Yesterday, we looked at the week that was. Today, lets preview the week that will be.
With Q1 earnings season all but over, the focus will be on a number of economic releases. Given the market’s reaction to the PPI data Friday, Consumer Price Index on Tuesday will be especially important.
Although food prices (7.7% y/y) and energy (3.4%) were both up big, the core rate was unexpectedly flat, mostly due to an unexpected drop in prescription drug prices, and a not unexpected
drop in both car and truck prices. Inflation in the pipeline remains robust as intermediate goods
(that is ex food and fuel) rose .8% — the biggest gain since last year.
All this means that Tuesday’s CPI takes on extra importance, as we find out the extent that inflation is being
passed along to consumers. Concensus is for CPI to rise 0.5%. Core CPI (aka inflation ex-inflation) is expected to climb ~0.2%.
ICSC/UBS Same store sales are also on Tuesday, but given last week’s retail data, expectations are rather muted.
Wednesday we get Housing Starts (1.475M) and MBA Mortgage Apps. Note that the day before, we get the National Association of Home Builders’ monthly Housing Market Index. Its hovering near 15-year lows. Wednesday is also the release of Industrial Production (0.2%). Improving factory activity is Q2′s best hope for bettering the anemic Q1 GDP. Thursday brings Jobless Claims, which have been very pretty good, but full of odd quirks keeping the data low. Friday reveals Consumer Sentiment.
Also on the upcoming agenda: Changes by FASB to the rules for reporting profit. Expect to hear more about this in the coming weeks.
Plenty of speeches this week too, with Fed Chair Bernanke discussing derivatives (Tuesday) and sub-prime lending (Thursday). Neither is expected to move markets — but ya never know.
Meanwhile, here’s a few tidbits to help get you prepped for the coming week:
INVESTING & TRADING
• Positive Surprises Leading to Upward Estimate Revisions:
We are more than three-quarters done with earnings season and earnings
continue to surprise to the upside. As things stand now, it’s about an
even money bet that the median S&P firm will post double-digit
year-over-year earnings growth. That would make it the 19th straight
quarter. While the 9.8% growth is still lower than previous quarters it
is much better than expected. The surprise ratio now stands at 3.5:1,
down from 3.8:1 a week ago, and 5:1 two weeks ago but still very
strong. Positive surprises have been widespread, with every sector
showing more positive surprises than disappointments with the exception
of Utilities (Zachs)
• How cheap debt overinflates stocks: Since 2003, IBM has purchased 203 million of its own shares at a total
cost of $30.7 billion. That’s a huge percentage — about 52% — of the
company’s total operating cash flow of $59.5 billion during the period.
It looms even larger if you add in the $17 billion IBM spent during
this period on capital expenditures, the $8.8 billion it spent
acquiring businesses and the $5.3 billion it spent paying dividends to
investors. All that — added to the spending on buying its own shares
– comes to 104% of operating revenue. (MSN Money)
• Forget Murdoch: Yahoo! Should Buy Dow Jones: Its market cap is more than $41 billion, so the
company could easily absorb Dow Jones in an all-stock deal, matching
Murdoch’s $5 billion offer. They would also be a white knight much more
acceptable to the major and minor family shareholder groups. (TheStreet.com)
• Smart ways to play the M&A boom With so many deals in the news, it’s only natural for investors to
wonder which company will be bought next – and which stock will be next
to see a pop. Before you start chasing rumors, though, bear in mind
that you may already be profiting from the action. That’s because the
M&A wave has buoyed stock prices across the board, a number of
market watchers say, by adding another source of demand for shares. (Fortune)
• Tech Investors Cull Start-Ups for Pentagon: The nation’s military, in its search for the next surveillance
system, bioterror vaccine or robot warrior, has decided to take a peek
into the garage. Through a program that recently emerged
from an experimental phase, the Defense Department is using some of the
nation’s top technology investors to help it find innovations from tiny
start-up companies, which have not traditionally been a part of the
military’s vast supply chain. The program provides a regular
exchange of ideas and periodic meetings between a select group of
venture capitalists and dozens of strategists and buyers from the major
military and intelligence branches. (New York Times)
• Metals Bubble Poised to Burst on Increasing Supplies: Copper, nickel and lead, the best
performing commodities in the past four months, may be the worst
by year-end. On Wall Street, the chorus is getting louder that rising
metal supplies are outpacing demand. From Goldman Sachs Group
Inc. to JPMorgan Chase & Co. to Societe Generale, there are
warnings of a mania that is showing all the signs of a climax. (Bloomberg) Counter argument:
Investors Mine For More Deals In Commodities (Wall Street Journal)
• Weak Dollar? Currency, at 10-Year Low, May Fall More: Anyone who says the dollar is weak
after it fetched a record-low $1.3681 against the euro and the
fewest pence against the pound in 25 years is expressing a
euphemism. The currency may decline at least another 10 percent by the
end of 2008. (Bloomberg)
• China’s irrational exuberance:
Since its February hiccup, the Shanghai A-share market has now moved
back up 40%, buoyed by a series of successful initial public offerings
as the ranks of investors swell at over 200,000 a day. There are now
more than 91 million accounts held at brokers or mutual funds. But some
critics argue the way the mainland IPO market is being run
systematically fans the irrational expectations of these novice
investors with the promise of easy money, storing up trouble ahead.
Chinese investors may be notoriously momentum-driven and ignorant of
valuations, but they can surely see the IPO market is serving up a
• U.S. stocks going parabolic like Nikkei of 1980s:
The respected Gartman Letter, marketed to investment institutions and
not monitored by the HFD, has a chilling explanation of what’s going
on. Editor Dennis Gartman wrote in the past week: "We stand in awe of
the sheer majesty of this rise." But Gartman’s response is to review
what he wrote about an earlier unstoppable bull: the Japanese stock
market of the late 1980s. As Gartman remembers: "Shares there were
running skyward even as the economies of the rest of the world were
tanking. The Bubble was going "parabolic," and every modest decline was
met with huge new buying, that soon took shares to incredible new highs
as the Nikkei soared toward 40,000." (Marketwatch)
• Warm up those green visors and #2 pencils! Profit as We Know It Could Be Lost With New Accounting Statements:
Pretty soon the bottom line may not be, well, the bottom line. It is
the item many investors look to as a key gauge of corporate performance
and one measure used to determine executive compensation. In its place,
investors might find a number of profit figures that correspond to
different corporate activities such as business operations, financing
and investing. (Wall Street Journal)
The Wall of worry continues to build:
• Borrowing Binge Fuels U.K. Economic Worries: With inflation at a 10-year high and interest rates set to rise as soon
as today from their current 5.25%, concerns about Britain’s borrowing
binge are gathering momentum. Personal insolvencies in England and
Wales last year hit a record 107,288, up almost 60% from 2005. In the
first quarter, insolvencies totaled a seasonally adjusted 30,075, up
24% from a year ago. Treasury officials announced in January that
they’re considering a nationwide financial-education program. The
consumer squeeze is particularly worrying for the British economy,
reliant as it is on consumption for nearly two-thirds of its output. (WSJ)
• Recession ’07: ‘Black Swan’ or ugly duckling?
Recession 2007? Improbable? Totally unpredictable? So why are most
economists predicting it won’t happen? And can you trust anything you
read in the news about a coming recession? One trader says it’s just
• Borrowers, Beware James Grant, writing in the Washington Post,
notes "Easy credit financed the bull market in houses and the flood of
home refinancings. Americans felt richer and spent as though they were.
It stands to reason that the withdrawal of this manna will lead them to
spend less — with substantial collateral damage to the
housing-centered U.S. consumer economy, and, perhaps, well beyond. Our
captains of industry owe as much to their lenders’ leniency as does any
subprime, or high-risk, home buyer. They, too, have been able to raise
money on terms unimaginable only four years ago."
• Home-price forecast: First ever decline: Home prices are expected to finish down for the year, the National
Association of Realtors (NAR) said Tuesday, which would mark the first
drop since the group started tracking values in 1968. NAR
projects a 1 percent decline in the median price of an existing
single-family home, to $219,800. The group, in a forecast made a month
ago, had previously been expecting a 0.7 percent decline. Prior to
that, it had expected a gain of 1.2 percent. (CNN Money)
• The ugly face of foreclosure:
Foreclosures are devastating communities across the United States,
and the impact may only worsen as more subprime adjustable mortgages
reset during the next few months. Foreclosure filings are up 35 percent
nationwide since a year ago, according to RealtyTrac. See also Foreclosure bargain-hunting (CNN Money)
• Fed Will Keep 5.25% Until Definitive Data Shift:Unless there’s a definitive shift in
economic data before Federal Reserve officials meet next month,
they might just as well issue the same statement they put out
yesterday when they left the interest rate at 5.25 percent. (Bloomberg)
• Inflation Risk Keeps Fed on Alert The Federal Reserve signaled continued wariness on
inflation, leaving interest rates unchanged and giving no sign it is
inching toward an interest-rate cut. The Fed said after its policy meeting yesterday that
its "predominant policy concern remains the risk that inflation will
fail to moderate." (Wall Street Journal)
TECHNOLOGY & SCIENCE
• How the Wii is creaming the competition: A year ago it looked like game over for Nintendo’s storied console
business. The Kyoto-based gamemaker–whose Nintendo Entertainment
System ushered in the modern age of videogames–was bleeding market
share to newer, more powerful systems from Sony and Microsoft. (Business 2.0)
• Profit in Motion: Tiny Sensors Take Off The Key to Wii’s Controller and New iPhone, ‘Mems’ Are a Hot Product (free Wall Street Journal)
• The New Business Contrarians: 11 business leaders who achieved success by zigging while the rest of the world zagged. (Business 2.0)
• Using YouTube for Posterity (Wall Street Journal)
MUSIC BOOKS MOVIES TV FUN!
• Are CD Prices Coming Down? (Surprisingly, Yes)
• Last Week, we mentioned one of my favorite new singers, Amy Winehouse. I noticed she got lots of ink this week, including WSJ (A New British Invasion?) and NYT (Disillusioned Diva With Glimmers of Soul)
• The Gatekeeper: How Posh Hotel Sizes Up Guests: Ever wonder what the maitre d’ is taking in as you walk into a
high-end restaurant, or what the saleslady at Bergdorf’s knows about you?
Plenty. Count on it. They’re acting on information you’ve given them without
even knowing it. Ever wonder what the maitre d’ is taking in as you walk into a
high-end restaurant, or what the saleslady at Bergdorf’s knows about you?
Plenty. Count on it. They’re acting on information you’ve given them without
even knowing it. (free Wall Street Journal)
That’s all from what looks like another glorious weekend in the NorthEast. Happy Mother’s Day, Mom! See you next week.
Turns out it was Gerry Mulligan‘s CD, Paraiso-Jazz Brazil. An eye opener. Clean, cool recording of lovely Latin melodies, all the while overlaid with this dry, reedy saxophone that infused the music with a flavorful sophistication.
That was Gerry Mulligan’s sound. NPR radio observed that Mulligan was "the most influential baritone saxophonist in jazz." But Mulligan was more than that — he was a
commanding composer, an innovative musician, someone who pushed boundaries, yet remained accessible and enjoyable to listen to.
Mulligan’s light and airy baritone saxophone was the epitome of the the "cool" jazz sound. Yet its amazing how easily he could interact with many other musical styles: Ben Webster’s blustery tenor (the epitome of a "warm" sound); Monk’s percussive, fractured piano rhythms and dissonant tunes; the sweet, subtle tension between Mulligan and Chet Baker.
You can pretty much grab any random Mulligan album (I put up a decent selection here) and not be disappointed. You will see scattered around a broad selection of different styles, eras, and musical cohorts.
Are you a Brubeck fan? Monk? Chet Baker? Webster? Desmond? Grab anything, sit back and enjoy.
Mulligan became known for his writing and arranging skills in his teens. He wrote for Johnny Warrington’s radio band in 1944, and for Gene Krupa’s band two years later.
Mulligan hit the big time when he became known for his work (writing, arranging, and soloing) on Miles Davis’ defining album, "Birth of the Cool." Gerry’s compositions for this album included "Jeru," "Godchild," and "Venus de Milo," all songs that would remain in his repertoire long after the initial success of the album had died down. (This album launched and aided several careers of important jazz figures).
Mulligan’s last record came out as one of his most beautiful. Lovely tunes, clever arrangements, and understated fabulous players mark his last recording (John Scofield and
Grover Washington, Jr. play on this).
Mulligan Discography (massive PDF)
Yesterday morning, Doug Kass gives us his short list of why stocks ought to take a stumble:
1. The price of gasoline rises to a new high, serving as the functional equivalent of a tax increase for the U.S. consumer.
2. Tech bellwether Cisco’s (CSCO) U.S. business enterprise is weak, and guidance for aggregate sequential revenue growth (of +4%) is disappointing.
3. Other tech companies like Novellus (NVLS) , Nokia (NOK) , SanDisk (SNDK) , Flextronics (FLEX) and Sanmina (SANM) disappointed. The much-heralded release of Vista has failed to meet expectations (and has led to a buildup in PC component parts). DRAM prices fall by nearly 70% to below cash production costs. Electronic Arts (ERTS) , Best Buy (BBY) and Circuit City (CC) guided lower, raising questions about the health of consumer electronics.
4. Multinationals offset end-market weakness in the U.S. by the effect of a weak U.S. dollar. More astonishingly, investors consider the foreign exchange gains as recurring.
5. The multiplier effect of the housing downturn hits many building materials companies like Mohawk Industries (MHK) , Home Depot (HD) and Graco (GGG) whiff, but rumors of private-equity deals bail investors out.