they put their minds to it
By comparison the United States sent out about 100 billion
in tax rebate cheques this summer while Germany last week
agreed to a 50 billion euro pump priming plan
Morgan Stanley economist Qing Wang called the package
aggressive while Jing Ulrich head of China equities at J P
Morgan said Beijing had resorted to the massive stimulus in
the face of the sternest economic test since the Asian financial
crisis
China responded to that crisis in 1998 by issuing
infrastructure bonds worth just 1 2 percent of GDP
Beijing s new policy drive of upgrading infrastructure
rural land reforms and expansion of social welfare is akin to a
New Deal with Chinese characteristics Ulrich said in a note
AFFORDABLE MEASURES
Xinhua did not say how the 10 point plan would be financed
but China can afford to spend freely It ran a budget surplus in
the first half of the year of more than 170 billion
Year on year tax revenue growth has since dwindled to just 3
percent due to poorer corporate profits but domestic Treasury
debt is just 16 percent of gross domestic product Kroeber said
The announcement of the spending programme decided by the
cabinet on Wednesday coincided with meetings in Sao Paulo of
finance ministers and central bank chiefs to learn lessons from
the financial turmoil and discuss how to support growth
ID nN09429118
As long as we adopt the correct policies and measures in a
timely and decisive manner to seize opportunities and cope with
challenges we will definitely be able to maintain stable and
fairly fast economic growth the cabinet said
As part of an active fiscal policy Xinhua said
investments would be targeted at roads railways and airports
across China
Money would also be poured into affordable housing rural
infrastructure the power grid environmental protection social
welfare and technical innovation Xinhua said
Kroeber said a lot would depend on what proportion of the
package is funnelled towards boosting spending to help wean the
economy off rapid investment which has been the main driver of
China s double digit growth over the past five years
How much of it will be good old tried and true building
bridges and how much will be put into income and consumption
support measures that are arguably more beneficial he asked
Underlining the need to boost capital spending swiftly and
forcefully Xinhua said China would invest an additional 100
billion yuan in national infrastructure this quarter
With another 20 billion yuan brought forward from next
year s budget for post disaster reconstruction nationwide
investment this quarter would reach 400 billion yuan Xinhua
said
The cabinet also confirmed a long awaited change in the way
value added tax VAT is calculated Companies will be able to
deduct the cost of capital equipment when working out their VAT
bills saving them about 120 billion yuan a year Xinhua said
6 83 yuan
Additional reporting by Kirby Chien in Beijing and Eadie Chen
in Sao Paulo Editing by David Holmes |
MS | WRAPUP 3 US retail sales in record fall but sentiment up | Retail sales drop 2 8 percent in Oct
Nov consumer confidence up to 57 9 from 57 6 in October
Import prices down 4 7 percent in Oct
Adds Senate plan to consider 25 billion auto bailout
By Alister Bull
WASHINGTON Nov 14 Reuters Sales at U S retailers
suffered a record decline in October as fears of recession
sapped spending but part of the drop was due to slumping
gasoline prices which helped buoy consumer confidence this
month
The Commerce Department said on Friday that retail sales
slumped 2 8 percent in October to a seasonally adjusted 363 7
billion the largest decline since the department s current
methodology was adopted in 1992 as mounting unemployment hit
shoppers appetites
A separate Reuters University of Michigan November survey
of consumers showed that confidence unexpectedly rebounded from
a record October drop as tumbling gas prices offset worries
about the economy
While lower gas prices were welcome declines in a broad
number of retail sales categories showed consumers were still
on the defensive
What you are seeing now is the turmoil in the credit and
funding markets playing out into the consumer sector said
Kevin Flanagan fixed income strategist global wealth
management at Morgan Stanley in Purchase New York
Economists polled by Reuters forecast a 2 0 percent fall in
October retail sales as the escalating financial crisis took a
toll on consumer Retail sales last month were down 4 1 percent
from a year ago
Sales excluding autos fell a record 2 2 percent in October
versus a forecast of a 1 2 percent decline
Lower gasoline prices as crude oil retreated sharply from
a July peak around 147 a barrel helped depress sales at gas
stations by a record 12 7 percent in October As a result a
closely watched core measure of retail sales excluding autos
and gasoline fell 0 5 percent in October
Take out cars and gas it s a drop of half a percent It s
not good but it s not horrific This could have been worse
it s encouraging that it wasn t said David Resler chief
economist at Nomura Securities in New York
The Reuters University of Michigan Surveys of Consumers
said its confidence index edged up to 57 9 in November from
57 6 in October Despite the rise sentiment remains at
depressed levels with the index below the lowest levels hit
during the depths plumbed during the last two recessions
Lower gas prices and sizable discounts at retailers helped
to slightly improve consumers assessments of current economic
conditions while higher unemployment and a deepening recession
dimmed their expectations for future gains the Surveys of
Consumers said in the report
You might have hoped say gasoline was way way down in
price that might free up money to spend on other stuff But
that didn t happen people still spent less on other stuff So
that s not good said Nigel Gault chief U S economist at
Global Insight in Lexington Massachusetts
Lakshman Achuthan managing director at the Economic Cycle
Research Institute a New York based independent forecasting
group put it more bluntly Not only is no economic recovery
on the horizon but the economy is falling off a cliff at its
fastest pace in at least six decades
Individual car makers have reported a collapse in sales
since mid September after auto loan terms tightened sharply in
the aftermath of investment bank Lehman Brothers s failure
The Commerce Department said motor vehicle and parts sales
slide 5 5 percent in October after a 4 8 percent September
fall October s performance for the category was the weakest
since August 2005 when car sales were off 10 3 percent
Majority leader Sen Harry Reid a Democrat from Nevada
said he plans to press forward with emergency aid to American
automakers and will begin debate on Monday of a 25 billion
bailout It was not clear if there was sufficient backing from
Republicans to deliver the emergency aid
General Motors Corp Ford Motor Co and
Chrysler LLC CBS UL are furiously lobbying for 25 billion in
immediate bailout money to help them survive the industry s
worst financial crisis
A separate report from the Labor Department showed U S
import prices posted the largest monthly drop since 1988 in
October as the cost of imported oil slid
Overall import prices declined 4 7 percent after falling by
a revised 3 3 percent in September But for the 12 months
through October import prices were still up 6 7 percent
Petroleum prices tumbled 16 7 percent last month after
falling a revised 10 2 percent the previous month
The Commerce Department data showed that stocks of unsold
goods at U S businesses unexpectedly fell a seasonally
adjusted 0 2 percent in September
Additional reporting by Lucia Mutikani in Washington and
Burton Frierson in New York Editing by Chizu Nomiyama |
MS | ANALYSIS Americans embrace saving as nest eggs shatter | To see a package of stories pictures and graphics from
Reuters on U S consumer credit double click
By Emily Kaiser
WASHINGTON Nov 18 Reuters Americans who were banking
on soaring home and stock prices to finance their retirement
will have to go back to saving the old fashioned way ushering
in a new era of frugality that may last for years
For much of this decade easy credit that helped inflate
the housing bubble and boost financial markets meant households
did not need to set aside as much for a rainy day Spending
accelerated while the savings rate declined to near zero
The trend is reversing now that the financial upheaval has
blown a 7 trillion hole in Americans wealth Households are
curbing spending at the sharpest rate on record and economists
see only a tepid rebound beginning late next year
The golden age of spending for the American consumer has
ended and a new age of thrift likely has begun said Richard
Berner U S economist with Morgan Stanley
This recession is more than a cyclical event we think it
will trigger a sea change in consumer spending behavior as
consumers now embark on a long period of rebuilding thrift
As recently as the early 1980s U S households were
socking away about 10 cents out of every dollar to cover
emergencies or save for retirement
By 2005 the saving rate was below 1 percent thanks largely
to higher returns on investment in the stock market and real
estate and financial innovation that made borrowing easier
Joseph Lupton an economist at JPMorgan in New York
expects savings to climb by 4 percentage points by the end of
2009 from 0 2 percent at the start of 2008 That would
represent the sharpest eight quarter rise in 50 years
It reached 1 3 percent in the third quarter
CHASTITY LATER
Flush with investment wealth consumers stepped up spending
over this decade even though wage growth remained tepid
Imports soared particularly from China driving up both
U S deficits and Chinese surpluses From the start of the
housing market boom in 2002 through 2007 imports from China
rose by 157 percent to 321 4 billion
Economists have long warned that these trends were
unsustainable and Americans would eventually need to curb
consumption while China boosted its own domestic demand
The credit crisis is doing precisely that but at such
breakneck speed that it is worsening an already grim economic
outlook The global economy simply cannot adjust fast enough to
the sudden drop in U S demand
U S retail sales have fallen for four consecutive months
culminating in October s record large 2 8 percent decline
China has announced a nearly 600 billion plan to boost
internal growth The global economy is bracing for recession
We need to accomplish an increase in the savings rate but
not all at once said Christopher Carroll an economics
professor at Johns Hopkins University who studied how the
housing boom lifted consumer spending
I m not the first person to call to mind St Augustine
under these circumstances Lord make me chaste but not quite
yet he added
Carroll said households typically change spending behavior
gradually when they sense big shifts in their wealth This time
the effect may be much quicker because consumers have been
bombarded with alarming news stories comparing the current
slump to the Great Depression of the 1930s
At the same time banks have grown wary of extending credit
and global investors who eagerly bought securities tied to
consumer debt have backed away driving up borrowing costs
Torsten Slok an economist with Deutsche Bank in New York
said until investor appetite for U S consumer debt returns to
normal spending will be subdued
If no one wants to lend to the U S consumer anymore then
the U S consumer cannot continue to buy at the current rate
and will have to slow spending dramatically he said The
willingness in financial markets to lend to consumers will
determine how high the savings rate has to go
HOW MUCH IS TOO MUCH
Erik Hurst an economics professor at the University of
Chicago s Graduate School of Business said savings dwindled
not because of rampant overconsumption but because households
were generating much better returns through real estate or
stocks Now they are adjusting accordingly
As uncertainty goes up or the returns go down both
contribute to a rise in the savings rate he said
For the economy the rate of savings itself doesn t matter
as much as what is happening to consumption which accounts for
two thirds of U S economic activity
If history is any guide next year s spending decline may
be severe
During the 1980 recession which was the last time that the
savings rate rose sharply consumers cut back so dramatically
that the percentage of income spent on personal goods and
services dropped to just under 74 percent at the end of 1981
from nearly 77 percent in the first quarter of 1980
In the latest quarter consumers spent a little over 83
percent of their income If that were to fall to 80 percent it
would mean a 300 billion reduction in spending equal to the
annual U S sales of retailing behemoth Wal Mart
Editing by Leslie Adler |
JPM | JPMorgan Chase to drop commissions paying retirement accounts | The Nov 9 2016 story was refiled to correct the number of advisers affiliated with Commonwealth Financial Network to 1 650 from 7 000 in the seventh paragraph By Elizabeth Dilts and David Henry NEW YORK Reuters As Wall Street s wealth management firms scramble to comply with a new U S Department of Labor rule JPMorgan Chase Co NYSE JPM said on Wednesday it will stop offering commissions paying retirement accounts In doing so J P Morgan will join Bank of America s Merrill Lynch and other firms that recently adopted the approach The so called fiduciary rule which takes effect in April is aimed at forcing brokerages to put their clients interests first by eliminating any conflict of interest created by brokers commissions The rule targets transactional accounts which charge clients a commission for every trade and rather than wade through the complexities of the 1 000 plus page regulation many firms are just dropping transactional retirement accounts altogether Starting in April clients of Chase Wealth Management Private Bank and J P Morgan Securities have two options they can either chose to pay a financial adviser a flat fee based on how much money they have invested or they can use an online platform to manage their retirement account themselves We believe this reflects how our clients are doing business today said Barry Sommers chief executive of the bank s wealth management business Merrill Lynch and Commonwealth Financial Network an independent brokerage with 1 650 advisers both announced similar plans last month The move will only affect a sliver of J P Morgan s wealth management clients which range from mass affluent to ultra high net worth Just 5 percent of the 1 1 trillion in client assets managed at J P Morgan Wealth Management Investment Solutions are held in retirement accounts and only those in commissions paying accounts will be impacted by the change |
C | U S futures mixed on Fed talk budget worries Dow Jones up 0 05 | Investing com U S stock futures pointed to a mixed open on Tuesday as fresh uncertainty over whether the Federal Reserve could begin tapering its stimulus program before the year end and ongoing U S debt worries dented investor confidence Ahead of the open the Dow Jones Industrial Average futures pointed to a 0 05 gain S P 500 futures signaled a 0 02 dip while the Nasdaq 100 futures indicated a 0 18 increase U S stocks remained supported after after New York Federal Reserve President William Dudley defended the central bank s decision to keep its stimulus program unchanged last week in comments on Monday Dudley said that adjustments to the Fed s USD85 billion a month asset purchase program need to be anchored in an assessment of how the economy is actually performing The Fed said last week that it wanted to see more evidence of a sustained economic recovery before it adjusted the scale of its bond buying program The decision surprised markets which had been expecting a modest reduction to the scale of the bank s bond buying program Separately U S budget talks were to continue this week with the aim of passing a resolution to fund government beyond October 1 Apple was expected to remain in the spotlight for the second consecutive session after the tech giant announced on Monday that sales for its new iPhone had reached a record 9 million units within the first few days of its launch The company also said there were more than 200 million downloads of its new iOS 7 platform The company s stock was up 0 37 in pre market trade Also in the tech sector BlackBerry climbed 0 91 in early tradingafter saying it will be acquired by Canadian insurance company Fairfax Financial in a deal totaling USD4 7 billion dollars Microsoft was also likely to remain in focus after it introduced its next generation Surface tablet at an event in New York City on Monday Elsewhere financial stocks were expected to be active following a report by the Financial Times saying that a significant drop in Citigroup s trading revenue during the third quarter could hurt the bank s earnings Citigroup shares were up 0 02 in extended trading while Goldman Sachs and JP Morgan both slipped 0 10 Other stocks likely to remain in focus included CarMax Lennar and KBHome scheduled to report quarterly results later in the trading session Across the Atlantic European stock markets were higher The EURO STOXX 50 rose 0 33 France s CAC 40 climbed 0 51 Germany s DAX added 0 16 while Britain s FTSE 100 eased up 0 09 During the Asian trading session Hong Kong s Hang Seng Index dropped 0 82 while Japan s Nikkei 225 Index inched down 0 07 Later in the day the U S was to release private sector data on house price inflation as well as a report on consumer confidence |
C | U S futures rise on U S budget hopes Dow Jones up 0 20 | Investing com U S stock futures pointed to a higher open on Tuesday as hopes for progress in ongoing U S budget negotiations ahead of the upcoming debt ceiling deadline lifted market sentiment Ahead of the open the Dow Jones Industrial Average futures pointed to a 0 20 rise S P 500 futures signaled a 0 14 gain while the Nasdaq 100 futures indicated a 0 24 increase U S Senate Majority Leader Harry Reid said Monday that tremendous progress had been made towards a deal fuelling hopes that a compromise can be reached If an agreement to raise the federal borrowing limit is not struck ahead of Thursday s deadline the U S will face an unprecedented sovereign debt default Any potential deal will still have to be approved by the House of Representatives where Speaker John Boehner would have to decide whether to allow a vote or demand federal spending cuts Tech giant Apple was expected to be active after announcing that Burberry Chief Executive Officer Angela Ahrendts was to take up its new post of senior vice president of retail and online stores reporting to CEO Tim Cook Apple shares climbed 0 44 in pre market trade following the news while Burberry dropped 4 61 In the same sector BlackBerry down 0 25 in extended trading was also at the center of attention as it was taking out full page ads in newspapers worldwide in a bid to convince carriers consumers and partners that they shouldn t abandon the struggling smartphone maker In earnings news Teradata Corp dove 12 93 pre market after the computer data storage company reported third quarter profit that missed analyst projections Elsewhere Walmart down 0 11 in after hour trade was also likely to be in focus as it was preparing to host a live webcast for investors with CEO Mike Duke due to speak Citigroup Coca Cola Johnson Johnson Yahoo and Intel all scheduled to report third quarter earnings later in the day Across the Atlantic European stock markets were higher The EURO STOXX 50 gained 0 66 France s CAC 40 climbed 0 53 Germany s DAX advanced 0 74 while Britain s FTSE 100 rallied 0 77 During the Asian trading session Hong Kong s Hang Seng Index climbed 0 51 while Japan s Nikkei 225 Index added 0 26 Later in the day the U S was to release a report on manufacturing activity in the Empire state |
C | Equity Markets Climb As Commodity Prices Stabilise | European indices have struck higher this morning following a mixed Asian session China has stabilised for the time being but upbeat Japanese corporate results have helped to offset some of the weakness seen last month
It s PMI day and it s been a mixed bag with Germany seeing a dip in sentiment to a 7 month low Italy disappointing France merely ticking along while Spain printed a fantastic number coming in at 59 7 versus the 55 5 expected Much of this is down to a bumper summer tourist season with record numbers arriving on its shores and a stronger economic recovery leading to service companies hiring at the fastest pace in eight years
Retail Sales are not expected to provide much cheer with a fall of 0 1 on the month the consensus view Euro weakness is adding to equity upside as the single currency has slid lower against both the pound and the greenback in early trade This is generally on the back of speculation that the respective banks are likely to look to tighten monetary policy sooner rather than later while the ECB may well embark on additional stimulus to provoke some inflation
Miners are all on the up this morning The fall in commodity prices will shake out high cost producers with some of the smaller players in the sector likely to struggle The stronger players will be able to ride out the sell off better There is a feeling that most of the bad news from the commodity rout has been priced into these stocks already
Anglo American LONDON AAL 1 43 BHP Billiton LONDON BLT 2 72 Glencore LONDON GLEN 1 95 and Rio Tinto LONDON RIO 2 43 are all higher on this confidence
Legal General LONDON LGEN 3 72 the highest riser in the FTSE this morning The pension group reported better than expected H1 profit A rise of 18 to 750m in the six months to June and an increase in assets under management has underpinned the share price this morning Cost cutting and asset disposals has been a familiar theme with some FTSE companies of late and L G is no different It is in talks to sell its French unit to Apicil Prevoyance and has also expanded its corporate pensions business to offset the fall in annuity sales in the aftermath of government amendments to the retirement system They are also keeping investors happy with a rise in the interim dividend and seem to be shrugging off the worries that the radical pension reforms initially created
London Stock Exchange 2 5 Growth in the index business is the highlight as the benefits of acquiring the Russell group start to show with profits after tax up 21 for the first half
Standard Chartered LONDON STAN 0 5 Results come out at 0915 following the market close in Hong Kong The bank will likely announce recapitalization plans plus further cost cutting to offset weakness in commodity prices as well as the headwinds form a slowing China
Travis Perkins LONDON TPK 1 85 Downgraded to neutral at Citi NYSE C The stock has underperformed the Stoxx 600 Industrial Goods and Services index month to date falling 1 3 versus a rise of 1 1 in the benchmark
We have ADP employment numbers out from the US later 216 000 are expected to be added A beat here would ultimately be a strong driver for the dollar which is already forging higher in early trade as it would imply that Friday s payrolls number will be more than satisfactory and this would likely stir additional speculation for a rate hike as early as next month
We are presently calling the Dow lower by 35 points to 17515 |
C | Can You Imagine The Fed Raising Rates In This World | A month ago China s stock bubble was bursting and Greece was imploding Yet the US Fed in a violation of both headline sentiment and common sense was still come September
Fast forward to this week China s surprise currency devaluation has sent the global markets into a tailspin but rather than spiking on the sudden drop in a major trading partner currency the US dollar is plunging against the euro and most other currencies Why Because a global currency crisis is just about the last situation in which the world s major central bank would be expected to tighten
Suddenly traders are concluding that maybe rates won t rise after all
MarketWatch The dollar weakened against most of its emerging markets and industrialized rivals Wednesday as investors fretted that China s devaluation of the yuan could cause Federal Reserve officials to delay an expected increase in their benchmark interest rate
The ICE U S Dollar index DXY 1 16 a measure of the dollar s strength against a basket of six rival currencies was down 1 to 95 9920
China s decision to let the yuan drop caused emerging markets currencies in Asia and elsewhere to depreciate in sympathy as some investors anticipated central banks around the world will shift to a more accommodative monetary policy This would push the dollar even higher which could cause the Federal Reserve to hold off on raising interest rates for fear that the dollar has become too much of a drag on U S economic growth
The China move on FX rightly or wrongly is being seen as something that s muting the policy divergence theme said Josh O Byrne G 10 FX Strategist at Citigroup NYSE C
Speculators unwinding bets on emerging markets currencies also helped push the dollar lower as they bought back the euros and yen they had used to fund those trades said Jane Foley senior currency strategist at Rabobank
The euro EUR USD 1 3222 rose 1 4 to 1 1197 from 1 1044 late Tuesday in New York while the dollar shed 1 against the yen USD JPY 0 94 to trade at 123 88 down from 125 07 late Tuesday
So now we have currency turmoil in the developing world equity corrections and possibly bear markets in the developed world and deflation pretty much everywhere None of this argues for a stronger dollar or higher interest rates
Even before the latest shock the Fed was starting to accommodate this view by sending out talking heads to make the soften the September rate hike From over the weekend
But comments from Federal Reserve Vice Chairman Stanley Fischer on Monday may have helped ease some of those concerns He told Bloomberg TV he doesn t expect the first interest rate hike by the U S central bank in more than nine years to occur until after inflation returns closer to the Fed s target of around 2 |
C | Yuan Halts 3 Day Slide | The yuan halted a three day slide after China s central bank raised its reference rate for the first time since Tuesday s devaluation and said it will intervene to prevent excessive swings
The onshore spot rate was little changed at 6 4003 per dollar as of 12 56 p m in Shanghai after falling 3 percent this week The People s Bank of China said Thursday there s no basis for depreciation to persist and that it will step in to curb large fluctuations It followed up with a 0 05 percent strengthening of its daily fixing on Friday after three cuts of more than 1 percent each
China s first major devaluation since 1994 surprised global investors and fueled concern that authorities are struggling to combat a slowdown in the world s second largest economy Policy makers are trying to balance the need for financial stability against a desire for stronger exports and the yuan s inclusion in the International Monetary Fund s basket of reserve currencies
The PBOC sent its signal and people understand it ll be very difficult to go against the PBOC s will said Ken Peng a Hong Kong based strategist at Citigroup NYSE C the world s biggest currency trader The central bank will frequently intervene in the foreign exchange market in the next three months because it needs to ensure the yuan is stable |
C | Euromarkets Fall Slightly Trying To Find Direction | The European markets started today with small losses trying to find a direction amid pressure from the energy industry and the results of listed companies for the second quarter
The British FTSE 100 index fell by 0 13 at 6 542 points the German DAX recorded a fall of 0 20 at 10 918 points and the French CAC 40 moved downwards by 0 22 to 4 974 points
STOXX 600 index fell by 0 19 at 386 53 points
On the dashboard Chocoladefabriken Lindt Spruengli AG SIX LISN recorded profits of 2 8 as the company confirmed its 12 month profit targets after the increase by 15 6 that was recorded in the second quarter
Also British Persimmon LONDON PSN rose by 1 2 after the better than expected results that were announced in the first half of the year Its profits rose by 45 at 237 million
Finally Glencore LONDON GLEN gained by 1 8 as it became known that Harris Associates increased its stake in the share capital of the company with the buying of shares in the last 30 days
Fine Of 180 million To Citigroup NYSE C For Fraud
A fine of 180 million was imposed to Citigroup which was found guilty by the US Securities and Exchange Commission SEC for fraud against investors in 2008
According to MarketWatch Citigroup defrauded investors during the financial crisis of 2008 by urging them to invest in two funds ASTA MAT and FALCON
Citigroup according to SEC reassured investors by hiding the risks involved and said that these funds were sufficiently capitalized
The damage from the collapse of the two funds was amounted to 3 billion and affected 4 000 investors |
C | All Bubbles Are Different | Let me throw something at you to ponder
Stock market bubbles have NOTHING to do with valuations or fundamentals
I know I know That statement borders on the verge of heresy but let me explain
If stock market bubbles are driven by speculation greed and emotional biases the valuations and fundamentals are simply a reflection of those emotions
In other words bubbles can exist even at times when valuations and fundamentals might argue otherwise Let me show you a very basic example of what I mean The chart below is the long term valuation of the S P 500 going back to 1871
First it is important to notice that with the exception of only 1929 2000 and 2007 every other major market crash occurred with valuations at levels equal to or lower than they are currently Secondly all of these crashes have been the result of things unrelated to valuation levels such as liquidity issues government actions rising interest rates recessions or inflationary spikes However those events were only a catalyst or trigger that started the panic for the exits by investors
Market crashes are an emotionally driven imbalance in supply and demand You will commonly hear that for every buyer there must be a seller This is absolutely true The issue becomes at what price What moves prices up and down in a normal market environment is the price level at which a buyer and seller complete a transaction
In a market crash however the number of people wanting to sell vastly overwhelms the number of people willing to buy It is at these moments that prices drop precipitously as sellers drop the levels at which they are willing to dump their shares in a desperate attempt to find a buyer This has nothing to do with fundamentals It is strictly an emotional panic which is ultimately reflected by a sharp devaluation in market fundamentals
A recent debate between my friend Bob Bronson and Mark Hulbert about a bubble in stock market bubble warnings highlights some of the disconnects As Bob correctly states
The primary academic review work does not even attempt to generalize the conditions of all bubbles They ve merely identified five metrics they discuss seven but there are many dozens more that we track including new ones that always crop up in new bubbles
The fact that the factors they studied are only 50 in magnitude this time doesn t mean other valuation and speculation excesses whether they have also occurred before or new ones like unicorns don t make up another bubble today In fact our work shows just exactly that and being involved in every bear market during the past 50 years primarily advising institutional and professional investors about them
It can be most reasonably assumed that market are sufficient enough that every bubble is significantly different than the previous one and even all earlier bubbles In fact it s to be expected that a new bubble will always be different than the previous one s since investors will only bid up prices to extreme overvaluation levels if they are sure it is not repeating what led to the last or previous bubbles Comparing the current extreme overvaluation to the dotcom is intellectually silly
I would argue that when comparisons to previous bubbles becomes most popular like now it s a reliable timing marker of the top in a current bubble As an analogy no matter how thoroughly a fatal car crash is studied there will still be other fatal car crashes in the future even if the previous accident causing mistakes are avoided
He is absolutely right Comparing the current market bubble to any previous market bubble is rather pointless Financial markets have already studied and adapted to the causes of the previous fatal crashes but this won t prevent the next one
George Soros take on bubbles is also very important to consider at this juncture To wit
First financial markets far from accurately reflecting all the available knowledge always provide a distorted view of reality The degree of distortion may vary from time to time Sometimes it s quite insignificant at other times it is quite pronounced When there is a significant divergence between market prices and the underlying reality the markets are far from equilibrium conditions
Every bubble has two components
An underlying trend that prevails in reality and
A misconception relating to that trend
When a positive feedback develops between the trend and the misconception a boom bust process is set in motion The process is liable to be tested by negative feedback along the way and if it is strong enough to survive these tests both the trend and the misconception will be reinforced Eventually market expectations become so far removed from reality that people are forced to recognize that a misconception is involved A twilight period ensues during which doubts grow and more people lose faith but the prevailing trend is sustained by inertia As Chuck Prince former head of Citigroup NYSE C said As long as the music is playing you ve got to get up and dance We are still dancing Eventually a tipping point is reached when the trend is reversed it then becomes self reinforcing in the opposite direction
Typically bubbles have an asymmetric shape The boom is long and slow to start It accelerates gradually until it flattens out again during the twilight period The bust is short and steep because it involves the forced liquidation of unsound positions
The chart below is an example of asymmetric bubbles
The pattern of bubbles is interesting because it changes the argument from a fundamental view to a technical view Prices reflect the psychology of the market which can create a feedback loop between the markets and fundamentals
This pattern of bubbles can be clearly seen at every bull market peak in history The chart below utilizes Dr Robert Shiller s stock market data going back to 1900 on an inflation adjusted basis with an overlay of the asymmetrical bubble shape
There is currently a strong belief that the financial markets are not in a bubble The arguments supporting those beliefs are all based on comparisons to past market bubbles
The inherent problem with much of the mainstream analysis is that it assumes everything remains status quo However the question becomes what can go wrong for the market In a word much
Economic growth remains very elusive corporate profits appear to have peaked and there is an overwhelming complacency with regards to risk Those ingredients combined with an extraction of liquidity by the Federal Reserve leaves the markets more vulnerable to an exogenous event than currently believed
It is likely that in a world where there is virtually no fear of a market correction an overwhelming sense of urgency to be invested and a continual drone of bullish chatter markets are poised for the unexpected unanticipated and inevitable reversion
Take a step back from the media and Wall Street commentary for a moment and make an honest assessment of the financial markets today If our job is to bet when the odds of winning are in our favor then exactly how strong is the fundamental hand you are currently betting on
This time IS different only from the standpoint that the variables are not exactly the same as they have been previously Of course they never are and the result will be the same as it ever was |
JPM | JPMorgan downgraded at Baird | The downgrade came out prior to the election results but it s mostly a valuation call so JPMorgan s JPM 5 8 big move today shouldn t sway David George and team Calling JPMorgan a great company and a core bank holding George says the stock is fairly valued and would wait for a sizable pullback before adding Wells Fargo NYSE WFC offers a better risk reward but George cautions that investor sentiment towards banks seems a little too positive at the moment with prices mostly discounting a December rate hike and improving macro outlook Putting numbers on it JPMorgan trades largely inline with big cap bank peers on forward earnings vs an 85 relative multiple at the start of 2015 and at a 70 relative multiple to the S P 500 vs the long term average of 65 We think an extended Fed tightening cycle is unlikely and investors are underestimating the risks of further flattening in the yield curve and rising market volatility |
JPM | JPMorgan CEO Jamie Dimon asks for unity in post election memo | NEW YORK Reuters JPMorgan Chase Co NYSE JPM Chief Executive Jamie Dimon called on employees business leaders and government officials to work together on solutions to the United States problems on Wednesday in response to the surprise presidential election results In a memo to employees Dimon cited a deep desire for change and a frustration with the economy among the electorate which voted Republican candidate Donald Trump into office We need to listen to those voices Dimon wrote calling on leaders across public private and nonprofit sectors to come together
JPMorgan will continue its own work on public policy issues and economic challenges globally he said |
JPM | Wall Street surges after Trump wins White House | By Noel Randewich NEW YORK Reuters U S stocks rose sharply on Wednesday in a dramatic turnaround from deep overnight losses as Wall Street embraced the upset presidential election victory of Republican Donald Trump After warning for months that a Trump White House would create uncertainty and damage sentiment investors poured money into sectors that may benefit from the former reality TV show star s victory That was a steep reversal from the previous night when financial markets reacted violently as Democrat Hillary Clinton s path to victory disintegrated and S P futures ESc1 dropped 5 percent before a trading limit kicked in The stock market is acting like a teenager It makes a lot of demands but it doesn t know what it wants said Jake Dollarhide chief executive officer of Longbow Asset Management in Tulsa Oklahoma Gains of over 3 percent each in the heavily weighted healthcare SPXHC and financial SPSY sectors pushed the Dow Jones industrial average up over 1 percent The Dow was just shy of its record high The real estate sector fell 2 28 percent and utilities SPLRCU lost 3 68 percent Both sectors are proxies for bonds which also fell Anything that Trump mentioned during the campaign any industry he has mentioned favorably or unfavorably is moving today big time said Tim Ghriskey chief investment officer of Solaris Group in Bedford Hills New York A curb on drug pricing was a key campaign theme for Clinton while Trump has called for repealing the Affordable Care Act and loosening restrictions on banks enacted after the financial crisis The Dow Jones industrial average DJI jumped 1 4 percent to end at 18 589 69 just 0 25 percent below its all time high set in August The S P 500 SPX surged 1 11 percent to 2 163 26 and the Nasdaq Composite IXIC added 1 11 percent to end at 5 251 07 Trading volume was the highest since June when Britain voted to abandon the European Union DoubleLine Capital Chief Executive Jeffrey Gundlach known as the Bond King said stocks rebounded strongly from overnight losses because investors believe Trump s policies are better for economic growth in the short term than Clinton s Republicans maintained their majorities in both chambers of the U S Congress potentially enabling the party to reshape Washington with two years of unified government Regardless of the fact you had a Republican sweep there are still checks and balances in place said Art Hogan chief market strategist at Wunderlich Securities in New York So you are going to have some of your more fiscally conservative Republicans that will certainly slow Trump down from doing anything crazy in terms of policy changes Wall Street is typically seen as preferring gridlock or shared control of the White House and Congress over a sweep of both chambers of Congress and the presidency The CBOE Volatility index VIX a gauge of investor anxiety fell 23 percent and was on track for its biggest daily drop since late June Shares of big pharmaceutical companies gained with Pfizer N PFE jumping 7 07 percent the biggest driver of the S P 500 s gains The iShares Nasdaq Biotechnology ETF O IBB surged 8 93 percent and was on track for its biggest daily percentage gain in eight years Among financials JPMorgan Chase N JPM surged 4 60 percent while Wells Fargo N WFC rose 5 38 percent Advancing issues outnumbered declining ones on the NYSE by a 1 24 to 1 ratio on Nasdaq a 2 59 to 1 ratio favored advancers The S P 500 posted 60 new 52 week highs and 14 new lows the Nasdaq Composite recorded 208 new highs and 98 new lows
About 11 7 billion shares changed hands on U S exchanges far above the 7 billion daily average over the last 20 sessions |
C | European Markets Make Strong Upward Movement | Losses In The Japanese Stock MarketJapanese stock market made a drop on Friday under the weight of the big losses that were recorded by the share of Fast Retailing
The rally that was made for a second consecutive day in the Chinese stock market limited the losses
Nikkei fell by 0 4 at 19 779 83 points while on a weekly basis it fell by 3 7
In contrast the broader TOPIX index closed at 1 583 55 points as it was increased by 0 2 while the JPX Nikkei Index 400 rose by 0 3 at 14 312 51 points
Euromarkets Made A Strong Upward MovementThe European indices moved at very high levels today indicating that they anticipate a deal between the Greek government and its creditors after the timely filing of the Greek proposal
The British index FTSE 100 increased by 1 10 at 6 654 points the German DAX recorded an increase of 2 14 at 11 232 points and the French CAC 40 moved up by 2 2 at 4 862 points
STOXX 600 index recorded profits of 1 51 at 386 81 points
On the board Intercontinental Hotels Group LONDON IHG increased by 4 5 after announcing that it has agreed the sale of hotels in Hong Kong to a group of investors for the sum of 938 million
Also significant profits that exceed 1 8 were recorded by BHP Billiton LONDON BLT and Rio Tinto Group LONDON RIO after the upgrade from Citigroup NYSE C to a buy
In the economic data of the day the German wholesale price index fell by 0 5 in June compared to June 2014 while on a monthly basis the index fell by 0 2 instead of an increase of 0 5 in May of the same year |
C | Oil down on slight profit taking | Investing com Oil futures traded slightly lower Tuesday in Asia after eking out a small gain during Monday s U S session as traders looked to lock in some profits in crude though futures still hovered around the USD103 barrel area On the New York Mercantile Exchange light sweet crude futures for August delivery fell 0 25 to USD102 88 per barrel in Asian trading Tuesday after settling up 0 11 at USD103 33 a barrel on Monday in the U S Oil got a modest lift Monday as traders continued to embrace Friday s bullish jobs report which made the dollar less attractive as risk appetite increased Last Friday the Bureau of Labor Statistics reported the U S economy added 195 000 nonfarm payrolls in June well above analysts calls for a 165 000 increase May s figure was revised upwards to 195 000 jobs from 175 000 while April s figure was revised upwards to 199 000 from 149 000 The worsening scenario in Egypt continued to figure prominently into the oil equation Violent clashes between supporters and opponents of ousted President Mohamed Morsi left more than 40 people dead over the weekend according to various reports Those headlines had traders speculating the Suez Canal a major thoroughfare for global oil transport could be shut down perhaps removing 2 million barrels per day from global supplies Elsewhere a report by Citigroup return on invested capital by the world s 30 largest oil companies fell to 9 and the bank said that number could fall to 8 by 2015 if Brent prices remain above USD100 per barrel Dwindling returns on invested capital have prompted some U S oil majors to bolster share buybacks and dividends but their European rivals have not followed suit in significant fashion Meanwhile Brent for August delivery inched down 0 09 to USD107 01 per barrel on the ICE Futures Exchnage |
C | Citigroup Q2 earnings revenue beat estimates shares jump 2 | Investing com Banking conglomerate Citigroup reported better than expected second quarter earnings and revenue on Monday sending its shares higher in pre market trade Earlier in the day in its second quarter earnings report Citigroup said adjusted earnings per share came in at USD1 25 above expectations for USD1 18 per share The bank s second quarter revenue totaled USD20 beating forecasts for revenue of USD19 77 billion Michael Corbat Chief Executive Officer of Citi said Our businesses performed well during the quarter and these results are well balanced through our products and geographies especially in the emerging markets where growth is being challenged Immediately after the earnings announcement Citigroup shares jumped 2 in trading prior to the opening bell Meanwhile the outlook for U S equity markets was upbeat The Dow Jones Industrial Average futures indicated a gain of 0 2 S P 500 futures pointed to a rise of 0 2 and Nasdaq 100 futures indicated an advance of 0 2 at the open |
C | Whatever OPEC Decides Supplies Continue To Rise | No matter what OPEC says Friday about its production target the outcome is sure to be more oil Iran Iraq and Libya said this week they plan to add millions of barrels to the market this year Saudi Arabia the biggest member in the group is already pumping the most in three decades And executives from the world s biggest oil companies pledged to keep expanding by cutting costs and focusing on the most promising drilling sites The contest for market share is proving more important than price as the Saudis seek to undercut higher cost producers while costs keep dropping The competition is intensifying because producers are eager to sell ever more oil even as world demand slows High prices spurred the commercialization of an awful lot of oil that s now ready to be sold in the market Ed Morse Citigroup s NYSE C New York based head of global commodities research said by phone The decline in demand is making it very difficult to sell oil when you ve got not just the shale revolution but Iran and Iraq and other OPEC countries wanting to produce a lot more Brent crude the benchmark for more than half the world s oil fell 60 percent to a six year low of 46 59 a barrel in January from 115 06 in June It s up 32 percent since then and traded at 61 65 a barrel at 10 06 a m London time Friday The U S Energy Information Administration forecasts Brent will average 60 79 in 2015 Angola needs a price of 80 Oil Minister Jose Botelho said Friday in Vienna New projects will slow down amid the slump in prices he said |
C | Getting Set For The Market Of 2011 | Trend Model signal summary Trend Model signal Risk off Trading model Bearish
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price In essence it seeks to answer the question Is the trend in the global economy expansion bullish or contraction bearish
My inner trader uses the trading model component of the Trend Model seeks to answer the question Is the trend getting better bullish or worse bearish The history of actual out of sample not backtested signals of the trading model are shown by the arrows in the chart below In addition I have a trading account which uses the signals of the Trend Model The last report card of that account can be found here
Update schedule I generally update Trend Model readings on weekends and tweet any changes during the week at humblestudent
Choppy markets ahead
These markets are confusing The binary risk posed by the Greek drama has induced a level of volatility that the markets haven t seen for a few years I had been highly conflicted about stock market direction until I began to categorize the bullish and bearish indicators by time horizon The contradictory signals all made sense when I realized that the disagreement over direction was based on time horizon These conditions are highly suggestive of a choppy July
Here are my model readings from the ones with the shortest time horizon which is 1 3 days to the longest which is about 12 24 months
Short term trading models Bullish
Breadth Bearish
Global markets or inter market analysis Bearish
Macro and market fundamentals Bullish
Tail risk Greece and China
There you have it While short term trading models correctly predicted the bounce that began last week the technical picture and market internals remain weak which suggests that stock markets may have unfinished business to the downside However the long term fundamental and macro picture looks positive which indicates that investors should view any weakness to be buying These readings are a recipe for the next few weeks to be volatile and treacherous
So pick your time horizon and pick your poison Let s begin
A short term bounce
I wrote last week that the market was set up for a short term bounce and I was looking for some follow through to see how durable the rally was see Time for a market bounce Indicators like the CNN Money Fear and Greed Index had deteriorated to levels where stock prices had seen a short term rally in the past
Similarly the CBOE equity only put call ratio rose to levels that have signaled short term market bottoms in the past
In my post I had also highlighted my Trifecta bottom model which has had an excellent history of spotting buyable oversold bottoms in the last few years In this case only two of the three components had flashed a buy signal which are marked by the blue vertical lines in the chart below The red lines indicate where all three components had flashed buy signals
I would add the caveat that this model did not perform perfectly in 2010 and 2011 where oversold markets got even more oversold So the big question then becomes Is this the start of a major decline
In general sustainable V shaped bottoms are accompanied by bullish enthusiasm and follow through I wrote about watching for and the window for this market action does not begin until Tuesday
also researched the topic of bullish follow through after a V shaped bottom He studied the degree of retracement after a VIX spike and found that episodes more powerful retracements saw much higher market returns while weak retracements saw negative returns
Unfortunately I find the current anemic nature of the market action after the market bottom to be disturbing The SPDR S P 500 ETF s ARCA SPY close was below its open on Tuesday Wednesday and Thursday of last week which are hardly signs of positive bullish momentum In fact this was the only time in its trading history going back to 1993 that SPY had seen 10 consecutive times when the close was below the open
Moreover the relative performance of high beta groups during the three day rally has been disappointing The chart below shows the SPX in the top panel and the relative performance of different high beta groups iShares Nasdaq Biotechnology NASDAQ IBB PowerShares Nasdaq Internet NASDAQ PNQI Global X Social Media NASDAQ SOCL Renaissance IPO NYSE IPO PowerShares QQQ Trust Series 1 NASDAQ QQQ in the others High beta stocks had been either flat or in relative downtrends leading up to the recent market swoon which arguably could be expected However their performance in the brief rally afterwards can be best described as Meh
This kind of market action can hardly be described as wildly bullish
Bad breadth
As we move from the ultra short term trading models to models with somewhat longer time horizons the outlook remains problematical The chart below of the SPX along with a variety of breadth indicators are not showing any bullish divergence In addition the SPX is showing the characteristic signs of a rounded top which suggests that stock prices are likely to resolve themselves to the downside
Bearish verdict from inter market analysis
The Trend Model depends mainly on cross asset and global market inter market analysis to calculate its signals While this is a trend following model and trend following models are terrible at market turning points I am not seeing any signs of a bullish upturn in any of the components of my model
Let s begin with risk appetite One of the best recent indicators of market direction that I ve seen for a 1 3 week time horizon has been the relative performance of junk bonds The chart below shows the performance of HY bond prices via iShares iBoxx High Yield Corporate Bond Fund ARCA HYG relative to their equivalent duration Treasuries via iShares 3 7 Year Treasury Bond ETF NYSE IEI I blue line As the chart shows credit market risk appetite is diminishing as it is showing a negative pattern of lower highs and lower lows which is negative for the outlook for risky assets like US equities
The global equity picture doesn t look very bright either Starting with Europe the UK FTSE 100 which in theory is more insulated from Greece than eurozone equities has violated both its 50 and 200 day moving averages and the bears have taken control as the index is in a downtrend with lower highs and lower lows The Euro STOXX 50 which represents large eurozone stocks remains below its 50 dma but appears to be trying to stabilize at a support level Its future is highly dependent on how the Greek drama unfolds in the days ahead Score European equities as bearish
Then we have Asia Notwithstanding the casino called the Chinese Stock Market more on that later the stock indices of every regional exchange of China s major Asian trading partners Hong Kong Taiwan South Korea Singapore and Australia are below their 50 dma These are not bullish endorsements of global growth
Cyclically sensitive commodity prices are also telling a similar story The cyclically sensitive industrial metals complex remains weak regardless of what currency the commodities are priced in This is especially disturbing as the US Dollar Index has been relatively flat in the last two months However the CRB Index which is heavily weighted to energy has been flat as oil prices have stabilized in the same period Score commodities as mildly weak
Shanghai turns into a margin clerk market
I don t want to get overly Zero Hedge apocalyptic about the implications of a possible crash in the Chinese stock market as the Shanghai market has been falling relentlessly and down 28 6 from its peak in June However global markets may not be prepared for a catastrophic crash in Shanghai and some contagion effects may be possible
The Chinese stock market had been driven up by increasing amounts of margins loans and financial leverage and now we are seeing the downside of what margin debt can do The effects of margin debt in China have been well documented here is the
These charts from Goldman Sachs tell a similar story
But wait That s just official account margin Then you have to account for margin loans from the informal and shadow banking sector via
One sign of desperation was when who were driving down stock prices Where were they when there were Despite these initiatives plus the PBoC measure to ease interest rates last week the Chinese stock market continues to nosedive and has turned into a margin clerk market
A couple of other measures have been announced to support the cratering stock market First reports that Bejing is allowing margin loans collateralized by real estate as a sign of desperation
In China you can now literally bet the house on the nation s tumultuous stock market
Under new rules announced Wednesday by the country s securities regulator real estate has become an acceptable form of collateral for Chinese margin traders who borrow money from securities firms to amplify their wagers on equities That means if share prices fall enough individual investors who pledge their homes could be at risk of losing them to a broker
We also saw the surprise announcement that 21 brokerage houses banded together to put 120 billion RMB USD 19 billion into the stock market via
The 21 brokers led by Citic Securities Co will invest the equivalent of 15 percent of their net assets as of the end of June or no less than 120 billion yuan 19 3 billion in total the Securities Association of China said in a statement on its website Saturday The fund will invest in blue chip exchange traded funds it said
The move comes after measures to shore up equities failed to stop margin traders from unwinding positions at a record pace with the market losing more than 2 8 trillion of value in three weeks The People s Bank of China cut interest rates last week while margin trading rules were eased and trading fees were cut Wednesday
A 120 billion yuan fund dedicated to buying blue chip stocks in a market that s falling because of margin loan liquidation may not be enough
The new fund to bolster equities may have only a fleeting effect when daily turnover has reached 2 trillion yuan according to Hao Hong China equity strategist at Bocom International Holdings Co in Hong Kong
This 120 billion yuan won t last for an hour in this market Hong said by phone from Beijing Saturday It might benefit blue chip stocks as investors may see them as value but the bursting of the bubble in small cap tech stocks is likely to continue
Japan tried similar tactics in the early 1990 s and it failed Here is a article from February 27 1990 h t
After a week of turmoil on the Tokyo Stock Exchange topped by Monday s 4 5 percent plunge the Government and the exchange itself intervened to restore stability
On opening Tuesday the market quickly bounced back an additional 600 points before heading downward again At the mid day close the average had erased all of its gains and was down 171 30 points The strong market in New York and signs that the Japanese Government s efforts were helping to stabilize the yen were credited for the small temporary rebound but the subsequent drop was taken as a sign that market confidence was still fragile
For some context on the scale of the slide in Chinese stocks reported on July 2 that the fall in Chinese equities was equivalent to 10 Greek GDPs and that was before prices fell even further
A dizzying three week plunge in Chinese equities has wiped out 2 36 trillion in market value equivalent to about 10 times Greece s gross domestic product last year
If the Chinese market continues to slide the big question then becomes What s the potential damage to global markets
We can categorize the possible damage as short run and long run The short term risk is a financial contagion that spreads throughout the global financial system There is about 9 trillion in loans in the offshore USD market see BIS statistics indicate about 1 1 trillion was directed to Chinese companies mostly through Hong Kong conduits
Let s sketch out a worst case scenario with some back of the envelope calculations Supposing that 25 of those loans go sour and lenders recover on average 70 cents on the dollar Aggregate losses would then amount to 83 billion which is roughly the same order of magnitude as total Puerto Rico debt of 72 billion If you re not panicked that a PR default would sink the markets why should a Chinese market crash spook you To be sure a 83 billion hit to the global financial system would be unpleasant but not fatal especially if the losses are spread around Conceivably we could see a major regional player like Macquarie Bank go belly up that s just an example I know nothing about Macquarie but central bankers are much better prepared at these liquidity driven panics than they were in 2008
The long term effects of a crash in Chinese equities are far more serious as it will depress Chinese household sector wealth Such an event will end the hopes of any consumer based re balancing that Beijing might have had The rest of the world would see negative side effects in the form of falling Chinese demand for both consumer and capital goods George Magnus writing in the outlined the possible fallout
If there were another precipitous market decline the effects on the economy might increase for three reasons First although Chinese households typically hold only about 20 per cent of assets in equities exposure is rising for the new middle class More than 10 per cent of the between 70m and 80m retail trading accounts were opened this year about the same as in 2014 Second any short term balance sheet boost for SOEs will disappear and non financial company revenues and earnings will be put under pressure by weaker demand overcapacity and deflation
Third and perhaps most important another large drop will probably mark a loss of confidence in the government s ability to underpin the market at a time when the economy is going through a tough time Investment except in infrastructure is sliding in all sectors In spite of easy monetary policies real interest rates are high because of deflation in producer prices Debt growth has fallen but is still growing at twice the rate of nominal gross domestic product The anti corruption campaign unleashed by President Xi Jinping is sapping growth and initiative and stifling economic reforms As a recent World Bank report suggested China s capacity to grow and boost productivity will be compromised while the state interferes extensively and directly in resource allocation
highlighted a UBS report on the impact of a Chinese slowdown on developed market economies
With China s property construction deceleration set to deepen this year in a multi year slowdown we may see a longer term decline in China s appetite for foreign industrial imports said the report
This is especially troubling to vehicle and machinery producers as around 30 of all exports from the US in those industries go to China Globally Germany and the EU send nearly 50 of their goods in these industries to China An economic slowdown in China would be far more negative than crash induced financial contagion from nosediving Chinese stocks The global economy is relatively well prepared to weather shocks like a Russia Crisis where if a long term investor blinked and paid no attention for a few months it was over A major economic slowdown in China has the potential to slow global growth and the earnings outlook
Bullish fundamentals Despite all these bearish signals my inner investor is jumping up and down and shouting But the US equity outlook looks great
Consider for example one of the most important long term charts for US equities This plots the SPX against the 4 week average initial jobless claims on an inverted scale The Employment Report last week showed that the recovery remains on track which is positive for the consumer and the economy overall So what s not to like
The Citigroup NYSE C Economic Surprise Index has shaken off its weather and west coast port related 1Q doldrums and it is beginning to rise again indicating that the beat rate of high frequency economic data is increasing
The continues to advance and 2Q estimated GDP growth now stands at 2 2
Data from shows that Street forward 12 month estimates have been steadily rising though they suffered a hiccup last week and the advanced paused The forward EPS drop could just be noise but we will get better reads as we get deeper into Earning Season
As well the latest insider trading data from Barron s has been in the bullish zone for several weeks In conclusion the fundamental and macro picture indicate that barring a major negative global growth surprise US equities should be bought on weakness
The week ahead Preparing for volatile markets All of these cross currents based on differing time horizons suggest that the weeks ahead could see some very volatile and treacherous markets In many ways it is reminiscent of 2011 when the markets were buffeted by news of a Greek crisis
Even if we were to use 2011 as a rough template for the markets the chart below begs the question of where we are in 2011 The top panel shows the SPX and the other panels show the components of my Trifecta bottom model for details and Is the market in the early parts of 2011 when the Trifecta bottom model flashed buy signals or are we in the choppy period after the big fall in August where it chopped around in a big range for two months before ultimately recovering
Under the circumstances my inner trader remains cautious He tactically and in order to reduce binary event risk heading into the Greek referendum
All of the above were written before the results of the Greek referendum were known
In the wake of No vote in the referendum equity futures are deeply in the red If the Shanghai market doesn t at least stabilize then global markets will get even uglier
Current conditions call for keeping commitments lighter than usual as market moves are likely to be sharp and treacherous My inner trader is staying highly tactical and watching his Trifecta bottom indicators for signs of a tradeable bottom Needless to say any possible bullish confirmation of the V shaped bottom last week has gone out the window
My best advice to traders right now is not to get mesmerized by the screen with OMG OMG What do I do Drawdowns are a way of life Define your risk and sketch out a plan with different scenarios ahead of time That way you can react to events in a less emotional manner
My inner investor remains constructive on stocks and he is waiting for the full downdraft to load up on equities
Disclosure No positions
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd Qwest This article is prepared by Mr Hui as an outside business activity As such Qwest does not review or approve materials presented herein The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives financial situation or particular needs of any specific recipient Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions Past performance is not indicative of future results Either Qwest or Mr Hui may hold or control long or short positions in the securities or instruments mentioned |
JPM | U S to secure guilty plea in case tied to JPMorgan hack probe | By Nate Raymond NEW YORK Reuters U S prosecutors are expected to obtain their second guilty plea in a case related to what they say was an illegal bitcoin exchange owned by an Israeli behind a series of hacking attacks on organizations such as JPMorgan Chase Co NYSE JPM Prosecutors in a letter filed in Manhattan federal court said Michael Murgio of Florida will plead guilty on Thursday after being charged for participating in a scheme to pay bribes to let the bitcoin exchange s operators gain control of a credit union Under a plea agreement Murgio has agreed to plead guilty to a single count of making a false statement to the U S National Credit Union Administration said Stuart Kaplan his lawyer said on Wednesday Murgio was added as a defendant in April in a case against others including his son Anthony Murgio who prosecutors say operated the unlicensed bitcoin exchange Coin mx and was involved in the bribe scheme His plea would be the second in the case after another Florida man Jose Freundt pleaded guilty on Oct 13 to charges including that he conspired to operate Coin mx as an unlicensed money transmitting business Prosecutors have said Coin mx was owned by Gery Shalon an Israeli accused of orchestrating a massive hacking scheme with another Israeli Ziv Orenstein and an American Joshua Samuel Aaron Prosecutors contend Shalon Orenstein and Aaron ran a criminal enterprise that hacked into a dozen companies networks stealing the personal information of more than 100 million people In the case of JPMorgan prosecutors said records belonging to more than 83 million customers had been stolen While the Murgios are not accused of engaging in the hacking offenses prosecutors said they committed crimes with their co defendants Florida resident Yuri Lebedev and New Jersey pastor Trevon Gross related to the unlicensed operation of Coin mx Prosecutors said beginning in 2013 Anthony Murgio operated Coin mx which exchanged millions of dollars of the virtual currency bitcoin for customers while Lebedev supervised computer programing functions for the exchange To evade scrutiny of Coin mx the Murgios and Lebedev in 2014 acquired control of Helping Other People Excel Federal Credit Union of Jackson New Jersey by paying 150 000 in bribes to its chairman pastor Trevon Gross an indictment said Anthony Murgio Lebedev and Gross have pled not guilty They are scheduled to face trial on Feb 6 Shalon and Orenstein pleaded not guilty following their extradition from Israel in June Aaron is currently in Russia
The case is U S v Murgio U S District Court Southern District of New York No 15 cr 00769 |
JPM | U S credit unions expect to expand with regulatory vote this week | WASHINGTON Reuters Credit unions will be able to more easily expand into markets dominated by banks after a reform vote on Thursday industry officials say as regulators clear the way for the not for profits lenders The proposal would ease restrictions on who may join credit unions member owned lenders that typically form around a common employer hometown or other shared class The industry regulator the National Credit Union Administration NCUA is due to vote Thursday morning and industry leaders foresee a decision in their favor We expect the NCUA to ease unnecessary regulatory restrictions said Carrie Hunt a lobbyist for the National Association of Federal Credit Unions a leading trade group In regulatory jargon credit unions may only form around a well defined local community but proponents of reform say technology has helped widen the meaning of that term The internet has changed everything for lenders said Ryan Donovan lobbyist with the Credit Union National Association This only modernizes some arcane requirements The details of the reform will be outlined at a NCUA board meeting but the regulator has proposed easing geographic limits on credit union membership and allowing more contractors to join employer affiliated lenders One proposal would also encourage credit union expansion into poor and rural communities by easing tests for whether those regions are underserved by other creditors The roughly 6 000 credit unions in the United States are a relatively small part of the national financial system Their roughly 1 trillion in total assets is only about 2 3 of the total holdings of JPMorgan Chase Co N JPM one of the nation s largest banks Leading bank industry trade groups though have opposed plans to allow credit union expansion Congress always intended to limit the power of credit unions and keep them tethered to small groups of people with a strong common bond according to the American Bankers Association
Unfortunately the NCUA proposal totally ignores two key phrases well defined and local out of its statute in order to drastically expand credit union powers the bank trade group wrote lawmakers early this year |
JPM | BOJ loses bark and bite under humbled Kuroda | By Leika Kihara TOKYO Reuters As his term winds down Bank of Japan Governor Haruhiko Kuroda has retreated from both the radical policies and rhetoric of his early tenure suggesting there will be no further monetary easing except in response to a big external shock In a clear departure from his initial shock and awe tactics to jolt the nation from its deflationary mindset he has even taken to flagging what little change lies ahead trying predictability where surprise has failed This new approach will be on show next week when the BOJ is set to keep policy unchanged despite an expected downgrade in forecasts that could show Kuroda won t hit his perpetually postponed 2 percent inflation target before his five year term ends in April 2018 The days of trying to radically heighten inflation expectations with shock action are over said a source familiar with the BOJ s thinking No more regime change Kuroda told parliament last week that while the BOJ might again stretch the timing for its inflation target he saw no need to ease at the Oct 31 Nov 1 policy meeting There may be some modification to our forecast that inflation will hit our 2 percent target during fiscal 2017 he said the first time he has offered hints on upcoming projections Japan s core consumer prices fell for a seventh straight month in September as household spending slumped data showed on Friday reinforcing the view it will take some time for inflation to accelerate to its target In the past the market has learned to expect the unexpected In 2013 when the BOJ deployed its massive asset buying program dubbed quantitative and qualitative easing QQE his shock therapy boosted stocks and weakened the yen Further surprises came with an expansion of QQE in October 2014 and then the switch to negative rates early in 2016 which he had denied was an option just days before But the law of diminishing returns bought him less bang for each buck When monetary policy options begin to wear out the shock approach doesn t work any more said Toshiro Mutoh former BOJ deputy governor and now chairman of Daiwa Institute of Research That s why the BOJ needs to avoid surprising markets and make its intentions more predictable through guidance OUT WITH THE NEW When inflation gave up the ghost again after initially showing signs of life the BOJ was forced to revamp its policy framework last month to one better suited to a protracted battle against deflation Since then Kuroda has been jettisoning nearly everything that made his BOJ unique He once derided his predecessor for blaming deflation on demographics and Japan s low growth potential and in 2013 accepted sole responsibility for hitting 2 percent inflation Now he says monetary policy alone cannot beat deflation and has called for government efforts to boost growth Gone are the fixed timeframes he set for hitting that price goal along with his reassurances that he would do whatever it takes to beat deflation In a sign that the rising cost of his 80 trillion yen 765 billion a year bond buying could discourage further easing the central bank said on Monday that some regional banks were struggling to earn profits as margins narrowed It would probably take something very damaging to the economy like a huge yen spike for the BOJ to ease again said Masaaki Kanno a former BOJ official who is now chief Japan economist at JPMorgan NYSE JPM Securities The BOJ s policy targeting the pace of money printing has been replaced by a complex yield curve control YCC with two targets a short term rate target of minus 0 1 percent and a 10 year bond yield target around zero percent It doesn t look like Kuroda s style at all another source said The new framework reflected the outcome of a comprehensive re assessment of its policies the BOJ conducted last month which included an unusually frank acknowledgement of what went wrong with Kuroda s monetary experiment The BOJ admitted there was no direct link between the pace of money printing and inflation expectations in the short run It also said its stimulus program wasn t powerful enough to weather headwinds and heighten inflation expectations The make over could also have driven a wedge between him and some BOJ members who had hitherto formed his majority on a divided board Reflationist board member Yutaka Harada and Deputy Governor Kikuo Iwata have both sounded discordant notes in support of bond purchases despite the new framework while Kuroda has said the pace of purchases could slow if the bank can hit its yield control target with less buying All of which strips Kuroda of the assurance he once projected Yield curve control is an untested policy so there s uncertainty on how it works Mutoh of Daiwa Institute said
It s an enormous new challenge for the BOJ |
JPM | Fed to hold rates steady put December hike firmly in view | By Lindsay Dunsmuir WASHINGTON Reuters The U S Federal Reserve is expected to keep interest rates unchanged on Wednesday but set the stage for a hike in December amid signs the economy is picking up steam The central bank has grown increasingly confident about raising rates and Chair Janet Yellen said in September that a move before the end of the year was likely should employment and inflation continue to strengthen Data since then has shown payrolls still growing solidly while consumer prices are showing some signs of ticking higher putting both employment and inflation close to the Fed s long run estimates Growth too has improved with the economy accelerating at a 2 9 percent annual pace in the third quarter after a fairly sluggish first half Investors have all but ruled out a move at this week s meeting given it takes place only a week before the U S presidential election A number of Fed officials have recently said a December rate hike would be preferable It s widely understood that it would be politically treacherous for the Fed to hike just before a very heated election said JPMorgan NYSE JPM economist Michael Feroli a former Fed staffer in a note to clients An ABC News Washington Post poll released on Sunday showed Democratic candidate Hillary Clinton with a 1 percentage point national lead over Republican rival Donald Trump within the margin of error This week s Fed policy decision is due to be released at 2 p m EDT 1800 GMT on Wednesday at the conclusion of a two day meeting Yellen is not scheduled to hold a press conference HOW STRONG A SIGNAL At the meeting prior to raising rates last year the Fed firmly signaled its intentions by including a reference to possibly raising rates at its next meeting This time around it could take a softer approach In September policymakers already put markets on notice by saying they decided to stand pat for the time being to wait for further evidence employment and inflation were progressing The Fed could lower the bar more to some further evidence being required which may also serve to assuage the concerns of at least one of the three voting policymakers who called for an immediate hike in September With investors already expecting a December move the Fed probably won t feel like it needs to lock in its intentions any more than necessary said Lewis Alexander chief U S economist at Nomura and a former Fed staffer
They will probably want to do something like have Yellen give some relatively high profile speech a couple weeks before the December meeting he said That s probably a better way than putting something in the statement that inevitably is going to be pretty cryptic |
JPM | On Wall Street a high ranking few still avoid email | By Olivia Oran Reuters In an age when most bankers use keyboards to communicate with each other a small group of the Wall Street elite refuses to say anything substantive in an email text or chat and some will not communicate digitally at all This group which includes top bankers like JPMorgan Chase Co N JPM Chief Executive Officer Jamie Dimon and powerful investors like Carl Icahn and Berkshire Hathaway Inc s N BRKa Warren Buffett were eschewing electronic communications long before the probe of U S presidential candidate Hillary Clinton s emails and the recent hacks of her campaign manager s account made headlines Some on Wall Street are nostalgic for a time when in person conversations or phone calls were the norm but others believe the words they type and send can come back to haunt them Prosecutors have built insider trading mortgage fraud and rate rigging cases on embarrassing emails over the past several years and they are often the most memorable part Recent email woes among Washington power players have provided yet another reason for bankers to try to protect private correspondence from prying eyes Dimon uses email but is known to keep his replies short and factual favoring yes no and thank you That behavior was evident in company emails released by a U S Senate committee investigating JPMorgan s 6 2 billion London Whale derivatives trading loss In one message Dimon replied with a simple I approve showing some responsibility but giving no sense of how deeply he was involved with the decision to change risk tolerances at the bank After hearing a passing reference to regrettable emails during an interview at a conference two years ago Dimon volunteered Don t send emails after you ve had a drink A JPMorgan spokesman would not comment further Other top investors like Icahn and Buffett rely on their assistants to send and receive messages Buffett s assistant Debbie Bosanek prints out emails for the billionaire investor Although the investors are averse to two way digital correspondence both blast out carefully curated messages on their Twitter accounts with Icahn attracting 304 000 followers and Buffet 1 2 million Icahn has often used the tool to promote investments or political views while Buffett has been relatively mum tweeting just nine times Ariel Investments chief John W Rogers also shuns email which he has described to associates as a distraction His staff filters important messages prints them out and puts them on his chair for review according to spokeswoman Merrillyn Kosier He prefers to speak with employees in person or over the phone
I do think there is certain cautiousness today around email said Virginia Healy Tangney a senior lecturer at the MIT Sloan School of Management who focuses on managerial communication Since the financial crisis executives really have to be prepared for anything they say to potentially end up on the front page of the New York Times |
JPM | JPMorgan says demand for Reserve card strong but tapering | NEW YORK Reuters JPMorgan Chase Co N JPM said that demand for its high fee high rewards Sapphire Reserve credit card is strong but tapering and that the cost of opening new card accounts could hurt fourth quarter revenue by as much 200 million JPMorgan made the disclosures in a quarterly filing on Tuesday after the stock market close
The Reserve card which carries a 450 annual fee but offers more than 1 300 in credits and give backs on new accounts has been surprisingly popular and escalated competition between card issuers for customers |
JPM | U S presidential election offers little cause for alarm JPMorgan AM s Michele | By Tomo Uetake TOKYO Reuters The U S presidential election is unlikely to be a major risk for financial markets as Congress is likely to put a brake on many policies whoever wins the fixed income chief investment officer of JPMorgan Asset Management said on Wednesday Bob Michele said the world s fifth largest asset manager increased exposure to inflation linked bonds TIPS and emerging market debt in the last few weeks expecting moderate growth and solid oil prices to lift inflation and support emerging market currencies Global financial markets were roiled by signs the U S presidential election race was tightening just days ahead of the Nov 8 vote with a possible victory for Republican presidential candidate Donald Trump seen as boosting uncertainty on U S foreign economic and trade policies But Michele told Reuters in an interview that U S politics is not among the major risk factors the firm looks at in coming months because the House of Representatives is likely to remain Republican This is very important because any law that the President would like to pass has to go through the House for approval he said We are in an interesting position where if Hillary Clinton gets elected the House if it remains Republican will likely push back a lot of things she wants to do But if Trump gets elected and he tries to push through a lot of the extremist protectionist things he has talked about I expect the House will push that back Since both candidates are highlighting the need to rebuild U S infrastructure fiscal expansion is likely whoever wins Michele said In addition U S and world growth look better than expected at the start of 2016 and oil prices have recovered sharply from 12 year lows hit early this year which is likely to underpin prices in coming months There s a lot that will happen in a couple of weeks that will appear to be very growth friendly and very inflation oriented including the election he added Many of the things we re doing now are to prepare in advance JPMorgan s N JPM asset management arm has added local emerging markets debt Michele added citing high real yield upsides to growth and stabilization of currencies thanks to recovering energy prices He named Brazil India Indonesia and Russia as attractive targets adding that it was a good time to take the currency exposure as well Michele who manages the firm s 455 billion fixed income portfolios also said it was looking for opportunities to sell duration When markets rally we would use that as an opportunity to cut duration of our portfolios because we think the market is going through a growth and inflation scare
JPMorgan Asset Management had 1 77 trillion in assets under management by September 30 |
C | U S futures lower amid Fed worries Dow Jones down 0 78 | Investing com U S stock futures pointed to a lower open on Monday as last week s comments by Federal Reserve Chairman Ben Bernanke saying that the bank could scale down its stimulus program before the year end continued to weigh Ahead of the open the Dow Jones Industrial Average futures pointed to a 0 78 decline S P 500 futures signaled a 0 82 drop while the Nasdaq 100 futures indicated a 0 60 loss Stocks came under pressure after Fed Chairman Ben Bernanke said last Wednesday that the bank could begin tapering asset purchases by the end of 2013 if the economy continues to pick up Investors were also cautious after the International Monetary Fund on Friday said it would not suspend Greek funding and said Athens has until July to come up with an agreement on its bailout program The comments came amid concerns over recent delays in the privatization plan Greece agreed to last year which could threaten the country s performance on economic reforms needed to secure bailout funding Tech stocks were expected to be active after Apple announced late Friday that it had changed the way senior executives including CEO Tim Cook will receive stock awards sending shares down 0 85 in pre market trade Separately Oracle was slated to move after shares plunged over 9 on Friday as the tech giant missed expectations for software sales and subscriptions for a second straight quarter The financial sector was also likely to be in focus as Citigroup was expected to announce on Monday that it will open an office in Baghdad becoming the first U S bank to move into Iraq Elsewhere Allergan tumbled 1 08 in early trading after Deutsche Bank downgraded the maker of the Botox wrinkle treatment to hold from buy and Leerink Swann LLC trimmed its recommendation to market perform from outperform In addition Deere retreated 1 78 pre market as JPMorgan cut its rating on the world s largest agricultural equipment maker to underweight from neutral Across the Atlantic European stock markets were sharply lower The EURO STOXX 50 tumbled 1 22 France s CAC 40 plummeted 1 39 Germany s DAX retreated 0 84 while Britain s FTSE 100 declined 0 78 During the Asian trading session Hong Kong s Hang Seng Index plunged 2 22 while Japan s Nikkei 225 Index tumbled 1 26 |
C | Why I m Now Bearish And What Might Change That | Now that S P 500 has reached further all time highs I received a number of comments to my latest weekly market outlook post see Where s the new high celebration which amounted to you ve been bearish and wrong for the past few weeks and now it seems that you are stubbornly making up reasons to stay that way Under the circumstances I feel compelled to respond and explain
How I became bearish
To explain how I became bearish follow me on my market research journey in the last few months In January I observed that the market environment was becoming difficult for trend following models like mine see All washed up The market had become choppy which was problematical for identifying a short term trend
The chart below of the SPX in the last six months shows how the market environment has changed Early in this period the price trend of the market were long lived Starting about mid December the price swings got shorter and the magnitude of the moves were lower which change the character of the market from a trending market shown by the blue lines to a choppy whipsaw market shown by the red lines
This is an especially challenging environment for trend following models and my inner trader has had to rely more on short term sentiment and overbought oversold models for his trading The markets are experiencing powerful cross currents which can be highly treacherous if someone is positioned in the wrong way Current conditions are suggestive of a range bound stock market at least we start to get more clarity on how fundamentals are developing Until macro trends start to stabilize I urge my readers to pay minimal attention to Trend Model readings This model is all washed up at least for the moment
Since I wrote those words the US equity market averages continued to do the stutter step above and below the 50 dma and behave in a choppy fashion In April a by James Paulsen of Wells Capital Management identified the current environment as market adherence to the long term trend as overbought my words not his Paulsen did the rolling 36 month regressions of stock prices and charted the R squared of the regressions the higher the R squared the tighter the fit He found that current levels of R squared is in the top decile of fit which is consistent with the straight up stock market without a 10 correction that has been observed
Paulsen then hypothesized that current market conditions had created excessive investor complacency and such periods have tended to not ended well Consider the return statistics when R squared is in the top decile leftmost bar in the charts below
At about the same time had another take on the current market environment He observed that while the long term trend remained intact short term trends which he called momentum were misbehaving
Overall chasing new highs and stopping out of long positions on expansions of new lows has brought subnormal returns We have had a trending environment since 2012 but not a momentum environment Understanding that distinction has been crucial to stock market returns
Using Paulsen s study s methodological framework I did some more research and compared the 36 month R squared or trend with a shorter 6 month R squared or trend I found that the two had diverged considerably which confirms the Steenbarger comment see How to make your first loss your best loss
Such episodes have tended to resolve themselves in a bear phase largely because a weakening short term trend combined with a strong long term trend is indicative of weakening momentum In fact current readings are similar to conditions observed just before the Crashes of 1929 and 1987 though I am not forecasting a market crash as this model is better at forecasting direction than magnitude
Nevertheless based on the current 36 month to 6 month R squared spread of 0 844 I looked at what the return pattern of the DJIA was during past episodes with similar characteristics The sample size was a more reasonable 16 compared to the minuscule N 4 in the SP 500 study that went back to 1950 The market outperformed initially but rolled over at between 3 6 months after the first time the spread went above 0 8 which was March 2015
And if the trend got even more extended and the 36 to 6 month spread went to 0 9 The results were more dramatic as the market declined almost immediately
My research showed that based on monthly data going back to 1900 such episodes of trend divergence have tended to resolve themselves in market downturns That is how I came to the opinion that the next major move in stock prices is likely to be down As the study was based on monthly data recent market action amounts to mere squiggles Another way of depicting the long and short term trend divergence is through the use of MACD As the monthly chart of the SPX below shows the MACD histogram has gone negative indicating a loss of price momentum Every past instance in the last 20 years has either seen stock prices either be in a bear phase as measured by the 12 month moving average when MACD turned negative or resolved itself into a bear move soon afterwards
A downturn every time on when MACD turned negative
What would make me bullish
Like every investor I ve been wrong before In order to change my assessment of the intermediate term trend for stock prices I need to see definitive signs of improvement in the short term trend I am watching for improvement several of the following signs in order to turn more bullish Technical
MACD divergence improvement It doesn t necessarily have to go positive but some signs that it is flattening out and starting to rise would help
Stop the chop with better momentum Now that the SPX has broken out to new highs I would like to see some follow through indicating that positive momentum has re asserted itself One useful sign would be a series of good overbought readings where the market gets overbought on indicators like RSI and stays overbought
Macro and fundamental
An improvement in macro outlook The Citigroup US Economic Surprise Index has been mired in highly negative territory indicating a preponderance of economic misses compared to beats Doug Short s are looking a little wobbly and has been calling for a mild industrial recession though the consumer sector remains healthy So is it too much to ask for some signs of improvement in Citigroup NYSE C ESI
A consistent record of positive EPS estimate revisions If the economy starts to improve then the Fed is likely to raise rates which would hold back stock market gains from PE expansion The negative effects of a flat to falling PE can be offset by robust EPS growth From a valuation viewpoint it will be up to EPS growth that does most of the heavy lifting in pushing stock prices upward at this point of the economic cycle
Like all investors I have been wrong before Admittedly such periods of negative performance creates valuable scar tissue that makes us all better investors as long as we are willing to learn from our mistakes For now I remain cautious on stocks but data dependent
Disclosure Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd Qwest This article is prepared by Mr Hui as an outside business activity As such Qwest does not review or approve materials presented herein The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives financial situation or particular needs of any specific recipient Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions Past performance is not indicative of future results Either Qwest or Mr Hui may hold or control long or short positions in the securities or instruments mentioned |
C | Why Regulating Banks Will Never Work Greece As A Case Study | Introduction
Large bank fines for manipulating currency rates are in the news One reaction is great the bank regulators are finally cracking down with heavy fines I have a different take
Bank regulation will never work
Banks will continue to manipulate prices and take large risks
Bank regulators will always be two steps behind the banks
When and if banks get caught violating rules they will pay the fines not gladly but as a cost of doing business
There is a better way to deal with this problem Bank incentives and the markets in which they operate have to be changed In the following I explain why the regulation fine model will never work using Greece as an example I then set forth what this means and use the Greek situation to illustrate my conclusions
Greece Who in Their Right Mind Would Have Bought Its Debt
Table 1 provides economic data for Greece Anyone taking the time to look at these numbers should have seen that by 2008 the wheels were most definitely coming off By then the government deficit has grown to almost 10 And while the deficit probably kept the unemployment rate from growing more rapidly this was clearly not a sustainable economic path
Table 1 The Greek Economy
Source
And yet there were still plenty of buyers for Greek debt Table 2 gives interest rates on Greece s 10 year debt for the years in question Note how low they were until really spiking in 2012 Who were the buyers and why To answer this question a brief primer on required bank reserves is in order
Table 2 Interest Rates on 10 Year Greek Debt
Source Investing com
Primer on Required Bank Reserves and the Greek Example
Banks attract deposits liabilities and use them to earn income These income earning vehicles and cash constitute bank assets Regulators insist that banks maintain certain minimum liquid assets such as cash to cover fluctuations in other deposits As bank investments have become more complex regulators have attempted to adjust them by risk The more risky an investment is the less of it will be allowed to count as part of its liquid reserves
Table 3 provides an example of how this works Suppose we have a bank with investments valued at 120 The regulators require a risk adjustment for each type of investment They then decide if the resulting risk adjusted assets provide the bank with an adequate reserve cover In the example the regulators allow the entire 10 of cash as reserves but only 10 of the bank s derivatives
Table 3 Risk Adjustment Example
Consider now the Greek case The regulators in their wisdom allowed banks to treat Greek government debt in the same manner as cash That is the Basel II rules allow national regulators to treat government debt as risk free And this means banks do not have to hold any capital against it in to be in compliance with global rules
This explains the demand for Greek debt The banks say why hold cashen we can buy Greek debt and get a healthy return You might wonder why the banks risk officers did not point out just how risky Greek debt was But they were overruled Senior bank officials saw the higher return they could get on the debt and purchased it This is no different than what happened in 2008 I feel certain risk officers continually reminded senior bank officers just how risky the packages of mortgage backed securities were But they were ignored until the market for these securities vanished overnight And the regulators where were they
The Bank Regulation Model Will Not Work
The above highlights the shortcomings of bank regulators They are no better than you or me in judging risk I suggested that the Bank for International Settlements BIS is the most dangerous institution in the world Why Because it is intended to serve central banks in their pursuit of monetary and financial stability to foster international cooperation in those areas and to act as a bank for central banks This all sounds quite reasonable and good So why is BIS so dangerous It is the most dangerous institution in the world because through its Basel Accords people are led to believe banks gambling with depositors funds can be safely regulated This is nonsense Banks cannot be effectively regulated even with all three Basel accords up and running
Under these accords we had the bank collapse of 2008 Why Because the regulators did not recognize just how dangerous real estate derivative packages had become We then had the European bank bailout resulting from the regulators encouraging banks to buy Greek debt And this saga is not over Greece will shortly default again on its debt and the banks will have to be bailed out once again Bank regulators will be horribly distressed by these charges but their actions have made it clear they cannot judge risk
I offer one further example on this matter The following is a table from the 309 page Citigroup NYSE C 2014 10 K report to the SEC The table is supposed to explain how the bank complied with Basel III Advanced Approaches with Transition Arrangements To provide a bit more flavor I have added three of the 16 footnotes to this table
Three footnotes to the table
8 Of Citi s NYSE C approximately 49 5 billion of net DTAs deferred tax assets at December 31 2014 approximately 25 5 billion of such assets were includable in regulatory capital pursuant to the Final Basel III Rules while approximately 24 0 billion of such assets were excluded in arriving at regulatory capital Comprising the excluded net DTAs was an aggregate of approximately 25 6 billion of net DTAs arising from net operating loss foreign tax credit and general business credit carry forwards as well as temporary differences of which 14 4 billion were deducted from Common Equity Tier 1 Capital and 11 2 billion were deducted from Additional Tier 1 Capital In addition approximately 1 6 billion of net DTLs deferred tax liabilities primarily consisting of DTLs associated with goodwill and certain other intangible assets partially offset by DTAs related to cash flow hedges are permitted to be excluded prior to deriving the amount of net DTAs subject to deduction under these rules Separately under the Final Basel III Rules goodwill and these other intangible assets are deducted net of associated DTLs in arriving at Common Equity Tier 1 Capital while Citi s current cash flow hedges and the related deferred tax effects are not required to be reflected in regulatory capital
15 Under the Final Basel III Rules credit risk weighted assets during the transition period reflect the effects of transitional arrangements related to regulatory capital adjustments and deductions and as a result will differ from credit risk weighted assets derived under full implementation of the rules
16 During 2014 Citi s operational risk weighted assets were increased by 81 billion of which 56 billion was in conjunction with the granting of permission by the Federal Reserve Board to exit the parallel run period and commence applying the Basel III Advanced Approaches framework effective with the second quarter of 2014 Further an additional 25 billion was recognized during the last six months of 2014 reflecting an evaluation of ongoing events in the banking industry
This is the information the bank regulators are supposed to use in determining bank compliance with regulatory rules It is a real stretch to think the regulators understand all of this It is more plausible to believe the banks hire a cadr of MBAs and lawyers who spend their careers writing reports concluding what the banks want and the regulators do not understand And like the fines the banks pay when they get caught for doing something illegal the compensation they pay this cadr is just another cost of doing business
Suggested Alternatives
So if the bank regulatory fine model is not workable what should be done Two strategies make more sense use market mechanisms when available and realign bank incentive structures
Consider first the item most recently in the news the fines levied on banks for currency manipulation Will these fines stop currency manipulation No So the important question is what sort of reform would insure there is no more currency manipulation The answer should be quite obvious do not let a set of banks rig things Instead create an auction for currencies just as we have for stocks and let the market dictate currency values And if there are concerns about big players trying to manipulate values limit the size of purchases and sales allowed
Next let us consider what can be done to keep banks from taking too much risk Right now banks make a lot of money via packaging financial products selling them and taking a commission fee and trading them Note that these money making activities do not require the banks to be concerned about risk The bank mentality is as long as other financial houses will continue to buy these packages we can trade them and make money
Question do we deposit our money in banks so they can gamble No we put money in banks for safe keeping So how could we get banks to worry about risk There is one elegantly simple way to do this require banks to hold all the loans they make to maturity and end their trading activities This can be simply enforced limit FDIC insurance to banks that hold their own loans to maturity and do not engage in trading
People say we need funds for risky investments Let insurance companies pension hedge private equity and and venture capital funds take the risks
Investment Implications
Some writers are excited about signs of growth in the Eurozone the Eurozone remains a disaster area Stay away It will not end well |
JPM | Italy s front line in fight to save banks a storage room | By Valentina Za MILAN Reuters Storage rooms crammed with loan documents have emerged as a hidden front line in Italy s battle to save its banks from the threat of financial crisis Dozens of analysts have been toiling in back offices of the nation s third largest lender Monte dei Paschi di Siena MI BMPS in the first stage of a campaign to sell or recover much of Italy s 360 billion euros 395 billion worth of problem loans The analysts engineers from a loan data firm have worked for almost a year with the bank s officials to comb through aging files copies of which are kept in binders tied together with string and stacked in cupboards in order to help prepare a 28 billion euro bad loan sale Ours is a painstaking job said Luca Mazzoni chief executive of Protos which has been hired by Monte dei Paschi Documents associated with a single loan can take up an entire cupboard In one case I remember half a room filled with papers related to just one loan Monte dei Paschi Italy s weakest major lender is under pressure from the European Central Bank to resolve its bad debt problem by the end of the year but foreign investors have so far shown little enthusiasm in supporting its rescue plan The arduous work of Protos engineers shows how the patchy state of loan records at Italian banks is likely to hamper sales of bad debts for some time despite a regulatory push Experts say Italian banks may struggle to meet deadlines set by the Bank of Italy to periodically provide very detailed information about bad loans above 100 000 euros Banks are getting hit from all sides they don t have the time They may be stretched in terms of resources and they can t fix things like their IT system overnight said Joe Giannamore head of AnaCap Financial Partners which owns a gross 9 billion euros worth of Italian bad loans If they don t have information captured centrally in one place banks face a long manual and very labor intensive job Lenders failed to keep records up to date as Italian bad loans quadrupled following the onset of the financial crisis in 2007 When they came under pressure to sell they realized their databases lacked much of the information that buyers demanded DATABASES Protos analysts have what they call their war rooms where they take the information dug out from piles of documents and build easy to consult databases High quality information can improve the selling price of a loan portfolio by up to 10 percent according to Mazzoni One important lesson learnt in the disposal is that if you have a good database the price is higher BPER CEO Alessandro Vandelli said after the bank sold 450 million euros in bad loans in July This is key as banks normally offload bad debts at a loss Monte dei Paschi s ambitious recapitalization would be an even tougher challenge if a lower selling price for its loans had blown a bigger hole in its accounts To shed the bad debts Monte dei Paschi is relying on a guarantee provided by the state and a major investment by Atlante a state sponsored bailout fund financed by leading Italian financial institutions Encouragingly after delving into Monte dei Paschi s bad loans Atlante last week said the loan quality matched its estimates Atlante offered in July to pay 1 6 billion euros or about 27 cents in every euro of face value for a tranche of the bank s bad loans repackaged as securities Monte dei Paschi is now awaiting the outcome of a similar review by JPMorgan NYSE JPM which has pledged to provide a 5 billion euro bridge loan to buy time to arrange the state guarantee OUT OF COURT Strong local ties can make Italian banks reluctant to aggressively call in debts especially small personal loans taken out to buy a car or a washing machine Banks tread lightly because they don t want to hurt their image or undermine traditionally close ties with the local community said Carmine Evangelista CEO of AZ Holding which specializes in recovering unsecured loans When we get a new portfolio we make a first round of calls to let people know their creditor is no longer the bank This alone normally prompts some repayments Evangelista added Banks have managed to sell unsecured loans despite poor data because they have standard market prices But roughly half of Italy s 200 billion euros in loans to insolvent borrowers is secured against real estate according to accountancy firm PwC To sell or recover those loans accurate data are essential For example the bank or the loan s new owners may find it necessary to relaunch an unfinished property development on land that was pledged as collateral That can be a big decision given a 15 percent drop in Italian house prices over the past four years The least efficient way to recover bad loans in Italy is to take borrowers to court where on average bankruptcy proceedings drag on for 7 8 years It s vital to seek out of court deals with borrowers Banks don t do that enough Riccardo Serrini CEO of bad loan manager Prelios Credit Servicing said
1 0 9096 euros |
JPM | UK banks fear public politicians set against them on Brexit | By Anjuli Davies William James and Andrew MacAskill LONDON Reuters For decades Britain s bankers have relied on their industry s outsized status in the economy to find a receptive ear in government But in the aftermath of the country s vote to leave the European Union the sector that generates about a tenth of national economic output is grappling with an uncomfortable new reality where economics doesn t always trump politics June s vote to quit the EU has triggered a change in leadership and tone in the British government with new Prime Minister Theresa pledging an industrial revival and to build an economy that works for everyone setting nerves jangling in the City of London global financial hub Reuters spoke to several senior bankers from big British and international banks based in the city including some involved in discussions with the government over Brexit Many said their warnings about the impact of a so called hard Brexit where they lose their access to the European single market were being met with scepticism by the government and accusations from some eurosceptic lawmakers that they were undermining the message that Britain can thrive outside the EU It s almost as if we were back in the 1940s and we were looking for fifth columnists all over the place because people are trying to do Britain down said Ronald Kent of the British Bankers Association BBA The term fifth column refers to a group of people that acts secretly against the state to assist an external enemy The head of the BBA Anthony Browne said on Sunday that the public and political debate was taking us in the wrong direction and that big international banks were preparing to move some operations out of Britain in early 2017 The government has pledged to execute Brexit following a vote to leave the European Union that was driven in part by a desire to curb immigration and was regarded as a repudiation of a London elite including a banking sector still the subject of lingering public anger over its role in the financial crisis While finance minister Philip Hammond and his ministerial colleagues have been keen to assert the financial industry is of great importance officials say privately the Brexit deal will have to work for the country as a whole and means the banking industry cannot expect special treatment There is no question of prioritizing the financial sector or any other sector in those talks it s not fair to talk in terms of special cases said one source with knowledge of the government s approach to the negotiations with Brussels The finance ministry referred a request for comment for this story to remarks made by Hammond to a parliamentary committee last week He said addressing the Brexit challenges faced by the financial industry was a very high priority for the government NO SPECIAL STATUS Some government officials have said that the industry could be over stating the importance of issues such as passporting the system by which they can carry out certain activities across the EU but be regulated just in one country Financial services minister Simon Kirby told a parliamentary committee hearing last week that the finance ministry was looking into the passports used by businesses for various financial activities Some of those passports are redundant or unused he said Actually getting to a situation where you can assess the impact is not quite as straightforward as you think Several bankers said they were surprised by the ruling Conservative Party conference this month when May appeared to move towards a hard Brexit stance by signaling that curbing immigration would take precedence over single market access Undoubtedly things have changed for financial services said one senior executive at an international bank who declined to be named due to the sensitivity of the matter adding that there had been a sea change in how banks are viewed by the government Another banker told Reuters that although the mantra so far has been that there would be no special status for any industry group they and other banking executives had sensed a more conciliatory tone from the government when dealing with carmaker Nissan this month in contrast to the harder line they perceive as being taken with the financial sector The largely foreign owned car industry was a strong supporter of continued membership of the European Union ahead of the June 23 vote benefiting from unfettered access to the world s biggest trading bloc and its standardized regulations Nissan CEO Carlos Ghosn said on Oct 14 after meeting the prime minister in London that he was confident Britain would remain a competitive place to do business David Davis the minister in charge of Britain s exit from the EU said last week he was determined to secure the best possible terms of trade for the financial services sector LOBBYING BLITZ The financial industry which pays about 60 67 billion pounds in annual taxes could lose up to 38 billion pounds in revenue in the event of a hard Brexit and 75 000 jobs could disappear in Britain according to a report commissioned by industry group TheCityUK But there are signs that a four month lobbying blitz by some of the world s largest banks has backfired Officials say the banks have failed to appreciate the sheer scale of the government information gathering exercise as it tries to determine its priorities The finance ministry is doing a sector by sector analysis of the different Brexit scenarios on revenues employment and tax receipts to inform Britain s negotiations with Brussels One source complained that London financial services firms had presented a disparate list of demands and then quickly become impatient that their views were not being listened to There is also a sense among officials that the industry s warnings have not panned out in the past several banking and government sources have said After the financial crisis many banks threatened to move operations overseas because of a wave of higher taxes and regulation At the turn of the century some financial sector executives also warned the failure to join the euro would lead to a withering in London s role as a hub for global business The government is underestimating the impact this time This is not an idle threat said one banker who has held talks with government officials Banks including HSBC JPMorgan NYSE JPM and UBS have already warned that they could move thousands of jobs from Britain Government sources while acknowledging the huge importance of the financial services sector to the economy say talk of a mass exodus is unrealistic The feedback from Wall Street was that any move to Paris would happen over their global banks dead bodies said the source with knowledge of the government s approach speaking on condition of anonymity And Frankfurt simply isn t big enough to handle it being a global financial hub Some eurosceptic lawmakers have suggested that a soft Brexit where Britain might retain some access to the single market in return for a degree of free movement of people from the bloc would thwart the democratic will of voters
Bank lobbyists are going down the wrong route on Brexit They just seem to be whining Conservative Party lawmaker Jacob Rees Mogg told Reuters They don t like the fact that they ve been overruled by the people who voted |
HAL | Halliburton beats estimate on international demand takes 2 2 billion charge | Halliburton beat analysts estimates for quarterly profit on Tuesday Higher drilling activity in international markets helped the oilfield services provider blunt a hit from slowing North America that led to a charge of 2 2 billion |
HAL | Halliburton Co HAL Q4 2019 Earnings Call Transcript | Halliburton Co NYSE HAL Q4 2019 Earnings CallJan 21 2020 9 00 a m ETContents
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks
OperatorLadies and gentlemen thank you for standing by and welcome to the Halliburton Fourth Quarter 2019 Earnings Call At this time all participant lines are in a listen only mode After the speakers presentation there will be a question and answer session Operator Instructions I d now like to hand the conference over to your speaker today Mr Abu Zeya Please go ahead sir Abu Zeya Senior Director Investor RelationsGood morning and welcome to the Halliburton fourth quarter 2019 conference call As a reminder today s call is being webcast and a replay will be available on Halliburton s website for seven days Joining me today are Jeff Miller Chairman President and CEO and Lance Loeffler CFO Some of our comments today may include forward looking statements reflecting Halliburton s views about future events These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward looking statements These risks are discussed in Halliburton s Form 10 K for the year ended December 31st 2018 Form 10 Q for the quarter ended September 30th 2019 recent current reports on Form 8 K and other Securities and Exchange Commission filings We undertake no obligation to revise or update publicly any forward looking statements for any reason Our comments today also include non GAAP financial measures that exclude the impact of impairments and other charges Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter press release and can also be found in the Quarterly Results Presentations section of our website After our prepared remarks we ask that you please limit yourself to one question and one related follow up during the Q A period in order to allow time for others who may be in the queue Now I ll turn the call over to Jeff Jeff Miller Chairman President and Chief Executive OfficerThank you Abu and good morning everyone 2019 solidified the pivot from growth to capital discipline in North America and marked another step on the road to recovery in the international markets I m pleased with the way the Halliburton team executed our value proposition delivered exceptional safety and service quality and stayed focused on generating healthy returns and strong free cash flow I thank our outstanding Halliburton employees for their hard work and execution the entire year 2020 opens a new decade and a new century for Halliburton It brings new opportunities that I will address in a few minutes but first some headlines for the full year and fourth quarter of 2019 We finished 2019 with total company revenue of 22 billion and adjusted operating income of 2 1 billion I am pleased with the continued recovery in our international business We increased revenue 10 outgrowing the international rig count for the second year in a row North America revenue declined 18 as a result of customer activity and pricing reductions and our decision to focus on those customers that provide the best returns Systematically improving our service delivery immediate cost reductions and the growth in non frac product lines allowed us to stem the margin erosion We delivered over 900 million of free cash flow for the full year demonstrating our ability to generate consistent free cash flow throughout different business environments Finally 2019 was an exceptional year for our safety and service quality performance Our total recordable incident rate and non productive time both improved by over 20 historical bests across our business This is a result of our employees continued commitment to safety and process execution And now a few points about the fourth quarter We finished the quarter with total company revenue of 5 2 billion a 6 sequential decrease and adjusted operating income of 546 million an increase of 2 quarter over quarter Our Completion Production division revenue declined 13 sequentially and operating margin remained essentially flat Our Drilling Evaluation division delivered a strong quarter We grew revenue 4 and improved operating margins 300 basis points sequentially D E international margins grew significantly offset by margin decline in North America While our North America business declined due to the significantly lower activity in US land internationally we delivered 10 revenue growth this quarter This underscores the versatility and global reach of our business In the fourth quarter we took a 2 2 billion largely non cash impairment charge and made strategic decisions to market for sale our pipeline services and well controlled product lines As I mentioned 2020 brings plenty of opportunities The oil price is more constructive as we enter the year The imminent global recession fears have abated with the help of economic easing from the leading central banks US production growth is slowing because of constricted capital flows The increase in non US non OPEC supply coming into the market is limited The geopolitical instability in the key oil producing region of the world should add an incremental risk premium to the commodity prices in the near term That said oil prices are still supported by the OPEC cut and will fluctuate based on the group s resolve to continue limiting production Gas prices in the US are below breakeven levels US drilling and completions activity may be biased lower due to the consolidation and restricted access to capital Halliburton is no stranger to navigating choppy waters We entered 2020 and our next century with a clear sense of purpose We will continue to do what we do best collaborate and engineer solutions to maximize our customer s asset value while generating industry leading returns and sustainable cash flow for our shareholders We will do this with attention to the sustainability of our business minimizing environmental impact and acting as a responsible corporate citizen The international markets presented plenty of growth opportunities in 2019 We grew revenue 10 year over year closing stronger than anticipated All regions increased revenue led by Asia Pacific Latin America and Europe Both our divisions meaningfully contributed to the international growth Completion Production led the charge with 13 expansion due to higher activity in mature fields in Europe and unconventionals in Argentina the UAE and Australia Drilling Evaluation grew international revenues 8 as we increased activity levels in all markets specifically in Norway Mexico China and Nigeria In 2020 we expect the international spend by our customers to increase by mid single digits making it the third consecutive year of spending growth We have the right footprint and an enhanced technology portfolio to compete and win across the international markets We expect to grow at or above the market rate this year consistently focusing on profitable growth and improving our international margins Continued gas activity expansion in the Middle East resolution of political issues in Latin America and several pending project awards may enable us to outgrow the market again in 2020 Our Drilling Evaluation division is poised to grow faster as we get the benefit of the full year in our Norway integrated contracts the iCruise directional drilling platform rollout continues and new offshore drilling activity starts up around the world The international revenue growth should follow the historical cyclicality In the first quarter we expect international revenue to decline due to normal seasonality and the elimination of year end sales Thereafter we should see steady growth that would peak in the fourth quarter This year we expect to increase our international margins We anticipate higher utilization for our existing equipment in busy markets like the North Sea and Asia Pacific Our project pipeline is strong and the incremental activity will help tighten tool availability and absorb the existing cost structure We intend to be prudent with capital allocation driving our organization to have the right pricing discussions with customers Given the tool tightness in some product lines and geographies we are strategically reallocating assets to the best returning opportunities Pricing in certain international regions is improving and we expect this momentum to continue throughout 2020 About one third of our book of business is awarded every year the remaining two thirds are existing contracts and contract extensions We re gaining pricing traction on new work and contract renewals and we re making strategic choices about the work we pursue I believe the capital and pricing discipline across all geographies will allow Halliburton to deliver rational returns driven growth in the international markets Turning to North America The US shale industry is facing its biggest test since the 2015 downturn with both capital discipline and slowing leading edge efficiency gains weighing down activity and production As expected in the fourth quarter customer activity declined across all basins of North America land affecting both our Drilling and Completions businesses The rig count in US land contracted 11 sequentially and completed stages had the largest drop we have seen in recent history While holidays and weather were the usual factors other reasons for this air pocket inactivity included our customers free cash flow generation commitment and an oversupplied gas market With this backdrop Halliburton followed our playbook and continued to proactively manage our fleet count As announced last quarter we also proactively cut costs and started the implementation of the strategy to sustainably improve our service delivery Those actions allowed us to curb margin declines in North America and deliver lower detrimentals year on year even though the industry s sequential activity drop was much more severe than in the fourth quarter of 2018 In the fourth quarter the market saw clear public evidence of the long awaited equipment attrition This is just the beginning We believe a lot more equipment will exit the market as lower demand increasing service intensity and insufficient returns take their toll As service companies cannibalize idle equipment for parts and use sidelined pumps to beef up working fleets the available horsepower supply in the market may be smaller than some think Halliburton has continued doing what we said we were doing stacking equipment to improve our returns We exited 2019 with 22 less available fracturing horsepower We ve rationalized our equipment supply to the anticipated level of demand in 2020 The size and scale of our business in North America give us the ability to right size without sacrificing our market leadership position and the value that comes with it In the fourth quarter we started the implementation of our 300 million annualized cost savings and service delivery improvement strategy We moved quickly to execute the initial personnel reductions and real estate rationalization all with an eye to improving on our near term financial performance We ve achieved about 200 million in savings on a run rate basis in the fourth quarter While this impacts our business globally the majority of the savings are geared toward North America We are looking at 2020 with pragmatism Early indications are that our US land customers will reduce capital spending approximately 10 from 2019 levels I believe that the current level of DUCs in the market will allow operators to spend less money on new well construction and direct more of it to completions Depressed gas pricing is negatively affecting the activity outlook in the gassy basins which will likely bear the brunt of the activity reductions in 2020 In the first quarter operators will reload their budgets and we expect modest improvement in completions activity as a result That said the calendar cadence where some operators are biased to spend more earlier in the year will likely remain Halliburton will continue to be proactive in taking actions to generate industry leading returns and strong free cash flow in this environment Here are the more significant actions After systematically rationalizing equipment in 2019 to adjust to changing activity levels in 2020 we plan to provide the capacity that maximizes the returns on our overall fleet This should also allow us to be efficient about our workforce and maintenance planning and to achieve higher utilization of existing fleets throughout the year Pricing pressure was considerable during the year end tendering season Consistent with our capital disciplined approach we ve taken on contracts that are expected to allow our portfolio to earn acceptable returns and decline those that are not I like the slice of the market that we re choosing to participate in this year Our high graded customer portfolio gives us confidence in a more sustainable demand level and a mix of pricing and volume that generates returns for Halliburton Make no mistake we will continue developing technologies whose value accrues to Halliburton and not just to our customers Our integrated completions offering and the iCruise rotary steerable system are prime examples of such technologies They should allow us to reduce our capital outlay and deliver better margins all with the purpose of generating strong returns We plan to continue strategically growing our share of services per well by increasing the competitiveness of our non hydraulic fracturing businesses in North America Our wireline and perforating artificial lift and specialty chemical product lines all posted strong double digit revenue growth in 2019 despite the overall market softness in US land We intend to keep this momentum and spread it to other services Finally we will continue the implementation of our service delivery improvement strategy Halliburton is redesigning the way we deliver our fracturing services in order to lower our unit cost and improve margins and returns in the long run 2019 closed the decade of the shale revolution that transformed the United States into the world s top hydrocarbon producer Halliburton was an early participant in this development and has been investing in it and innovating ever since hand in hand with our customers As unconventionals enter maturation phase Halliburton is committed to the North American market and taking appropriate actions to thrive in the new environment I ll now turn the call over to Lance to provide more details on our financial results Then I will return to discuss digitalization a topic that will define the next decade for our industry Lance Lance Loeffler Executive Vice President and Chief Financial OfficerThank you Jeff and good morning Let s begin with an overview of our fourth quarter results compared to the third quarter of 2019 Total company revenue for the quarter was 5 2 billion a decrease of 6 and adjusted operating income was 546 million an increase of 2 During the fourth quarter we recognized 2 2 billion of pre tax impairments and other charges to further adjust our cost structure to current market conditions These charges consisted largely of non cash asset impairments mostly associated with pressure pumping and legacy drilling equipment They also included approximately 100 million of cash costs primarily related to severance As a result of the charge in the fourth quarter we recognized a benefit of approximately 35 million from a reduction in depreciation and amortization expense which reflects two months of DD A impact The after tax impact of this reduction in the fourth quarter is approximately 0 03 of EPS of which 0 02 is included in our Completion Production results and the remainder in Drilling Evaluation numbers As Jeff mentioned we ve also accomplished a significant portion of our intended annualized cost reductions with the remainder to come in the first quarter Let me take a moment to discuss our divisional results in more detail In our Completion Production division revenue was 3 1 billion while operating income was 387 million both decreased 13 Reduced activity and pricing in multiple product service lines primarily associated with stimulation services in North America land coupled with lower activity for stimulation services in Latin America and well intervention services in the Middle East drove our results These declines were partially offset by higher pressure pumping activity in the Eastern Hemisphere coupled with year end completion tool sales globally In our Drilling Evaluation division revenue was 2 1 billion an increase of 4 while operating income was 224 million an increase of 49 These results were primarily driven by increased activity in all product service lines in the Middle East Asia coupled with higher drilling activity in Europe Africa CIS and year end software sales globally These improvements were partially offset by lower drilling activity in North America and reduced testing activity in Latin America Moving on to our geographical results In North America revenue was 2 3 billion a 21 decrease This decline was mainly due to lower activity and pricing in North America land primarily associated with pressure pumping and well construction This decline was partially offset by higher year end completion tool sales in the Gulf of Mexico In Latin America revenue was 598 million a 2 decrease resulting primarily from lower activity in multiple product service lines in Argentina coupled with decreased testing activity across the region These results were partially offset by higher activity for all product service lines in Colombia increased project management activity and cloud infrastructure installations in Mexico and higher year end completion tool sales across the region Turning to Europe Africa CIS revenue was 883 million a 6 increase resulting primarily from increased well construction activity in the North Sea coupled with increased activity in multiple product service lines in Algeria These improvements were partially offset by lower pipeline services across the region In Middle East Asia revenue was 1 4 billion a 19 increase sequentially largely resulting from increased activity in multiple product service lines across the Middle East India and China higher pressure pumping activity in Australasia and higher year end completion tool sales across the region These results were partially offset by lower well intervention services in the Middle East In the fourth quarter our Corporate Other expense totaled 65 million and we expect it to be the same in the first quarter of 2020 Net interest expense for the quarter was 141 million and should remain approximately the same for the first quarter Our effective tax rate for the fourth quarter was approximately 22 Based on the market environment and our expected geographic earnings mix we expect our 2020 first quarter effective tax rate to be approximately 21 with the projected full year tax rate of approximately 23 We earned approximately 1 2 billion of cash from operations during the fourth quarter As expected we improved our working capital and generated strong free cash flow of approximately 827 million for the quarter delivering approximately 1 billion of free cash flow for the full year excluding the cash impact of the restructuring charges I discussed earlier As a result we ended the year with 2 3 billion in cash Capital expenditures during the quarter were 340 million with our 2019 full year capex ending just above 1 5 billion As we look ahead to this year we intend to reduce our capital expenditures by approximately 20 to 1 2 billion We believe this level of spend will still allow us to invest in our anticipated international growth while continuing to rationalize our business to the current market conditions in North America Within this reduced capex budget we will continue investing in and growing our production group businesses namely constructing a chemical manufacturing plant in Saudi Arabia and expanding our artificial lift footprint We will also move forward with the iCruise system global rollout but at a more normalized pace than what we accomplished over the last couple of years Our digital efforts and new technologies aimed at improving our efficiency and reducing our operating costs will also get an appropriate share of spend We believe our capital allocation decisions are consistent with our focus on generating strong cash flow for our investors regardless of the market environment Finally let me provide you with some comments on how we see the first quarter playing out As is typical our results will be subject to weather related seasonality and the roll off of year end sales which will mostly impact our international business North America will see a modest increase in completions activity as Jeff described earlier We will continue to pull the levers that allow us to mitigate margin declines across the business this quarter As such in our Completion Production division we expect sequential revenue to increase 2 to 4 with margins declining 125 to 150 basis points For our Drilling Evaluation division we anticipate sequential revenue will decline 4 to 6 with margins decreasing 200 to 250 basis points I ll now turn the call back over to Jeff Jeff Jeff Miller Chairman President and Chief Executive OfficerThanks Lance One of the key trends that will define the new decade in our industry is digitalization The next 10 years will see digital technologies and artificial intelligence going mainstream just like the smartphones did in the last decade In the oil and gas industry digitalization unlocks the potential to structurally lower costs shorten the time to first oil increase optionality in exploration and production and enhance performance across the entire value chain Digital is not a separate strategy at Halliburton Rather it is an integral part of our value proposition Our ability to collaborate engineer solutions and maximize customers asset value is evolving through the seamless integration of digital technologies into our operations Digital permeates everything we do and has the same goal as our business strategy deliver value for our customers and returns for our shareholders At Halliburton we are hard at work on the next frontier solutions that will shift the balance in the people process technology triad by replacing labor and reducing capital investments through automation and self learning processes We believe this will allow us to harness the transformative power of digitalization and make a quantum leap in productivity similar to going from horses to horsepower It takes time to build the scalable software and hardware infrastructure required to fully capitalize on digital solutions We re well along that path and have been building up our digital capabilities for a number of years with a long term view of how digitization will evolve I m pleased with the internal and customer adoption we re seeing Halliburton is in a unique position to reap the benefits of the industry s move toward digitalization Our Landmark product line is an established leader in petrotechnical software with a powerful cloud enabled DecisionSpace 365 software platform In 2019 the cloud native software was our fastest growing business within Landmark increasing revenues 50 year over year Landmark provides us a solid foundation established through decades of investment in software development people domain expertise and processes to create and scale digital solutions This benefits all of our product lines In addition we have strategic partnerships with Accenture Microsoft AWS and Schneider Electric all of which validate and expand both our vision and our capabilities We now have over 100 customers with thousands of users across the globe leveraging our iEnergy digital ecosystem to integrate software and workflows across their organizations regardless if they re Halliburton s third party or internally developed This open architecture platform is unique in the industry and in our view is the necessary condition for the successful adoption and scaling of digital solutions True to our DNA we are also bringing to market practical smart and interconnected products and services that help unlock value for us and our customers We re pioneering new approaches to subsurface understanding well construction and reservoir recovery Let me spend a few minutes on each First we transformed subsurface understanding using big data digital frameworks and evergreen models We ve created a unique geological model of the entire earth to provide insights into the origin and productivity of reservoirs Once drilling starts we deliver improved field measurements with next generation wireline and logging while drilling tools fiber and sensors We then translate these measurements into faster and more informed decision making using a new class of models made possible by digital technologies For example our EarthStar ultra deep resistivity sensor automatically feeds into our industry first scalable earth model that updates in real time Customers can now make faster decisions about their development programs and reduce cycle times by a factor of 10 Second we improve well construction through collaborative well engineering and drilling automation Landmark s digital well program enables seamless collaboration between operators and service companies across a multitude of software platforms The iCruise drilling system increases the number of built in sensors by a factor of 5 and offers self guiding capabilities Working with our rig partners our digital twin technology delivers better collaboration and faster decision making All of these solutions boost efficiencies and lower costs while demanning the process of well construction Last but not least we improved recovery and production by using our digitally enabled tools to connect customers assets and leveraging this to monitor and enhance performance outcomes In completions we use our intelligent completions for monitoring production trends and connecting them to broader reservoir management studies In artificial lift we leveraged digital to monitor ESP health and extend run life In stimulation we use our industry leading fracture modeling software and full scale asset simulator to model fracture propagation and frac hits These are examples of how we deliver digital innovation today with a focus on specific domains and aligned with the customers buying behavior They provide immediate value to customers increased customer loyalty and generate returns for Halliburton Over time we believe digitalization will seamlessly connect subsurface drilling and production enabling customers to make asset level decisions at the speed of execution We have a solid foundation the tools the open architecture and the domain expertise to successfully deliver this vision Let me summarize what we ve talked about today In 2020 Halliburton is focused on delivering margin expansion industry leading returns and strong free cash flow In our view international growth will continue Increased activity disciplined capital allocation pricing improvements and our ability to compete for a larger share of high margin services we believe will lead to international margin expansion in 2020 As North America customer spending declines again this year Halliburton will continue to execute our playbook to maximize returns and free cash flow We plan to provide the service capacity that we believe will maximize the returns on our overall fleet continue to invest in technologies that improve margins keep strategically growing our non hydraulic fracturing product service lines and continue the implementation of our service delivery improvement strategy We believe digitalization will define this decade in our industry Halliburton continues to move full steam ahead on the digital journey and is uniquely positioned to reap its benefits And now let s open it up for questions Questions and Answers Operator Operator Instructions Our first question comes from the line of James West with Evercore ISI Your line is now open James West Evercore ISI AnalystHey Good morning Jeff Good morning Lance Jeff Miller Chairman President and Chief Executive OfficerGood morning James James West Evercore ISI AnalystSo Jeff toward the end of your prepared comments you ve talked a lot about international and international margin progression I wondered if we could dig into a little more detail there with mid single digit it sounds like growth you may be able to outpace that a touch here as well plus you re seeing some pockets of pricing strength How should we think about the margin expansion as we go through the year what type of incrementals should we be expecting Jeff Miller Chairman President and Chief Executive OfficerYeah Well thanks James Look I think I spent a fair amount of time on the catalysts themselves obviously activity improving rational project choices and technologies I think the key is it s going to be shaped we re starting at a higher point going into Q1 than we certainly did last year And then I would expect the shape of that to look similar where we start and it moves up a little just that shape of the international margins should stay consistent but obviously starting from a hard point James West Evercore ISI AnalystOkay Okay fair enough And then maybe for Lance here on the free cash flow next year looks like it s going to be pretty significant based on some growth but also lower capex here How should we think about when we re going to see the free cash flow start to show up will it be similar to this year or it should be backend loaded or would it be more even throughout the year Lance Loeffler Executive Vice President and Chief Financial OfficerYeah Look I think you re right in terms of the expectations to grow free cash flow this year You re right around the I don t think that the our ability to drive sort of the working capital consumption is going to remain in the first half of the year like it has historically for us I expect some of the extreme volatility that we saw last year to not repeat this year but there still is a consumption of cash from a working capital perspective But overall with the reduction in capex the improvement around margins and some stability around our working capital we expect free cash flow to grow in 2020 James West Evercore ISI AnalystGood Thanks guys Lance Loeffler Executive Vice President and Chief Financial OfficerThank you OperatorOur next question comes from Sean Meakim with JPMorgan Your line is now open Sean Meakim JPMorgan AnalystHey Good morning Jeff Miller Chairman President and Chief Executive OfficerGood morning Sean Meakim JPMorgan AnalystSo you touched on the margin progression internationally Can you maybe just talk about how that translates into D E in 2020 So we had the margin ramp in 4Q maybe 70 basis points or so comes from the D E benefit that will help year on year in 20 But can we see 2020 margins on a full year basis get back to 2017 2018 levels Do we think we can get back to a double digit type of outcome for the year And I m just curious how you think investors will get comfortable with the trajectory like that just given it s been a difficult business to forecast last couple of years Jeff Miller Chairman President and Chief Executive OfficerYeah Sean it has been difficult to forecast but we ve done a lot of things during that time So the platform around our iCruise technology and EarthStar has been rolling out At the same time we re seeing international a lot of international choppiness now we see some recovery sort of happening which obviously lends itself toward D E And so I think these are multi year efforts that we and we view them that way I d say digital as well will contribute to probably early days to D E So for all of those reasons I don t think it s unreasonable also to expect that we get back to I think 2018 looking kind of number or beyond Sean Meakim JPMorgan AnalystGot it Okay Thank you for that And then so on the digital strategy competitors made a lot more noise about their strategy maybe than you have so far But the Indecipherable Repsol contracts sound pretty similar in terms of the offering Could you maybe just expand a little bit in terms of the scalability that you see for those types of avenues maybe across a broader set of customers and where you see the most opportunity Jeff Miller Chairman President and Chief Executive OfficerYeah I think I tried to describe today our vision around digital and then the mechanics for realizing that vision which then quickly becomes in today s market what are the things we actually do So I used an example of some of the tools that are in the market As we integrate those obviously the moat expands around those So I think it will take many forms over time Again it will be big projects which we ve talked about a few of those where it s either a cloud infrastructure and the cloud environment that we either install or operate and we ve got examples of each of those But equally important will be the day in day out march around how this work really gets done which is around drilling production and reservoir filling in those spaces with tools that all contribute to that vision And so I think that there is a lot of scalability here And I think what s most important is really the production capital that Halliburton has invested in Landmark that really makes it scalable In fact to do these things at scale there s a lot of discipline and practice and agile DevOps that are required at scale to reliably develop software and then operate maintain and then ultimately continue to advance and we have that So I m really confident in how that rolled out over the longer term And I think the thing to focus on is what are those tools that we re doing now that deliver returns Obviously they contribute to the vision Sean Meakim JPMorgan AnalystGot it Very helpful Thank you Jeff Miller Chairman President and Chief Executive OfficerThank you OperatorOur next question comes from the line of Angie Sedita with Goldman Sachs Your line is now open Angie Sedita Goldman Sachs AnalystThanks Good morning guys Jeff Miller Chairman President and Chief Executive OfficerGood morning Angie Angie Sedita Goldman Sachs AnalystSo Jeff on C P specific to North America could you talk a little bit about the cost cutting that s unwinding here You said you have a 100 million left Is there more that could be done beyond that 100 million It s for Jeff or Lance And then maybe you could talk also about the pricing Have you seen the market starting to stabilize on the frac side for pricing are you still seeing pressure in frac and across the other product lines Jeff Miller Chairman President and Chief Executive OfficerYeah Thanks Angie Look the 300 million in savings and we ve moved quickly on that And I think the 200 million that we ve taken out on an annualized basis already expect to get the rest of that done in Q1 And I think that really speaks to how that team in North America executes And we execute very quickly and with a lot of purpose And so obviously that contributes Beyond that we ve talked about our playbook and how we expect to execute our strategy in North America And I think over time that continues to drive improvement in margins less concentrated in a moment but obviously a set of activities that yield value over time From a pricing standpoint it s still very it s competitive information obviously Q4 was quite competitive And so I think the market in spite of attrition is still oversupplied What s important though is that we make our own choices around how to maximize fleet profitability And by virtue of doing that I view it as more stable in that respect Lance Loeffler Executive Vice President and Chief Financial OfficerAngie I might add a comment too on the 300 million in cost savings Just to be clear too to add to Jeff that s sort of cash structural savings Jeff Miller Chairman President and Chief Executive OfficerYes Angie Sedita Goldman Sachs AnalystOkay Okay thank you that s helpful And then maybe staying along the themes on pricing It s obviously the reverse internationally Maybe you could talk a little bit or give more color on the pricing power or momentum you re seeing in the international markets Is it fairly widespread Is it by specific regions or product lines And do you think there could be a little bit of momentum going into 2020 or is it slow and steady Jeff Miller Chairman President and Chief Executive OfficerLook I d more describe it as slow and steady Angie And I think what the key is that the setup is constructive And so managing capital in a more prudent way focusing on profitable growth as opposed to growth all of those things conspire to create an environment where we re able to get better pricing Is it widespread I d say it s generally widespread but there is probably pockets who are more concentrated than others sometimes driven by availability and complexity of work and things that would normally and rationally drive our pricing And so I think that s what we re seeing in the market And yes it is getting traction Angie Sedita Goldman Sachs AnalystRight Thanks I ll turn it over OperatorOur next question comes from Bill Herbert with Simmons Your line is now open Bill Herbert Simmons Co AnalystThank you Good morning Lance you talked about it conceptually but I d like to kind of refine it if you will with regard to the discussion of the evolution of working capital for this year less pronounced seasonal trends you were a huge consumer cash working capital was in the first half of 2019 at a nice contributor to cash in the second half I m trying to kind of peg the order of magnitude of the reduction in cash consumption during the first half of this year versus the first half of last year Lance Loeffler Executive Vice President and Chief Financial OfficerYeah I think what you see Bill is sort of a year over year comparison as we don t have I mean last year we were carrying a lot of inventory associated with the boost in the iCruise rollout and in some of our C P product lines that I don t think that you see that consumption taking place again this year as we consume more of that inventory as opposed to build it The collection cycle is still going to be very similar albeit as the international business becomes a bigger part of our business that typically has longer DSOs so we may see some impact there But still a view where we build receivables early in the year and then unwind those as we get into the later part of the year Bill Herbert Simmons Co AnalystOkay And so just to take a stab at it would you expect that your cash consumption from working capital in the first half of this year would run it like half of what it did in 2019 I mean is that a reasonable starting point Lance Loeffler Executive Vice President and Chief Financial OfficerI think that s probably a reasonable starting point Bill Herbert Simmons Co AnalystOkay And then secondly again a lot of moving parts but it s kind of a 20 reduction in capex you should have better working capital improvement for this year Net income should be up as well So at least from my numbers I m getting to kind of a free cash flow yield assuming a 24 stock price of kind of 7 to 8 which is getting pretty sporty And I m just curious with regards to priorities of the deployment of that surplus cash flow Is it still a reduction of net debt first and foremost Lance Loeffler Executive Vice President and Chief Financial OfficerYeah I think it is I think with the excess cash I think we do have a near term priority on reducing debt The reality is Bill is while we re focused on that debt reduction in the near term what it does and what it offers us as we continue to chip away at it is give us more flexibility to return cash to shareholders in the future And I think today our business we need to address the 3 8 billion of debt that we have coming due over the next six years So I think we ll do that do some of that in the near term but also with an eye on ultimately returning cash to shareholders Bill Herbert Simmons Co AnalystOkay thank you Lance Loeffler Executive Vice President and Chief Financial OfficerThanks Bill Jeff Miller Chairman President and Chief Executive OfficerThanks Bill OperatorOur next question comes from Scott Gruber with Citigroup Your line is now open Scott Gruber Citigroup AnalystYes good morning Jeff Miller Chairman President and Chief Executive OfficerGood morning Scott Scott Gruber Citigroup AnalystKind of staying on a similar line of questioning Lance you mentioned the 1 2 billion of capex in 2020 which is good to see Could you just provide some color on how you think about the sustainability of capex around that level There is a few moving pieces year on year in 20 and there will be a few more in 21 in particular with the Saudi chem supplying investment not recurring But just how should we think about kind of broad strokes on that level of capex and feel free to frame it as a percent of sales if it s easy Jeff Miller Chairman President and Chief Executive OfficerYeah Scott this is Jeff I think the key is around prioritization And we are focused on the best returning opportunities But we were able to fund international growth in 2019 and expect with that level of capex can continue to fund the growth that we see in 2020 So it isn t that we are starving anything the reality is we re feeding things appropriately and around our return expectations We think about spending this year it s probably two thirds international a third US but in our view very sustainable And so we re comfortable with that level of capex and also what it means to making better returns Lance Loeffler Executive Vice President and Chief Financial OfficerYeah I would add in an environment in an increasing pricing environment that generates the appropriate returns we may spend more but it will be commensurate with the focus on returns and overall driving better free cash flow Scott Gruber Citigroup AnalystGot it And then just a question circling back on the domestic frac market With pricing hopefully stabilizing here in early 2020 and Jeff you had mentioned a focus on maximizing returns on the frac fleet But broad strokes does that strategy likely mean that your frac business trends with the market in 2020 or they had lagged the market to a degree in 2020 would be focused on returns How should we think about it Jeff Miller Chairman President and Chief Executive OfficerYeah I think that it will yeah I would expect we stay consistent with the market but we don t feel like we have to just because we mostly focus on the returns and free cash flow out of that business But I wouldn t think we would be out of the market at any point in time But that said we re focused on the slice of customers that make the best returns for us which gets to a number of factors efficiency but also calendar cadence piece of spend This year going into Q1 for example we re 95 committed on the fleet which is the best we ve been since the downturn Scott Gruber Citigroup AnalystGot it Appreciate the color Thank you OperatorOur next question comes from David Anderson with Barclays Your line is now open David Anderson Barclays AnalystHi good morning Jeff going back to your comments on the digital side as we move beyond the proof of concept and it becomes more broadly accepted you kind of talked about sort of two different types of customers out there I guess as sort of maybe on the E P side as those who have kind of realized they can do themselves and you provide certain discrete operations different applications like you just mentioned on some of your tools On the other side you have other bigger broader customers which you can implement your ecosystem across the organization kind of the announcements you made today How do you see those two sets of customers evolving over the next let s say next several years Is it fair to assume just kind of the former and then the former is the majority of that business and then hopefully it kind of evolves more into more the broader implementation Can you just talk about how you see the customers acceptance Jeff Miller Chairman President and Chief Executive OfficerYeah Look I think customers do this at the pace at which they can digest it realistically And that is the reason why I think you see that bifurcation today it s more apparent just because customers that can actually operate and execute at that level of integration are fewer and far between today And I kind of view it that way It gets implemented at the pace it could be absorbed That s why I tend to talk about the vision and then bring it down to OK here are the more digestible groupings being drilling production and reservoir and then even down into the tools Because the reality is number of these tool don t have to be integrated but they can be and they re more effective when integrated And so if I use a fairly simple example like in EarthStar tool it s a tool it s metal it runs in the well it s fantastic tool but what s most important about it is the answer product which is the 3D inversion And now that 3D inversion becomes even more valuable when integrated in an Earth model and likely yet again more valuable when integrated into the entire ecosphere But that s difficult for everyone to do that at one time and it s very hard to do that given sort of the proliferation of different systems So the key in my view is we continue to advance the platform the ecosystem as you described it while at the same time driving immediate returns around these tools And they re available to be integrated into that ecosystem I hope that s helpful David Anderson Barclays AnalystThat makes a lot of sense Jeff Thanks Now the other side of digital here is that it appears to be deflationary to traditional oilfield services going forward Your customers can do more with less Would you agree with that And do you think that future digital revenue to Halliburton presumably it comes at higher margins it s more sustainable can that more than offset this deflation over the next several years Jeff Miller Chairman President and Chief Executive OfficerI think it can because I think what s missing in this deflation discussion is the moat that comes in around our equipment that allows so much cost savings on the client side part of the business that we ll be able to reap better margins and better returns on those assets to deliver those solutions And obviously at the same time we ll likely be reducing our own costs as we work through this So I think it will be deflationary in some ways but I think the value and the returns on the not just the componentry but how that componentry is part of that ecosphere really widens the moat that may be isn t there is prevalent today but I think we ll see that widen and that ultimately drives better returns for us in spite of what might be deflationary in a number of other areas of the business David Anderson Barclays AnalystThank you Jeff Miller Chairman President and Chief Executive OfficerThank you OperatorOur next question comes from Chase Mulvehill with Bank of America Merrill Lynch Your line is now open Chase Mulvehill Bank of America Merrill Lynch AnalystHey Good morning I guess I want to come back to the capex question and ask it maybe a different way If we think about that 1 2 billion of capex what s the split between D E and C P Lance Loeffler Executive Vice President and Chief Financial OfficerYeah Chase this is Lance I would say that it s very similar to the 60 40 split that we talked about between NAM and international is a good proxy Chase Mulvehill Bank of America Merrill Lynch AnalystOkay So 60 C P is that what you re saying Lance Loeffler Executive Vice President and Chief Financial OfficerNo no no 60 D E Chase Mulvehill Bank of America Merrill Lynch AnalystGot it Okay All right If you re 40 I think that puts you sub 4 of C P revenues if we think about capex as a percentage of revenues Obviously lower than kind of what you did in 2016 as a percentage of revenues if we look over the next couple of years and kind of call it a sluggish modest growth North America environment how should we think about C P capex over the next couple years and maybe frame it on a percentage of revenues Lance Loeffler Executive Vice President and Chief Financial OfficerYeah Look I think structurally lower as we described it based more on the market and the opportunity set that we see But we re really careful not to we don t peg this to percents of revenues and others things because then when get sort of odd answers when we see markets growing and I don t think growth is geared that way to our capex necessarily And so we will continue to focus on the best returning opportunities where we see those But the idea that it s going to have to move the capex is going to move as a percentage with revenues is really not that s not how we approach them Chase Mulvehill Bank of America Merrill Lynch AnalystOkay That makes sense And then coming back to frac you talked about 22 less frac horsepower Is that the amount that you ve actually retired or is that the amount that you ve actually taken out of the market from an active fleet reduction And then a quick one follow up to that You talked about improvement in frac utilization in 2020 for your active fleets Do you care to kind of quantify that How much improvement in utilization across your active fleets you think you can get in 2020 Lance Loeffler Executive Vice President and Chief Financial OfficerLook I ll start with the first question The 22 that we described is out of the market sold by the pound retired but that s done some good things for us I mean the reality is that we re 90 Q10s at this point our costs are lower our service quality is the best it s ever been So that s how we view that The activity I guess is as we look out at the balance of the year or in terms of utilization part of maximizing profitability of that fleet and the returns on that fleet is keeping it busy And as I described earlier we started the year 95 committed which is the best we ve been in sometimes So I m encouraged by that outlook based on the fleet that we have Chase Mulvehill Bank of America Merrill Lynch AnalystOkay All right That s all I have three I ll turn back over Thanks Jeff Jeff Miller Chairman President and Chief Executive OfficerThanks OperatorOur next question comes from Kurt Hallead with RBC Capital Markets Your line is now open Kurt Hallead RBC Capital Markets AnalystThank you Hey good morning Jeff Miller Chairman President and Chief Executive OfficerGood morning Kurt Kurt Hallead RBC Capital Markets AnalystHey thanks for that great rundown I was kind of curious first and foremost on the international front when we look at 2020 Where do you think the best relative growth prospects are for Halliburton You mentioned that Asia Pac was a major contributor here in 19 so just kind of curious on how you see the regional dynamics play out for 2020 Jeff Miller Chairman President and Chief Executive OfficerYeah Thanks Kurt Look I think it s again led by Asia Pac in 2020 Europe CIS continues to be strong as we get into a full year of activity on a number of the contracts we talked about in the past Africa grows but it will be a bit more choppy as it works through exploration and regulatory sort of resetting in that market Middle East remains robust but obviously starts at a fairly high point as the market itself and LatAm likely brings up the rear Kurt Hallead RBC Capital Markets AnalystOkay Appreciate that dynamic And then I just want to get a little bit better understanding here on just the guidance you provided for first quarter on the margin progressions for C P and D E And I want to try to get in this context For C P when you look at the margin degradation on a quarter on quarter basis could you give us some general sense of how much is that related to the absence of the tool sales versus market dynamics Lance Loeffler Executive Vice President and Chief Financial OfficerYeah I mean Kurt this is Lance Yes it s definitely impacted by just a non recurring nature of year end product sales in the C P division which were probably up 10 to 15 versus what we saw in 2018 So we had a good fourth quarter at our C P division in terms of year end equipment sales Kurt Hallead RBC Capital Markets AnalystOkay And then can the same be said for D E Lance Loeffler Executive Vice President and Chief Financial OfficerI m sorry I ll let you continue Lance Sorry No And then and that is obviously those margins are accretive So what we see replacing that in the first quarter in terms of activity largely in the resumption of our pressure pumping business in North America is coming at lower margins And so you see the offset of that in the guidance Kurt Hallead RBC Capital Markets AnalystOkay Can the same be said for D E Lance Loeffler Executive Vice President and Chief Financial OfficerYeah same can be said for D E probably more comparative flattish year over year in terms of year end product sales in our D E division Kurt Hallead RBC Capital Markets AnalystThat s great Appreciate that incremental color Thanks guys Jeff Miller Chairman President and Chief Executive OfficerThanks Kurt OperatorThe next question comes from the line of Marc Bianchi with Cowen Your line is now open Marc Bianchi Cowen AnalystThank you Jeff you were talking about oversupply still in the frac market and with your retirements and what we ve heard from the others there has been a pretty significant reduction so far What do you think is needed from here to kind of balance the market and what do you think the timeline is for that Jeff Miller Chairman President and Chief Executive OfficerYeah Look I think what s most important is that that attrition is real I get this question a lot And I think a quarter ago I said I thought it was 20 which was viewed as high turns out that s right in the fairway So that attrition is in fact occurring And the market forces or the forces that drove that attrition haven t changed at all in terms of amount of sand pumps number of stages per day All of those things that drive that attrition haven t changed And so I suspect we continue on a pace that s at least consistent with that As far as the timeline of when we see it it happens at some point It doesn t change the way we go to the market today And so we are so focused on delivering our strategy around cost reduction and our service delivery improvement that when that happens it will be terrific and we ll see a great boost from that But I think in the meantime we ve got a plan to deliver solid free cash flows and return sort of in any market Marc Bianchi Cowen AnalystOkay Thanks for that Maybe somewhat related we ve got the guidance here for first quarter for C P margins which includes the full benefit of all the cost cutting you re doing Where do you think those margins can get absent any kind of pricing recovery for the frac side of business Is there just through the self help I think you re talking about a bogey that you would point to over the next number of quarters Jeff Miller Chairman President and Chief Executive OfficerLook no I mean I think we ve provided guidance on Q1 I view strategy as something that we executed and we continue to see the value and benefit from And so we re taking a very long view of this business and the actions that we re taking beyond Q1 to continue to contribute and improve the business And I think that we will continue to outperform like we have the highest margins today in North America and we ll continue to add to that Marc Bianchi Cowen AnalystGreat Thanks so much OperatorAnd that will conclude today s question and answer session I d like to turn the call back to Mr Miller for closing remarks Jeff Miller Chairman President and Chief Executive OfficerThank you Liz Before we wrap up I d like to close with a few points First I expect that Halliburton s international growth will continue in 2020 and that the combination of capital discipline pricing improvements and technology will lead to margin expansion Second Halliburton will continue executing our North America playbook to maximize returns and free cash flow And finally I believe digitalization will define the next decade and Halliburton is uniquely positioned to reap the benefits Look forward to talking to you again next quarter Liz please close out the call Operator Operator Closing Remarks Duration 62 minutesCall participants Abu Zeya Senior Director Investor RelationsJeff Miller Chairman President and Chief Executive OfficerLance Loeffler Executive Vice President and Chief Financial OfficerJames West Evercore ISI AnalystSean Meakim JPMorgan AnalystAngie Sedita Goldman Sachs AnalystBill Herbert Simmons Co AnalystScott Gruber Citigroup AnalystDavid Anderson Barclays AnalystChase Mulvehill Bank of America Merrill Lynch AnalystKurt Hallead RBC Capital Markets AnalystMarc Bianchi Cowen Analyst
More HAL analysis
All earnings call transcripts |
C | Economic Surprise Indices Bad News Might Actually Be Good News | One criteria investors and strategists evaluate on a regular basis is whether or not economic data that is reported on a near daily basis is exceeding or missing expectations A commonly reviewed index is the Citigroup NYSE C Economic Surprise Indices CESI According to Bloomberg
The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news They are defined as weighted historical standard deviations of data surprises actual releases vs Bloomberg survey median A positive reading of the Economic Surprise Index suggests that economic releases have on balance been beating consensus The indices are calculated daily in a rolling three month window The weights of economic indicators are derived from relative high frequency spot FX impacts of 1 standard deviation data surprises The indices also employ a time decay function to replicate the limited memory of markets
One takeaway from the negative level of the CESI for the U S is the fact economic reports have been falling short of strategist expectations This in turn could push the Fed to act later on pushing short term interest rates higher Also as noted in a recent article in the Wall Street Journal When Bad News Is Good for Stocks
It is important to understand though that the surprise index doesn t rise or fall with the ebb and flow of the economic cycle Because it measures a rolling average of how things turn out relative to forecasts more often than not it tends to turn negative after there has been a streak of encouraging economic news such as in late 2014 This is because forecasters often mistakenly extrapolate recent trends
When the index is deeply negative as it is today that is usually a good sign for stocks Following the weakest 5 of observations since 2003 the S P 500 rose by 14 4 on average during the following six months Conversely it rose by just 5 5 following times when the surprise index was highest Today s trough puts the index in the lowest 8 of readings This is unusual given stocks are within spitting distance of all time highs despite softer than expected economic reports The possible reason for this revolves around the Federal Reserve which may be just months away from raising interest rates for the first time in nine years News that is disappointing enough to sow doubt in rate setters minds without signaling a recession is seen as ideal for stock prices
Further the CESI for the Euro Zone has been counter to that of the U S that is economic data reports have been exceeding strategists expectations and the Euro STOXX 600 Index has responded positively We have commented frequently with clients about the recent need to hedge the exposure to the the euroversus the US dollar in order to protect returns generated in the Euro currency
For investors is this string of expectation beating reports in Europe nearing an end We do not believe so We are seeing corporate earnings report revisions trending more to the positive than the negative as well as continued expectation beating economic reports out of Europe We touch on several of these points in our soon to be released Investor Letter In a recent Bloomberg article
Jack Ablin chief investment officer of BMO Private Bank in Chicago said he pays attention to the surprise indexes as a way to gauge when a particular national economy may be turning and looks for good value in equities
It is an early indication of a momentum shift he said adding that he s been raising the amount of money put into international stocks While Ablin expects moderate U S growth he said a strong U S dollar has the potential to dampen the expansion
Interestingly the Economic Surprise Indices readings could be suggestive of a market environment that is broadly favorable for a number of global equity markets The desire by the U S Fed to get rates off the near zero level and data that pushes this further into the future and conversely a number of central banks outside the U S pursuing quantitative easing measures both can be positive for global equity markets |
C | Why Is USD Diving Ahead Of The Fed | Tuesday was a rough day for the world s reserve currency An hour before the close the trade weighted U S Dollar Index was off 0 7 and the currency itself was off more than 2 during the last four trading days alone The proximate cause is ostensibly Tuesday s abysmal Conference Board Consumer Confidence report which fell over six points to a YTD low of 95 2 in the largest miss relative to expectations since June 2010 While that figure was a shock for dollar bulls it merely extends the persistent trend of disappointing U S data To wit Citigroup s NYSE C U S Economic Surprise Index dropped to 0 783 the second lowest level since its inception in 2000 Perhaps then Tuesday s Consumer Confidence report can be seen as the proverbial straw that broke the bull s back
From a technical perspective the writing was on the wall for the dollar index late last week On Thursday it dropped below symmetrical triangle support at 98 00 following that up with a weekly close below the 50 day MA on Friday That represented the first time since last July that the index had traded below its 50 day MA providing a clear signal that at a minimum the longer term trend was shifting into a lower gear Meanwhile both the MACD and RSI peaked back in mid March and have been trending lower ever since the MACD is now peeking below the 0 level showing that momentum has shifted outright in favor of the bears
Now before we get too far ahead of ourselves it s important to remember that what the market giveth it can also taketh away With the first estimate of U S Q1 GDP and the Fed s Monetary Policy Statement on tap Wednesday followed by a series of second tier U S economic reports and ISM Manufacturing PMI there is still a chance that buyers could step in to support the greenback later this week But if none of these economic reports signal an imminent turnaround in the U S economy the dollar drop may be just getting started To the downside the 100 day MA around 95 00 may be the next support level to watch while the previously supportive 50 day MA at 97 40 may now cap near term rallies in the dollar index
Source FOREX com
For more intraday analysis and market updates follow us on twitter MWellerFX and FOREXcom |
C | King Dollar Suffers Setback In FX Game Of Thrones | HBO s epic Game of Thrones series based on the books by George R R Martin has captured the world s imagination with its massive scale and brutal violence In some ways the HBO series constant competition and unexpected twists of fortune mirror the forex market though until last month there was just one unchallenged king of the forex market The U S dollar
After rising for an incredible nine straight months the U S Dollar Index finally took a break in April pulling back 4 on concerns that the U S economy was stalling Last week we noted that Citigroup s NYSE C U S Economic Surprise Index dropped below 0 75 to the second lowest level since inception in 2000 and that the dollar drop may be just getting started t o the downside the 100 day MA around 95 00 may be the next support level to watch see Why is the Dollar Diving Ahead of the Fed for more This key 95 00 level was hit faster than anyone ourselves included expected and as we head into a new trading month the question on the tip of every trader s tongue is Have we seen the end of the dollar s massive rally
This week s U S economic reports will go a long way toward answering that question Earlier this morning the market saw one of the best measures of broad economic activity the ISM Non Manufacturing PMI survey which showed that the services sector accelerated in April to a stronger than forecast reading Expectations were centered around a roughly steady headline reading of 56 2 after last month s 56 5 reading but dollar bulls were looking for the measure to accelerate after a supposedly weather constrained first quarter The index rose to to 57 8 in April up from 56 5 in March Beyond the headline reading the employment subcomponent of the report will also be closely scrutinized as it tends to be one of the best leading indicators for Friday s Non Farm Payrolls report Traders will also keep an eye on Wednesday s ADP Employment report and speech by Fed Chair Yellen as well as Thursday s Initial Unemployment Claims report
Technical View Dollar Index
Turning our attention to the dollar index there is certainly a technical case to be made for a bounce The trade weighted index is finding some support at the convergence of the aforementioned 100 day MA and previous support in the 94 00 95 00 zone thus far this week The lagging MACD indicator continues to trend lower beneath its signal line and the 0 level signaling bearish momentum but the RSI dipped into oversold territory late last week suggesting that we may have hit a near term bearish extreme
Unless we see absolutely abysmal or stellar U S economic data this week the dollar index appears set for a period of consolidation between 100 day MA support in the 94 50 area and resistance at the 50 day MA near 97 50 Traders blind worship of King Dollar has likely been put on hold but that doesn t mean that the greenback has to suffer a proverbial death instead the world s reserve currency may just bide its time and wait for its next opportunity to ascend to the throne
Source Stockcharts com andFOREX com
For more intraday analysis and market updates follow us on twitter MWellerFX and FOREXcom |
C | Top Trade Ideas For The Week Of May 11 2015 Bonus Idea | Here is your Bonus Idea with links to the full Top Ten
Citigroup NYSE C has been a serious laggard in the financial space since the market recovery began in 2009 Where many financials have recovered and are trading at new all time highs Citigroup has recovered less than 10 of the move lower This leaves the stock technically poised for a possibly large long term move But only if it can get through resistance That has been the story since 2009
In the short term the stock has some good prospects It is back at that resistance again the range from 54 to 55 This time it is from a series of higher lows after a pullback in January The price action has formed an ascending triangle that targets a 6 50 move on a break out or to 61 if to the upside
It has positive support from the momentum indicators with the RSI in the bullish zone and rising and the MACD about to cross up out of a flat move the past month And the timing may be right with the Bollinger Bands getting tight often a precursor to a move in the stock price The company is not expected to report earnings next until July 13th before the market opens Short interest is low at 1 1
The options action for this week shows the biggest open interest at the 52 50 Strike and then the Calls seeing good open interest higher at 55 and 60 The Put side shows 50 and 51 below with large open interest as well Looking out in the June Expiry there is open interest building at the 57 5 Call Strike with the 55 and 60 Strikes on the Call side also larger than anything on the Put side
Citigroup Inc NYSE C
Trade Idea 1 Buy the Stock on a move over 54 50 with a stop at 53 A straight trade in the stock
Trade Idea 2 Buy the June 55 Calls offered at 88 cents late Friday Using defined risk to participate in a stock price move
Trade Idea 3 Buy the May June 55 Call Calendar 72 cents Lowers cost for participation looking for short term resistance at 55 to stop the stock
Trade Idea 4 Buy the May June 55 Call Calendar and sell the June 50 Puts 49 cents Adds leverage to the prior trade and risk under a price of 50
Trade Idea 5 Buy the June January 55 Call Calendar 2 47 and sell the June January Put Calendar 1 84 credit for 63 cents total Takes the whole trade structure longer and adds short term downside protection
After reviewing over 1 000 charts I have found some good setups for the week These were selected and should be viewed in the context of the broad picture reviewed Friday which heading into the May Options Expiration week the equity markets look to have weathered a storm or at least most of one
Elsewhere look for gold to continue to move sideways near 1200 while crude oil pulls back in its new uptrend The US Dollar Index still looks weak while US Treasuries remain biased lower The Shanghai Composite looks to continue to pullback in its uptrend and Emerging Markets are biased to the downside
Volatility looks to remain subdued keeping the bias higher for the equity index ETF s ARCA SPY ARCA IWM and NASDAQ QQQ despite the ruckus this week Their charts all continue to look better on the longer timeframe with the SPY and QQQ looking more sideways in the short run while the IWM may take another leg lower Use this information as you prepare for the coming week and trad em well
DISCLAIMER The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment I or my affiliates may hold positions or other interests in securities mentioned in the Blog please see my page for my full disclaimer |
JPM | Weak utilities demand restrains U S industrial production | By Lucia Mutikani WASHINGTON Reuters U S industrial production barely rose in September as a rebound in manufacturing and mining output was offset by surprisingly weak demand for utilities pointing to a moderate acceleration in economic growth in the third quarter Still the mixed report from the Federal Reserve on Monday suggested that the industrial sector downturn has probably run its course Gains in output are likely to be muted as the sector remains constrained by the lingering effects of the dollar s past rally a collapse in oil prices and weak global demand It is hard to have a full blown strong economic expansion if the manufacturing sector is hurting and that has been the case this year said Joel Naroff chief economist at Naroff Economic Advisers in Holland Pennsylvania The Fed said industrial output edged up 0 1 percent last month after declining 0 5 percent in August Last month s gain was in line with economists expectations Industrial production rose at an annual rate of 1 8 percent in the third quarter the first quarterly increase since the third quarter of 2015 The report came on the heels of data on Friday showing a mild increase in core retail sales in September which prompted the Atlanta Fed to cut its third quarter gross domestic product estimate by two tenths of a percentage point to a 1 9 percent rate The economy grew at a 1 4 percent pace in the second quarter The dollar was little changed against a basket of currencies while prices for U S Treasuries rose Stocks on Wall Street were trading lower MANUFACTURING OUTPUT RISES Industrial production was last month supported by a 0 2 percent rise in manufacturing output which followed a 0 5 percent drop in August Manufacturing output was boosted by the production of goods such as textiles and plastics Motor vehicle and parts production edged up 0 1 percent while the output of machinery and primary metals fell Manufacturing production rose at a 0 9 percent rate in the third quarter Manufacturing has also been hurt by business efforts to reduce an inventory overhang which has resulted in fewer orders being placed with factories There are however signs of stability as the dollar s rally appears to be slowing and oil prices steadily rise A survey early this month showed an acceleration in factory activity in September and new orders for manufactured capital goods have increased since June But strong gains in the near term are unlikely A separate report from the New York Fed on Monday showed factory activity in New York State weakened further in October as new orders continued to contract Manufacturers were however more upbeat about the sector s prospects in the next six months We look for modest growth in the manufacturing sector to continue as the worst of the effects of the strong dollar and inventory overhang pass said Jesse Edgerton an economist at JPMorgan NYSE JPM in New York In September mining production rose 0 4 percent as gains in oil and gas well drilling offset a drop in crude oil extraction That left mining output rising at a 3 7 percent rate in the third quarter following six consecutive quarterly declines Energy services firm Baker Hughes reported on Friday oil firms increased drilling rigs last week for the 16th straight week Utilities production dropped 1 0 percent last month despite unseasonably warm weather during the month The drop in utilities output suggests slower consumer spending in the third quarter With output tepid last month industrial capacity use edged up 0 1 percentage point to 75 4 percent and is 4 6 percentage points below its long run average
Officials at the Fed tend to look at capacity use as a signal of how much slack remains in the economy and how much room there is for growth to accelerate before it becomes inflationary |
HAL | Why 2 Billion Impairment Charge Isn t Hurting Halliburton Stock | Halliburton Co NYSE HAL reported fourth quarter 2019 results before markets opened Tuesday For the quarter the oil and gas services company posted adjusted diluted earnings per share EPS of 0 32 on revenues of 5 2 billion In the same period a year ago the company reported EPS of 0 41 on revenues of 5 94 billion Fourth quarter results also compare to consensus estimates for EPS of 0 29 per share and 5 15 billion in revenues For the full year Halliburton reported EPS of 1 24 and revenues of 22 41 billion compared with 2018 EPS of 1 90 and 23 63 billion in revenues Analysts had been looking for 1 21 in EPS and revenues of 22 35 billion The company took a 2 2 billion impairment charge in the fourth quarter totaled 2 5 billion for the fiscal year to further adjust its cost structure to market conditions Charges totaling 1 47 million came primarily in the form of noncash asset impairments related to pressure pumping and old drilling equipment Severance costs 172 million were also included On a GAAP basis Halliburton posted a quarterly net loss of 1 88 per share and 1 29 per share for the full fiscal year div connatix margin bottom 1 5em div connatix img margin unset Chair and CEO Jeff Miller said I am pleased with how Halliburton executed for the fourth quarter and the full year We optimized our performance in North America as the market softened and our international business grew for the second year in a row In 2020 we expect our international growth to continue Increased activity disciplined capital allocation pricing improvements and our ability to compete for a larger share of high margin services should lead to improvement in our international margins in 2020 W e expect customer spending in North America to be down again this year we will continue executing our playbook implementing our service delivery improvement strategy and focusing on maximizing our returns North American revenue fell by 21 sequentially and by 18 year over year International revenue rose sequentially and annually by 10 The company offered no guidance The consensus analyst estimates for the first quarter call for EPS of 0 24 and revenues of 5 03 billion For the fiscal year analysts are looking for EPS of 1 27 and revenues of 21 14 billion In Tuesday s premarket session Halliburton stock traded up about 3 at 24 70 after closing Friday at 23 96 The stock s 52 week range is 16 97 to 32 71 and the consensus 12 month price target is 27 23
By Paul Ausick |
C | IForex Daily April 06 2014 | The dollar fell against most major currencies on Friday as weakness in the rest of the economy finally caught up with the job market last month The Labor Department showed that the U S economy added 126 000 new jobs in March less than half of February s gain and the smallest increase since December 2013 Economists had forecast jobs growth of 245 000 last month It is important to note that the April 3 employment data followed other statistics from retail sales to capital goods orders that also pointed to a slowdown in the first quarter Last month the Fed stated that the first rate hike could come as soon as June but added that continued improvement in labor markets would be a key factor it would consider This implies that a slowing labor market could prompt the Federal Reserve to delay further a planned increase in interest rates Fed minutes due Wednesday may give more clarity on the central bank s approach At their last meeting policy makers revised down interest rate projections even as they removed a commitment to being patient on the timing of rate increases On Monday markets in Australia New Zealand China Europe and the U K will remain closed for holidays
EUR USD
The euro gained ground against the dollar on Friday after data showing that the U S economy added far fewer jobs than expected last month prompted investors to push back expectations for higher interest rates The drop in the dollar came after surprisingly weak employment data from the U S that retreated to the lowest increase since December 2013 The data added to concerns over the outlook for economic growth after other recent economic data also indicated a slowdown at the beginning of the year In the week ahead markets outside the U S will remain closed on Monday For Monday Spain is to release its monthly unemployment report while later in the day the Institute of Supply Management is to release data on U S service sector activity
Pivot
1 08
Support
1 08
1 075
1 071
Resistance
1 095
1 102
1 105
Scenario 1 Long positions above 1 08 with targets 1 095 1 102 in extension Scenario 2 Below 1 08 look for further downside with 1 075 1 071 as targets Comment The RSI broke above a declining trend line
XAU USD
Gold prices gained on Monday as last week s U S jobs data bring back uncertainty over the strength of the U S economy Last week the Labor Department reported that the U S economy added 126 000 new jobs in March less than half of February s gain and the smallest increase since December 2013 The surprisingly weak report added to concerns over the outlook for economic growth and is something that could prompt the Federal Reserve to reconsider a planned increase in interest rates For Monday gold traders will be focusing on the Institute of Supply Management data on service sector activity from the U S
Pivot
1191
Support
1191
1178 3
1168 5
Resistance
1212 75
1220
1224
Scenario 1 Long positions above 1191 with targets 1212 75 1220 in extension Scenario 2 Below 1191 look for further downside with 1178 3 1168 5 as targets Comment The RSI is below its neutrality area at 50 but reversing up
OIL USD
Oil prices climbed more than 1 a barrel on Monday after Saudi Arabia raised prices for crude sales to Asia for a second month signaling better demand in the region and as weakness in the dollar provides positive demand for the fuel In addition China s imports from Iran one of OPEC s main producers are set to rise from August as a Chinese state trader has signed a deal with the National Iranian Oil Company Markets will be focusing on inventory data from the U S on Wednesday for further indications on demand for the fuel
Pivot
50 45
Support
48 1
47
45 3
Resistance
50 45
51 15
52 05
Scenario 1 Short positions below 50 45 with targets 48 1 47 in extension Scenario 2 Above 50 45 look for further upside with 51 15 52 05 as targets Comment As long as 50 45 is resistance look for choppy price action with a bearish bias
FACEBOOK
Facebook NASDAQ FB company stock price received some strong bullish signals after posting a drop last week as analysts from Citigroup Inc NYSE C updated their 12 month price targets for the stock by 18 to 97 from 91 The hike came after data from the F8 Facebook Developer Conference was analyzed and showed significant revenue growth potential in video advertising e commerce as well as FB s newly launched payments feature that gives users a convenient and safe way to send and receive money between friends Additionally advancements in FB s photo sharing app Instagram and its messaging portal WhatsApp which according to Citigroup analyst comments are on their way to become billion dollar businesses
Pivot
77
Support
77
73 3
68 45
Resistance
89 5
94 5
101 7
Scenario 1 Long positions above 77 with targets 89 5 94 5 in extension Scenario 2 Below 77 look for further downside with 73 3 68 45 as targets Comment The RSI is bullish and calls for further advance The validation of the ascending triangle calls for further upside |
JPM | JPMorgan Q3 EPS 1 58 vs estimate of 1 39 | Investing com JPMorgan NYSE JPM Chase s third quarter earnings released Friday beat estimates JPMorgan Q3 EPS 1 58 vs estimate 1 39 and 1 68 a year earlier Revenues in the quarter up 8 4 yoy at 25 5 bn vs forecast 23 80 bn The U S bank said core loans up 15 from a year earlier up 2 from Q2 JP Morgan shares up 1 8 in pre market trade at 67 75 |
C | Welcome To The Currency War Part 18 Dollar Soars Economy Disappoints | The point of competitive devaluation aka currency war is that a cheaper currency gives a country several advantages over its trading partners leading to better growth and generally happier voters The trading partners meanwhile get the ugly mirror image slowing growth and disgruntled citizens so they eventually respond in kind with devaluations of their own If nothing happens to stop the war everyone s currency ends up being worth a lot less and a whole generation of savers is partially wiped out
In the current skirmish Europe is crushing the US which is to say the dollar is soaring against the euro So if the script holds the US should be suffering And despite all the breathless reports of plentiful jobs and plunging unemployment the recent numbers do paint a picture of a country hobbled by a too strong currency From Bloomberg this morning
It s not only the just released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news Overall U S economic data have been falling short of prognosticators expectations by the most in six years
The Bloomberg ECO U S Surprise Index which measures whether data beat or miss forecasts fell to the lowest since 2009 when the nation was in the deepest recession since the Great Depression
There s been one notable exception to the gloom and it s a big one payrolls The economy added 295 000 jobs in February and 1 3 million over four months a reflection of a healthier labor market in which the unemployment rate has fallen to the lowest in almost seven years
Most everything else Blah
This month alone personal income and spending manufacturing as measured by the Institute for Supply Management auto sales factory orders and retail sales have all come in a bit weak
Citigroup NYSE C keeps economic surprise indexes for the world and its scoreboard shows the U S is most disappointing relative to consensus forecasts with Latin America and Canada next as of March 12 Emerging markets were supposed to be hurt by falling oil prices but are now delivering positive surprises U S policymakers frequently talk about weakness in Europe and China though both are exceeding expectations
Some thoughts Coming after five years of huge deficits and zero interest rates a US slowdown would either invalidate the concept of QE or invalidate the concept of finite QE
Since giving up on easy money would leave the authorities with zero policy tools to hype during the coming election cycle surrender is a non starter So the idea that we haven t done enough will soon be embraced by everyone from Paul Krugman who s been saying it all along to the entire democrat party to most major corporations who have had enough of a strong currency and long for a euro style 1 3 off sale
But the timing depends on the stock market If it keeps rising then hope will endure of a wealth effect boost to second half growth If it tanks then all hesitancy will evaporate and the Fed will see Draghi s trillion and raise him another Bond yields will go negative and bank savings accounts even more so
At which point the question will shift from is there really a currency war to where will they find more stuff to buy once they have all the bonds |
C | FOMC Preview Losing Patience But What About The Buck | The Federal Reserve s long awaited 2 day March monetary policy meeting kicked off Tuesday and frankly it couldn t have come at a more interesting time As we all know the Federal Reserve has a dual mandate to promote full employment and stable prices and on those fronts the central bank has been broadly successful The US labor market appears to have turned a corner with monthly non farm payrolls growing at an average rate of nearly 300k jobs per month over the last quarter While headline inflation has lagged the Fed s 2 target the central bank has repeatedly chalked that up to the temporary impact of falling oil prices
So what s the Rub
For the Federal Reserve the problem is not its dual mandate it s everything else Both employment and inflation are lagging economic indicators and the more current measures of economic activity have turned sharply lower over the last few months Citigroup s NYSE C US Economic Surprise Index which measures how economic data performs relative to analyst expectations has quietly dropped to its lowest level since mid 2012 more saliently we ve seen massive disappointments in Retail Sales PPI Consumer Sentiment Capacity Utilization Industrial Production and now Building Permits just in the last week alone
Strong Buck Tough Luck for US Multinationals
Beyond the recent disappointments in coincident and leading economic indicators or perhaps partly related to them the recent strength in the dollar has created another source of concern for the central bank As my colleague Kathleen Brooks discussed yesterday the strong dollar was a major driver in the weak results from Q4 corporate earnings season while FiREapps noted that on profits vs a recent average of just 6 4 with two thirds of those companies anticipating further difficulties with the strong dollar throughout this year In some ways the recent strength in the dollar is doing much of the Fed s heavy lifting already The rise in the currency decreases the costs of imports and makes US exports less attractive internationally theoretically tapping the brakes on the economic recovery and inflation
How Now Fed
In her semi annual Humphrey Hawkins testimony Fed Chair Janet Yellen stated that the central bank would remove its pledge to be patient before raising interest rates before well before raising interest rates Notwithstanding the recent downturn in other economic indicators and strength in the dollar we still feel that the Fed is likely to remove its patient wording to increase its flexibility heading into this summer Beyond that nod to the bulls though the central bank may up its rhetoric around the recent strength in the US dollar potentially offsetting any dollar bullish impact of losing patience
As the big rally in the dollar month to date shows expectations for a hawkish Fed are clearly elevated and anything less than a 100 optimistic statement may disappoint some of the buck bulls setting the stage for a potential buy the rumor sell the news reaction in the greenback
That said if the central bank sounds upbeat on the economy and downplays the impact of the recent dollar strength the potential for a June rate hike will remain on the table and the recent dollar uptrend could turn parabolic
For more intraday analysis and market updates follow us on twitter MWellerFX and FOREXcom |
C | 4 Charts The Fed Isn t Hiking Rates Anytime Soon | The ultra strong U S dollar is making its presence felt throughout the globe and is on the verge of wreaking havoc on a much larger scale A premature Fed rate hiking cycle could be the catalyst to send the USD into overdrive and send global markets tumbling lower 4 charts that clearly illustrate why the Fed won t be entering a rate hiking cycle anytime soon
The gap between the yield on 2 year Bunds and 2 year Treasury notes indicates even more USD appreciation in the near future this is a clear negative for U S exports and economic growth
The pace and trend of new orders and real GDP exports indicates trouble ahead Meanwhile the strong USD adds nothing but a further headwind for U S export growth
The Citigroup NYSE C Economic Surprise Index is at its lowest level since summer of 2011 when the eurozone was on the brink of falling apart Moreover the trajectory of the decline strongly correlates with the parabolic rally in the USD
Last month the U S fell into deflation for the first time since the 2008 2009 Global Financial Crisis a stronger USD does nothing but add to the disinflationary headwinds
While the Fed could certainly initiate a single rate increase for symbolic reasons there is little chance that a protracted rate hiking cycle will begin anytime soon At least not if the Fed wants to avoid crushing the economy and triggering another global financial crisis |
JPM | JP Morgan shares move higher after Q3 earnings beat | Investing com JP Morgan jumped almost 2 in pre market trade on Friday after reporting third quarter earnings that beat consensus
JP Morgan said adjusted earnings per share came in at 1 58 in the three months ended September 30 down from 1 68 a share a year earlier but above expectations for adjusted earnings of 1 39 a share
The bank s revenue totaled 25 51 billion in the third quarter an 8 4 increase from the 23 5 billion reported in the same period in 2015 and above estimates for revenue of 23 8 billion
We delivered strong results this quarter with each of our businesses performing well chairman and chief exec Jamie Dimon said in the release
We had record net income in Commercial Banking and record loan balances in Asset Management he pointed out adding that the Corporate Investment Bank reported its best third quarter revenue
In the Consumer businesses we grew both loans and deposits double digits and our new card product Sapphire Reserve has gotten a great response underscoring our unwavering commitment to enhancing customer engagement Dimon said
Traders will now turn their attention to the bank s conference call due to start at 8 30AM ET 12 30GMT
Following the release of the report shares in JPMorgan Chase Co NYSE JPM rose 1 05 or 1 55 in pre market trade to 68 98 from Thursday s closing price of 67 75
Meanwhile U S equity markets pointed to a higher open The blue chip Dow futures advanced 104 points or 0 58 6 50AM ET 10 50GMT the S P 500 futures rose 12 points or 0 55 while the tech heavy Nasdaq 100 futures gained 25 points or 0 53 |
JPM | Top 5 things to watch today | Investing com Yellen in the spotlight for clues on Fed rate hike Consumer data to be closely followed JPMorgan NYSE JPM kicks off banks Q3 earnings season Chinese inflation data provides some relief Global stocks mostly higher on China data |
JPM | U S stock index futures higher ahead of data Yellen speech | Investing com U S stock index futures were higher Friday in line with global stocks on a surprise rise in Chinese inflation The Dow futures was up 0 35 at 06 30 ET while the S P 500 futures gained 0 39 The tech heavy Nasdaq futures added 0 33 U S rate hike odds strengthen with Fed Chair Janet Yellen due to speak later Friday U S retail sales and consumer confidence data are due for release later in the session Wells Fargo NYSE WFC Citibank and JPMorgan NYSE JPM due to report quarterly earnings |
HAL | Hacker Offers 100K in BTC as Bounty for Hacking Halliburton | Anonymous hacker Phineas Fisher will pay up to 100 000 in crypto to hackers for leaking some damaging information about global high profile firms The bounty called the Hacktivist Bug Hunting Program was published on Nov 15 and targets big companies including Israeli spyware vendor NSO Group and American oil company Halliburton NYSE HAL as Vice reported on Nov 17
The idea of the new bounty is to pay other hackers who carry out politically motivated hacks against firms which would lead to the disclosure of documents in the public interest according to Vice Other targets reportedly include mining and livestock companies in South America |
HAL | Halliburton lays off 70 employees at Bakersfield plant in California | By Shariq Khan and Liz Hampton
Reuters Halliburton Co N HAL is laying off employees at its Bakersfield plant in California in its latest round of job cuts this year as the U S oilfield services firm struggles with falling profits amid slowing oil and gas activity
The layoffs are expected to impact about 70 employees at the plant the company said in a filing with California authorities
Halliburton said the move was in addition to job cuts at other plants
The company reported a drop in third quarter profit earlier in October and vowed more cost cuts to help realize 300 million in annualized cost savings
It recently closed a plant in El Reno Oklahoma that impacted about 800 employees Earlier in October the company cut 650 jobs across Colorado Wyoming New Mexico and North Dakota
Halliburton the largest provider of hydraulic fracturing services in the United States and other oilfield services firms have been struggling as producers cut spending due to weak oil prices
In 2019 more than 50 frac spreads or a set number of equipment that a service company uses for hydraulic fracturing have left the Permian Basin the largest U S oil producing region that spans Texas and New Mexico according to consultancy firm Primary Vision s estimates
Halliburton shares were up 3 6 at 22 19 on Friday |
HAL | TechnipFMC Suffers Market Cap Erosion To Bear 2 4B Charge | TechnipFMC plc NYSE FTI recently provided a guidance update on fourth quarter 2019 segmental operations
Let s delve into some key aspects of the company s regulatory filing
TechnipFMC envisioned its fourth quarter non cash impairment charges to be 2 4 billion primarily due to sinking market capitalization induced by geopolitical turmoil and softened commodity prices The company is a leading manufacturer and supplier of products services and fully integrated technology solutions for the energy industry
Energy Players Write Down Valuable Gas Assets
Apart from TechnipFMC some industry players suffered huge write offs in the fourth quarter CA based Chevron Corp NYSE CVX incurred 10 4 billion write down during the period while maintaining its capital discipline This adversity majorly resulted from the Appalachian natural gas assets due to the commodity s price plunge The energy player is one of the largest publicly traded oil and gas entities in the world based on proved reserves
Further Halliburton NYSE HAL the world s second largest oilfield services company after Schlumberger NYSE SLB reported its post tax impairment charges of 2 2 billion for the fourth quarter This write down is in response to a weak commodity price causing a ramped down shale activity in North America
Provision of 2019 Outlook
TechnipFMC estimates its full year revenues to be 13 5 billion indicating a movement toward the midpoint of the earlier guided range
The company is likely to have borne corporate expenses within its previously provided projection of 210 215 million
TechnipFMC expects its full year adjusted EBITDA margin for the Subsea Onshore Offshore and Surface Technologies units to meet or exceed the respective past expectation of 11 5 16 5 and 10 TechnipFMC plc Price
Q4 Earnings Whispers
London based TechnipFMC is scheduled to release fourth quarter results on Feb 26 after the closing bell The current Zacks Consensus Estimate for the to be reported quarter s earnings is pegged at 43 cents per share on revenues of 3 88 billion
The proven Zacks model does not conclusively predict a beat for TechnipFMC this earnings season The right combination of a positive and a Zacks Rank 1 Strong Buy 2 Buy or 3 Hold increases the chances of beating estimates But that is not the case here as elaborated below
You can uncover the best stocks to buy or sell before they re reported with our
Earnings ESP TechnipFMC has an Earnings ESP of 1 86
Zacks Rank TechnipFMC carries a Zacks Rank 3
The above combination is a spoiler as it leaves surprise prediction inconclusive You can see
Zacks Top 10 Stocks for 2020In addition to the stocks discussed above would you like to know about our 10 finest buy and hold tickers for the entirety of 2020 Last year s 2019 Zacks Top 10 Stocks portfolio returned gains as high as 102 7 Now a brand new portfolio has been handpicked from over 4 000 companies covered by the Zacks Rank Don t miss your chance to get in on these long term buys |
HAL | The Zacks Analyst Blog Highlights TOTAL BP ConocoPhillips Suncor Energy And National Oilwell Varco | For Immediate ReleaseChicago IL February 12 2020 Zacks com announces the list of stocks featured in the Analyst Blog Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets Stocks recently featured in the blog include TOTAL S A NYSE TOT BP plc NYSE BP ConocoPhillips NYSE COP Suncor Energy NYSE SU and National Oilwell Varco NYSE NOV Here are highlights from Tuesday s Analyst Blog Oil Gas Stock Roundup TOTAL and BP Report Q4 EarningsIt was a week where the U S crude benchmark fell into a bear market and natural gas prices stayed below the psychologically important level of 2 On the news front European supermajors TOTAL S A and BP plc reported December quarter earnings wherein they beat bottom line estimates Overall it was a mixed week for the sector While West Texas Intermediate WTI crude futures dropped 2 4 to close at 50 32 per barrel natural gas prices inched up 0 9 for the week to finish at 1 858 per million Btu MMBtu See the last Oil Gas Stock Roundup here The crude benchmark fell for the fifth week in a row on fears that the coronavirus outbreak in China would have a severe impact on oil demand The health scare which send oil prices sliding below the psychologically important 50 a barrel for the first time in more than a year was partly offset by the U S Energy Department s latest inventory release that revealed decrease in gasoline and distillate supplies Further indications that the OPEC group is preparing deeper output cuts to stem the decline also had a slight positive effect on prices Meanwhile natural gas ended slightly higher following a larger than expected decrease in supplies However the optimistic sentiment was overwhelmed by mild winter weather forecasts amid strong production which caused prices to stay under 2 Recap of the Week s Most Important Stories1 French behemoth TOTAL reported fourth quarter 2019 operating earnings of 1 19 per share 1 07 per share beating the Zacks Consensus Estimate of 1 01 by 17 8 The bottom line also improved 1 from the year ago figure of 1 17 per share 1 02 per share The outperformances were primarily due to rise in production volumes marginally offset by softness in the prices of commodities The company also hiked its fourth quarter dividend to 68 euro cents per share as per its previously outlined policy to raise annual payout by 5 to 6 Cash and cash equivalents as of Dec 31 2019 were 27 4 billion compared with 27 9 billion at the end of 2018 Net debt to capital was 20 7 at the end of the quarter up from 15 5 in the comparable period of 2018 TOTAL repurchased shares worth 1 75 billion in 2019 and projects to buy back 2 billion shares in 2020 These buybacks are part of the 5 billion buyback program for the 2018 2020 period TOTAL expects organic production growth of more than 2 in 2020 driven by startups in 2019 and the ones expected in 2020 notably lara 2 in Brazil The company has been engaged in cost saving initiatives and aims to continue the same in 2020 These actions will likely result in cumulative cost savings of 5 billion by the end of 2020 TOTAL continues to sell non core assets and plans to divest assets worth 5 billion during 2019 and 2020 Read more 2 British supermajor BP reported fourth quarter 2019 adjusted earnings of 76 cents per American Depositary Share ADS on a replacement cost basis excluding non operating items The bottom line surpassed the Zacks Consensus Estimate of 65 cents but deteriorated from the year ago quarter s 1 04 BP also raised its quarterly dividend from 61 50 cents to 63 cents Higher oil equivalent volumes backed by key upstream projects primarily contributed to the better than expected earnings performance However this was partially offset by lower commodity price realizations declined refinery throughput outside the United States and Europe and narrower heavy crude oil discounts in the fuels business BP s net debt including leases was 55 006 million at the end of the fourth quarter higher than 44 144 million in the prior year period Gearing was recorded at 31 1 up from 30 in the prior year quarter The company has a divestment target of 10 billion by 2020 end of which 9 4 billion has been announced It plans to add another 5 billion worth of assets in the divestment list by mid 2021 Read more 3 Upstream major ConocoPhillips reported fourth quarter 2019 adjusted earnings per share of 76 cents missing the Zacks Consensus Estimate of 81 cents Also the bottom line declined from the year ago figure of 1 13 per share The weak fourth quarter 2019 earnings are primarily attributable to lower production volumes and declined realized commodity prices partially offset by reduced operating costs As of Dec 31 2019 the oil giant had 5 088 million in total cash and cash equivalents The company had a total long term debt of nearly 14 790 million representing a debt to capitalization ratio of 30 In the reported quarter ConocoPhillips generated 2 982 million in net cash from operating activities lower than the year ago level of 3 783 million Capital expenditures and investments totaled 1 595 million and dividend payments grossed 463 million The Zacks Rank 3 Hold company repurchased shares worth 749 million in the quarter You can see For 2020 its production guidance is projected in the range of 1 230 1 270 MBoe d excluding Libya For first quarter 2020 its production is expected in the range of 1 240 1 280 MBoe d Operating cost for the year is expected to be 5 9 billion For 2020 its capital guidance is projected in the range of 6 5 6 7 billion The company expects to buy back 3 billion shares in 2020 It added 10 billion to the already existing share repurchase program which brings the total authorization to 25 billion Read more 4 Canadian operator Suncor Energy reported operating earnings per share of 39 cents which lagged the Zacks Consensus Estimate of 50 cents The miss was attributable to lower output contribution from Fort Hills and Syncrude operations However the bottom line improved 40 74 from the prior year figure of 27 cents per share driven by strong production in the East Coast Canada and Oda Cash flow from operating activities was C 2 304 million in the fourth quarter down 24 2 from the prior year figure of C 3 040 million The company incurred capital expenditure worth C 1 738 million in the quarter under discussion As of Dec 31 2019 Suncor Energy had cash and cash equivalents of C 1 960 million and total long term debt of C 12 884 million Its total debt to capitalization ratio was 23 45 In a shareholder friendly measure Suncor Energy announced an 11 dividend rise This strategic move is indicative of the company s commitment to create value for its shareholders and its high confidence level in business growth The firm raised its quarterly dividend to 46 5 Canadian cents per share on its stock The amount will be paid out on Mar 25 2020 to its shareholders of record as of Mar 4 This profit distribution marks the company s 18th consecutive annualized dividend hike Suncor Energy s board also approved a new stock repurchase authorization program of up to additional C 2 billion effective Mar 1 Read more 5 Oil equipment and service provider National Oilwell Varco reported adjusted earnings of 13 cents per share in fourth quarter 2019 missing the Zacks Consensus Estimate of 16 cents as North American drillers scale back their production growth plans leaving less scope of work for the likes of National Oilwell Varco However the bottom line improved from the year ago earnings of 3 cents Particularly better than expected revenue contribution from the Rig Technologies and the Wellbore Technologies segments led to this outperformance Capital equipment order backlog for Rig Technologies was 3 billion as of Dec 31 2019 including 211 million worth of new orders At year end the company had cash and cash equivalents of 1 17 billion and long term debt of 1 99 billion The debt to capitalization ratio was 20 22 Although the domestic oil producers are unlikely to increase their spending anytime soon the company sees a stronger offshore and aftermarket business In response to the changing market dynamics National Oilwell Varco will likely sustain its disciplined approach to capital spending and improvement in its efficiency level Read more Media ContactZacks Investment Research800 767 3771 ext 9339 Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release |
C | Oil s Inventory Problem Dampens Price Recovery | The industry s appetite for oil has simply become insatiable over the last six months
Indeed the United States is producing and importing more oil today than it was a year ago despite plunging more than 50
And this immense level of production is making it very difficult for prices to recover in any significant way
Still many are clinging to the bright side and calling 43 per barrel the bottom Prices have rallied more than 20 off their lows
But all you need to do is look at the data to get a reality check to the gut
As each day passes inventories continue to get fatter and consumption numbers aren t rising to match the supply
Count the Calories
Despite the hopeful whispers of a price bottom examining the data will quickly give you a clear picture of what s really happening
The chart below shows the number of days of supply sitting in pipelines storage facilities and tankers over the past five months And it s not a pretty picture
At this time last year we had around 24 days worth of supply Today that number is closer to 28
If the supply numbers were trending lower in the face of low oil prices then I could understand the argument for a bottom However the numbers are still trending higher
That s because supplies are increasing despite lower rig counts and lower imports In fact the United States is producing more barrels of oil per day now than in decades
The one year chart below is quite astounding It shows domestic production increasing from around 8 2 million barrels per day to 9 2 million barrels per day
This next chart shows that imports have risen as well year over year but not at the same rate as domestic production
According to the Energy Information Administration EIA oil production outside of OPEC grew by more than two million barrels per day in 2014 And there seems to be no sign that the production growth rate will taper off until the end of 2015
Last week traders were expecting stockpiled inventories to build by 3 25 million barrels The actual number came in at 6 33 million barrels
Cutting back future drilling plans is definitely in the cards but current drilling still continues unabated
Constant Consumption Necessary
Many if not most of the shale plays are hugely unprofitable at current prices but the companies have no choice but to produce That s because they are bound by contractual obligations to use rigs pay for service and to deliver on oil they promised to sell via futures
More importantly they need to produce to survive
Most frackers are highly indebted The companies borrowed a ton of cash to drill for oil when prices made sense
Leverage works well in a high priced environment when margins allow for profits But in today s environment frackers are losing money on every barrel Thus they re forced to produce as much or more just to keep the lights on and the creditors at bay The natural gas industry endured this same scenario for almost five years before price trends shifted higher
With all this the industry is making history these days unfortunately
Since 1983 the average amount of oil in inventory at this time of the year was from 340 million to 360 million barrels Today that number is over 410 million barrels
Yet while domestic production keeps growing and imports are flat to up the amount of oil consumed hasn t been able to keep pace
Relief Far From Sight
Greater usage efficiency combined with alternative sources of energy such as natural gas is putting even less pressure on the demand for oil
The level of demand is something that lower prices can and will solve over time though
Take the current plunge in gasoline prices as an example It appears that the money Americans are saving at the pump is going back into more gasoline purchases Lower prices are translating into more time spent in the car for leisure activities and longer trips And driving is once again competitive with flying or taking the train
Oil prices are low and they look to stay low for some time at least for 2015 While some are calling for a rebound to 80 per barrel as quickly as this summer others like analysts at Citigroup NYSE C are calling for oil to possibly break down to 20 per barrel
I think oil prices will remain subdued And while there might be spikes that go higher or lower prices will likely remain between 40 and 60 until 2016
Not until we see the trend in inventories decline to levels less than 380 million barrels and production falls towards 8 5 million barrels per day will we see an earnest recovery in prices |
C | The 2011 Choppy Market Pattern Continues | Trend Model signal summary Trend Model signal Risk on Trading model Bullish The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price In essence it seeks to answer the question Is the trend in the global economy expansion bullish or contraction bearish My inner trader uses the trading model component of the Trend Model seeks to answer the question Is the trend getting better bullish or worse bearish The history of actual not backtested signals of the trading model are shown by the arrows in the chart below In addition I have a trading account which uses the signals of the Trend Model The last report card of that account can be found
Update schedule I generally update Trend Model readings on weekends and tweet any changes during the week at humblestudent
More on 2011 2015
Last week I used the 2011 stock market pattern as an analogue for the current market see 2011 all over again 2011 was marked by a series of ups and downs in Europe which resolved itself with an upside breakout sparked by initiation of the ECB s LTRO program I am indebted to who wrote a similar post entitled Is the chop really over as she laid out a more detailed scenario of what might lay ahead
After over two months of rangebound choppy action we finally made all time highs on Friday Those that have fought the recent rally can list a plethora of reasons why the recent high is bearish however let there be no mistake that closing at highs is bullish as it has been in every other instance since the bull market has begun Being bullish though doesn t necessarily equate to higher prices next week as a consolidation period is often followed by new highs Keeping it simple though the path of least resistance is higher and for the time being any pull backs will probably be limited and bought back up
Like me she also postulated a choppy market much like 2011 and 2012 Here is the 2011 chart that she referred to
Here is 2012
The common element found in these patterns is that after several weeks of choppy markets the SPX staged an upside breakout While the market ultimately rallied after the breakout it spent some time undergoing a sideways consolidation and possible pullback below the breakout The market pattern in 2015 has fit that template almost exactly This leads me to believe that stock prices will have a bullish bias
A trip around the world
Regular readers know that the inputs to my Trend Model are global stock and commodity prices As we take a tour around the world we see that pretty much all of these elements are showing signs of improvement In the US the SPX consolidated last week and then rallied on Friday to new all time highs Momentum continues to be positive as measured by the 14 day RSI which is nearing an overbought reading but not yet
The DJIA also blasted off to a new high though the failure of the Transports to confirm the strength of the Dow is a concern This is something to keep an eye on given the observation from of a Dow Theory sell signal
In Europe the Euro STOXX 50 staged an upside breakout and rallied to further highs on the news of the interim deal with Greece
My dashboard of Greater China markets the stock markets of China s major Asian trading partners are also telling a bullish story While the Shanghai Index appears to be undergoing a high level consolidation all of the other Asian markets Hang Seng Taiwan South Korea and Australia are in uptrends
The commodity markets via the CRB index which are an indirect measure of global and Chinese demand seem to be stabilizing or trying to bottom One important metric of Chinese demand the AUD CAD cross rate because resource heavy Australia is more sensitive to China than Canada appears to be bottoming and starting to turn up
Immune to bad news
It seemed that the markets were becoming immune to bad news In my last post see Is it time to buy Greece which was written before the announcement of the interim deal I became more constructive on Greek stocks and bonds because I noticed that Greek paper was not reacting to bad news It was therefore only a matter of time before positive news appeared that would spark a turnaround rally In the US the markets were also getting immune to bad news The high frequency macro backdrop was becoming more negative The chart below of the Citigroup NYSE C US Economic Surprise Index which measures the rates of beats and misses of macro data shows that the Surprise Index orange line has tanked to levels where it has bottomed out in the past We only need the spark of a few positive surprises to spark a rally
who monitors high frequency macro releases wrote in his weekly commentary that while coincidental indicators were weak the short and long leading indicators remained positive His observations leads to a tentative conclusion that the current bout of macro weakness is only temporary emphasis added
Among long leading indicators yields on corporate bonds and treasuries increased slightly reflecting an abatement of immediate deflationary concerns but they are still positive Money supply remains quite positive Real estate loans and house sales as reported by DataQuick were positive Mortgage applications were back in negative territory again this week The short leading indicators were mixed Oil prices industrial metal prices and commodities more broadly all declined slightly Spreads between corporate bonds and treasuries also remained slightly negative Temporary staffing and gas prices and usage remained positive and initial jobless claims remain within a very positive range Coincident readings were much more negative Consumer spending as measured by Gallup was negative yet again although Johnson Redbook had a more positive week Tax withholding Rail and Container shipping were all positive On the other hand Steel production and single hull shipping were negative The TED spread backed off slightly while LIBOR was slightly negative The big negative is that we are seeing YoY negative comparisons with some of the worst readings last year Still with the exception of commodities generally the long and short leading indicators are positive
The Earnings Season report from of Factset appeared to be constructive as well As the chart below shows forward EPS estimates have begun to stabilize and flatten out after their big drop which began in Q4 2014
More importantly the earnings guidance has stabilized as well Butters reported that 69 companies showed negative guidance compared to 15 with positive guidance this Earnings Season The guidance score last week was 63 negative and 11 positive That means that in the last week we saw 6 companies with negative guidance and 4 with positive guidance which is a much more balanced picture than before Under these circumstances it may only take a minor positive catalyst such as the of the West Coast port dispute which Jon LaVorga at Deustche Bank projected to have to spark a market rally
Here for a good time not a long time
However I would not regard the US equity outlook as one of up up and away I had outlined a number of negative breadth divergences last week and those remain a concern Examples include this chart of the average 14 day RSI of stocks in the S P 500 green line from Note how the green line is tracing out a pattern of lower highs as the market black line has rallied
As well highlighted the fact that the NASDAQ 100 was advancing to new highs on declining breadth Such a condition led to market weakness within a month on average
also pointed out that the is now at 80 Such a condition can often mean corrective action within 1 2 months of the signal
These readings suggest to me that the roadmap laid out by is a reasonable base case scenario My inner trader is long and he is positioned for a stock market which may stall out in the next 1 2 weeks One possible inflection point may be the Yellen testimony to Congress on Tuesday and Wednesday Or it may not that s what stop loss orders are for My inner investors is dipping his toe back into a higher weighting in risky assets from his neutrally weighted position between stocks and bonds Disclosure Long TNA
Disclosure Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd Qwest This article is prepared by Mr Hui as an outside business activity As such Qwest does not review or approve materials presented herein The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives financial situation or particular needs of any specific recipient Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions Past performance is not indicative of future results Either Qwest or Mr Hui may hold or control long or short positions in the securities or instruments mentioned |
BMY | How Bristol Myers Squibb Trounced Wall Street s Q4 Estimates | All you have to do to gauge how good Bristol Myers Squibb s NYSE BMY fourth quarter numbers were is look at the drugmaker s share price The company announced its 2019 fourth quarter and full year results before the market opened on Thursday Shares jumped close to 3 in early trading
Investors were obviously happy with BMS Q4 results And there was one overwhelming factor behind the company s success in the quarter Its recent acquisition of Celgene
Blowing past Wall Street estimates
To say that Bristol Myers Squibb beat Wall Street s Q4 estimates is an understatement It absolutely trounced them
The average analysts revenue estimate for BMS in the fourth quarter was 6 14 billion BMS reported Q4 revenue of 7 9 billion up 33 year over year
What about earnings The consensus Wall Street estimate called for BMS to post adjusted earnings per share EPS of 0 88 The company s actual adjusted EPS in the fourth quarter came in at 1 22
There was a catch of course Analysts didn t include the impact of the Celgene acquisition in their estimates Bristol Myers Squibb closed that acquisition on Nov 20 2019 so its fourth quarter results reflected more than one month of revenue generated by Celgene s products
In total BMS revenue increased by 1 97 billion year over year in Q4 Celgene s top five drugs generated 1 85 billion of that growth Were it not for BMS acquisition of Celgene we would be talking about how the company missed Wall Street estimates instead of blowing past them
Growing and slowing
That s not to say that Bristol Myers Squibb didn t have some of its own growth drivers Its blockbuster blood thinner Eliquis raked in sales of 2 03 billion in the fourth quarter up 19 year over year Sales for arthritis drug Orencia jumped 8 to 792 million BMS fastest rising star in Q4 was multiple myeloma drug Empliciti with sales soaring 36 year over year
However not all of BMS lineup performed well during the fourth quarter Most significantly the company s powerhouse cancer immunotherapy Opdivo saw sales slip 2 year over year to 1 76 billion Sales for hepatitis B drug Baraclude sank 26 lower to 122 million BMS other established brands which include several older antiviral drugs plus some of Celgene s legacy products experienced a 39 sales decline
Celgene s top drugs clearly made the difference in producing a great quarter versus a dismal quarter for Bristol Myers Squibb Even better sales for those drugs are growing rapidly
BMS reported Q4 net sales which include sales made prior to and after the acquisition of Celgene for blood cancer drug Revlimid of 2 8 billion up 10 year over year Sales for another blood cancer drug gained with the Celgene acquisition Pomalyst jumped 23 higher Celgene s cancer drug Abraxane pulled in close to 300 million a 25 year over year increase
The Celgene deal also caused Bristol Myers Squibb s costs to rise though BMS said that its marketing selling and administrative expenses in the fourth quarter grew 30 year over year primarily due to 400 million in spending related to its acquisition of Celgene The buyout boosted BMS research and development costs by 500 million in Q4
In addition BMS recorded 1 1 billion for the amortization of acquired intangible assets mainly due to the Celgene transaction Its income taxes were also much higher thanks primarily to the sale of Celgene s immunology drug Otezla to Amgen
What s on the way
Bristol Myers Squibb projects full year 2020 revenue will be between 40 5 billion and 42 5 billion The company expects full year 2020 adjusted EPS of between 6 and 6 20 BMS even provided early guidance for full year 2021 with the drugmaker projecting adjusted EPS between 7 15 and 7 45 As was the case with its Q4 results most of the growth on both the top and bottom lines in 2020 and 2021 will be due to the impact of the Celgene acquisition
The main thing to watch with pharmaceutical stocks though is the progress of their pipelines An FDA approval decision on a combo of Opdivo and Yervoy in treating advanced hepatocellular carcinoma HCC is expected by March 10 2020 The FDA should announce its decision on approval of the combo as a first line therapy for non small cell lung cancer by May 15 2020
BMS anticipates FDA approval for Celgene s ozanimod in treating multiple sclerosis by March 25 2020 It also looks for another FDA approval for Reblozyl which was developed by Celgene and its partner Acceleron Pharma in treating anemia associated with myelodysplastic syndromes MDS by April 4 2020 Other major approval decisions are also on the way for Celgene s cell therapies liso cel and ide cel
Some investors were critical of BMS decision to buy Celgene when the deal was first announced It s clear now though that the big drugmaker would be in a much worse position in the fourth quarter and beyond without the transformative deal |
BMY | Bristol Myers Squibb s Earnings Get a Boost From Celgene Acquisition | Fourth quarter revenue at Bristol Myers Squibb NYSE BMY jumped 33 year over year thanks to its purchase of Celgene which closed in the latter half of November On a generally accepted accounting principles GAAP basis the company lost 0 55 per share due to the aforementioned acquisition But on an adjusted basis earnings were up 30 year over year to 1 22 per share The results sent shares of Bristol Myers higher The stock was trading up 2 at 11 16 a m EST
Sales of its top selling drug Eliquis which treats blood clots jumped 19 year over year Cancer treatment Opdivo is still a major blockbuster with revenues topping 1 7 billion in the quarter but its sales were down 2 year over year due to competition from Merck s Keytruda and other drugs attacking the same immunotherapy mechanism
The big pharma plans to pay down debt to help maintain its credit rating but noted that it still plans to increase its dividend and do additional deals licensing or acquisitions as well as repurchase shares The board authorized an additional 5 billion for stock buybacks in addition to the approximately 1 billion that it had remaining under a 2016 authorization
For this year management expects revenue of 40 5 billion to 42 5 billion On a GAAP basis earnings per share are forecast to land in the 0 75 to 0 95 range as the Celgene acquisition continues to put a drag on earnings On an adjusted basis earnings per share are expected to be in the 6 00 to 6 20 range up 30 at the midpoint Management also gave adjusted earnings per share guidance for 2021 when it thinks the company will bring in 7 15 to 7 45 up almost 20 at the midpoint for guidance in both years |
BMY | Bristol Myers Squibb Co BMY Q4 2019 Earnings Call Transcript | Bristol Myers Squibb Co NYSE BMY Q4 2019 Earnings CallFeb 6 2020 8 30 a m ETContents
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks
OperatorGood day and welcome to the Bristol Myers Squibb 2019 Fourth Quarter Results Conference Call Today s conference is being recorded At this time I would like to turn the conference over to Mr John Elicker Senior Vice President Public Affairs and Investor Relations Please go ahead sir John Elicker Senior Vice President Public Affairs and Investor RelationsGood morning Anna and thanks everybody for joining us today as we talk about our quarter and importantly the outlook for 2020 and beyond I ll take care of the legal requirements before I turn it over to Giovanni both Giovanni and David Elkins our CFO will have prepared remarks and then joining us for Q A as well our Samit Hirawat our Chief Medical Officer and Head of Development Chris Boerner Chief Commercialization Officer and Nadim Ahmed our President of the Hematology business During the call we ll make statements about the company s future plans and prospects that constitute forward looking statements Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors including those discussed in the company s SEC filings These forward looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any future date We specifically disclaim any obligation to update forward looking statements even our estimates change We will also focus our comments on our non GAAP financial measures which are adjusted to exclude certain specified items Reconciliations of these non GAAP financial measures to the most comparable GAAP measures are available at our website And just to remind everybody in case you have haven t seen them there are slides to go along with today s call And with that I ll turn it over to Giovanni Giovanni Caforio Chairman of the Board and Chief Executive OfficerThank you John and good morning everyone Welcome to our fourth quarter and full year 2019 earnings call I am pleased to be here today to discuss the earnings results of our new company for the first time On Slide 4 let me let me start by reminding you who the new Bristol Myers Squibb is today Our mission hasn t changed We are focused on discovering developing and delivering innovative medicines that help patients living with serious diseases We aspire to be the leading biopharma company in the industry Our strategic foundation remains centered on combining the scale and resources of a pharma company with the agility and speed of a biotech I am proud of the strength and talent of our people who are focused on transforming patients lives through science Moving to Slide 5 I am more encouraged about our company s potential today than I was a year ago The strength of our performance in 19 has positioned us very well for the future As I look at 19 we ve delivered strong in line performance across our businesses and geographies and we ve made important progress on our late stage pipeline I am pleased with how integration is going so far with good progress across our business units and functions as we remain on track to deliver 2 5 billion in synergies Of course we have more work to do to integrate our processes systems and platforms including IT pricing and accounting Based on what I ve seen to date I m confident about the successful integration of our company Turning to our financial outlook I feel really good about the financial strength of the company Our guidance reflects the earnings power and significant EPS growth outlook that we have as a company We continue to see potential for significant cash flows to support debt reduction and continued investment in innovation Finally as I look forward we have an unprecedented number of new drug launches in the near term horizon These are all either first in class and or best in class medicines And I am very encouraged by how prepared our teams are to maximize this launch opportunities Now let s move to the fourth quarter Turning to Slide 6 I ll give you my perspective before David provides more color on product performance We ve delivered strong growth across multiple key brands many with double digit growth With respect to the IO franchise I m pleased with the excellent work of our teams in this area Opdivo grew on a full year basis And though we are seeing some pressure in the US as expected we saw growth internationally and continue to view 2020 as a year of transition for the brand Looking forward we have the potential for new launches supporting an expected return to growth in 2021 This includes first line lung cancer which studies 227 and 9LA Our first line renal cancer opportunity with 9ER and moving into earlier stage disease with a number of adjuvant opportunities Regarding lung cancer let me talk briefly about study 227 While we re disappointed by the position taken by the CHMP We continue to view the combination of Opdivo and Yervoy as a differentiated regimen with the potential for long term survival and one that should be available to patients globally Going forward we continue to focus on the review of study 227 in the US where it was granted priority with a PDUFA date in May as well as the filing on of 9LA in the US and globally In summary I am very encouraged by the strength of commercial execution across the enterprise in oncology hematology cardiovascular and immunoscience This is a clear demonstration of our leading commercial capabilities which will be important to deliver on the exciting potential near term launch opportunities ahead Now let s turn to Slide 7 In December we attended our first medical meeting as a combined company at the American Society of Hematology just a few weeks after we closed the Celgene transaction Importantly we saw very good data at ASH for our hematology pipeline including pivotal data for three products which are potentially approaching launch and encouraging data from the early pipeline I believe that this reinforces the opportunity we have to broaden the hematology portfolio and sustain a leadership position in multiple myeloma Let s turn to Slide 8 I feel good about the earnings power and growth outlook for the company moving forward I am encouraged by the financial strength of the company this year we see significant non GAAP EPS growth from this year into next year and we project continued non GAAP EPS growth into 2022 So this will be moderated by the impact of generics on Revlimid David will provide more details on this guidance but I am pleased with the strength of our in line business our launch opportunities our financial flexibility and the breadth of our pipeline And with respect to our launch opportunities we expect important potential milestones over just the next few months In March the US approval of a ozanimod in multiple sclerosis In April the expansion of Reblozyl in MDS In May the US approval of Opdivo plus Yervoy in first line lung cancer Additionally we continue to advance our regulatory filings for liso cel ide cel and CC 486 Taken together the company is in a strong position And this is reflected in the performance of our business and the outlook we are providing today Turning to Slide 9 to realize our potential we will continue to deliver on the in line business drive integration and synergy capture maximize the value of our launch opportunities and advance our pipeline Beyond this I continue to be encouraged by our financial strength and flexibility and now this enables us to continue to invest in innovation to deliver important medicines for patients All of this is what gives me confidence in our near and long term opportunities as a company I m looking forward to our Investor Day which will be held on April 2nd in New York City When my team and I will be able to talk in greater detail about the many opportunities ahead of us Speaking of my team I am very pleased to be joined today by David Elkins and Nadim Ahmed welcome to both At this point I will hand it over to David our new CFO to walk you through the financials David David Elkins Executive Vice President and Chief Financial OfficerThank you Giovanni and good morning everyone Having benefited from working in this industry for over 20 years I could not be more excited about the growth potential and earnings power of bringing these two companies together I ve been very impressed by the employees of the combined company I m encouraged by the breadth of opportunities we have ahead and our ability to deliver important new medicines to patients Now let s turn our focus to the performance in 2019 to start the business continued to deliver strong performance in the fourth quarter with 6 revenue growth on a pro forma basis This performance serves as a strong foundation for the future outlook of the company which we will cover in a moment Giovanni give you some brand insights and let me provide you with additional color on the underlying performance of the business Beginning with Opdivo on Slide 11 we had continued strong commercial excellence in the quarter were our teams continue to operate very well and increasingly competitive markets Let me provide you with a perspective on how we see the business at the moment From a US demand perspective we are seeing sequential low single digit decline driven by the headwinds we described in the past Note that demand trends are more studies and reported sales which were incrementally impacted by buying patterns both in the government channel and from wholesalers Now with respect to some key indications we expect steady performance in our melanoma business driven by our leadership in both metastatic and adjuvant setting In non small cell lung cancer the size of the eligible pool of second line patients is leveling off at roughly one third and first line RCC space We continue to perform well were Opdivo Yervoy remains the standard of care in intermediate and poor risk patients and we ve seen stabilization in this indication as well Internationally we ve seen very strong commercial execution in all our key markets resulting an encouraging growth in the brand We expect further growth as we continue to secure reimbursement in first line RCC With respect to first line lung We look forward to the opportunity to launch 9LA in the same setting and making Opdivo available for patients in these markets So stepping back we continue to see 2020 as a transition year for Opdivo with demand pressures in the US and growth in our international business More importantly as we move into 2021 we believe we have a strong foundation for growth fueled by potential new indications including first line lung Now let s turn to Eliquis on Slide 12 In the fourth quarter we saw continued strong sales growth of 19 globally due to increased demand in both afib and VTE In the US we saw 18 sales growth in the fourth quarter versus prior year Despite increased discounts for the Medicare coverage gap Eliquis continues to increase its share at the expense of warfarin and an expanding NOAC class As the class is expanded we ve seen Eliquis taking share at the expense of other NOACs Shown on this slide is the difference between new brand share and total brand share in the US for both warfarin and Eliquis This highlights the continued growth opportunity for the class and the brand We are also very pleased with the growth of Eliquis internationally where we have a leading share in a growing number of markets resulting in 21 sales growth in Q4 versus the same quarter last year We continue to view this brand which remains the number one NOAC globally as one positioned for significant future growth and continued opportunity for patients We also see strong growth in our multiple myeloma franchise As you will see on Slide 13 Revlimid continue to grow in the fourth quarter driven by triplet regimens and increased treatment duration increasing 10 year over year on a pro forma basis Pomalyst saw significant growth of 23 in Q4 versus last year on a pro forma basis driven by increased demand and duration of therapy We expect growth to continue across both brands through to increase adoption of the triplet regimens and increased duration of treatment I ll now turn to Slide 14 and review our fourth quarter P L This was an unusual quarter for the company as a result of the close of the Celgene acquisition on November 20 Included in our reported P L or the approximately six weeks of results from the legacy Celgene business post the transaction close as it relates to the non GAAP P L We now include the impact of stock based compensation in our operating expense which was previously specified for Celgene when it was a stand alone company With respect to OI E since the close of the transaction we have incorporated both the interest expense on legacy Celgene debt and have begun recognizing interest expense on acquisition financing that had previously been specified since its issuance last May Also our Q4 tax rate was primarily impacted by several one time favorable items including the resolution of uncertain tax provision and provision adjustments for filings in the US and other markets Looking to 2020 from a financial perspective on Slide 15 we provided guidance reflecting the strength and momentum in the business Our new launch products and indications and the realization of synergies First it s important to note that our guidance on non GAAP earnings per share reflects the expected 40 accretion to the BMS stand alone P L and includes significantly higher operating margins than in the past Given the unique circumstances as a new company this year s guidance includes more detail than we typically provide So let me provide some color on the key line items Revenue represents growth on a pro forma basis driven by opportunities we see in our prioritized portfolio more than offsetting declines in our established brands We expect a continued decline in established brand portfolio due to strategic course choices and competitive dynamics First we expect Baraclude to continue to decline based on the maturity of that drug and generic competition We expect by days it will be impacted in 2020 by generics in Europe And we expect the rest of the established brands portfolio to decreased by about one third compared to the 2019 pro forma results This is driven by the full year impact of the Otezla divestiture as well as further generic erosion of the HIV portfolio OI E includes incremental interest expense offset by royalties From an interest perspective in our non GAAP P L interest expense will be driven by approximately 45 billion of debt at a weighted average interest rate of 3 4 Note that royalties from the AstraZeneca are stepping up in 2020 and we also expect higher royalties on our PD 1 patents altogether we expect royalties to roughly offset interest expense in the year Our separate line items for R D and SG A each include the impact of stock based compensation as well as deal synergies We expect to realize about one third of the total 2 5 billion synergies this year With respect to stock based compensation BMS includes the impact of Celgene s employee stock based comp in our operating expense which negatively impacts our non GAAP P L The full year amount of the stock based compensation for Celgene in 2019 was roughly 800 million on a non GAAP basis which was incremental to the BMS stand alone stock based compensation We expect levels of stock based compensation to remain elevated in 2020 and begin to taper down over time as the Celgene and BMS legacy plans converge We also want to remind you on Slide 16 the evolution of our share count Basic share count as of the end of 2019 was impacted by the 715 million of new issuances as a result of the Celgene conversion and by the impact of the ASR Going forward our 2020 basic share count will be impacted by three factors The number of stock options exercised the finalization of the ASR program and additional share repurchases which provides us flexibility to manage the potential future dilution Remember there will continue to be a dilutive impact for the stock options that remain in the money That said no additional options will be granted under the legacy Celgene plan so over time this impact will lessen as the compensation plans from the legacy companies converge As you can see we ve guided our weighted average share count for the year to be approximately 2 3 billion shares for the year Now on Slide 17 as we look beyond 2020 we see a robust growth in 2021 driven by the current portfolio as well as new expected launch opportunities and the impact of continued synergies all of which is reflected in the EPS guidance We expect continued growth into 2022 while acknowledging this will be at a moderated growth rate do the generic competition for Revlimid It s important to mention that we do not anticipate continually updating our long term guidance throughout the year Now let s turn to capital allocation on Slide 18 As we said in the past we continue to expect significant cash flow from the newly combined businesses and we will continue to employ a balanced approach to capital allocation Business development is a key enabler of our strategy and therefore remains a top capital priority We also remain committed to the dividend as evidenced by our 10 plus year track record of annual increases and our recent increase of almost 10 in December At the same time we remain fully committed to deleveraging and achieving our 1 5 times gross debt to EBITDA ratio by the close of 2023 As you are aware we have approximately 10 billion in bonds maturing over the next three years providing an opportunity to reduce total debt Finally related to share repurchases we repurchased 105 million shares in 2019 99 million in Q4 under the 7 billion ASR mostly due to the percent retired upfront The remaining roughly 20 of the ASR is expected to be completed by the end of Q2 this year As we announced today we ve increased our share repurchase authorization by 5 billion to 6 billion This provides us with the flexibility to execute disciplined share repurchases to manage the dilution from stock based compensation and stabilizing the share count into the next year Other typically we don t provide quarterly guidance I d like to remind you of the seasonality of the legacy Celgene portfolio specifically Revlimid revenue is historically a bit lighter in the first quarter then the full year average run rate Before we move to the question and answer session I just wanted to reiterate that we feel really good about the growth outlook and financial flexibility of the business and have reflected in our guidance The company is in a strong position to embark on its next chapter and delivering important medicines for patients I ll now turn the call back over to John and Giovanni for the question and answer John Elicker Senior Vice President Public Affairs and Investor RelationsThanks David And I think we re ready to go to the Q A session Questions and Answers OperatorThank you Operator Instructions We take our first question from Chris Schott from J P Morgan Please go ahead Chris Schott J P Morgan AnalystGreat thanks so much for the questions Maybe just two here on Opdivo First I know Giovanni you touched on a little bit in the prepared remarks but can you elaborate on the first line lung strategy in Europe post the last week s 227 update And then we think about first line lung in the US is Opdivo Yervoy and the 227 data the primary focus or do you feel that 9LA regimen of chemo Opdivo Yervoy will be the bigger focus I m trying to figure out how you re balancing those I guess two data sets And then my second question was another one just as we think about 2020 for Opdivo when you look at where the Street shaken out here or so things about a 5 erosion for Opdivo this year versus 2019 Do you feel like consensus properly captures the balance of the second line lung erosion relative to the growth you re seeing in some of these other indications Thanks so much Giovanni Caforio Chairman of the Board and Chief Executive OfficerYes Thank you Chris So first of all let me just say as I mentioned in my remarks Our focus in Europe for first line lung cancer obviously has shifted to 9LA which we believe has you know and we ve said before is an important study Let me just ask Chris Boerner to give you a perspective on our overall strategy for first line lung cancer in the US as we think about the two trials and then Chris can provide some perspective on Opdivo performance and the various components of that in 2020 as well Chris Schott J P Morgan AnalystYeah Chris Thanks for the question I mean I think we continue to see 227 and 9LA as being bought off in the US very much in conjunction with one another If you go back what we hear consistently from physicians who have seen the 227 data is that number one they re impressed with the potential for long term survival with dual I O therapy They note the depth and durability of complete remissions all coming with a very manageable safety profile and so they see that as an important opportunity for patients who either don t need or don t want to chemotherapy And incidentally I would say that the be NCCN listing to A listing that we got back in December is a recognition both of the unmet need that continues to exist in first line lung cancer as well as the potential that exist for dual I O therapy What 9LA then brings to the table is answering the question for those patients who do need chemotherapy does concomitant chemotherapy two cycles in this case along with dual I O therapy provide a benefit and we re very happy to see a second study that demonstrates overall survival So as physicians in the US think about these studies they very much think about them in combination with one another and that s an important part of how we are going to think about our long term strategy in first line lung cancer As it relates to 2020 and how we think about the business let me say just a couple of things first of all the business for Opdivo in the US continues to perform in line with our expectations In second line lung cancer eligibility is still on the order of 30 to 35 We expect that s going to flatten out around 30 this year Our shares are holding stable in the 35 to 40 range The business continues to be stable in metastatic melanoma We continue to have a leadership position and adjuvant melanoma and again in first line renal our business of stable in our approved indications As we think about this year as David mentioned the business is going to continue to still be under pressure As a reminder that pressure really comes from three tumors it s second line lung cancer where we ve talked about the dynamics there and it s small cell and head and neck and in those two tumors it s a very similar dynamic to lung cancer where you ve seen competitive approvals in the first line impacting eligibility in the second line but I would say importantly our assumption for this year is that our stair our shares in the second line setting across those tumors remained stable it s just stable within a smaller pool of patients Giovanni Caforio Chairman of the Board and Chief Executive OfficerAnd again as we said earlier in the remarks Chris but we re not commenting exactly on guidance for the growth of this year We remain confident with growth growing into 2021 and that s our focus particularly as it relates to preparation for launches and commercial execution John Elicker Senior Vice President Public Affairs and Investor RelationsWe go to the next question please Anna OperatorWe take our next question from Seamus Fernandez from Guggenheim Please go ahead Seamus Fernandez Guggenheim AnalystWell thanks very much Actually I d love to ask you guys about the Celgene portfolio a little bit rather than focusing on the Bristol portfolio One of the products that we learned about at ASH was the all of the day s opportunity I was just hoping you might be able to help put that in context for us to help us understand what may be an under appreciated opportunity in the Bristol story and particularly something that falls outside of the CVR maybe this is a bit of a surprise upside And then also would you update us on the CELMoD development opportunity Maybe just put in context where you see the CELMoD portfolio delivering the most upside as we talk to position some of the feedback that we get is that this is a pretty straight forward opportunity for physicians to treat patients that have progressed on both Revlimid and Pomalyst So just love to get your thoughts on both of those opportunities Thanks Giovanni Caforio Chairman of the Board and Chief Executive OfficerThank you Seamus Let me ask Samit to start and give you a perspective both on CC 486 and CELMoD and Nadim will make some comments from a commercial perspective Samit Hirawat Executive Vice President Chief Medical Officer Global Drug DevelopmentThank you Thank you Seamus for the question I think you already teed up the overall portfolio from a what comes from the Celgene side of things In terms of hematology where certainly beyond the ones that we ve already talked about from Abraxane Phonetic and Inrebic CC 486 certainly adds on to that CC 486 study in patients with acute myeloid leukemia certainly a very important data set that we presented at ASH looking at patients with AML who have received induction with or without consolidation chemotherapy and then achieve a complete response with or without complete recovery of the bone marrow And what we saw with there is of course the overall survival improvement as well as an improvement in the relapse free survival and this is an oral agent so convenience of delivery for these patients becomes very very important And this is the first and only treatment that has shown a survival benefit in the maintenance setting So we remain excited about that and we are looking forward toward discussions with the health authority in the and the filings going forward Of course here we also continue to think about the overall lifecycle management plan with our portfolio and the combinations that could be available in the future As it comes to the CELMoD and then I will pass it on to Nadim to comment more on I think CELMoDs are certainly a very very exciting addition to the overall portfolio And in the armamentarium that we look forward to developing in multiple myeloma We see this as absolute necessary opportunity and one of the data set that we presented in ASCO 2019 were for CC 220 where we saw that patients who had received prior treatment with IMiD proteasome inhibitors daratumumab they still went on to have a response rate of 31 and these are durable responses that we saw in this late line setting So we have additional plans for not only CCT 220 but CC 480 which is another CELMoD looking at multiple myeloma setting and there are multitude of opportunities with our overall portfolio of cell therapies as well as the T cell engagers where we will continue to think about how to do the treatments for further improvement in the outcome of these patients where cure still does not exist So we will be sharing those plans in the coming months and as we look forward But let me pass it onto Nadim to talk a little bit more from the commercial perspective Nadim Ahmed Executive Vice President and President HematologyThanks Samit And then thank you for the question Seamus So if you think about front line or newly diagnosed AML across EU5 and the US about 33 000 patients and about two thirds of those patients are eligible for intensive chemotherapy and that s the patient group that we studied and the unmet need even in newly diagnosed AML is very high So with the elderly patients you have a five year survival of only about 15 and 80 of these patients will relapse within 18 months So to have a treatment that adds 10 months overall survival and doubles the relapse free survival is going to be really important So we re very excited about the opportunity in AML and I d also remind you that this gives us another opportunity to once again established the maintenance treatment paradigm in another disease after we did the same in multiple myeloma So we re very excited about the opportunity So that s CC 486 In terms of 220 and Samit covered it very well as well as 480 We are hearing the exact same thing from clinicians who have been using the drug on study So certainly we re seeing the CELMoDs work after our IMiDs our in line portfolio But I think the additional opportunity as Samit alluded to some of the lifecycle management opportunities where we then have the chance to move these treatments up earlier in the treatment sequence to displace the IMiD So we re very excited about that opportunity also John Elicker Senior Vice President Public Affairs and Investor RelationsThanks Seamus for the questions Can we go to the next question please Anna OperatorThank you The next question comes from Geoff Meacham from Bank of America Please go ahead Geoff Meacham Bank of America AnalystJust have a couple For David or Giovanni for 2021 guidance I know you guys don t want to give details but generally issue should we assume the earnings growth will be mostly from the return to growth for IO and maybe new launches or is it more from the operational synergy side of things And then for Nadim what is a crowded field for BCMA targeted therapy is just curious about the status of moving bb2121 up to second line myeloma And when you BCM modalities in your pipeline How do you all reconcile by specifics with CAR Ts and others Thank you Giovanni Caforio Chairman of the Board and Chief Executive OfficerYeah Thank you Jeff Let me start Obviously when you look at 2121 as we ve as we ve said we have an opportunity to return to growth for Opdivo We have a number of really exciting launch opportunities and I ve mentioned several of those And so there is real momentum in the business which is driven by the portfolio and how new launches come into play That s the reason why I feel really good about the fact that the guidance we provided for 21 is driven by dynamics in the portfolio that are very encouraging for us Of course we will be disciplined with respect to continuing to execute on the synergies and as you know we ve updated that we feel comfortable with the 2 5 billion about a third will come this year and we expect about a third to come next year But I think the growth of next year we re really excited about the portfolio opportunity is playing out Let me just ask Samit and Nadim to ask you to answer your second question Samit Hirawat Executive Vice President Chief Medical Officer Global Drug DevelopmentThank you Giovanni Thanks Jeff for the question on the BCMA portfolio So from a BCMA CAR T perspective from ide cel perspective we ve already shared some of the data last year at ASH looking at I d said in the fourth line plus patient population where we saw a CR rate of 31 overall and we certainly excited toward continuing to expand that portfolio and toward filing of that data set itself There are three additional studies that are currently ongoing As you can see on contrast gov CARMA 2 Phonetic is the study I think that sort of answers your question that we are beginning to look at the second line setting so we are looking at are using ide cel in the second line patient population CARMA 3 is a randomized Phase 3 study looking at ide cel versus a triplet therapy for patients the third line plus setting And then CARMA 4 was just initiated at the end of last year Looking at the first line patient population in a Phase 1 2 study So we re really excited toward looking into the outcomes of these studies and the data generation When we talk about the overall portfolio from a BCMA perspective I think all the emerging data tells us that BCMA is absolutely an important target that we need to be able to target attack from various modalities whether it d be through the cell therapies that we talked about or the T cell engager that we have now shared the data from the Phase 1 study 269 and certainly looking forward to now looking at how to bring that forward as more data matures and accelerate that development plan And then of course we will look into our pipeline how to combine these with as we previously discussed with cell CELMoDs etc But let me pass it onto Nadim to give me give you a little bit more on that Nadim Ahmed Executive Vice President and President HematologySure Thanks Thanks Samit And so one thing I will remind everyone is that once we had a good idea that BCMA was going to be a very important target for multiple myeloma we strategically and proactively embarked on a multi modality approach to treating this disease And our thinking there was that you have very different patient segments that can benefit from CAR T versus a T cell engage and even ADC which we have early on in the clinic So as you think about the various patient segments patient profiles and patient preferences you can envisage where a patient has the opportunity to receive CAR T with the once one and done treatment that allows them time very long treatment free interval So there is an opportunity to do that Physicians may choose to refer the younger and fitter patients for CAR T for example You may have somebody who prefers to be treated closer to home for whom a T cell engager will be an ideal treatment and then both treatments work differently For a T cell engaging you need to continue the treatment to stay on top of the disease And with the CAR T therapy it s a once and done treatment So we think there is definitely room for both and even potentially three modalities to coexist one within the same line of therapy but across also across multiple lines of therapy in exactly the same way we approached Revlimid and Pomalyst in the multiple myeloma market So we feel very confident that we re actually delivering on our strategy and there is the opportunity for multiple patient segments to benefit from all these types of modalities John Elicker Senior Vice President Public Affairs and Investor RelationsGreat thanks Anna can we go to the next question please OperatorNext question comes from Tim Anderson from Wolfe Research Please go ahead Tim Anderson Wolfe Research AnalystThank you A couple of questions Originally you guys at the time of the deal gave 2022 and 2025 guidance on revenues and net income that has not been updated since the Otezla divestiture And I m wondering are you going to update that at some point or can you update that today I guess is it will have changed And then second question is at least for us a black box has been how to model Revlimid erosion at the time of the deal you made a very clear that your internal forecasts were much more conservative and cautious on the rate of erosion of Revlimid from 2022 onwards which was a big product I m wondering now a year on as you see analyst models do you think the analyst community is appropriately modeling that erosion Thank you Giovanni Caforio Chairman of the Board and Chief Executive OfficerThank you Tim Let me just start on both questions and then David can add more comments So first of all with respect to guidance I think as we said from the beginning we were not going to go back and update the S 4 from last year As you know there have been a number of things that have happened since last year the divestiture of Otezla as you mentioned the divestiture of our Otezla consumer medicines business and on the other side continued really strong performance with our in line business and significant progress with the pipeline which obviously is a key driver of our performance in the next few years So overall as I mentioned also my remarks I feel better today about where we are Then I felt a year ago when we first announced the deal and in the strength of our in line business and the progress made with our pipeline make me feel really good about the future and the key drivers that were behind sort of the confidence we had last year and we have today in the business Today we provided guidance on 2020 and 21 I made some comments about our perspective on 22 and we feel pretty good about where we are So now with respect to with respect to Revlimid also there there have been good developments First of all I would say the in line performance of the brand continues to be strong and the teams are doing a great job of continuing to support an important franchise I think that s important We had two IPR decisions which were favorable to Bristol Myers Squibb We did reach a settlement with Alvogen which was aligned with our expectations And I would say that overall we continue to see the loss of exclusivity for Revlimid as a slope that is driven by sort of all of the same assumptions that we ve discussed in the past There has been a good development And so nothing has really changed there John Elicker Senior Vice President Public Affairs and Investor RelationsTim thanks for the questions Anna can we go to the next one please OperatorThe next question comes from Terence Flynn from Goldman Sachs Please go ahead Terence Flynn Goldman Sachs AnalystHi good morning Thanks for taking the questions I was wondering first on Opdivo if you can give us your latest thoughts on the opportunity and adjuvant bladder following the Roche data Just wondering if there are any notable trial design differences You could point to for your study versus their trial And then on bb2121 and JCAR in the commercial ramp on the forward Anything you guys have learned from the competitive CAR T launches that you can leverage and would you expect to have stronger launches as a result Thank you Samit Hirawat Executive Vice President Chief Medical Officer Global Drug DevelopmentSure Thank you for the question Terence And as it relates to the adjuvant setting First of all let me start by saying that immuno oncology products are going to play a major role in the adjuvant setting because the earlier we can utilize these treatments It will provide an opportunity to not only shift the level of recurrence but provide a potential for cure for these patients And overall as we move earlier and earlier from the metastatic setting to the earlier setting the overall plan that we have in place we are we feel very confident about it and non small cell lung cancer melanoma RCC gastric and of course in bladder cancer as well there it s no point trying to do cross trial comparisons at this point I think we are pretty close to where we will be starting to see the data emerging I think just to keep in mind that the overall patient population that we ve enrolled seems very similar And without getting into the specifics one major differences placebo used in our trial versus observation in the other trial and the treatment duration is different but I think we should wait for the data for it readout rather than getting into the specifics at this time But I think Chris can give you more color on the commercial side Chris Boerner Executive Vice President Chief Commercialization OfficerYeah So let me just say something on a macro level with respect to the adjuvant programs and then I ll talk specifically about bladder Just a reminder there as you think about the adjuvant setting you need to think not only about the patients who are treated today but also the potential for patients to be treated So what we saw when we launched IO in the adjuvant melanoma space was that you saw treatment rates increase significantly and in a number of the tumors in which we are pursuing our early stage program you see treatment rates in the low to single digits ultimately up to potentially around 40 for some tumors but still there is plenty of opportunity for us to not only treat patients who are being treated today but with improved therapies improve the treatment rates overall With respect to bladder cancer specifically this is a very large patient population It s highly fragmented and we have importantly multiple opportunities in the muscle invasive space about 50 of those patients are getting surgery today We have CheckMate 78 which is in the peri adjuvant setting We are looking at the entire population with CheckMate 274 and we also have a non muscle invasive bladder program as well So it s an important opportunity for us We are still very confident in the opportunity for IO in the adjuvant setting and we very much look forward to seeing the data Nadim Ahmed Executive Vice President and President HematologyGreat thanks Thanks Chris I ll pick up on CAR T So I think a couple of things I would mention as you alluded to So clearly there have been some headwinds in the marketplace and I think about things like reimbursement access environment complexity of manufacturing also the safety profile of current agents has led to most of the administration being conducted in the inpatient setting So we re addressing all of those near term headwinds So a couple of things I would say So if I use just liso cel as an example the dates we showed at ASH of the pivotal data we are seeing a safety profile where we seeing significant reduction in the incidence and severity of CRS neurotoxicity which we think bodes well to be able to to give this treatment in the outpatient setting which will allow us to expand our prescriber base So we re excited about that The other thing that s important to point out from a differentiation of BMS is that we do have very deep relationships with hematologists and that includes multiple myeloma that includes lymphoma So our footprint out in the community will really help us to drive those referrals into the treatment sites where CAR Ts will be given as well as expand out into the community with assets like liso cel So from where we are looking we think we re addressing the near term headwinds In terms of the access environment ongoing work continues in terms of addressing the DRG issue Great news last year that the National Coverage Determination wasn t implemented So that could have impacted side of care So that s not an issue for us now From a manufacturing capacity capability between Samit and Seattle We feel very good about capacity at launch And we also have longer term plans to expand our footprint to make sure we continue to have great capacity But the other final thing I would add is we ve seen transformational data in very late stage setting But I think the true potential of these therapies is moving them up earlier in the treatment sequence from a long term potential perspective and you heard from Samit that we have a very aggressive lifecycle management plan for both of these assets that would allow us to unlock that long term potential for these transformational therapies John Elicker Senior Vice President Public Affairs and Investor RelationsThanks Terence can we go to the next question please Anna OperatorYour next question comes from Matt Phipps from William Blair Please go ahead Matthew Phipps William Blair AnalystThanks for taking question I was wondering if you could quantify the impact of buying patterns for Opdivo in the US for the quarter or do you just assume it s the difference between the 6 decline in quarter over quarter prices versus I know you mentioned a low single digit decline in demand Chris Boerner Executive Vice President Chief Commercialization OfficerYeah so let me address that Matt So as David mentioned in his prepared remarks we saw Opdivo decline on the quarter versus same time last year about 2 And let me just characterize that that was entirely driven by the US which was down about 10 but virtually all of that decline year over year as a result of the dynamics We ve been talking about quite a bit which are the dynamics in second line lung cancer As you look on a sequential basis the US was down roughly 6 about half of that was a result of the inventory work down with the VA The remaining portion of that was mainly the second line eligibility issue in lung cancer we saw a little bit of an impact in eligibility in small cell lung cancer and head and neck But importantly if you normalize for the VA inventory movements What you see in both Q3 and Q4 from a demand standpoint was Opdivo was down As David mentioned in low single digits around 2 to 3 And importantly as we see both 2020 and 2021 the impacts that you saw in the quarter will have no material impact on what we see for the year as a whole in 2020 and for the growth opportunities for Opdivo as we go into we go into 21 OperatorThe next question comes from Steve Scala from Cowen Please go ahead Steve Scala Cowen and Company AnalystThank you I have two questions both for clarification First Giovanni to clarify on what you said about growth in 2022 Did you say you see growth into 2022 or through 2022 although moderating And if into is there any scenario where earnings would be down in 2022 So that s the first question The second one is on the other income expense guidance for 2020 It appears way better than one would expect given the financing costs Now you mentioned the step up in royalties on Keytruda and the AstraZeneca diabetes products in 2020 But I thought that the Keytruda royalty was flat at 6 5 through 24 and the AstraZeneca royalties are either flat or step down in 2020 So are you saying that the royalty rates are the same but the products will grow or something different And I don t think there s a lot of optimism about the AstraZeneca diabetes portfolio So I m wondering again is it the royalty rates are changing or the products royalties are changing So please clarify Thank you Giovanni Caforio Chairman of the Board and Chief Executive OfficerThank you Steve Let me answer the first question So when I spoke about 2022 I m speaking about growth in 2022 moderated by in terms of the growth rate by the potential beginning of the entrance of generics for Revlimid in 2022 So I see at this point our business growing in 2022 as a year with the moderation of the growth rate versus 21 driven by the dynamic I just discussed David David Elkins Executive Vice President and Chief Financial OfficerYeah Keytruda from a volume perspective continues to grow and AstraZeneca the rate continues to increase So that is being offset by the higher interest expense as I talked about in my prepared remarks with the 45 billion of debt and average interest rate of 3 4 John Elicker Senior Vice President Public Affairs and Investor RelationsCan we go to the I think we have time maybe for two more questions Anna OperatorThank you The next question comes from David Risinger from Morgan Stanley Please go ahead David Risinger Morgan Stanley AnalystThanks very much and congrats on the disclosures So starting go back on this Giovanni but just a quick question I think that last year you had said you expected versus sort of growth EPS through 2025 In your prepared remarks you mentioned continuing growth into 2022 Could you just provide any comments beyond 2022 please And then second with respect to CAR T hospitals are obviously losing significant amount of money on patients who are not in clinical trials which were paid for by manufacturers Could you just talk about prospects for changes to Medicare reimbursement and potential changes in DRG codes in the future Thanks so much Giovanni Caforio Chairman of the Board and Chief Executive OfficerSure David let me start and then Nadim will comment So let me just say again I feel really good about where we are with our business We discussed very clearly in Q3 we would not update the S 4 going forward And I m feel pretty good about having provided visibility into the next three years which clearly demonstrate the earnings power the growth outlook for the company But most importantly I feel really good about the fundamentals of the business both in terms of the performance of the in line portfolio and the speed at which the pipeline that will drive the long term growth of the company is advancing So I m not going to make comments beyond 2022 but I believe I provided my perspective on where we are as a company and the real opportunity we have for the long term Nadim Nadim Ahmed Executive Vice President and President HematologySure Thanks for the question So I think part of the issue around the access reimbursement environment has as I said previously has been driven a lot by the fact that many of these treatments have been given in the inpatient setting So one I would say if you have a treatment that has the potential to be utilized in the outpatient setting then you start entering into the Part B environment which is very different to the inpatient compensated DRG environments That s one point I would make especially as it pertains to liso cel I think in the inpatient setting the challenge has exactly being that the capitated treatment even having said that those things have started to improve we sold the NTAP improved to 65 last year through CMS I think there s been lots of talk and we have been working on a potential DRG for CAR T specifically currently sites are having to use the DRG for stem cell transplant which under reimburses the cost of CAR T therapy So there is work to do but the two things I would leave you with is outpatient represents a discrete different opportunity which is an affected by capitated payments but at the same time I think CMS is working on the opportunity to come up with a specific potentially for CAR T and I think that will help reimbursement in the inpatient setting also John Elicker Senior Vice President Public Affairs and Investor RelationsThanks Dave Can we go to our last question please Anna OperatorWe take our next question from Navin Jacob from UBS Please go ahead Agarwal UBS AnalystHi this is Technical Issues Agarwal Phonetic on behalf of Navin So my first question is on the CheckMate of old trial there were some interesting data at ASCO GI recently in first line that you see for Opdivo Cabo and Opdivo Cabo Yervoy triplet regimen So any comment on the data presented and potential for these two regimens in TCE And second question is on Yervoy so Yervoy performed better than expectations this quarter So the question is the impact from the uptake of Keytruda in regimen is first line RCC mostly done and should we expect more temporary erosion in US in 2020 Thank you Samit Hirawat Executive Vice President Chief Medical Officer Global Drug DevelopmentYeah in the HCC arena our focus is primarily on the Opdivo Yervoy combination So beyond that we re not looking to any expanded way of looking at it at this time So that s all I can share at this time from HCC perspective But maybe Chris Chris Boerner Executive Vice President Chief Commercialization OfficerYeah So Yervoy for the quarter was flat relative to the same time last year and we did show sequential growth of around 9 versus the third quarter of 2019 And that growth was driven really by both the US as well as in ex US We saw a bit of an uptick in the use of Opdivo plus Yervoy really across multiple tumors and the remainder of the business where we have Opdivo plus Yervoy in the market today as well as the use of Yervoy as a monotherapy in a selected number of indications was relatively stable for the quarter So what we re really starting to see is the increased use of Opdivo plus Yervoy really spread across multiple tumors and that s happening both in the US and to a lesser extent outside of the US Giovanni Caforio Chairman of the Board and Chief Executive OfficerThank you Thank you Chris And thanks everyone So before we close I would like to thank John Elicker for extraordinary leadership of IR over many many years Thank you John Now in closing we ve had a very successful 2019 And I m proud of the focus that our teams have had throughout a very very busy year We advanced our pipeline We delivered strong commercial execution to make a difference in the lives of patients and we are very well positioned as we embark on our next chapter as a new company Thanks everyone John Elicker Senior Vice President Public Affairs and Investor RelationsThanks everybody for taking the time As always if you have any follow ups give us a call Operator Operator Closing Remarks Duration 57 minutesCall participants John Elicker Senior Vice President Public Affairs and Investor RelationsGiovanni Caforio Chairman of the Board and Chief Executive OfficerDavid Elkins Executive Vice President and Chief Financial OfficerSamit Hirawat Executive Vice President Chief Medical Officer Global Drug DevelopmentNadim Ahmed Executive Vice President and President HematologyChris Boerner Executive Vice President Chief Commercialization OfficerChris Schott J P Morgan AnalystSeamus Fernandez Guggenheim AnalystGeoff Meacham Bank of America AnalystTim Anderson Wolfe Research AnalystTerence Flynn Goldman Sachs AnalystMatthew Phipps William Blair AnalystSteve Scala Cowen and Company AnalystDavid Risinger Morgan Stanley AnalystAgarwal UBS Analyst
More BMY analysis
All earnings call transcripts |
BMY | Sell siders on board with Bristol Myers Squibb s Q4 outlook | Takeaways from Bristol Myers Squibb s BMY 1 5 Q4 beat yesterday
Goldman s Terence Flynn Buy 79 Solid Q4 and initial guidance for the combined company a good starting point Believes EPS guidance for 2021 is encouraging but notes that expected EPS in 2022 reflects a moderated pace
Guggenheim s Seamus Fernandez Neutral Solid Q4 believes sales growth will be fine as it integrates Celgene 2020 2021 guidance a relief to investors concerned with Otezla divestment
JPMorgan s Chris Schott Overweight 74 Solid Q4 with no major surprises Key catalysts this year will be data readouts on Opdivo BMS 986165 and Celgene pipeline
Atlantic Securities Steve Chesney Overweight 78 Guidance provided a comforting look at near term top and bottom growth prospects Multiple pipeline updates could stoke share appreciation |
BMY | Bristol Myers Squibb Stock Is Too Cheap to Ignore | Bristol Myers Squibb s NYSE BMY decision to acquire Celgene in a cash and stock transaction valued at 74 billion wasn t particularly well received For instance one of the company s largest institutional shareholders Wellington Management came out in opposition of the deal on the grounds that it put unnecessary risk on Bristol Myers shareholders Also the U S Federal Trade Commission FTC expressed antitrust concerns after the acquisition was announced Bristol Myers sold Celgene s psoriasis drug Otezla to Amgen NASDAQ AMGN for 13 4 billion in cash to appease government regulators
Despite all of these challenges Bristol Myers officially closed its acquisition of Celgene on Nov 20 2019 And in its first earnings release since then the pharma company showed just why it spent a fortune on this blockbuster deal
Bristol Myers crushes fourth quarter estimates
During the fourth quarter Bristol Myers reported a revenue figure of 7 9 billion a 33 year over year increase and significantly better than the 6 14 billion analysts were expecting Further the company s bottom line also came out far ahead of consensus analyst estimates Bristol Myers posted an adjusted earnings per share EPS figure of 1 22 easily outpacing the 0 88 analysts were looking for During the quarter several of the company s products had strong performances For instance the company s drug Eliquis which is used to prevent blood clots in certain patients recorded sales of 2 billion 19 higher than the year ago period
Also Orencia which is used to treat the symptoms of rheumatoid arthritis posted sales of 792 million an 8 year over year increase However Bristol Myers blockbuster cancer drug Opdivo didn t perform well recording 1 8 billion in sales and representing a 2 decline compared to the prior year quarter It s worth noting that Opdivo is still being evaluated for other cancers and research firm EvaluatePharma projects that Opdivo could be one of the five best selling drugs in the world by 2024 In other words this drug could remain a growth driver for Bristol Myers
Through the acquisition of Celgene Bristol Myers got its hands on such products as multiple myeloma drug Revlimid which had sales for the third quarter of 1 3 billion This only includes Revlimid s sales from the time of the closing of the acquisition on Nov 20 to the end of Bristol Myers third quarter on Dec 31 Revlimid should make a more significant impact on the company s top line from here
More to look forward to
In addition to its strong financial performance Bristol Myers boasts interesting pipeline candidates including many of its current products that are seeking new indications The company s drugs Empliciti and Revlimid are currently being evaluated for the treatment of multiple myeloma Also Orencia is currently in phase 3 testing for the treatment of idiopathic inflammatory myopathy a group of conditions characterized by muscle weakness and inflammation
Through its partnership with bluebird bio NASDAQ BLUE Bristol Myers is developing a drug called liso cel which is currently in testing for several conditions including Large B cell Lymphoma and Chronic Lymphocytic Leukemia There s also ide cel a potential treatment for multiple myeloma which is currently in phase 3 testing Bristol Myers acquired the rights to liso cel and ide cel thanks to its acquisition of Celgene and the company famously claimed that its late stage pipeline after the Celgene transaction could generate more than 15 billion in revenue
Why you should buy now
Bristol Myers will likely continue posting strong financial results and its pipeline boasts several promising candidates as well What s more the company is currently trading at just 8 8 times future earnings and its price to earnings growth PEG ratio is 0 78 At these levels investors would do well to buy shares of Bristol Myers and hold them for the long term |
JPM | G7 sets common cyber security guidelines for financial sector | By Jason Lange WASHINGTON Reuters The Group of Seven industrial powers on Tuesday said they had agreed on guidelines for protecting the global financial sector from cyber attacks following a series of cross border bank thefts by hackers Policymakers have grown more worried about financial cyber security in the wake of numerous hacks of SWIFT the global financial messaging system including an 81 million theft in February from the Bangladeshi central bank s account at the New York Federal Reserve Cyber risks are growing more dangerous and diverse threatening to disrupt our interconnected global financial systems according to the guidelines agreed by G7 finance ministers and central bankers The guidelines which officials described as non binding principles were in a three page document posted on the Web pages of G7 government agencies The G7 comprises Britain Canada France Germany Italy Japan and the United States U S Deputy Treasury Secretary Sarah Bloom Raskin told reporters in a telephone briefing that G7 officials had surveyed their existing cyber security practices and identified potential shortfalls A Treasury official later said the guidance was an effort to encourage regulators and firms to approach cyber security from a risk management perspective Fed Vice Chairman Stanley Fischer said in a statement the guidelines would address the weakest links in global cyber security Cyber thieves have targeted large financial institutions around the world including America s largest bank JPMorgan NYSE JPM as well as smaller players like Ecuador s Banco del Austro and Vietnam s Tien Phong Bank The U S Federal Reserve s internal security staff detected more than 50 cyber breaches between 2011 and 2015 with several incidents described as espionage The guidelines released on Tuesday instruct governments to ensure that they police their own cyber security readiness as well as that of companies they regulate and that public and private institutions continually update their defenses The goal of the guidelines was also to get firms and regulators across the world to approach risks the same way according to the Treasury official If we get this right we will drive a common lexicon said the official who asked not to be named Governments are also supposed to notify one another about joint threats and cooperate to contain computer system breaches while firms are encouraged to share information and ask for help when they need it
Maintaining trust and confidence in the financial sector significantly improves when entities and public authorities have the ability to mutually assist each other according to the guidelines |
HAL | Oilfield services firm ProPetro cuts almost 150 workers sources | By Liz Hampton
Reuters ProPetro Holding Corp N PUMP this month cut about 150 workers people familiar with the matter said on Monday the latest sign of growing trouble in the oilfield services sector as U S shale producers reduce drilling
The job cuts reflect slowing shale activity due to weak prices for oil and gas and producers exhausting their spending budgets for the year one of the people said
Midland Texas based ProPetro said last week it would cut the number of hydraulic fracturing fleets operated this quarter by as much as 28 far surpassing analysts expectations The fleets send water sand and chemicals at high pressures underground to release trapped oil and gas
The layoffs represent a roughly 9 5 reduction in staff based on the company s latest annual filing
The job cuts came amid a board committee s fact finding review of past accounting practices which has prompted a shake up of top management and required senior executives to reimburse the company roughly 370 000
No senior executives were affected by the job cuts which were unrelated to the accounting probe the person said
Halliburton Co N HAL said last week it was cutting about 650 jobs in Colorado Wyoming New Mexico and North Dakota as oilfield activity slowed Most of the affected Halliburton employees were offered a chance to relocate to areas with stronger anticipated activity
Shares of ProPetro were off 0 8 at 9 35 shortly before the close of trading The company has lost nearly 25 of its market value so far this year |
C | How 4 Drop In Oil Impacts FX | By Kathy Lien Managing Director of FX Strategy for BK Asset Management
How 4 Drop in Oil Impacts FX
AUD Shrugs Off Stronger Business Confidence
NZD Ignores Fonterra Supply Forecast
Dollar Trades Higher on Rate Hike Talk
Beware of Sterling Strength
Euro More Greek Drama on Eve of EU Fin Min Meeting
How 4 Drop in Oil Impacts FX
The biggest story Tuesday for the forex market and the financial community as whole was the sharp decline in oil The recent volatility in crude is driving the market nuts and a continued focus on the commodity should only lead to more volatility After last year s steep decline oil is cheap but some bank analysts like the ones from Citi NYSE C believe that WTI could fall as low as 20 a barrel We doubt that OPEC nations would let that happen but oil is weak for fundamental reasons and the market share war is not making the outlook any brighter The price of oil is important to every country but for some the decline is damaging while for others it is encouraging The latest pullback was driven by the International Energy Agency s warning that a dramatic increase in oil stocks could drive prices lower While Tuesday s decline is not a very big deal because WTI crude is trading in a range how various currencies reacted reflects how the decline in oil impacts the country s monetary policy More specifically the U S dollar traded higher because the Fed views the decline in oil as positive for the economy At the same time it should be no surprise that the loonie was hit the hardest but the sell off in CAD was also exacerbated by dovish comments from Bank of Canada Senior Deputy Governor Wilkins She described the sharp drop in oil prices as a setback for Canada and expressed concerns that the oil price decline increases the downside risk to inflation This outlook suggests that the BoC could be considering more stimulus and unless the volatility in oil subsides and the price of the commodity stabilizes easier monetary policy could be likely There are no major Canadian economic reports scheduled for release this week so oil will determine how USD CAD trades However it won t be the only currency affected by the commodity The Australian and New Zealand dollars also traded lower on Tuesday despite an improvement in Australian business confidence and Fonterra s forecast that milk supply will decline this season
Dollar Trades Higher on Rate Hike Talk
Talk of tighter monetary policy drove the U S dollar higher against all the major currencies Tuesday with the exception of the British pound We heard from Lacker Fisher and Williams 3 voting members of the FOMC this year that seem to be warming to the idea of a rate hike Federal Reserve President Lacker was the most vocal He said point blank that June looks like an attractive option for a rate rise Lacker believes that the central bank needs to look past the transitory effects of lower gas prices because the economy is growing at a more rapid pace Fed President Fisher did not talk specifically about when rates should rise but he did not feel that low yields are a harbinger of deflation John Williams who is typically viewed as a centrist also believed that the central bank is on track for a mid 2015 rate increase The recent rise in U S rates 10 Year settled at 2 Tuesday and these hawkish comments support our outlook for further strength in the greenback and we believe should only be a matter of time before USD JPY tests and breaks 120 Unlike other central banks who see the decline in oil prices as a need to increase stimulus to avoid deflation the Fed views the drop as a temporary drag to be offset by a pickup in consumption Retail sales is the only piece of U S data this week worth watching and while lower gas prices are expected to drive down the value of sales excluding autos and gas consumer spending is expected to rebound in January A positive report would make the dollar even more attractive Foreign demand for 3 year Treasuries hit their highest level in 5 years a sign that investors are moving into the greenback
Beware of Sterling Strength
What is interesting about sterling is that it was the only currency on Tuesday to outperform the dollar while on Monday it was the only currency that failed to benefit from the dollar s decline The British pound traded higher despite a larger than anticipated drop in industrial production Investors were not worried about this decline because manufacturing production increased and the National Institute of Economic and Social Research upgraded their GDP estimate However if you take a step back sterling is just caught in a range against the dollar because both central banks are talking about tightening Against other currencies such as the Canadian dollar Japanese yen and euro it is performing extremely well In fact GBP CAD and GBP AUD are both trading within a whisker of their 5 year high Unfortunately those gains could be sapped if the Bank of England forecasts negative inflation and suggests that they could wait to raise rates With CPI hovering at a record low of 0 5 in December there is talk that the central bank could issue its first ever deflation forecast The fear that low inflation will overshadow growth prospects poses a major risk to the currency
Euro More Greek Drama on Eve of EU Fin Min Meeting
More Greek drama left the euro unchanged against the greenback With less than 24 hours to go before the EU Finance Minister meeting Germany tempered expectations for a quick deal with Finance Minister Schaeuble saying there are no plans to discuss a new accord or give Greece an extension Greek Finance Minister Varoufakis fired back by saying If you are not willing to even contemplate the prospect of a rupture then you don t really negotiate We are still optimistic that a deal will be reached but in case it doesn t the euro could slip quickly below 1 10 Placing an order to sell on a break of the 11 year low may not be a bad idea As mentioned in Monday s note how the euro trades against the U S dollar this week will be determined by the Greek debt negotiations If Greece and Europe continue to play their game of chicken waiting to see who blinks first the threats from both sides will keep the euro under pressure But if there s any sign of progress we expect a particularly aggressive short squeeze in the EUR USD |
BMY | Bristol Myers Squibb and BioMotiv Launch Fibrosis Specialist Anteros Pharmaceuticals | Bristol Myers Squibb NYSE BMY and drug development accelerator BioMotiv have launched Anteros Pharmaceuticals a biotech company focused on developing drugs for fibrotic and other inflammatory diseases The new company is based on discoveries on an undisclosed target made at Yale University which were licensed by Bristol Myers and then assigned to Anteros The initial work already includes a series of small molecule drug candidates against the target
BioMotiv and Bristol Myers have been working together for five months through a partnership to establish multiple new companies Anteros is the first start up to emerge from the relationship
BioMotiv will be responsible for research and development at Anteros Once the company has a preclinical candidate Bristol Myers will have the option to purchase Anteros at a pre specified price
Large drug companies have been doing this type of build to buy model for a while Biogen Celgene now part of Bristol Myers and GlaxoSmithKline have all established partnerships with venture capital funds to create start ups that the drugmakers have the option to eventually acquire Johnson Johnson and Bayer have taken a different approach establishing their own no strings attached incubators to help start ups grow while keeping a watchful eye on new technologies
The model likely costs the companies more to develop individual drugs but it reduces the risk of failure and keeps their research divisions at a manageable size The model could also result in drugs being developed faster A singularly focused small biotech may be more motivated to develop a candidate treatment more quickly than a larger pharmaceutical company with multiple interests |
BMY | Bristol Myers Squibb Earnings Revenue Beat in Q4 | Investing com Bristol Myers Squibb NYSE BMY reported on Thursday fourth quarter earnings that beat analysts forecasts and revenue that topped expectations
Bristol Myers Squibb announced earnings per share of 1 22 on revenue of 7 95B Analysts polled by Investing com anticipated EPS of 0 89 on revenue of 7 12B That with comparison to EPS of 0 94 on revenue of 5 97B in the same period a year before Bristol Myers Squibb had reported EPS of 1 17 on revenue of 6 01B in the previous quarter Analysts are expecting EPS of 1 44 and revenue of 10 01B in the upcoming quarter
Bristol Myers Squibb shares are up 2 18 from the beginning of the year still down 4 02 from its 52 week high of 68 34 set on January 22 They are under performing the S P Global NYSE SPGI 100 which is up 3 22 year to date
Bristol Myers Squibb follows other major Healthcare sector earnings this monthBristol Myers Squibb s report follows an earnings beat by J J on January 22 who reported EPS of 1 88 on revenue of 20 75B compared to forecasts EPS of 1 87 on revenue of 20 8B
Merck Co had beat expectations on Wednesday with fourth quarter EPS of 1 16 on revenue of 11 87B compared to forecast for EPS of 1 15 on revenue of 11 95B
Stay up to date on all of the upcoming earnings reports by visiting Investing com s earnings calendar |
JPM | Israel s tycoons are ailing who will buy their assets | By Ari Rabinovitch and Tova Cohen TEL AVIV Reuters They once pulled the strings of Israel s economy but now the country s most influential tycoons are reeling under a popular backlash against corporate power and selling assets in a regulatory squeeze For investors willing to wade into a market in the middle of a dramatic overhaul there is a rare opportunity to snatch up companies from insurers to oil refineries at bargain prices About a decade ago as Israel s corporate debt market was just getting started there was little oversight and risk taking was encouraged A small number of tycoons used debt to expand their conglomerates into tiered corporate structures with cascading control over huge chunks of the economy By 2010 10 large business groups controlled 30 percent of the market value of public companies while 16 controlled half the money in the entire country The following year hundreds of thousands of Israelis took to the streets to protest against the high cost of living and they pointed their fingers at the high concentration of corporate power There is no question that in the past these let s call them tycoons they had personal relationships with the managers or the chairmen of the banks And this enabled them to get credit said Ben Zion Zilberfarb an economics professor at Israel s Bar Ilan University After the 2011 protests the banks started clamping down When markets soured a handful of them were stuck with tremendous debt Four years on high profile moguls can still feel the heat In July Nochi Dankner who through holding company IDB controlled Israel s largest supermarket chain and cellphone operator Shufersal TA SAE and Cellcom TA CEL and other businesses including a small airline was sentenced to jail for manipulating share prices to try to save his crumbling empire Diamond dealer Lev Leviev while busy negotiating a haircut with debtors had to pay 550 million shekels 146 million from his own pocket last month to buy control of ailing Russia focused real estate firm AFI Development L AFRBb from his holding company Africa Israel Investments TA AFIL01 Eliezer Fishman who controls some of the biggest Israeli retail chains a top selling newspaper and a stake in real estate holding company Jerusalem Economy TA ECJM spent last Thursday in court arguing over his debt of about 1 billion Leviev and Fishman declined to comment CAVALIER Zilberfarb pointed to a domino effect in the banks new attitude toward the tycoons The banks had extended so much credit to one tycoon because they trusted his abilities and his vision but he ended up losing money They realized this may happen to another and then another until they stopped lending he said At the same time the government passed a law to break up the concentration of power that is now forcing conglomerates to sell billions of dollars in assets and the time they have is running out Cavalier behavior among the tycoons was noticeable beyond the overleveraging like in generous dividend policies said Ofir Naor a lawyer representing bondholders in a number of debt restructuring talks with Israeli conglomerates Dividend decisions were made without any debate The controlling shareholder came told a story and everyone said amen Naor said Today the hurdle is much higher In 2013 Prime Minister Benjamin Netanyahu pushed through legislation known as the concentration law that forces conglomerates to chose between control over banks and other financial institutions or non financial companies like refineries or real estate firms The law gives them until the end of 2019 and it was estimated that 40 firms worth 80 100 billion shekels would come up for sale But there has been only one major deal so far China s Bright Food SHMNGA UL bought control of foodmaker Tnuva for 1 1 billion Two major insurance companies are on the market Billionaire Yitzhak Tshuva s Delek Group TA DLEKG chose to keep its energy assets over Phoenix Holdings TA PHOE1 Argentinian businessman Eduardo Elsztain who now controls IDB the former vehicle of convicted tycoon Dankner is looking to sell Clal Insurance TA CLIS Neither have been able to finalize a deal both saying stepped up regulation scared away investors It s funny to be in a process that we have to sell in three years but nobody can achieve that Elsztain said IDB appointed JPMorgan NYSE JPM to find a buyer for its 55 percent stake in Clal following two failed attempts to sell to Chinese investors Under an agreement with the regulator it may have to sell off 5 percent of the company every four months A forced sale will make a tremendous loss to shareholders Elsztain said at a news conference Two weeks ago businessman Zadik Bino sold a small fraction of his 23 percent stake in refiner Paz Oil TA PZOL for 8 2 million shekels to an unnamed financial body His lawyer David Hodak confirmed to Reuters it was a symbolic first sale and that Bino as of now planned to reduce his stake in Paz to below 5 percent so he could keep his holdings in the First International Bank of Israel TA FTIN Hodak also headed a government committee in 2010 that created new parameters for how institutional investors could operate in the debt market after the global crisis He argues that government interference has since gotten out of hand
Foreign investors look at what happened to Israel and are seeing many changes over regulation he said Yes we have opportunities but I don t think that we create appetite for foreign investors |
HAL | Stock Beat Halliburton Pulls Back as Crude Oil Prices Fall | Investing com Halliburton NYSE HAL was giving back a big chunk of its Monday gains on Tuesday as oil prices moved lower on reports Saudi Arabia will be able to restore most of the production at facilities attacked Saturday by drones fairly quickly
Halliburton one of the biggest oil services companies was off 4 3 at 1 10 p m ET and a host of other oil stocks moved lower as well
News reports said Saudi Arabia had been able to restore 70 of production at its Abqaid processing facility West Texas Intermediate crude was off 3 or 5 to 59 90 WTI had jumped 14 7 to 62 90 a barrel on Monday Halliburton NYSE HAL shares are down more than 18 this year
Halliburton shares jumped nearly 11 Monday as investors reacted to the drone attacks The U S has claimed the attacks came from Iran |
HAL | Halliburton cuts 178 employees in Colorado filing | DENVER Reuters Top U S hydraulic fracturing provider Halliburton NYSE HAL this week said it would cut 178 employees in Colorado according to a state filing
The layoffs are concentrated in Mesa county in Western Colorado according to a notice with Colorado s Department of Labor and Employment
Earlier this year Halliburton said it had cut its North American workforce by 8 as reduced customer spending prompted a slowdown in hydraulic fracturing activity
The company did not immediately respond to a request for comment |
HAL | Halliburton cutting 650 jobs as U S oilfield slowdown accelerates | Reuters Halliburton NYSE HAL said on Wednesday it is cutting another 650 U S oilfield services jobs as U S and gas producers have slashed spending amid weak prices and investor demands for higher returns
The latest job cuts on top of an 8 reduction earlier this year affect workers across Colorado Wyoming New Mexico and North Dakota said spokeswoman Emily Mir Employees affected by the change will be offered a chance to relocate to other regions she said |
HAL | Halliburton Cuts Workforce in U S Rockies on Lower Activity | Bloomberg Halliburton NYSE HAL Co is reducing its workforce in the Rockies as the biggest oilfield service contractor to announce job cuts grapples with a protracted spending slump in the shale patch
The cuts affect 650 workers across Colorado Wyoming New Mexico and North Dakota Emily Mir a spokeswoman said Wednesday in a prepared statement Most were offered the option to relocate to other areas where greater oilfield work is expected she said
The moves come three months after the Houston based oilfield contractor announced it was trimming 8 of its North American headcount and parking unused frack gear
Oilfield servicers have been among the worst hit companies amid a slowdown in the once red hot U S shale patch Their exploration customers are dialing back spending as low crude prices dent profits and investors urge financial discipline Bankruptcies in the industry are surging and on track to eclipse last year s casualties according to law firm Haynes and Boone LLP
The number of U S crews that frack wells the final step before oil production has dropped 17 this year according to Primary Vision Inc Halliburton is set to report financial results from the third quarter on Oct 21
Halliburton fell 0 5 to 18 16 at 1 48 p m in New York
Updates with number of frack crews in fifth paragraph |
HAL | Why Offshore Drilling Stocks Can Make A Comeback In 2020 | Uptick in new project opportunities are expected to reverse years of decline in offshore drilling contractor revenues With the energy sector emerging from the crude slump and debt driven overhaul renewed interest in the offshore drilling space is finally raising hopes for the industry s recovery Crude Plunge Aggravates Offshore Industry StrugglesWhen oil was in the triple digit territories of 2014 energy companies had billions of dollars in exploration budgets The aggressive approach was essentially tied to commodity prices and severely dented balance sheets when prices fall to a 13 year low of around 26 per barrel in 2016 With operating profitability compromised the worst oil crash in over half a century triggered major restructuring and a change in the companies long term focus Most producers concentrated on becoming leaner by shunning large capital intensive projects In particular the price slump forced the top energy companies to cut spending on the costly offshore drilling projects due to lower profit margins This in turn meant less work for the beleaguered drillers With old contracts rolling off the companies either got rigs stacked or bore high reactivation costs and accepted much reduced dayrates As a result overall revenues were impacted Most offshore drilling stocks lost billions in market value during this period Sustained Oil Prices Above 60 Per Barrel to Spur RevivalWTI crude the U S benchmark bounced back above 60 per barrel following the recent agreement on a phase one trade deal between U S and China The development coming after months of wrangling is seen to prop up the oil demand outlook on the back of revival in global economic growth Also boosting oil the OPEC group announced cutting output by as much as 500 000 barrels per day from Jan 1 for three months This is in addition to the existing production curbs of 1 2 million barrels per day by OPEC Russia and other non member oil producers Sustained prices over 60 is likely to drive operators to make longer term plans as deepwater projects become cost effective if taken up for a long term Consequently demand for offshore drilling services should picked up Sector consolidation adoption of superior technologies new operational systems optimization of the fleet by strategic sell offs and acquisition seeking profitable collaborations among other strategic strides will certainly help boost future prospects of the drilling companies While one does not expect the sunny days of the drilling industry to return immediately signs of recovery can definitely be seen Let s discuss the most important factors shaping the industry s turnaround Depleting Onshore Reserves One of the key positive arguments for offshore drillers is the focus on reserve replacement rate With less oil being discovered on land and a number of upstream operators depleting their reserves fast capital is moving into offshore projects In fact supplies from offshore fields are expected to be the primary contributor in meeting reserve shortfalls in the long run There is just no alternative Radical Cut in Costs Operators think that the lessons learnt during the bust years will help them undertake sizeable expenditures while maintaining the target capital structure With the offshore players greatly reducing costs amid stronger operating efficiencies most of the projects are likely to generate decent returns even at today s oil prices The lower breakeven and attractive project economics are leading to more offshore projects being sanctioned Considerable Growth in E P Cash Flows The good news is most exploration and production companies have plenty of cash to invest A tight leash on expenditure and conservative spending plans have resulted in cash flow coming in at higher rates driving offshore spending and drilling activity Oilfield services major Halliburton NYSE HAL estimates that investments by oil producers in international offshore markets will increase 14 this year and continue in 2020 Improving Day Rates Utilization The offshore spending growth particularly in markets like Brazil Guyana and Mozambique has led to rising day rates and utilization Both are now comfortably off the bottom in most global operating regions and for majority of the market segments While nowhere near the boom year highs they still remain quite strong and at levels rarely see in recent times Drone Strike Over Saudi Oil Infrastructure The September attack on Saudi Arabia s oil installations have raised the risk quotient associated with onshore oil production Following the strike on the state run Saudi Arabian Oil Company s Aramco SE 2222 Abqaiq plant a key crude processing facility and the Khurais complex which houses the kingdom s second largest oilfield market watchers have stressed the need to diversify oil supply sources This would mean more investments in offshore projects which are considered relatively immune to geopolitical risks How to Profit from This Recovery With the offshore energy industry looking ready to turn the corner toward growth we have shortlisted four of them Noble Corporation plc NYSE NE Transocean Ltd NYSE RIG Saipem SpA and Valaris plc NYSE VAL that might warrant attention going into 2020 Each carrying Zacks Rank 3 Hold the companies own some high quality offshore drilling fleets with presence in major markets Importantly their contract backlogs are anchored by a large and diverse group of clients including major national and independent upstream companies You can see Zacks Top 10 Stocks for 2020In addition to the stocks discussed above would you like to know about our 10 top tickers for the entirety of 2020 These 10 are painstakingly hand picked from over 4 000 companies covered by the Zacks Rank They are our primary picks to buy and hold |
C | How Will the Drop in Oil Prices Affect Global Trading Activity | WTI crude oil and Brent crude oil prices continue to slide as traders begin looking to global supplies including the record high inventories in the U S In 2014 the price of oil dropped by almost 50 and it has continued to decline in 2015 However global supplies are growing despite the fact that the market already has an ample over supply with lackluster demand Heading into Friday 9th January oil prices gained during overnight trading and moved between losses and gains during the morning session as some traders jumped into trading while others sold at a profit Many analysts believe that oil price will continue to fall in the next few weeks So how has the decrease in oil prices affected the behaviour of other markets and general trading activity
U S Trading Activity
On January 7th 2015 the Energy Information Administration EIA released a report stating that the total supplies of petroleum and crude oil products have hit their highest weekly level on record In addition U S oil production increased thereby adding to concerns that a global oversupply will continue over the next few months Analysts at Citigroup Inc stated that 2015 U S petroleum inventory statistics show that there is a large oversupply of oil in domestic markets January is typically a low point for oil storage but crude oil stocks are currently at historical highs
Presently the U S dollar is trading at multiyear highs compared to other major currencies and it is also pressuring oil prices Because oil is traded in dollars when the dollar is stronger it makes purchasing oil more expensive for buyers that are using foreign currencies There is a great deal of uncertainty in the markets and investors cannot agree as to when they believe oil prices will begin reverse Some traders think that oil prices have nearly bottomed out but others are less convinced Top fund managers believe that it is not inconceivable that 30 35 per barrel may be breached Oil price weakness is being driven by the confluence of multiple factors namely OPEC s insistence on maintaining present supply levels European recessionary concerns and slack global economic activity
Commodities Trading
With falling oil prices a weakening euro and depressed equities markets uncertainty is rife This has boosted precious metals trading particularly gold On January 7th 2015 the price of Gold pulled back a little but overall gold stocks are up 2 5 Traditionally when there are high levels of uncertainty in the market the price of gold increases as investors flock to this precious metal as a safe haven Gold has always been seen as an asset that is used to hedge against economic uncertainty While the low oil price has been beneficial to some markets it has made many investors speculate as to when the price will begin increasing again and how steep that increase will be The significant drop in oil prices has no doubt created volatility and bearish investor sentiment has added to that volatility That is precisely why the price of gold has been on the rise In addition there is much concern in Europe especially in terms of what will happen if the Syriza party is elected into power in Greece on January 25th If this happens Greece may leave the European Union which is likely to rock the global currency markets However German Chancellor Angela Merkel believes that the EU can weather the storm if Greece absconds
About the Author Brett Chatz is a graduate of the University of South Africa and holds a Bachelor of Commerce degree with Economics and Strategic management as his major subjects Brett provides in depth analysis and consultancy to the critically acclaimed spread betting and CFD trading provider |
C | Oil Copper And Credit | There are two separate subjects to talk about today one is oil and the other copper Oil has been cut by more than half in just six months As I speculated last week I believe someone somewhere is already dead For all intents and purposes the shale businesses across the globe have been rendered upside down Along with the business models of course is all of the debt taken on to create the businesses The debt is estimated in North America alone to be greater than 500 billion and has provided much of what little growth GDP has recorded the past few years
Oil
Regarding who may have won with collapsing oil prices Ann Barnhardt wrote How could trillions of dollars be laundered from the Wash DC regime to Saudi Arabia Why through Citigroup of course This is a very interesting and timely speculation on her part After pondering this for quite a while I have several questions but no real hard answers We do however have some hard data to work from We know the largest shareholder in Citi is Prince Alaweed of Saudi Arabia We also know Citigroup NYSE C has increased the size of its derivatives book by nearly 20 billion over the last two quarters but we don t know what derivatives these are Another fact in the know is Saudi Arabia wants lower oil prices as judged by their actions Whether this was to blow up the shale business and put other competitors out of business or a deal cut between them and Washington or even possibly China we do not know
Another piece to this puzzle came amazingly from the Republican held House of Representatives If you recall the banks and even Mr Obama himself lobbied Congress to attach a rider to this year s spending bill The rider allows the banks to include their derivatives exposure under FDIC coverage should the bank fail In effect the American taxpayer now has 303 trillion worth of derivatives exposure via the FDIC which has direct borrowing privileges from the Treasury The American taxpayer in my opinion had a knife stuck squarely in their back yet few even have the slightest clue this has happened and written into law
The questions we do not have answers to are as follows has Saudi Arabia actually been short the oil market and either fully hedged or even more than fully hedged and actually making money on the drop in oil price What derivatives have Citi been taking on to expand their book so much and why Are any of these derivatives oil or energy related A peculiar thought would be this is Citi actually the long to a Saudi short The question raised by Ms Barnhardt is a good one is Saudi Arabia hedged and being paid by their bank Citi
Copper
The drop in oil prices has now been confirmed by copper Copper has broken below a 5 year wedge and broken down with other commodities You will or have already heard this breakdown described as a collapse of the copper roof This concept has gone back well over 100 years Whenever copper prices collapsed it was a sure sign the real economy itself was slowing The current world s economy is a global one no longer is the U S the big player when it comes to commodities like copper steel or even cement China has used more cement in the last 3 years than the U S did in the entire 20th Century Clearly China and the rest of the world is slowing down You can see this not only in the prices of commodities but also in the credit markets
If you recall just before year end China made a move within the financial system to only accept AA and AAA rated corporate bonds as collateral this was very significant as it shrunk the collateral pool greatly While speaking of collateral we have yet to see the fallout from the Chinese warehouses with either missing collateral or multiple pledged collateral copper nickel zinc this will be very interesting to see Fast forward just a couple of weeks and the PBOC blinked they performed a mini QE of their own In order to keep their economy moving they are stuck in the same mud the Federal Reserve is in it is either inflate or die For now commodities are saying the die part is overwhelming the inflate part
I see this as very significant you should too Why Because there is one more piece to the puzzle gold and silver have bottomed and are not going down during this commodity meltdown Gold and silver to a different degree are money NOT commodities China has accumulated massive quantities of gold as they understand its monetary qualities in a debt ridden world They also understand the dollar will not survive a credit collapse as the dollar is credit itself They are avid students of history Think back to the last credit collapse in the 1930 s what exactly happened and what policy was used in an effort to reflate Yes you are correct gold was revalued overnight 69 33 Some will say but that was in a world where gold was money I will tell you gold has ALWAYS been money we have simply lived through an era where governments did not want it to be money and did not want people to believe it was money They tried as hard as they could to de monetize gold it worked for many years until 2001 on the American psyche not so much on foreigners though
Credit
The credit markets lately have done a Dr Jekyll and Mr Hyde performance Many sovereign credits have moved to all time high levels and low yields This has been seen as a no vote on the reflation efforts and capital has moved in to this space for safety Lesser rated credits including anything to do with commodities have been trashed and yields have exploded out of fear I ask you this how safe do you believe Italian or Spanish or even Japanese government bonds are The markets are labeling them as pristine with incredibly low yields but are they really Just two years ago several of these lower rated sovereigns were discussed in the same sentence with the words default bankruptcy and insolvency now they are considered safe havens
Clearly the reflation effort is not working and the carry trades all over the world are blowing up You are also seeing this with the wild gyrations in stock markets which look ready for a trap door moment at any time But why Why now This is simple QE 3 was ended The morphine drip of Fed monetization was shut off and the baton pass to Japan was not enough of a substitute The credit bubble is losing air from several different directions the Fed will be required to announce another round of QE in very short order The only question I have is what the reaction will be I am sure the first 24 48 hours after an announcement will be happy days are here again but what happens after that Do we slog through another 12 months or more of markets recovering or does the market just outright panic
I obviously don t have the answer to this but I cannot believe investors have not figured out after four episodes that QE plain does not nor can ever work Any future QE announcement from the Fed which is met by markets not obliging them will be the obvious sign of an empty gun I personally believe the damage in oil copper and other commodities is too far along for another QE to repair In other words the derivatives losses are already too great and the losses have been embedded plus sovereign treasuries are now too levered to try another reflation The fact that gold is increasing versus the dollar and exploding versus other currencies I believe is giving us a heads up to this thought process because it is money We are watching a deflation unfold versus gold and dollars soon to only be versus gold We are entering a credit implosion or seizure on top of a banking system and sovereign central bank impairment Never forget dollars are 100 based upon credit which is based upon confidence and nothing else The ability to relate always existed in the past now this ability is again being tested while debt to GDP levels have never in history been worse I guess the next and only big question is this will the next QE bullet be a blank
Regards |
BMY | Here s Why Bristol Myers Squibb Jumped 12 7 in December | What happened
Shares of Bristol Myers Squibb NYSE BMY gained nearly 13 last month according to data from S P Global Market Intelligence The trek higher capped off a solid year for the industry leader as the pharma stock gained 23 4 in 2019 The finish was all the more impressive considering shares began the fourth quarter at a year to date loss
There were several positive updates in December from the pipeline of Celgene which gave investors more confidence that the acquisition will pay off Perhaps the most noteworthy was that the U S Food and Drug Administration abruptly abandoned plans to hold an advisory committee meeting for Reblozyl an experimental treatment for anemia in patients with certain red blood disorders but kept the latest application review timeline intact
So what
Celgene and Acceleron Pharma NASDAQ XLRN collaborated to develop Reblozyl an erythroid maturation agent that encourages red blood cells to fully develop to treat anemia associated with certain blood disorders The drug was approved in November to treat anemia in beta thalassemia patients who require blood transfusions but the duo are looking for supplemental approvals in other blood diseases
For example the pair submitted a supplemental biologics license application sBLA for the drug to treat anemia in very low to intermediate risk myelodysplastic syndromes who have ring sideroblasts and require blood transfusions The FDA had previously informed the pair of its intention to hold an advisory committee meeting which would have gathered input from stakeholders on the risks and benefits of the experimental therapy The committee would have also voted to recommend or reject approving the drug
Although the final decision would rest with the FDA such meetings add another layer of uncertainty for investors Investors ended up avoiding the ordeal altogether
On Dec 6 the FDA informed Bristol Myers Squibb and Acceleron Pharma that the advisory committee meeting was no longer required Even better regulators still intend to make a decision on the sBLA by the original deadline of April 4 of this year Investors interpreted that as a sign that approval is imminent
Now what
While the supplemental approval for Reblozyl isn t guaranteed analysts think the drug has peak annual sales potential of over 2 billion in a best case scenario Hitting that mark would help to justify the acquisition of Celgene and with the advisory committee hurdle no longer in the way investors are one small step closer to realizing the value proposition of the combined companies |
BMY | Bristol Myers Squibb s Celgene Unit Backs Out of a 55 Million Settlement | Bristol Myers Squibb s NYSE BMY Celgene unit which the big pharma company acquired last year has backed out of a 55 million settlement agreement with patients and payers over claims that it unfairly thwarted generic drug competition for Thalomid and Revlimid The patients and payers claim that Celgene blocked generic drug companies from buying the multiple myeloma medications while also increasing the prices of the drugs
Generic drug companies need branded medication to do comparison studies with their copycat versions but Celgene reportedly blocked the companies from buying the drugs because the medicines are covered under a Food and Drug Administration mandated distribution program called a Risk Evaluation and Mitigation Strategy REMS which requires pharmacists and patients to enroll in the REMS program before receiving the drugs
The plaintiffs also claimed that Celgene tried to enforce patents that weren t valid and entered into anti competitive agreements with generic drug companies In 2015 Celgene settled a lawsuit with generic drug maker Natco Pharma providing Natco with a volume limited license to sell generic Revlimid starting in March 2022 that increases in volume each year until Jan 31 2026 when Natco will be able to sell an unlimited quantity of its generic version
In July while Celgene was still an independent company the biotech agreed to the 55 million class action settlement but the agreement was predicated on the class members signing onto the lawsuit More than 8 000 individuals and more than 800 payers insurance companies and companies who self insure agreed to the settlement but 80 entities opted out preserving their right to sue independently which led to Bristol Myers Squibb pulling out of the lawsuit
The lawsuit will now continue with the plaintiffs suing Celgene for 3 billion the extra amount the plaintiffs claim they paid because generic drugs weren t available |
JPM | U S economy less sluggish in second quarter companies investing more | By Jason Lange WASHINGTON Reuters U S economic growth was less sluggish than previously thought in the second quarter as exports grew more than imports and businesses raised their investments hopeful signs for the economic outlook Gross domestic product expanded at a 1 4 percent annual rate the Commerce Department said on Thursday in its third estimate of GDP That was up from the 1 1 percent rate it reported last month and higher than analysts expectations The revision incorporated data that showed businesses cut investments in buildings and equipment less than the government previously estimated while they sank more money into research and development Other data released by the Commerce Department showed America s trade deficit for goods shrank in August boding well for third quarter growth It now appears that growth is slowly making its way back on to firmer ground said Michael Feroli an economist at JPMorgan NYSE JPM in New York Growth in overall business investment was revised to show a 1 percent annual rate of expansion the first gain since the third quarter of last year suggesting the worst of an energy sector led slump in business investment might be over The slump fueled by a sharp drop in oil prices that hit America s energy industry has worried policymakers at the Federal Reserve because less investment could hurt economic growth over the longer term The economy has struggled to regain momentum since output started slowing in the last six months of 2015 and the overall growth rate for GDP in the second quarter remained below historically normal rates That could give grist to Republican Presidential candidate Donald Trump s argument that the economy has sickened under the Obama administration At the same time consumer spending which makes up more than two thirds of U S economic activity was robust in the second quarter rising at a 4 3 percent annual rate while growth in exports outstripped that of imports enough to boost GDP by the most since the third quarter of 2014 But companies continued to run down their inventories aggressively reducing stocks by 50 2 billion and subtracting from GDP growth while home building also sank The U S dollar was little changed against a basket of currencies while yields on U S government debt were higher The GDP data is unlikely to have much impact on the near term outlook for monetary policy although it could make Fed policymakers more confident the U S economy is resisting weaker growth abroad Federal Reserve Chair Janet Yellen repeated on Wednesday that Fed policymakers expect to raise interest rates by the end of the year because they worry that gathering steam in the U S labor market could fuel inflation New claims for unemployment benefits rose slightly last week but remained at levels consistent with a healthy job market according to a separate report from the Labor Department The Commerce Department is due to release new inflation data on Friday The government also reported that after tax corporate profits fell at a 1 9 percent rate in the second quarter a smaller drop than initially estimated
With profits declining an alternative measure of growth gross domestic income or GDI dropped at a 0 2 percent rate in the second quarter GDI measures the economy s performance from the income side |
JPM | Hammond vows to protect UK economy during Brexit sterling falls | By William James and Kylie MacLellan BIRMINGHAM England Reuters British finance minister Philip Hammond vowed on Monday to protect the economy from any turbulence during negotiations to leave the EU as sterling fell on worries the country is heading towards a disruptive divorce with its biggest trading partner Hammond made his promise to the ruling Conservative Party after Prime Minister Theresa May said she would trigger the process to leave the European Union by the end of March offering the first glimpse of a timetable for one of the most complex negotiations in recent European history Britons vote for Brexit on June 23 took many investors and chief executives by surprise triggering the biggest ever one day fall in sterling against the dollar Although the economy appears to have largely weathered the initial shock Hammond sought to reassure businesses and consumers whose continued investment and spending fuels economic growth that he would act to if needed Throughout the negotiating process we are ready to take whatever steps are necessary to protect this economy from turbulence Hammond told the Conservatives annual conference in the city of Birmingham And when the process is over we are ready to provide support to British businesses as they adjust to life outside the EU he added pledging to guarantee any EU funding secured before Britain s exit Britain must start the formal negotiation process by invoking Article 50 of the EU s Lisbon Treaty giving the sides two years to clinch a deal We have to expect a period when confidence will go up and down perhaps on a bit of a rollercoaster until we get to a final agreement where businesses and consumers can understand what the future relationship between Britain and the European Union will be Hammond told BBC television ahead of his speech Hammond s address was watched by May whose speech to the conference on Sunday convinced some investors that Britain could be heading towards a hard Brexit Sterling having just posted its worst run of quarterly losses since 1984 skidded more than 1 percent against the dollar to as low as 1 2845 That left it less than half a cent away from the 31 year low it reached in early July shortly after the referendum While May dismissed the idea that Britain faced a choice between a soft or hard Brexit economists at the JPMorgan NYSE JPM investment bank said her comments indicated the latter meaning the country could abandon the EU s customs union give up on seeking preferential access to the single market and impose controls on immigration from the bloc Although May does not like the hard soft distinction this looks pretty hard to us JPMorgan which supported the Remain campaign said in a note to clients CLUELESS May s comments were welcomed by the EU with Donald Tusk the president of the European Council saying the statement had brought welcome clarity to the situation But the European Commission said it would start negotiating Brexit only after Britain sent its formal notification under Article 50 that it would leave the bloc it joined in 1973 A French diplomatic source said May s announcement contributes to clarifying Britain s plans and reducing uncertainties as the Europeans wanted Lawmakers in German Chancellor Angela Merkel s conservative party made similar remarks to Tusk but some expressed frustration at the lack of detail on the timetable Finally there is a position lawmaker Elmar Brok said It would be important that the Brexit is done before the next election for the European parliament due in early 2019 The British government has shown that it is clueless about what to do said Gunther Krichbaum leader of the European committee in the Bundestag lower house One senior German official said It is beyond comprehension that the politicians who campaigned for Brexit for months have no idea what they want they have no plan at all HARD BREXIT Hammond who campaigned for Britain to remain in the EU before the referendum said the government would ensure the best possible access to EU markets His support for the Remain campaign has raised suspicions among Conservative eurosceptics who fear the government may water down the terms of Britain s exit Hammond tried to counter that view No ifs no buts no second referendums We are leaving the European Union he said But it is equally clear to me that the British people did not vote on June 23rd to become poorer or less secure Hammond repeated his decision to push back the government s target for turning the budget deficit which at 4 percent of gross domestic product in the 2015 16 financial year is proportionately among the biggest among the rich economies into a surplus His predecessor George Osborne had targeted 2020 but Hammond has yet to set a new target date He said budget consolidation plans would be balanced with infrastructure investment and improvements to productivity to cope with the uncertainty caused by Brexit The British people elected us on a promise to restore fiscal discipline he said And that is exactly what we are going to do But we will do it in a pragmatic way that reflects the new circumstances we face The deficit remains unsustainable and the decision to leave the EU has introduced new fiscal uncertainty he said promising to set out his full plan on Nov 23 He has previously played down expectations of a surge in public spending to offset any economic hit from the Brexit vote but said he could fund modest infrastructure projects if needed SMEXIT Hammond s spokeswoman declined to comment on the pound s fall or talk of exiting the EU single market but said he has been keen to underscore how he was listening to the concerns of British businesses But for some May s reluctance to offer what she describes as a running commentary on her strategy has deepened fears that they could end up paying higher costs if operating from Britain
The tone of May s speech even suggested Britain would lose preferential access to the single market said Royal Bank of Canada The inference from her comments is that Brexit will also mean Smexit it said in a research note That is Single Market exit additional reporting by Elizabeth Pineau Writing by Guy Faulconbridge editing by David Stamp and Anna Willard |
JPM | JPMorgan aims global bond index at yield hungry investors | Reuters JPMorgan Chase Co N JPM on Monday said it was launching a global government bond index that will offer fund managers higher potential yields by including a larger percentage of emerging market bonds than traditional global bond indexes The index is called the JPM GBI aggregate diversified fund and is made up of both investment grade and high yield bonds with an allocation of 80 percent developed market and 20 percent emerging market bonds Global bond indexes typically only comprise about 2 to 4 percent emerging market bonds because certain countries are excluded based on credit ratings JPMorgan said the new index is 94 percent comprised of investment grade credits with an average index rating of Aa3 AA AA by Moody s Standard Poor s and Fitch respectively This split is a better reflection of both outstanding debt stock in the global investable landscape and the increasing economic contribution of EM countries to global GDP said Gloria Kim head of J P Morgan Global Index Research Group in a statement The allocation to the G3 currencies the dollar euro and Japanese yen totals only 57 percent of the fund as compared to 85 percent to 90 percent in traditional global government bond indices analysts said The index has a weighted average yield of 1 35 percent Kim said in the statement and managers at JPMorgan see it as one of their flagship indices for the coming years The index does not exclude countries based on credit ratings but does exclude countries with capital controls
JPMorgan offers around 20 benchmark indices Its other flagship products include the JPMorgan EMBI index and GBI emerging markets index |
HAL | When NOT To Own Energy | I have been keeping an eye on energy stocks for quite awhile not I wrote this article at the end of May wondering out loud if Halliburton NYSE HAL was nearing a bottom At the time HAL was trading at 21 29 a share It dropped as low as 16 97 20 by the end of August As of today it is back up to 22 30 Is the bottom in in energies No one can say for sure but I have been reading from a lot of different sources about how much energies are loathed and beaten down and overdue for a bounce
Of course the more I read people saying that the more I wonder if it is still a little early But to put things into perspective Figure 1 displays Fidelity Select Energy Services with a custom indicator called Vixfixaverageave I know I know bad name which is basically a double smoothed version of an indicator called VixFix which was devised by legendary trader Larry Williams a number of years ago
Figure 1 Fidelity Select Energy Services Courtesy AIQ TradingExpert
Note that previous extreme peaks in the indicator have marked some fairly significant low areas for energy services Given the current extreme reading for the indicator it would seem to make sense to be looking at now as a reasonable time to start allocating more to energy stocks
Looking At Things On A Seasonal BasisOn a seasonal basis the month of December historically represents a very good time to be looking at energies As it turns out the energy services sector and the overall energy sector as a whole is one of the most highly cyclical sectors around Figures 2 and 3 tell you pretty much everything you need to know Figure 2 FSESX Cumulative return December through April 1985 2019Figure 3 FSESX Cumulative return May through October 1986 2019In Figure 2 we see that the cumulative total return for ticker Fidelity Select Energy Service Portfolio only during the months of December through Apr has been 6 624 since 1985 In Figure 3 we see that the cumulative total return for ticker FSESX only during the months of May through November has been a stunning 94 since 1985 So when do you want to hold energy related stocks Note that as divergent as these numbers are there still are no sure things in the world of investing Note that the Dec Apr period has showed a gain 76 of the time on a year by year basis So do not make the mistake of thinking that energy prices are sure to be higher 5 months from now Likewise note that the May Nov period has showed a gain 44 of the time So despite the massive cumulative loss over time remember that on a year by year basis it is almost a coin flip Summary
The energy sector has been beaten down and has remained down for a number of years Broad based energy proxies such as ticker Energy Select Sector SPDR Fund NYSE XLE and ticker Fidelity Select Energy Portfolio both topped out in 2014 Ticker XLE is presently trading at the exact same level it was at roughly 13 years ago So yes the energy sector does qualify as a bullish contrarian play at this point
The only problem is no one knows for sure when or where the bottom is So what is an investor to do Given the seemingly washed out nature of the sector itself and the fact that it just entered it s bullish seasonal period it may be a decent time for a long term investor to consider establishing a position in the energy sector in anticipation that it will perform better overall in the years ahead and more specifically in the months ahead
Just remember that there are no sure things and that you must likely be prepared to ride it out for a period of time to reap any rewards Given this also remember that position sizing is of critical importance i e dip a toe don t bet the ranch |
C | Netherlands Germany Have Euro Disaster Plan Possible Return To Guilder | The Dutch and German governments were preparing emergency plans for a return to their national currencies at the height of the euro crisis it has emerged These plans remain in place
German Gold Deutsche Mark Special Edition
The Dutch finance ministry prepared for a scenario in which the Netherlands could return to its former currency the guilder They hosted meetings with a team of legal economic and foreign affairs experts to discuss the possibility of returning to the Dutch guilder in early 2012
The Dutch finance minister during the period has confirmed that Germany also discussed such scenarios
At the time the Euro was in crisis Greece was on the verge of leaving or being pushed out of the Euro and the debt crisis was hitting Spain and Italy hard The Greek prime minister Georgios Papandreou and his Italian counterpart Silvio Berlusconi had resigned and there were concerns that the eurozone debt crisis was spinning out of control leading to contagion and the risk of a systemic collapse
A TV documentary broke the story last Tuesday The rumours were confirmed on Thursday by the current Dutch minister of finance Jeroen Dijsselbloem and the current President of the Eurogroup of finance ministers in a television interview which was covered by and
It is true that the ministry of finance and the then government had also prepared themselves for the worst scenario said Dijsselbloem
Government leaders including the Dutch government have always said we want to keep that eurozone together But the Dutch government also looked at what if that fails And it prepared for that
While Dijsselbloem said there was no need to be secretive about the plans now such discussions were shrouded in secrecy at the time to avoid spreading panic on the financial markets
When asked about Germany Dijsselbloem said he couldn t say whether that country s government had made similar preparations
German Silver Deutsche Mark 1951 1974
However Jan Kees de Jager finance minister from February 2010 to November 2012 acknowledged that a team of legal experts economists and foreign affairs specialists often met at his ministry on Fridays to discuss possible scenarios
The fact that in Europe multiple scenarios were discussed was something some countries found rather scary They did not do that at all strikingly enough said De Jager in the TV documentary
We were one of the few countries together with Germany We even had a team together that discussed scenarios Germany Netherlands
When the EU Observer requested confirmation from Germany the German ministry of finance did not officially deny that it had drawn up similar plans stating simply We and our partners in the eurozone including the Netherlands were and still are determined to do everything possible to prevent a breakup of the eurozone
This is quite a revelation At that time the German finance minister Wolfgang Schauble had said that the Euro could survive without Greece Whether it could survive without the Dutch is another matter entirely
A Euro without Holland and especially Germany is currently inconceivable De Jager also states that other countries found the prospect of a Euro break up frightening So much so that they buried their heads in the sand rather than deal with the situation facing them It appears that no emergency contingency plans were made in the unfortunately named PIIGS nations Portugal Ireland Italy Greece and Spain
One has to wonder if the plans would have been made public had a TV documentary not forced the Dutch government to confirm the claim
It is interesting to note that it is these two countries Germany and Netherlands whose citizens have also been at the forefront of the gold repatriation movement currently sweeping across Europe France s second largest party entered the fray this week
In a climate with a lack of faith in fiat currencies any return to a purely fiat guilder or mark would be risky in the absence of the confidence that gold backing provides Despite the implication that secrecy is no longer necessary because Europe is over the worst we believe the Dutch repatriation of 20 of it s sovereign gold from the U S indicates that the Dutch are still wisely preparing for the worst whether that be a euro crisis or indeed a dollar crisis and an international monetary crisis
Their stated reason for returning their 122 tonnes of soil was to instill public confidence in the Dutch central bank
The prospect of a Euro break up is a frightening one It would appear that most Eurozone nations are ill prepared and indeed unprepared for
As always we recommend investors act as their own central bank by taking delivery of bullion or keeping Gold and Silver in secure allocated and segregated vaults in safer jurisdictions such as Switzerland and Singapore
For investors and savers currently using the euro it begs the important question do you have a euro failure contingency plan
Indeed for investors and savers internationally using other fiat currencies it begs the important question do you have a currency failure contingency plan
While the risks in peripheral European nations of reversion to their national currencies and currency devaluations have diminished some risks still remain
The risk is that individual national governments may elect to take this route rather than suffer deflationary economic collapse and Depressions Alternatively it could happen through contagion or a systemic event like the collapse of a large European bank a la Lehman Brothers that leads to a domino effect jettisoning a member state out of the monetary union
It could also come about should the German people and politicians decide that the European monetary project is not worth saving or they decide that it cannot be saved and elect to return to the Deutsche mark All significantly indebted nations so called PIIGS and non PIIGS such as Japan the UK and the U S are at risk of currency devaluations
Competitive currency devaluations or the debasement of currencies for competitive advantage and currency wars poses real risks to the long term stability and prosperity of all democracies in the world and to the finances and savings of people in all countries
MARKET UPDATE Today s AM fix was USD 1 184 50 EUR 950 80 and GBP 753 98 per ounce Yesterday s AM fix was USD 1 196 50 EUR 959 20 and GBP 758 96 per ounce
Yesterday s PM fix was USD 1 194 75 EUR 956 49 and GBP 758 19 per ounce The U S markets were closed for a national holiday Gold in USD 5 Days Thomson Reuters
In London spot gold was down 0 6 at 1 184 44 in late morning trading In Singapore gold extended losses falling to a one week low on expectations that plunging oil prices could sap inflationary pressure curbing the metal s appeal as a hedge for traders
Silver was down 1 1 at 16 04 an ounce spot Platinum was flat at 1 223 55 an ounce and spot palladium was up 0 1 at 809 50 an ounce
The bullion market is awaiting the outcome of a referendum in Switzerland this Sunday that could force the Swiss National Bank to raise gold holdings to 20 of its forex reserves repatriate its bullion and undertake never to sell gold reserves
The most recent opinion poll showed support among voters for the Save Our Swiss Gold Initiative and the yes side had slipped to 38 and the no side are at 47 A surprise yes vote could prompt the Swiss central bank to buy about 1 500 tons of gold over the next five years We believe the referendum will be closer than is currently expected and believe a yes vote is still possible
Crude oil hit four year lows near 70 a barrel as OPEC refused to cut back production following a plunge of over 30 in oil prices since June
Saudi Arabia blocked calls yesterday from Russia and poorer members of the OPEC oil exporter group for production cuts to arrest a slide in global prices OPEC ministers meeting in Vienna left the group s output ceiling unchanged despite global oversupply marking a major shift away from its long standing policy of defending prices
In the Eurozone inflation slowed in November to match a five year low signalling the European Central Bank may expand its unprecedented stimulus program President Mario Draghi who will lead a meeting of policy makers on December 4 says he wants to raise inflation as fast as possible and repeated yesterday that policy makers are united in their commitment to do more if needed
Deutsche Bank Quits Precious Metals Deutsche Bank is winding down its physical precious metals trading business moving to further scale back its exposure to commodities after recent issues with financial regulators and alleged market manipulation
The bank said in a statement that it will retain some precious metals capability through its financial derivatives business
Increased regulatory scrutiny of how market benchmarks are set spurred an overhaul of precious metals fixings price setting rituals dating back a century for gold and silver this year Deutsche Bank said in January it would pull out of the daily gold and silver fixes The bank was one of five gold and three silver members that participated in setting London fixings benchmark rates used by mining companies jewelers refineries mints and central banks to buy sell and value bullion
Indian and Chinese Demand Very Robust India s gold imports could climb to around 100 tonnes for a third straight month in November as dealers buy heavily for fear of curbs on overseas purchases especially as the wedding season gets going
China s net gold imports from main conduit Hong Kong rose to 77 628 tonnes in October from 68 641 tonnes in September as the world s biggest gold buyer saw strong demand for jewellery and bars Total imports from Hong Kong to the mainland rose to 111 409 tonnes last month from 91 745 tonnes in September
China is again heading for gold demand of some 2 000 metric tonnes in 2014 as seen in the Shanghai Gold Exchange SGE data year to date
Gold As Safe Haven In Recent Years and In Non Western World TodayCiti s NYSE C Willem Buiter attack piece on gold was one of the most unbalanced anti gold pieces of research that we have ever seen and we have seen a lot To say it lacked nuance is an understatement Indeed it played very loose with the truth regarding gold indeed
The timing of the piece by Citibanks Dutch economist is interesting indeed coming in the week that the Dutch repatriated 122 tonnes of their gold from the Federal Reserve and the Swiss go to the polls in their Gold Initiative and it wreaks of a lot of nervousness in the corridors of certain banks and central banks
The Dutch Central statement this week regarding the importance of their gold reserves is worth noting
In addition to a more balanced division of the gold reserves this may alsocontribute to a positive confidence effect with the public
An economist working in a bank argues with the reality of human nature physical nature and 6 000 years of history and calls gold a 6 000 year bubble
Of course the real bubble is in banks stocks bonds and our modern Ponzi financial and monetary system
Gold will still be around and likely still protecting people when many of the banks of today have gone the way of the dodo
The very anti gold position of Buiter is similar to many today many of whom have a very short term myopic western centric view of the world and only see it through they eyes of dollars pounds and euros
This limited view blinds them to the reality of gold as a store of wealth throughout history and again today
Willem Buiter should go to Syria or Ukraine today and speak to people there They would tell him about the value of gold
Conclusion We are surprised that gold is lower this week given the backdrop of the Swiss gold referendum on Sunday the Dutch repatriation of 122 tonnes of their gold this week and continuing very strong Russian Indian and Chinese gold demand
More short term weakness is possible and support is at 1 130 oz and 1 100 oz We believe that gold is unlikely to go below that due to robust global demand but a close below 1 100 oz could lead to a sharp fall to the huge level of support which is the round number and near 50 retracement at 1 000 oz
Smart money is accumulating bullion on the dip in anticipation of higher prices in 2015 and in the coming years
We await the Swiss gold referendum with bated breath It should make for interesting price movements Sunday night and Monday |
C | Swiss Gold Referendum Fails As 78 Vote Against It | Whether as a result of an unprecedented scare campaign by the Swiss National Bank most recently reinforced by Citigroup Inc NYSE C or due to confidence that Swiss gold is as safe abroad as it is at home or simply due to good old fashioned hanging chads today s most awaited event has come and gone and the result according to early projections by Swiss television SRF is that the Swiss population overwhelmingly rejected a referendum to force the Swiss National Bank to hold some 20 of its reserves in gold in a landslide vote with about 78 voting against what protecting the country s wealth by investing in gold
As the proposal stipulating the Swiss National Bank hold at least 20 percent of its 520 billion franc 540 billion balance sheet in gold was voted down by 78 percent to 22 percent according to projections by Swiss television SRF as of 1 00 p m local time The initiative Save Our Swiss Gold also would have prohibited the SNB from ever selling any of its bullion and required the 30 percent currently stored in Canada and the U K to be repatriated
A ballot box is emptied at a voting center in Zurich today
A map showing the breakdown of the Swiss vote by canton none of the 23 Swiss regions had a majority vote for the gold initiative
That said the decision will likely not come as a surprise because while early polls gave the yes camp a surprising lead subsequently polling showed a marked shift in public opinion and forecast the initiative s rejection
The biggest winner of course is the Swiss central bank SNB policy makers warned repeatedly that the measure would have made it harder to keep prices stable and shield the central bank s cap on the franc of 1 20 per euro That minimum exchange rate was set three years ago with the SNB pledging to buy foreign currency in unlimited amounts to defend it
The SNB can feel confirmed in its policy said Martin Gueth economist at LBBW in Stuttgart By rejecting the gold measure voters have come out in favor of its current stance
Referendums are a key feature of Switzerland s system of direct democracy and are held nationally and at a municipal level several times a year The gold initiative was launched by a handful of members of the European Union skeptic Swiss People s Party Uneasy about the more than 100 billion euros the SNB holds they contend their initiative will strengthen not weaken the central bank s credibility
However SNB President Jordan labeled the initiative dangerous and his fellow board member Fritz Zurbruegg said accepting the measure meant the room for maneuver on currency reserves would be dramatically restricted with negative consequences for the Swiss economy
The central bank based in Bern and Zurich would have faced a three year deadline for repatriating its bullion from abroad and five to meet the 20 percent benchmark With the European Central Bank poised to enact more stimulus to boost feeble growth and inflation economists surveyed by Bloomberg News in a poll published on Nov 19 had expected the SNB to maintain its ceiling on the franc into 2017
The question now is what will happen to the Swiss France which recently rose to a 26 month high against the euro For many the concern that a successful gold referendum served as a catalyst to avoid going all in the CHF as gold purchases would have weakened the currency If the euro crisis doesn t get worse then the minimum exchange rate will be defendable said David Marmet an economist at Zuercher Kantonalbank Had the initiative been accepted instruments such as negative rates that don t widen the balance sheet would have been an option he said
With the referendum out of the way the CHF may paradoxically find itself with a situation in which the inflows in the CHF force it to double down on defending the cap economists have questioned whether the SNB will now find itself having to reinforce its cap with a negative interest rate on the cash like deposits commercial banks keep with the central bank making good on its threat to take further steps immediately if necessary
And then there is the question of what happens to the tension in the gold swap market as noted last week the 1 Month GOFO rate had tumbled to the most negative in over a decade It was not clear if this collateral gold squeeze was the result of Swiss referendum overhang or due to other reasons The market s reaction on Monday should answer those questions |
C | Weekend Review SPX Has Quiet Week China Stocks Reach New High | VIX closed above long term support at 13 93 and weekly mid cycle support at 14 24 Partial retracements such as this are a warning that volatility may continue to rise The Cycles Model suggests a possible 3 week rally ahead
SPXhas a quiet holiday week
SPX had a quiet but positive week closing near the upper trendline of the Orthodox Broadening top at 2100 00 Final resolution of the high may come on Monday The Cycles Model calls for a probable 3 weeks of decline once the high is made The depth of the decline may give us some indication of what to expect during the rest of 2015
ZeroHedge Less than three months ago on September 30 2014 consensus expected that EPS and revenue growth in 2015 would be 11 8 and 4 3 respectively As of December 19 those projected growth rates have plunged to 7 9 and 2 8 In other words both revenue and EPS growth has been slashed by one third in under one quarter while revenue growth for Q1 and Q2 2015 has cratered from 4 5 and 3 6 to 1 4 and 1 0 respectively
NDXstalls beneath its trendline
NDX was stopped short of a new high at the upper trendline of its Ending Diagonal Since SPX has gone higher and NDX has not it suggests a non confirmation may be underway A decline beneath the October 15 low at 3700 23 completes the Orthodox Broadening Top pattern and signals a major change in trend may be underway
ZeroHedge We have previously observed that while pundits are happy to focus on non GAAP earnings which over the past several years have become a total farce the reality is that GAAP EPS for the S P in 2014 will be 1 3 lower than a year ago and that as a result of crashing energy company profits 2015 GAAP EPS will be lower still meaning that contrary to the propaganda the US will see two consecutive years of declining wage growth That said not even we expected to read the following shocker revealing just how naked the corporate profitability emperor truly is and coming from the world s largest asset manager on top of everything
High Yield rally fails to make a new high
The High Yield Index slowed its ascent to make an 83 retracement of its recent decline A reversal here may decline to or beneath mid Cycle support at 127 86 Now is time to pay attention to the Broadening Wedge formation as well A decline beneath the lower trendline puts MUT in motion toward its first target near its Cycle Bottom at 103 13
SeekingAlpha Since late 2008 the unprecedented quantitative easing QE that flooded our economy has produced another terrible consequence the unbelievable mispricing of high risk high yield bonds
At the top of the previous boom in early 2008 high yield bonds grew to 710 billion and were yielding 10 after dropping to as low as 7 5 in early 2007 That s a more appropriate yield for investors taking such risks in what back then still looked like a good economy
Those yields skyrocketed to 23 5 in late 2008 as the global financial crisis emerged seemingly out of nowhere with the eruption of the subprime mortgage crisis As soon as the riskier sectors begin to go bad the bond markets start to worry about the rest of the sectors
Theeurochallenges the trendline
The euro has challenged the Lip of the Cup with Handle formation at 122 00 closing beneath it However the euro finally reached its Master Cycle low on Tuesday and may be due for a substantial retracement A bounce above the Cycle Bottom resistance at 124 24 may confirm that the retracement has legs to rally much further
Benzinga The euro slipped lower on Friday morning as markets eased back into full swing following the Christmas holidays The common currency traded at 1 292 at 8 45 GMT weighed down by encouraging U S data
Before the holidays the United States released a host of data that reinforced speculation that the nation s economy was back on solid ground GDP figures showed that the U S economy grew 5 percent in the third quarter while labor market data showed that the number of Americans claiming unemployment benefits had fallen by 9 000 last week
Euro Stoxx bounce continues
The Euro Stoxx 50 Index continued its bounce from its December 16 low nearly reaching a Fibonacci 76 8 retracement A drop beneath the Model supports that range from 3145 00 to 3156 00 puts Stoxx in jeopardy of falling back beneath its mid cycle support at 2941 64
WSJ European stock markets rose Tuesday propelled by gains in U S equities Monday and bolstered by a strong U S growth report
The Stoxx Europe 600 index ended up 0 61 at 344 06 reflecting steady gains across most of Europe s main stock markets The index is now down only 0 4 over the past month a solid recovery given that it sank by over 6 in the first half of December
Theyenis challenging its Cycle Bottom
The yen pulled back to challenge the Weekly Cycle Bottom support at 83 87 As long as the low at 82 18 remains intact this decline simply appears to be a retest of the low The potential rally that follows may take XJY back to 110 00 or higher Provided no new low is made XJY appears capable of extending its rally through late January This means a major source of market liquidity may be drying up
Businessweek The yen dropped toward a seven year low against the dollar after Japan s consumer price inflation slowed for a fourth month period and real wages declined the most since 2009
Japan s currency fell versus most of its 31 major counterparts as the reports fueled speculation the central bank will introduce more currency depreciating stimulus to revive growth Theeuroslid against the dollar extending its biggest annual decline since 2005 as data this week showed U S economic growth sped to the quickest in a decade Brazil s real led global advances on bets the central bank will signal support for the currency The ruble dropped
The Nikkei is nearing resistance
TheNikkeiappears to be nearing its weekly Cycle Top resistance at 18158 02 Although the retracement has been substantial it has not exceeded the December 8 high at 18030 83 The broadening formations represent a market that is out of control and has a highly emotional public participation A loss of support of the ending diagonal trendline at 17000 00 may be the start of a dramatic decline
Bloomberg Japanese shares climbed in thin trading with theTopix TPX index extending its weekly advance as utilities led gains and investors weighed data on inflation industrial output and retail sales
Tokyo Electric Power Co Inc TOKYO 9501 jumped 5 2 percent for the biggest advance on theNikkei 225 Stock Average after a report its executives probably won t be indicted for the March 2011 nuclear disaster Sumitomo Mitsui Financial TOKYO 8316 the country s second largest lender by market value rose 0 7 percent after agreeing to buy Citigroup Inc s Japanese consumer banking business Zojirushi Corp TOKYO 7965 which makes rice cookers and thermos flasks tumbled 5 4 percent after forecasting a 31 percent drop in profit
U S dollarexceeds its target price ready to decline
The US dollar appears to have made its 90 40 high on Tuesday Follow through to the downside next week is essential in confirming the Primary cycle top A sharp retracement may follow early next week
EconomicTimes Investors trimmed dollar positions during the Christmas holiday lull on Wednesday pulling the greenback down from its highest point in nearly nine years after strong U S economic growth data on Tuesday solidified views of coming Fed rate increases
The dollar retreated by 0 1 percent to 89 924 against a basket of currencies after Tuesday s data showed US third quarter gross domestic product grew at an annualized 5 0 percent rate
The dollar index reached a high not seen since March 2006 while the two year yield on U S Treasuries jumped to an almost four year high of 0 747 percent giving the greenback a distinct advantage over its counterparts
I think we can be quite comfortable in the stronger dollar view going into year end following yesterday s strong GDP data said Michael Sneyd a currency strategist at BNP Paribas in London
USB reversed from its Cycle Top
The Long Bond has now completed its second week off the top of its rally There may be another few days of consolidation near the highs before the potential decline swings into full gear The ensuing declinemay take USB up to three months to complete The potential target may be weekly Cycle Bottom support at 125 72
WSJ Treasury bonds strengthened Friday as some investors stepped in to buy after the recent selloff
The price strength signals that buyers believe bond yields will continue to stay at low levels amid uncertain global growth even as the U S economy grew at the fastest pace last quarter in more than a decade
In recent trading the yield on the benchmark 10 year note fell to 2 250 from 2 265 on Wednesday according to Tradeweb The bond market was closed Thursday for the Christmas holiday
Goldhas lost critical supports
Gold has lost its Short term support at 1187 90 and appears to be running out of time to complete its retracement to its target at 1246 00 There may be an attempt at regaining supports next week before a reversal to new lows Watch for any further breakdown since it may indicate Wave 3 has begun The Lip of a Cup with Handle formation has been modified to accommodate the new pattern
CNBC Gold gained around 2 percent in thin post Christmas trading on Friday as crude oil prices flattened and the dollar remained flat against a basket of major currencies
Spot goldgained as much as 2 1 percent to a session high of 1 199 00 an ounce in early trade and was up 1 8 percent at 1 194 21 well above a three week low of 1 170 17 hit on Monday
U S gold futures for delivery in February settled up 21 80 at 1 195 30 an ounce up 1 9 percent on the day
Crude consolidates
Crudeappears to be ending a minor consolidation this week The bounce appeared on schedule and appears to be ending this week The low for this bear market in crude is still ahead 43 00 oil anyone
CNBC U S oil futures ended lower on Friday tumbling as the dollar strengthened and a supply glut in top consumer the United States trumped worries about falling production from Libya
U S crude settled down 2 percent or 1 11 at 54 73 a barrel in thin trade as many countries were still on Christmas holiday The contract has declined some 4 percent this week
Brent crude was last trading about 70 cents lower at 59 a barrel
The market had come under pressure from Wednesday s DOE report which showed a 7 3 million barrel rise in crude inventories to their highest December level on record Analysts had expected a seasonal decline
China stocks make a new high Monday reverse on Tuesday
The Shanghai Index made a new high at 3189 87 on Monday before reversing on Tuesday This occurred one day later than suggested last week Today a partial retracement to 3157 45 took place The parabola may completely unwind by the third week of January
ZeroHedge Four years ago on Christmas Day in 2010 China shocked the world when it unexpectedly hiked its lending and deposits rates by 0 25 in order to battle inflation only its second such hike in the prior 3 years Since then things for the global economy haven t done exactly as expected and certainly not for China which as the following chart of constantly downward revised IMF growth forecasts has seen its growth rate tumble from double digits to just hanging on to 7 and dropping fast
Fast forward to last Christmas day when in another Christmas surprise China once again decided to adjust the cost of money only this time instead of hiking it eased and in an effort to shore up the world s second largest economy China Business News reported that
PBOC WAIVES RESERVE REQUIREMENT FOR NON BANK DEPOSIT
The Banking Index is at the upper trendline again
BKX rallied to the upper trendline of its Orthodox Broadening top again eking out a 14 tick gain above the former high This action shows heightened volatility as banks are scrutinized for exposure to the oil patch BKX now must decline beneath the lower trendline of its Orthodox Broadening Top at 64 00 to complete point 6 of the formation
WSJ In investing banking like baseball sometimes even the heaviest hitters swing and miss In a year that s seen the largest volume of M A globally since 2007 it s also been a big year for broken up deals And that means a lot of uncollected fees for banks
This year about 792 billion in deals have collapsed That represents roughly 19 of all deal activity which is the largest percentage of withdrawn deals versus announced M A since 2008 according to Dealogic
Research firm Freeman Co estimates that among just the six largest deals that were ultimately withdrawn the lost fees would have amounted to 975 million for banks
Reuters Russian authorities significantly scaled up rescue funds for mid sized lender Trust Bank on Friday saying they would provide up to 2 4 billion in loans to bail out the first commercial banking victim of the country s currency crisis
A sharp slide in the roublehas prompted panic buying of foreign currency in Russia and a spike in deposit withdrawals heaping pressure on a vulnerable domestic banking sector whose access to international capital markets had already been restricted by Western sanctions over Ukraine Trust Bank which hired actor Bruce Willis as the face of a major advertising campaign fell victim to the rouble s slide on Monday when the central bank said Russia would provide up to 30 billion roubles 540 million to shore up its finances
On Friday the central bank said that loan would be replaced with another for up to 99 billion roubles over 10 years via the Deposit Insurance Agency a state corporation to cover the discrepancy between Trust Bank s assets and liabilities
ZeroHedge America s Federal Reserve is headed down a familiar and highly dangerous path Steeped in denial of its past mistakes the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008 2009 The consequences could be similarly catastrophic
Consider the December meeting of the Federal Open Market Committee where discussions of raising the benchmark federal funds rate were couched in adjectives rather than explicit actions |
C | Yahoo My 2015 Stock Pick | In 2014 my best stock of the year was Citigroup NYSE C which even though it didn t move as much as hoped I still like long term
This year s pick comes with a bit of controversy Yahoo Inc NASDAQ YHOO Remember this selection is based on a long term view which is detailed in the chart below Specifically I m looking at a long term move to 82 or higher One note while an says that I was long Put Spreads at the time I m actually short Puts in one account and long 1 2 Put Spreads in another
Either way both are bullish positions |
C | Knowing It Will End Badly And Turning A Blind Eye | As 2014 came to an end I like many of you probably felt a brief sigh of relief that maybe just maybe we could move into 2015 with a little more sanity shoved back into the financial markets Now with QE as a know certain at least for this moment that indeed the spigot to the fire hose has been shut off albeit there is still the reinvestment sprinkler system still at play We might possibly get back to a little bit of sanity within the capital markets
I watched a great many pundits take to both the financial air wave cameras as well as radio and print with fervent breath to make more or less a blanket statement that all the so called doom crew this is what you are now branded if you dare make a cogent case against fairy tales and pixie dust were proven to be without a doubt totally wrong
Added to this near foamed mouthed expression of glee was the added generalized diatribe When will these people just admit they were wrong and go away Every time I heard or read a statement reminiscent of this I burst out into laughter Until I read Hugh Hendry s Eclectica Fund s Letter to Investors Here is where I went from laughter to outright stupefaction
Before I go any further let me make this point clear I am and have been a fan of Mr Hendry s investing prowess his willingness to point out in public whether an Emperor is clothed or not and more However I have also made my opinion clear about my uneasiness when he originally turned his investing thesis onto its head and became by his own words a Bull
Although I understood the thesis I believed and still do that there is an inherent danger when this view is accepted and codified based on this market So strongly do I feel about this I suggest we turn the danger scale up more towards perilous Or in simple terms the danger knob has just been turned to 11 in my view after reading his latest letter
The opening paragraph was nearly all one had to read as to know both the direction and the stance that seems now fully embraced by more than just Mr Hendry but everyone currently on this Keynesian fueled bandwagon To wit
There are times when an investor has no choice but to behave as though he believes in things that don t necessarily exist For us that means being willing to be long risk assets in the full knowledge of two things that those assets may have no qualitative support and second that this is all going to end painfully The good news is that mankind clearly has the ability to suspend rational judgment long and often
You can read the whole letter and suggest you do as reported by ZeroHedge
Here s the whole issue with this piling onto this bandwagon For those not familiar I ve stated many times Beware when everyone s on the bandwagon except the band Well that s just what we have here We have a beautifully paint by numbers Keynesian manufactured bandwagon with more and more piling in The problem There is no band And that band is known as A true free market capitalist actualized economy to pull it
So why do I take such umbridge with what seems like just one more in a long list of recent converts to the whole Central Bankers now control everything meme Well it s precisely due to what I read in that letter
It s in the way one is giving in as to repel what we might call truth for lack of a better descriptor And bend morph strain or eulogize why all reasonable arguments don t make money today Or why real economic principles no longer matter
In my view this is nothing more than an overly dressed version of Chuck Prince s now infamous remark while CEO of Citigroup NYSE C As long as the music is playing you ve got to get up and dance Anyone remember how that number ended Oh yeah he stated that line right before all hell broke loose with the entire financial system crashing That s right maybe you remember that also I know I do
Again here s the danger put another way If we are now to think invest build businesses plot economic development opportunities et al based on this What this means is we should not only embrace the Keynes but should embrace the Krugman
Yes as in Paul Krugman and all his economic theories and policies For if this is now only an economy based on Central Bankers that means ipso facto we no longer need business leaders financial planners or for that matter politicians investment advisers or the Ivy league schools to teach them
Just wait till a Central Banker decides what will be done Have your embargoed copy of the meetings minutes loaded into your swiftest HFT algo reader wait for your decided nanosecond of choice as to not draw the ire of the regulatory agencies and hit the execute button Who needs smarts when it s all this easy
Never worry about debt or deficits again If printing money as to buy or monetize the debt which you were told would never happen Silly you to believe seems as if the accumulated balance sheet figure is too damn high Just do as Mr Krugman suggests and and put it in a vault Debt crisis solved Sheer genius right Sounds like madness I know but that s exactly what a Nobel Prize winning economist not only suggests but recommends All with a straight face
What s not laughable any longer is if this truly is the view and belief of the world monetary system today it brings a thinking person to tears that this is now also viewed as Well why not
The real reason why this why not viewpoint is destined for even more than tears is that other economies sooner or later will not accept it And when that breaking point happens tears will be the easy part of the crying
China Russia India along with a host of other nations are not going to allow one set of Central Banks or bankers the ability to create havoc and political unrest within their economies without throwing their own sticks into the mud
These nations are not going to sit back idly while other Central Bankers such as Mario Draghi hems and haws about whether he s got a bazooka or he s pushing on a string Currently everyone from Germany to the whole EU zone is wondering just what a Full Monty currently means Many are thinking it s more like a wet noodle rather than bazooka or string
Forget Greece forget Spain forget all the rest that now seem to be teetering on some form of existential collapse Try also to forget about all those coinciding commingled trades of diversified portfolios Many of which are today s pathetically low yield seeking trades fueled with currency trades spreads or swaps that just the mere blip on a screen in the wrong market and spreads go from narrow to canyon in nano seconds
On a side note Has it been lost on anyone that the oil crush the Greece turbulence the sudden realization the money issues in China are becoming more apparent by the day and a whole lot more began happening near to the day QE ended hence a mere 60 ish days ago Funny how a world based on sound fundamentals and economic principles would do that is it not Unless I know you know that answer without me saying it
Another argument to consider Just what happens when a country pick your poison for it literally could be anyone decides to put into action in a coordinated way i e Picks that just right moment when they know real pain can be inflicted and decides to echo a Donald Trump inspired move against the Central bankers or creditors
For those who may not remember back in the 80 s or so when Mr Trump was having real issues and in danger of losing everything he implemented a strategy based on an insight to bring the bankers onto his terms when he coined the phrase I m paraphrasing When you owe the bank a million dollars and can t pay You ve got a problem When you owe the bank 100 million dollars and can t pay the bank s got a problem
It truly was an insightful as well illustrative way to view particular issues when needing to deal with what may seem at the time as unresolvable debt issues And I believe only a fool would think other nations as well as governing bodies that feel they re on the wrong end of any particular Central Bankers stick aren t
Again the issue at hand and why I feel so strongly about this whole topic is this The more people who buy into the well I ve got to be along to get a long are helping fuel the fire for the most over used covering of one s arse mantras We know this will all end badly
The problem is inherent in the knowing that it will end badly and yet turning a blind eye and making money anyway For that s what a good Wall Street aficionado does after all right I mean who cares about arguing about real economics or fundamentals Who cares I m up 8 As if that s all that now matters
For if that s all that matters why don t we embrace crony capitalism embrace stagnant wages embrace the 99 vs the 1 as that s the best it ll ever be Who cares as long as we re getting ours So be it if the Central Banks and their interventionist policies are causing havoc within our social structure where over 90 million Americans are without work And we ll care even less if it s doing similar within other economies There s still time Let s dance
This is what people like myself David Stockman Stephen Roache Peter Schiff Mark Faber and others warn about This type of buying into the Central Bankers omnipotence does more than just mask their manipulation
It gives themselves as well as others some form of cover for longer and for all the wrong reasons This also goes for both the political as well other entities as too not take up the causes of problems and address them
Address them where the possibility of resuming a more true capitalistic based monetary system that embraces free markets and helps foster true diversified growth within not only the capital structures but by making or forcing other issues such as real free trade and other needed fixes and changes Not this disgusting bloated behemoth of an adulterated Central Bank infused market taking place currently This beast is now getting downright scarier If that is even possible
For if there is one thing I m more certain going into 2015 than I was in 2014 it is this
The more people I believe know better yet embrace the proverbial Blue Pill as a way to just go along to get along while now embracing if not convinced they can ride this tiger I believe not only will find that this surely will end badly but for many of these once insightful players that danced into this Central Bank rave party it will end far from bad and more like tragic
But hey that s what happens when you take pills then turn things up to 11 right |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.