With the near record melt up in stocks last week already history, vacuum tubes are already eagerly awaiting the next week of wild and crazy momentum swings in which earnings season comes with a bang as 100 of the S&P 500 companies, or 33% of the total market cap, reports earnings. And even with lowered earnings expectations, hence the upcoming beats, the trailing 4 quarters of S&P 500 earnings which are now expected to come at $94, will represent a new all time high, over the $91.47 record set in Q2 2007, and well above the $90.91 LFQ posted last quarter. As Goldman notes, "To remain below the previous peak, earnings would have to miss current bottom-up consensus expectations by 10%, which would represent a significant shortfall." As for what Goldman, or specifically what its clients expect, here is the rundown: "Conversations this week focused on the 3Q earnings season as investors look to use this earnings season to benchmark company performance in light of the uncertain macro environment. Solid micro data from earnings results could represent a stabilizing force in a market where volatility had been extremely elevated. Better-than-expected or in-line results would indicate firms can continue to produce strong profit growth despite weaker economic data, matching the pattern in both 1Q and 2Q 2011. However, high correlation will act as a market headwind if earnings disappoint. Average 3-month stock correlation for S&P 500 stocks rose significantly in August to nearly 0.75 and remains near record-high levels." However, so far earnings have been more or less a dud, with the exception of Google: "This week AA reported earnings below consensus estimates on higher costs and slowing European demand. SWY beat EPS estimates despite margin pressure. JPM results were largely in line with expectations after excluding one-time items." Well, no, absent the "benefit" of JPM effectively buying CDS on itself, it would have missed consensus by 20%. Expect the same gimmick to be used by all other financials.
CONSISTENT, PRINCIPAL, INTEGRITY! RON PAUL 2012!
Europe is far too reliant on Germany and the other ‘strong’ countries for the various individual nations to be able to take care of their own problems - particularly if any localized bank recapitalizations are to be in addition to the already pledged EFSF contributions by each nation (left). What is far more likely is some kind of ‘bazooka’ or ‘shock & awe’ (to use two tired cliches) approach using the newly-approved EFSF. If France had to recapitalize BNP and Soc Gen to the tune of €11 billion in addition to its €158 billion stake in the EFSF (as is widely suspected), it could well kiss goodbye to its AAA rating now that the ratings agencies seem to have finally found religion (Italy & Spain saw downgrades this week) and that, for a country currently running a debt-to-GDP ratio of 84%, would NOT be a good thing. Whether a ‘station-to-station’ plan is in the works or not, it will rely on a nice, orderly procession from one country to the next and I think it has been made abundantly clear over the last year that Europe DOESN’T do ‘orderly’. There is absolutely no way that the Eurocrats can stop the markets turning their collective eyes towards the next domino in the line at every point in the process. As they struggle to ‘fix’ the Greek situation, the markets have already done it for them and Greek 1-year bonds now yield 166%. Job done. Next up? Whether the architects of a solution are ready for it or not, it’s Spain and Italy... and France.
China Bailing Out Europe (Again)? Don't Make The Head Of Greater China Research At Standard Chartered Bank LaughWith the G20 meeting in Paris such an epic dud there is nothing even the permaspin media can write about (there was no news of a bailout. Nothing), it is time for some paywalled publications to recycle the gibberish about China bailing out Europe all over again. Sorry, it's too late. Courtesy of last week we now know that China is much more focused on bailing out its own largely underwater banking system (first facts, then analysis), than worrying about buying the 17th Community Bank of Thessaloniki. Yet we can keep repeating this so very simple fact until we are blue in the face. So we will leave it Stephen Green, head of Greater China research at Standard Chartered Bank.
Michael Lewis' latest compilation of Vanity Fair articles into book format, Boomerang, is the usual entertaining romp around those back and front waters of the world that are currently on the verge of bankruptcy: from Greece, to Ireland, to Germany and, of course, to California. The premise at its core is an interview that the former Salomon bond salesman had with investing wunderkind Kyle Bass several years back which inspired to him to ask what it is that the Texan saw three years ago that so few others, due to a permafrosty cognitive bias or what have you, could (i.e., that the world is bankrupt and getting much worse). Oh, did we say wunderkind? We meant billionaire. Because unlike that other "anti-Midas" who only piggybacked on the good ideas, while blowing up LPs when left to his own non-Goldman Sachs facilitated devices, Bass actually could always see the big picture for what it is. So courtesy of Lewis' latest book, here are three pieces of advice from Bass to people everywhere, which will surely bring the fanatically jealous anti-gold crew to accusations that Bass made his billions from buying and reselling tinfoil hats.