WEEKEND WRAP: Wuhan Flu Shunting Manufacturing Activity; Credit Woes Overflow

With coronavirus sweeping through mainland China, the country's leaders have imposed draconian quarantines on nearly a third of their entire population of 1.2 billion citizens, and, while factories in Hubei province and elsewhere were supposed to resume normal operations on Monday, February 10, this now seems to be not the case.

The Wuhan Flu is simply not cooperating. With the global hub of international manufacturing and commerce at a standstill, the ripple effects are being felt across the worldwide spectrum.

Apple computer's main assembly operations, FoxConn, has been shuttered for a month, while companies such as McDonald's (MCD), Starbucks (SBUX) and Yum Brands (YUM), owners of the wildly popular Kentucky Fried Chicken franchise, have had many of their stores closed for as long as two weeks presently.

Beyond the human toll the virus is taking in China, where more alarmist estimates range as high as 25,000 dead, the economic toll is just beginning to be felt. China may not be as concerned about taking a hit to their GDP as the rest of the world, which may exacerbate the financial carnage down the supply chain. The Chinese are more concerned about catching up to a virus that they unfortunately were late in detecting and even later in trying to control. Official numbers have the number of infected at 40,573, and deaths at 910, the numbers still climbing.

Stocks, noting that the virus hasn't spread much beyond China's borders (fewer than 400 total cases reported worldwide), took their cues from economic data, especially in the United States, where the major indices marked their best showing since last June. The NASDAQ registered a four percent gain, the Dow and S&P, three percent, and even the laggard NYSE picked up two-and-a-third.

The enjoyment of good economic news, including Friday's January non-farm payroll data which smashed expectations of 160,000 jobs created by totaling 225,000, may turn out to be near the peak for markets as China's economy implodes.

Bond markets, which dwarf stock markets in size by orders of magnitude, are taking the condition more seriously, as the following clips from Doug Noland's Credit Bubble Bulletin present a gloomier outlook:

• January 27 – Bloomberg (Sam Potter and John Ainger): “The global rush for safer assets has fueled a huge jump in the world’s stockpile of negative-yielding bonds, snapping months of decline in the value of subzero debt. The pool of securities with a yield below zero surged by $1.16 trillion last week, the largest weekly increase since at least 2016 when Bloomberg began tracking the data daily. Another injection looked certain on Monday, as investors worldwide ditched riskier assets and piled into bonds amid mounting fears over a deadly virus spreading from China.
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• January 30 – Bloomberg (James Hirai and Hannah Benjamin): “It sounds like a tough sales pitch: buy this debt to lose money for the next decade. Yet for bankers helping Austria raise money this week, it proved smart business -- investors threw more than 30 billion euros ($33bn) at the country as they vied for a chunk of the world’s first syndicated 10-year government bond to carry a negative yield. The order deluge meant Austria joined the likes of Spain and Italy in setting demand records this month as investors chase the safety of bonds.”
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• February 3 – Bloomberg (Liz McCormick): “It’s been more than six years since the U.S. bond market’s purest read on the global growth outlook was signaling this much concern. The so-called real yield on 10-year inflation-linked Treasuries fell on Friday to negative 0.147%, its lowest since 2013, when Europe’s sovereign debt crisis was raging. Now it’s the spread of the Wuhan coronavirus that’s fueling worries about the potential hit to the world economy.”

At the Close, Friday, February 7, 2020:
Dow Jones Industrial Average: 29,102.51, -277.29 (-0.94%)
NASDAQ: 9,520.51, -51.64 (-0.54%)
S&P 500: 3,327.71, -18.07 (-0.54%)
NYSE: 13,931.93, -103.07 (-0.73%)

For the Week:
Dow: +846.48 (+3.00%)
NASDAQ: +369.58 (+4.04%)
S&P 500: +102.19 (+3.17%)
NYSE: +317.83 (+2.33%)

October Surprise? S&P 500 Closing In On All-Time High; McDonald's (MCD) Misses

For a Monday, trading wasn't very impressive. The back-and-forth of the equity markets we've been seeing for many months have elicited a cautionary mood. There's modest dip-buying and rallies are being sold, though not excessively. It makes a great market for traders on commission or those who are in and out of stocks faster than political media pundits can say, "Russia."

It being the heart of third quarter earnings season, there are likely to be bumps and grinds, but the news of the day was the S&P picking up 20 points to close above 3,000, the first time it's been there since September 19. Prior to that, the S&P remained at elevated levels for the last two weeks in July, topping out at 3,025.86 on the 26th before taking a five percent dive in August.

The question now, with impeachment talk fading, troops coming out of Syria and a tentative cease fire between the Kurds and Turks imposed, a China deal looking better every day, and still-solid employment figures, is whether the index can make a new all-time high and hold there. The Fed is certainly doing its part, adding as much liquidity as it can, as quickly as possible, but yields on the 10-year note are not making it any easier, reaching 1.80% on Monday. The good news from the bond pits is that the curve is no longer inverted and hasn't been for some time, easing recession fears.

Thus, there are shifting winds, buffeting the sails of sellers and buyers alike, but the S&P 500 appears to be marching toward uncharted territory. Another session like Monday's would put it over the top.

As far as alternatives, the aforementioned bond arena is looking better and better, though far-out alternatives like gas generators, extra canned goods, firewood, and gardening supplies have taken the front seat on the road to self-sufficiency.

It's no joke that preppers are still prepping for the inevitable crash and burn, or civil war, or zombie apocalypse. It's coming, but no one knows when. For the most part, all those canned goods have to be rotated at last every few years, but, hey, everybody has to eat.

Gold bugs and silver surfers have been backstabbed repeatedly by the futures traders whose sole mission in life, it seems, is to keep a lid on the price of precious metals. They've done a stellar job, smashing down gold every time it crests above $1500, and silver, whenever it gets to $18 per ounce, is sold as if it's some form of monetary kryptonite.

That leaves stocks, or maybe it's time to think about buying a few cows and a brace of chickens. McDonald's (MCD) may be thinking along those lines. They missed on both top and bottom line estimates with EPS coming in at $2.11 vs. $2.21 expected. Overall, it wasn't bad, however. Despite a miss on domestic same store sales - +4.8% vs. +5.2% expected - which is causing a decline of about four percent in pre-market trading, most companies would be happy with growth above four percent, especially established brands like Mickey D's.

Investors always overreact, and this is no different, though with a multiple closing in on 30, maybe the fast food giant is a bit overpriced above $200 per share.

You want fries with that sell order?

At the Close, Monday, October 21, 2019:
Dow Jones Industrial Average: 26,827.64, +57.44 (+0.21%)
NASDAQ: 8,162.99, +73.44 (+0.91%)
S&P 500 3,006.72, +20.52 (+0.69%)
NYSE Composite: 13,088.61, +81.97 (+0.63%)

Stocks Unimpressed With FOMC Decision; Dollar Dashed

The Fomc wrapped up a relatively uneventful meeting Wednesday, keeping rates unchanged and saying little to nothing about winding down the Fed's bloated balance sheet.

After two hikes already this year, rates will almost surely remain on hold until December and an announcement that the Federal Reserve is ready to shed assets may come at the September meeting, according to knowledgeable experts on the subject. Having been sufficiently prepped and prodded, the Fed can feel some confidence that a beginning of an asset unloading program won't upset the status quo too awfully much.

The one kicker is that the wildly out-of-control federal government faces a potentially debilitating debt ceiling debate and a testy budget process in September, but that will come only after congress has taken a month's vacation, pending Obamacare replace and/or repeal legislation currently under consideration in the Senate.

Nothing the Fed does can accurately predict what the paid lackeys... er, prostitutes, er, politicians will do when the rubber meets the road in terms of the soon-to-be $20 trillion national debt. Chances are good that they'll punt, laying one deep and long, giving themselves room to survive the midterm elections in 2018. One person who does not have to suffer any kind of electoral fate in that year is President Trump, who is almost certain to have boisterous opinions on the matter of the debt ceiling and federal government budget.

There are wild card outcomes which the Fed is unable to predict no matter how deep or thorough their modeling, which raises the possibility for abrupt changes in policy, and the jokers dealt by the government are not the only potential surprises. Geopolitics - specifically, North Korea, Ukraine, Iran, or Syria - may play a role in future policies, as could any number of scenarios, from ECB jump-starting their own tapering, Japan failing to follow through with continued buying of equities, or, perhaps a war between China and India stemming from border disputes in and near the Himalaya mountains. Go figure.

As far as stock movements and reactions to the FOMC nothing-burger issued today, the markets basically were held in suspended animation afterwards with a slight bias to the downside.

The outsize gains on the DJIA were largely the result of Boeing's (BA) monstrous 9.2% spike today (biggest day for BA since 10/28/08), responsible for 132 Dow points. So, essentially, the remainder of the Dow was lower, only lifted higher by the flighty airline manufacturer. Only 13 Dow components were higher, 17 lower, led down by Nike and McDonald's, the latter having made new all-time highs just yesterday, which is alarming, since what the company passes off for food has recently reached new lows. Must be their outstanding customer service or something else casual consumers just don't see or understand. Share of MCD are massively overpriced, with earnings per share of 6.25 and a stock price of roughly 156 translating to a P/E of 25. Shareholders and executives (neither of which actually eat at any of their own restaurants) are "loving' it."

The dollar got whiplashed lower, sending (alarm bells) gold and silver higher. Also on the run is the price of crude oil, as the latest reports showed a massive draw, though gasoline inventories were built. Once more, the people actually using the stuff - drivers - just don't get it, apparently.

At the Close, 7/26/17:
Dow: 21,711.01, +97.58 (0.45%)
NASDAQ: 6,422.75, +10.57 (0.16%)
S&P 500 2,477.83: 0.70 (0.03%)
NYSE Composite: 11,964.92, -0.80 (-0.01%)

No Happy Meals For McDonald's Shareholders; Gold, Silver Rise

The signs of collapse are everywhere. You just have to know where to look.

Detroit declared itself a bankrupt city on Friday and on Monday, McDonald's (MCD) - home of the Happy Meal - reported earnings before the opening bell that were short of estimates. When the world's largest purveyor of cheap, unsubstantial, processed, nutrient-deprived food (though Yum Brands is a close second) can't meet the already-lowered bar of wall Street estimates, you know that something bad this way comes.

McDonald's is all about everything that is wrong with our society. Their main profit center is the dollar menu - cheap, boiled or broiled sandwiches or chunks of deep-fried processed chicken with gobs of unsaturated fats included at no extra charge - an affordable alternative to actual, pesticide-free nutrition, that gets goobed-up by the least of our society in massive numbers daily. The problem - in a very heuristic, superfluous, nebulous kind of way - is that numbers of the wretched poor can't even afford to eat this crap any more, so burdened are they by taxes, lack of meaningful and good-paying employment and general economic malaise. It's a much more serious problem than just not making the numbers. The American poor are being slowly, methodologically, starved into submission and death.

America was once the land of milk and honey and other worldly gifts, but, no more. Now, the country is devoid of morals, an aimless gob of humanity looking for a way off the debt treadmill. And Wall Street isn't giving them an escape route.

Bottom lime is that McDonald's food is junk food and their stock is a junk stock, like so many others, profitable upon the backs of cheap labor and unconscionable practices.

The market is dead. Gold - in backwardation since January - shot through $1300 like an unguided missile, dragging silver along for a gain of better than a dollar on the day. Land, precious metals, fuels, tools, skills. That's survival. The rest will vanish.

You thought last week's market was dull. Wait for Thursday. It will be like being struck with the wrong side of an axe. These aren't gains. They are mirages.

Dow 15,545.55, +1.81 (0.01%)
NASDAQ 3,600.39, +12.77 (0.36%)
S&P 500 1,695.53, +3.44 (0.20%)
NYSE Composite 9,650.61, +32.10 (0.33%)
NASDAQ Volume 1,459,571,875
NYSE Volume 3,047,999,000
Combined NYSE & NASDAQ Advance - Decline: 3911-2541
Combined NYSE & NASDAQ New highs - New lows: 607-74
WTI crude oil: 106.91, -1.14
Gold: 1,336.00, +43.10
Silver: 20.51, +1.049

Dow Continues to Power Higher; Apple Cored After Hours

Editor's Note: Apologies for not posting yesterday. We had a major crash of our main computer on Sunday and have been working off a partially-impaired computer since, making life difficult and blogging an excursion into 1990s computing. A bew computer (due to arrive by Monday) should get everything back to normal within a few days.

Stocks keep climbing on hopes that the congress and the president can resolve their debt ceiling differences by passing a temporary extension (read: kicking can a bit down the road) and promising to get serious long before their May deadline (we will believe that when we see it).

The House passed the bill paving the way for an extension of the debt limit until May 19, when it will be reset to reflect additional borrowing through the interim period, voting overwhelmingly in favor across party lines, 285-144.

On Tuesday, existing haome sales came in below forecast, at 4.94M, on expectations of 5.10M (annualized). Not to worry, stocks put in another day of gains.

The Dow was the big winner today, thanks almost entirely to IBM, even though Big Blue has made the bulk of its profits over the past two years by buying back shares, thus reducing the number of shares available and making the EPS number more palatable.

Only 12 stocks on the Dow were up, compared to 17 closing in the red. Coca-Cola (KO) finished unchanged.

McDonald's reports that profits in the US were highly correlated to sales off its dollar menu, implying that either the American pallet enjoys the cheaper menu items or the American wallet is not very well-filled these days.

Apparently, not everyone is convinced that the only thing that matters is what happens in Washington. The NYSE Composite closed lower on the session.

So far in 2013, Dow Jones Industrials have finished higher on 11 of 16 trading days, including the last four straight. The average is up a whopping 675 points, roughly a five percent gain, which, in more normal times, might be good for a full year.

Caution is advised, though with the Fed pumping liquidity with every last ounce of reserve (no pun intended), the chances are that any pullback will be temporary and short-lived.

After hours, shares of Apple (AAPL) were slashed, as the company reported flat earnings per share on increased revenue (18%) year-over-year. The stock was down nearly five percent, falling below the 500 level once again.

Dow 13,779.17, +66.96(0.49%)
NASDAQ 3,153.67, +10.49(0.33%)
S&P 500 1,494.78, -2.22(0.15%)
NYSE Composite 8,828.35, -4.40 (0.05%)
NASDAQ Volume 1,687,925,130
NYSE Volume 3,764,679,750
Combined NYSE & NASDAQ Advance - Decline: 2909-3504
Combined NYSE & NASDAQ New highs - New lows: 510-10
WTI crude oil: 95.23, -1.45
Gold: 1,686.70, -6.50
Silver: 32.44, +0.262

Bear Claws

How bad was it?

It was in the top five worst performances for the combined indices this year, and likely the third worst showing (at least for the Dow it was). What triggered the Tuesday tempest was poor showings by a multitude of companies reporting second quarter earnings, most notably, McDonald's (MCD) huge miss and a miss by DuPont (DD) prior to the market open and Texas Instrument's (TI) poor showing announced Monday after the close.

Dow 13,716.95 -226.47; NASDAQ 2,639.86 -50.72; S&P 500 1,511.04 -30.53; NYSE Composite 9,909.95 -211.63

Here are just some of the early headlines, which seemed to get worse as the trading session wore on.

IN PLAY: Corn Products reports 2Q07 results; beats by $0.09
DuPont reports flat 2Q earnings
Kimberly-Clark 2Q Profit Beats Outlook
Legg Mason profit climbs 22 percent
Lexmark net profit slips 16 percent
Northrop 2Q profit rises 7%
PepsiCo 2Q Profit Rises 13 Percent

While there were a smattering of positives, they were overwhelmed by more than just a few companies not meeting 2nd quarter estimates.

Declining issues crushed advancers by a 5-1 margin and new lows swamped new highs, 642-162.

Not even bonds, tame, with the 10-year note yielding 4.92%, or oil, down $1.33 to $73.56, could pick up the spirits on Wall Street. The continual unwinding of the sub-prime mortgage blow-up (now spreading into other credit areas) combined with the spate of earnings disappointments led to an all-out rush for the exits.

For those with weak stomachs, stop here, because I'm going to tell you why it's going to get worse the rest of the week.

First, more companies will be releasing earnings reports and some are certain to miss estimates. Investors are in a sour mood already, and they simply don't need any more reasons to sell. Later in the day, US Steel (X) reported a 25% dip in profits from the year ago period. Net income fell to $302 million, or $2.54 per diluted share, for the quarter, from $404 million, or $3.22 per share, during the same period last year. Analysts were looking for earnings of $2.35 per share on $4.05 billion in sales and the stock ended the day up 42 cents at 106.41.

After the close, Amazon (AMZN) booked solid profits. Earnings climbed to $78 million, or 19 cents per share, from $22 million, or 5 cents per share during the same period last year, soundly beating expectations of 16 cents per share.

Eli Lily (LLY) also reported after the close. Excluding charges, adjusted earnings totaled $978.7 million, or 90 cents per share. Analysts had expected 82 cents per share on that basis.

Tomorrow, in addition to the more than 300 companies reporting 2nd quarter earnings, the following report prior to the open:
Colgate-Palmolive (CL), ConocoPhillips (COP), DaimlerChrysler (DCX), Freeport-McMoRan Copper & Gold (FCX), GlaxoSmithKline (GSK), Xerox (XRX)

After the close:
Apple (AAPL), Pulte Homes (PHM), Symantec (SYMC), Boeing (BA).

Additionally, Existing Home Sales for June will be out at 10:00 am. On Thursday, New Home Sales figures for June and on Friday, the preliminary 2nd quarter GDP estimate.

With those economic reports on the way, traders may have taken an early hiatus, expecting the worse. It's likely to not be as bad as the worst skeptics suspect, but don't look for a quick turnaround - at least not this week.