In what's become something of a recurring theme, stocks ramped ahead on Friday, sending the Dow and NYSE into positive territory for the week. As usual, the NASDAQ sent home the biggest gains, popping another four percent as the tech-heavy index scored record closing highs every day except Tuesday.
Large caps chopped ahead. The S&P put in it's ninth week of gains against six losers since hitting bottom in March. Weighed down by Walgreen's, the Dow managed to close positive, thanks to a big upside move on Friday. Ditto, the NYSE Composite Index, which remained the laggard among US equity indices.
Beyond the obvious love for all things tech, the bulk of the market was rather soft. Stocks are being led by a mere handful of companies, but it's been more than enough to almost fully erase the losses from earlier in the year and in the case of the NASDAQ itself, the erasure has been a clean sweep to record highs.
If there was a bit of edginess, it was hardly noticeable, and likely due to the oncoming rush of earnings reports from what figures to be a dismal second quarter, irreparably harmed by the coronavirus and government shutdowns across the nation and around the world. The condition is going to be frenetic come next week, as all of the major banking interests open their books to reveal the carnage from what is likely to be the worst quarter in American history.
Pepsico (PEP) will get things off to an effervescent start before the opening bell Monday, but financials take center stage after that. JP Morgan Chase (JPM), Wells Fargo (WFC) and Citi (C) all report prior to the open on Tuesday which should provide plenty of grist for the stock-churning mill. Wednesday morning has Goldman Sachs (GS), BNY Mellon (BK), and PNC Financial (PNC) reporting. Bank of America (BAC) and Morgan Stanley (MS) join the party Thursday morning and the week closes out with Blackrock (BLK), Citizens (CFG), First Horizon (FHN), Ally (ALLY) and Regions Financial (RF) all due to report prior to Friday's opening bell.
The shorthand approach is to see just how large are the loan loss reserves of the majors (JPM, BAC, WF, C, GS). They should be mammoth, considering the amounts of mortgages, credit cards, auto loans, personal loans and student loans went into forbearance during the quarter. If the set-asides are not shockingly large, the banks are either lying or overly optimistic about a quick recovery, but that too is unlikely, so expectations are set for some truly horrific numbers.
No matter what they bring to the table, individual bank stocks may get an initial whack, but the general market is very likely to continue higher, as has been the case since the March bottoms, defying the laws of commerce, physics, gravity, and common sense all at the same time. At this point, while a serious downdraft would be the primary expectation, a bouncy week ending positive could happen. Nothing would surprise anybody.
The story for oil is pretty simple. With benchmark WTI crude stuck at $40 a barrel, everybody is happy. Sheiks, Russians, shale drillers (maybe not so much, but an improvement over recent weeks), company executives, pipeline workers, and even car drivers are sated with gas at the pump bouncing around $2.00 a gallon ($2.19 according to AAA), highest in the West, cheapest in the South.
Treasuries rallied through the week, especially on the long end where the 30-year yield dropped 10 basis points, to 1.33% on Friday. The ten-year was as high as 0.69% and as low as 0.62%, finding the sweet spot Friday at 0.65%. Shorter maturities, through to 3-years are all yielding less than 0.20%, the one-month dropping down to 0.10% by week's end, the lowest since the end of May.
Precious metals had a banner week, with gold cresting over $1800 an ounce and silver smashing through $19. Premiums persist despite shortages easing on most products.
The US Mint is charging $27.65 for random date silver Eagles while some 2020 varieties are much higher and back ordered for three weeks.
For physical, eBay remains the most vibrant market and trustworthy price indicator. Here are the most recent prices on selected items (shipping included):
Item: Low / High / Average / Median
1 oz silver coin: 24.50 / 43.98 / 33.05 / 32.48
1 oz silver bar: 23.50 / 42.95 / 30.56 / 29.90
1 oz gold coin: 1,892.54 / 1,995.95 / 1,917.91 / 1,914.41
1 oz gold bar: 1,800.00 / 1,917.20 / 1,878.18 / 1,881.80
Stay liquid and hydrated. Most of the US is going to be under an oppressive heat dome all week with record-breaking temperatures predicted for the Southwest and East coast.
At the Close, Friday, June 10, 2020:
Dow: 26,075.30, +369.21 (+1.44%)
NASDAQ: 10,617.44, +69.69 (+0.66%)
S&P 500: 3,185.04, +32.99 (+1.05%)
NYSE: 12,075.58, +146.95 (+1.23%)
For the Week:
Dow: +247.94 (+0.96%)
NASDAQ: +409.81 (+4.01%)
S&P 500: +55.03 (+1.76%)
NYSE: +84.06 (+0.70%)
Sunday, July 12, 2020
Friday, July 10, 2020
Teetering On The Brink: US, Global Economies Reeling From Virus, Lockdowns; Bank Earnings Next Week
It didn't have to be this way. Apparently, imploding the US and global economy was part of somebody's plan, though nobody is exactly sure whose.
Expressing discontent and lacking in funds are millions of US consumers, who cut their borrowing by $18 billion in May, according to the Federal Reserve, that bastion of freedom and fairness in all economic activity.
May marked the third consecutive month of reduced borrowing by consumers, coinciding with the outbreak of the coronavirus and the imposition of lockdowns and stay-at-home orders throughout the world and in most US states. After falling 4.5% in March borrowing cratered by 20.1% in April, the largest one-month percentage decline since 1945.
Credit card use fell $24.3 billion in May following April's record $58.2 billion collapse, a result of the purposeful downsizing of the US economy. With stores closed, businesses shut down and many without jobs, borrowing money to pay for mundane items was pretty much out of the question. Spending on vacations, dining out, just about any travel-related expense was off the board for most US consumers. Most people were forced to stay home or very close to it. Those with kids out of school were spending more time reacquainting themselves than luxuriating in the outside world.
On top of the virus-related issues comes the rationalization that many folks were simply shut out of credit card use. Banks closed or limited a massive number of credit card accounts during the corona-crisis, a trend that's more than likely to accelerate as layoffs and furloughs morph into permanent job losses.
The US economy is collapsing, and with it the currency. If credit continues to be slashed, the Fed is going to get mighty upset about it and probably demand that banks open the spigots to allow more lending to people who are broke or nearly bankrupt. Because of the CARES Act, which pumped some trillions of dollars into the US economy, the full effect of the corona-lockdowns and incredible unemployment have yet to be felt, but that's coming. Enhanced unemployment benefits via the act are due to run dry by the end of July. Unless congress agrees to put up another round of checks to Americans and extend enhanced unemployment, there's going to be some monstrous pain in the body politic.
Because of these projections, perhaps the image of who exactly wanted the economy to implode becomes a little clearer. It's one with the face of Nancy Pelosi, the torso of congressman Jerrold Nadler, the attitude of Mitch McConnell, overall a grotesque figure with a multiple of purposes, getting rid of President Trump chief among them.
To think that elected officials wouldn't lie about the virus, their political leanings, the state of the union, their personal fortunes is to be overtly naive. Politicians wake up in the morning lying about everything and go to bed doing the same. None of them can be trusted to do anything they say they will do, especially with elections less than four months hence, as is currently the condition.
With the latest media-driven barrage of corona-fear, politicians are looking to renew or at least revamp business shutdowns and limit the movements of people, effectively shrinking the economy a little bit more in the run-up to election day because it's all about getting elected, or, as is the case of most of the most heinous among them, re-elected.
Politicians have a high degree of control over the people in America, and it's probably worse in other countries. US politicians have been flexing their unconstitutional muscles for months now, but what's coming from them over the next few months could be even more startling, mind-bending, and autocratic.
As it is already, the economy is a basket case, and the miscreants in DC have plans to make the November elections the most confusing and confounding ever, with mail-in balloting in many states already in the works, ramping up the fear of close contact at polling places has taken on new and alarming anti-democratic dimensions.
With America on the brink of wholesale economic collapse, the rhetoric and spasmodic jerking will intensify next week as the nation's biggest banking interests report second quarter revenue and earnings. If there any doubt that the banks will show up with very distressing news in the coming week, one has to look past credit card use and consider the lost revenue from forbearances on everything from car loans to credit cards to home mortgages that the banks have tossed out to consumers in light of the coronavirus circus. Millions of Americans were not paying on loans, cards, mortgages and other bills over the past three months and that's got to show up on the balance sheets of Bank of America, JP Morgan Chase, Citigroup, and Wells Fargo.
The panic caused by bank numbers in the toilet should be magnificent. Under normal circumstances, the revealing of massive loan loss reserves alone would cause a stock market crash, but these are not normal circumstances. The Fed will be there to protect investors, supposedly, averting a downswing similar to what occurred in March.
Or will they? If the narrative is supposed to be frightening to everybody involved, wouldn't a market crash based on actual business lost by banks and a threat to the entire financial system be in order?
First clues have already been revealed with this week's trading. While the NASDAQ is having another banner week (up more than 3% through Thursday) stocks are marginally lower for the week, led by the Dow Jones Transportation Index. If Friday doesn't end positive for stocks, the carnage coming from bank earnings next week might prove to be a bit unsettling.
At the Close, Thursday, July 9, 2020:
Dow: 25,706.09, -361.19 (-1.39%)
NASDAQ: 10,547.75, +55.25 (+0.53%)
S&P 500: 3,152.05, -17.89 (-0.56%)
NYSE: 11,928.63, -157.76 (-1.31%)
Expressing discontent and lacking in funds are millions of US consumers, who cut their borrowing by $18 billion in May, according to the Federal Reserve, that bastion of freedom and fairness in all economic activity.
May marked the third consecutive month of reduced borrowing by consumers, coinciding with the outbreak of the coronavirus and the imposition of lockdowns and stay-at-home orders throughout the world and in most US states. After falling 4.5% in March borrowing cratered by 20.1% in April, the largest one-month percentage decline since 1945.
Credit card use fell $24.3 billion in May following April's record $58.2 billion collapse, a result of the purposeful downsizing of the US economy. With stores closed, businesses shut down and many without jobs, borrowing money to pay for mundane items was pretty much out of the question. Spending on vacations, dining out, just about any travel-related expense was off the board for most US consumers. Most people were forced to stay home or very close to it. Those with kids out of school were spending more time reacquainting themselves than luxuriating in the outside world.
On top of the virus-related issues comes the rationalization that many folks were simply shut out of credit card use. Banks closed or limited a massive number of credit card accounts during the corona-crisis, a trend that's more than likely to accelerate as layoffs and furloughs morph into permanent job losses.
The US economy is collapsing, and with it the currency. If credit continues to be slashed, the Fed is going to get mighty upset about it and probably demand that banks open the spigots to allow more lending to people who are broke or nearly bankrupt. Because of the CARES Act, which pumped some trillions of dollars into the US economy, the full effect of the corona-lockdowns and incredible unemployment have yet to be felt, but that's coming. Enhanced unemployment benefits via the act are due to run dry by the end of July. Unless congress agrees to put up another round of checks to Americans and extend enhanced unemployment, there's going to be some monstrous pain in the body politic.
Because of these projections, perhaps the image of who exactly wanted the economy to implode becomes a little clearer. It's one with the face of Nancy Pelosi, the torso of congressman Jerrold Nadler, the attitude of Mitch McConnell, overall a grotesque figure with a multiple of purposes, getting rid of President Trump chief among them.
To think that elected officials wouldn't lie about the virus, their political leanings, the state of the union, their personal fortunes is to be overtly naive. Politicians wake up in the morning lying about everything and go to bed doing the same. None of them can be trusted to do anything they say they will do, especially with elections less than four months hence, as is currently the condition.
With the latest media-driven barrage of corona-fear, politicians are looking to renew or at least revamp business shutdowns and limit the movements of people, effectively shrinking the economy a little bit more in the run-up to election day because it's all about getting elected, or, as is the case of most of the most heinous among them, re-elected.
Politicians have a high degree of control over the people in America, and it's probably worse in other countries. US politicians have been flexing their unconstitutional muscles for months now, but what's coming from them over the next few months could be even more startling, mind-bending, and autocratic.
As it is already, the economy is a basket case, and the miscreants in DC have plans to make the November elections the most confusing and confounding ever, with mail-in balloting in many states already in the works, ramping up the fear of close contact at polling places has taken on new and alarming anti-democratic dimensions.
With America on the brink of wholesale economic collapse, the rhetoric and spasmodic jerking will intensify next week as the nation's biggest banking interests report second quarter revenue and earnings. If there any doubt that the banks will show up with very distressing news in the coming week, one has to look past credit card use and consider the lost revenue from forbearances on everything from car loans to credit cards to home mortgages that the banks have tossed out to consumers in light of the coronavirus circus. Millions of Americans were not paying on loans, cards, mortgages and other bills over the past three months and that's got to show up on the balance sheets of Bank of America, JP Morgan Chase, Citigroup, and Wells Fargo.
The panic caused by bank numbers in the toilet should be magnificent. Under normal circumstances, the revealing of massive loan loss reserves alone would cause a stock market crash, but these are not normal circumstances. The Fed will be there to protect investors, supposedly, averting a downswing similar to what occurred in March.
Or will they? If the narrative is supposed to be frightening to everybody involved, wouldn't a market crash based on actual business lost by banks and a threat to the entire financial system be in order?
First clues have already been revealed with this week's trading. While the NASDAQ is having another banner week (up more than 3% through Thursday) stocks are marginally lower for the week, led by the Dow Jones Transportation Index. If Friday doesn't end positive for stocks, the carnage coming from bank earnings next week might prove to be a bit unsettling.
At the Close, Thursday, July 9, 2020:
Dow: 25,706.09, -361.19 (-1.39%)
NASDAQ: 10,547.75, +55.25 (+0.53%)
S&P 500: 3,152.05, -17.89 (-0.56%)
NYSE: 11,928.63, -157.76 (-1.31%)
Thursday, July 9, 2020
Rise of Gold and Silver Signaling the End of Fiat Currencies, Bad Government, Fake News
Lately, Money Daily has been intriguing readers with mentions of signal to noise ratio as a fitting analogy to stocks, currencies, and societies.
While there's no hard numbers to verify the contention that most of what's been happening on the stock markets and in the general news has been noise, there are actually a number of good reasons to believe that most of what's presented for public consumption is more hype than reality, thus, noise has triumphed over signal since the beginning of the pandemic at least, and probably even further back in time than that.
Paramount to the noise argument is the recent rally in stocks. While the world was gripped with fear and uncertainty over the coronavirus, the stock market sank and then quickly rebounded, erasing most of the losses incurred during the rapid decline of February and March. The level of indifference to reality was nowhere more pronounced than on the NASDAQ, which not only rebounded, but launched itself to all-time highs, all of it happening while many US states and countries were shuttered, flummoxed over the pandemic and at less than full operational capacity. The NASDAQ is one of a few prime examples of the noisy nature of our times.
In terms of currencies, nothing hits home as hard as the Fed's balance sheet, which has exploded from under four trill to over seven in a matter of months. Intent on smashing the business cycle, something they've managed to somewhat handle over the past decade, as a response to deteriorating financial conditions, the Federal Reserve embarked upon a path of insane resistance to reality, buying up all manner of assets, from high-grade bonds to junk to munis and ETFs, with assistance from the Treasury and its Exchange Stabilization Fund.
Most of the programs the Fed has been and is currently entertaining are nothing more than stop-gap measures, highlighted by currency creation out of thin air to an extreme level of irresponsibility. The Fed has managed to pervert and distort the global economy to a point at which it - thanks to the Cantillon Effect - continually rewards those at the top of the economic heap while adding distress to the lower rungs of society, exacerbating the wealth gap to a point that not only rivals that of the Robber Baron era of the late 19th and early 20th centuries, but has greatly exceeded it.
The Fed's machinations, near-zero interest rates, meandering mouthings on Modern Monetary Theory (MMT) (which is complete and utter trash in a classical economic sense), and continuing interventions into the formerly-free markets is about as noisy as it can get without fully drowning out the signal of reality, which, of course, is the intent. They, like all central banks in the global fiat era, push the falsity of paper money without intrinsic backing or value.
All major and minor currencies are based on nothing but faith in central bank authority. That condition - which has never before existed in the history of the world - eventually leads to ruination and it is proceeding apace.
On top of it all are the fakery of a pandemic which kills older, obese people with existing medical conditions to a degree that 95% of all deaths attributed to the disease are of this order, various ill-informed government responses, lockdowns, riots, looting, calls for social change, and scare-mongering led by a pompous media devoid of journalistic integrity. All of the media coddling, jawboning, and incessant warning is fake, completely and unequivocally. Nothing about the rising number of positive cases or the potential for serious complications from the virus affecting any more than a small consort of the general population is mind-numbingly true.
All of it is fake, false, a purposeful lie perpetuated by the mainstream media to put the entire planet under a trance and replace good government with tyranny and false dictates. It's a scam and it's nothing but noise, lots and lots of noise, significant of nothing meaningful.
At last, like the calvary charging into battle to save the day as in old Western movies, come gold and silver, real money for the past 5000 years. Despite decades of bad-mouthing, manipulation, and degradation by central bankers and financial media, the twin pillars of economic freedom are rising to the rescue of civilization, though for many, the time is too late.
Because gold and silver have been so universally shunned and banished to "ancient relic" status by the Keynesians of the day, most middle and lower class citizens will not be saved. Some reckon that 95% of the world's population has little to no gold or silver. Even though gold, in particular, has been kept on the balance sheets of central banks as a tier-one asset for time immemorial, these same central banks and their cohorts have repeatedly lied and cajoled the minions into believing that it is inconsequential.
Were that true, why then has gold risen dramatically over the past year, reaching all-time highs against all currencies and approaching an all-time high against the world's reserve currency, the dollar? It is because gold is money. Silver is money. All else is currency or derivatives of paper currencies.
Gold and silver are the real signal that will drown out the noise of phony markets, counterfeit currencies, bad governance, social division, and media overreach. They are saying that now is the time for change. That now is the time to end the madness and the lies and the corruption that is enslaving the people of the world.
There is little doubt that gold will exceed $1900 an ounce this year. It just broke through the $1800 barrier on Wednesday and there is nothing to stop its progress. In fact, central bank pandering and counterfeiting is fueling its growth. Silver, as usual, is tagging along, but will eventually become its own pillar of strength for the middle classes as it is more affordable and more easily transferrable than gold.
Gold and silver are sending a clear signal. Get out of fiat currencies and take up the mantle of real money. Anybody who does not heed this call will suffer consequences befitting of fools.
At the Close, Wednesday, July 8, 2020:
Dow: 26,067.28, +177.10 (+0.68%)
NASDAQ: 10,492.50, +148.61 (+1.44%)
S&P 500: 3,169.94, +24.62 (+0.78%)
NYSE: 12,086.39, +96.26 (+0.80%)
While there's no hard numbers to verify the contention that most of what's been happening on the stock markets and in the general news has been noise, there are actually a number of good reasons to believe that most of what's presented for public consumption is more hype than reality, thus, noise has triumphed over signal since the beginning of the pandemic at least, and probably even further back in time than that.
Paramount to the noise argument is the recent rally in stocks. While the world was gripped with fear and uncertainty over the coronavirus, the stock market sank and then quickly rebounded, erasing most of the losses incurred during the rapid decline of February and March. The level of indifference to reality was nowhere more pronounced than on the NASDAQ, which not only rebounded, but launched itself to all-time highs, all of it happening while many US states and countries were shuttered, flummoxed over the pandemic and at less than full operational capacity. The NASDAQ is one of a few prime examples of the noisy nature of our times.
In terms of currencies, nothing hits home as hard as the Fed's balance sheet, which has exploded from under four trill to over seven in a matter of months. Intent on smashing the business cycle, something they've managed to somewhat handle over the past decade, as a response to deteriorating financial conditions, the Federal Reserve embarked upon a path of insane resistance to reality, buying up all manner of assets, from high-grade bonds to junk to munis and ETFs, with assistance from the Treasury and its Exchange Stabilization Fund.
Most of the programs the Fed has been and is currently entertaining are nothing more than stop-gap measures, highlighted by currency creation out of thin air to an extreme level of irresponsibility. The Fed has managed to pervert and distort the global economy to a point at which it - thanks to the Cantillon Effect - continually rewards those at the top of the economic heap while adding distress to the lower rungs of society, exacerbating the wealth gap to a point that not only rivals that of the Robber Baron era of the late 19th and early 20th centuries, but has greatly exceeded it.
The Fed's machinations, near-zero interest rates, meandering mouthings on Modern Monetary Theory (MMT) (which is complete and utter trash in a classical economic sense), and continuing interventions into the formerly-free markets is about as noisy as it can get without fully drowning out the signal of reality, which, of course, is the intent. They, like all central banks in the global fiat era, push the falsity of paper money without intrinsic backing or value.
All major and minor currencies are based on nothing but faith in central bank authority. That condition - which has never before existed in the history of the world - eventually leads to ruination and it is proceeding apace.
On top of it all are the fakery of a pandemic which kills older, obese people with existing medical conditions to a degree that 95% of all deaths attributed to the disease are of this order, various ill-informed government responses, lockdowns, riots, looting, calls for social change, and scare-mongering led by a pompous media devoid of journalistic integrity. All of the media coddling, jawboning, and incessant warning is fake, completely and unequivocally. Nothing about the rising number of positive cases or the potential for serious complications from the virus affecting any more than a small consort of the general population is mind-numbingly true.
All of it is fake, false, a purposeful lie perpetuated by the mainstream media to put the entire planet under a trance and replace good government with tyranny and false dictates. It's a scam and it's nothing but noise, lots and lots of noise, significant of nothing meaningful.
At last, like the calvary charging into battle to save the day as in old Western movies, come gold and silver, real money for the past 5000 years. Despite decades of bad-mouthing, manipulation, and degradation by central bankers and financial media, the twin pillars of economic freedom are rising to the rescue of civilization, though for many, the time is too late.
Because gold and silver have been so universally shunned and banished to "ancient relic" status by the Keynesians of the day, most middle and lower class citizens will not be saved. Some reckon that 95% of the world's population has little to no gold or silver. Even though gold, in particular, has been kept on the balance sheets of central banks as a tier-one asset for time immemorial, these same central banks and their cohorts have repeatedly lied and cajoled the minions into believing that it is inconsequential.
Were that true, why then has gold risen dramatically over the past year, reaching all-time highs against all currencies and approaching an all-time high against the world's reserve currency, the dollar? It is because gold is money. Silver is money. All else is currency or derivatives of paper currencies.
Gold and silver are the real signal that will drown out the noise of phony markets, counterfeit currencies, bad governance, social division, and media overreach. They are saying that now is the time for change. That now is the time to end the madness and the lies and the corruption that is enslaving the people of the world.
There is little doubt that gold will exceed $1900 an ounce this year. It just broke through the $1800 barrier on Wednesday and there is nothing to stop its progress. In fact, central bank pandering and counterfeiting is fueling its growth. Silver, as usual, is tagging along, but will eventually become its own pillar of strength for the middle classes as it is more affordable and more easily transferrable than gold.
Gold and silver are sending a clear signal. Get out of fiat currencies and take up the mantle of real money. Anybody who does not heed this call will suffer consequences befitting of fools.
At the Close, Wednesday, July 8, 2020:
Dow: 26,067.28, +177.10 (+0.68%)
NASDAQ: 10,492.50, +148.61 (+1.44%)
S&P 500: 3,169.94, +24.62 (+0.78%)
NYSE: 12,086.39, +96.26 (+0.80%)
Wednesday, July 8, 2020
Did Paychex's Earnings Improve Upon the Signal:Noise Ratio for the General Economy and Stock Market?
Continuing Tuesday's commentary on Paychex as a proxy for the general economy and stock market:
Money Daily may have struck the nail firmly on the head with Tuesday's outlook on Paychex's (PAYX) fiscal fourth quarter (2Q) earnings report. While the company had a small beat, reporting net income of $220.7 million, or 61 cents a share, those figures were down from $230.4 million, or 64 cents a share, in the year-earlier period.
While it may not sound like much, the decline in both revenue and EPS may have shed some significant insight on the overall outlook for July and the third quarter. Paychex deals with millions of small businesses, many likely affected by the shutdowns in April, May, and June, though that data didn't really come through their statement, partly because their quarter included results through May 31 only, leaving June an open question.
There's a strong possibility that Paychex saw more erosion in their customer base in June and that was reflected in their guidance. The company is looking for adjusted EPS to fall six to 10 percent in their fiscal 2021, which actually began June 1.
This is actually significant, and was reflected in Tuesday's trade as the company reported prior to the opening bell. At the close, Paychex was 73.94, -3.84 (-4.94%). At that price, using the last four quarters' EPS of $2.99, the P/E ratio stands at 24.72, making Paychex an overvalued stock (but, which stocks aren't these days?).
Consider the falling revenue and earnings guidance to be an early warning. If the next four quarters come in with a 10% dip in EPS - a distinct possibility - that would put the P/E ratio at an alarming 27.22 (73.94/2.70). In anticipation, the selling was vigorous, with volume close to double the average.
As a proxy for the Main Street economy - because Paychex has so many small and mid-sized business customers - this is a solid sell signal. As earnings decline, so should the share price. Using an EPS of 2.70, figure fair value to call for a P/E around 15, which would put the stock at 40.50 per share, a decline of 45.23%, in line with the general market.
Thus, Paychex is offering a window into July and the third quarter. The stock could just glide along the normal flight path with the market, though the Fed's infinite QE message is beginning to wear thin, but, if Tuesday's five percent knock on Paychex is any kind of signal, the general market may be headed for a deep dive during earnings season, and that's going to heat up significantly beginning next week.
Traders and investors are properly looking to get out of the way of any oncoming steamroller. Paychex is providing a signal to the market, overwhelming the noise from the past two months. This is very likely a tradable event, however, Money Daily is not an investment advisor and has no position in Paychex, at this time. (see full disclaimer below)
Think about it. Who is willing to pay 24 times earnings for a company like Paychex, with a customer base that may be largely going out of business presently or in the near future? A small company with most of its employees laid off or furloughed has little need for a payroll service. With little to no revenue, a company would have diminished need for a tax service like Paychex. A company that closes its doors for good would only need Paychex to do the finalizing paperwork for submission to the IRS or state tax authorities which lays ahead. Such reporting and the lack of an ongoing customer relationship may be as long as a year into the future and not show up readily on Paychex's balance sheet. Keep that in mind. This could play out quickly or be drawn out over many months, but there appears to be a clear case that Paychex's business model may be breaking down as a result of the pandemic, lockdowns, and the obvious, current recession.
Because of the type of business Paychex operates and the unique characteristics of its customer base, there could be quite a bit of downside to their operation. Further, the company may be telling the market to brace for another round of selling, to commence shortly.
Disclaimer: Information disseminated on this site should not be construed as investment advice. Downtown Magazine, Money Daily and it's owners, affiliates and/or employees are not investment advisors and do not offer specific investment advice. All investments have risk. You should consult a professional investment advisor or stock broker or use your individual judgement when making investment decisions. By reading this site, you hold harmless Downtown Magazine, Money Daily, its owners, affiliates and employees from all liability.
At the Close, Tuesday, July 7, 2020:
Dow: 25,890.18, -396.85 (-1.51%)
NASDAQ: 10,343.89, -89.76 (-0.86%)
S&P 500: 3,145.32, -34.40 (-1.08%)
NYSE: 11,990.13, -169.87 (-1.40%)
Money Daily may have struck the nail firmly on the head with Tuesday's outlook on Paychex's (PAYX) fiscal fourth quarter (2Q) earnings report. While the company had a small beat, reporting net income of $220.7 million, or 61 cents a share, those figures were down from $230.4 million, or 64 cents a share, in the year-earlier period.
While it may not sound like much, the decline in both revenue and EPS may have shed some significant insight on the overall outlook for July and the third quarter. Paychex deals with millions of small businesses, many likely affected by the shutdowns in April, May, and June, though that data didn't really come through their statement, partly because their quarter included results through May 31 only, leaving June an open question.
There's a strong possibility that Paychex saw more erosion in their customer base in June and that was reflected in their guidance. The company is looking for adjusted EPS to fall six to 10 percent in their fiscal 2021, which actually began June 1.
This is actually significant, and was reflected in Tuesday's trade as the company reported prior to the opening bell. At the close, Paychex was 73.94, -3.84 (-4.94%). At that price, using the last four quarters' EPS of $2.99, the P/E ratio stands at 24.72, making Paychex an overvalued stock (but, which stocks aren't these days?).
Consider the falling revenue and earnings guidance to be an early warning. If the next four quarters come in with a 10% dip in EPS - a distinct possibility - that would put the P/E ratio at an alarming 27.22 (73.94/2.70). In anticipation, the selling was vigorous, with volume close to double the average.
As a proxy for the Main Street economy - because Paychex has so many small and mid-sized business customers - this is a solid sell signal. As earnings decline, so should the share price. Using an EPS of 2.70, figure fair value to call for a P/E around 15, which would put the stock at 40.50 per share, a decline of 45.23%, in line with the general market.
Thus, Paychex is offering a window into July and the third quarter. The stock could just glide along the normal flight path with the market, though the Fed's infinite QE message is beginning to wear thin, but, if Tuesday's five percent knock on Paychex is any kind of signal, the general market may be headed for a deep dive during earnings season, and that's going to heat up significantly beginning next week.
Traders and investors are properly looking to get out of the way of any oncoming steamroller. Paychex is providing a signal to the market, overwhelming the noise from the past two months. This is very likely a tradable event, however, Money Daily is not an investment advisor and has no position in Paychex, at this time. (see full disclaimer below)
Think about it. Who is willing to pay 24 times earnings for a company like Paychex, with a customer base that may be largely going out of business presently or in the near future? A small company with most of its employees laid off or furloughed has little need for a payroll service. With little to no revenue, a company would have diminished need for a tax service like Paychex. A company that closes its doors for good would only need Paychex to do the finalizing paperwork for submission to the IRS or state tax authorities which lays ahead. Such reporting and the lack of an ongoing customer relationship may be as long as a year into the future and not show up readily on Paychex's balance sheet. Keep that in mind. This could play out quickly or be drawn out over many months, but there appears to be a clear case that Paychex's business model may be breaking down as a result of the pandemic, lockdowns, and the obvious, current recession.
Because of the type of business Paychex operates and the unique characteristics of its customer base, there could be quite a bit of downside to their operation. Further, the company may be telling the market to brace for another round of selling, to commence shortly.
Disclaimer: Information disseminated on this site should not be construed as investment advice. Downtown Magazine, Money Daily and it's owners, affiliates and/or employees are not investment advisors and do not offer specific investment advice. All investments have risk. You should consult a professional investment advisor or stock broker or use your individual judgement when making investment decisions. By reading this site, you hold harmless Downtown Magazine, Money Daily, its owners, affiliates and employees from all liability.
At the Close, Tuesday, July 7, 2020:
Dow: 25,890.18, -396.85 (-1.51%)
NASDAQ: 10,343.89, -89.76 (-0.86%)
S&P 500: 3,145.32, -34.40 (-1.08%)
NYSE: 11,990.13, -169.87 (-1.40%)
Tuesday, July 7, 2020
What Paychex Earnings Report Tells About The Pandemic, Lockdowns, the Future
With the second quarter closing out last week, investors look ahead to what promises to be a challenging earnings season, as April, May, and June were marked by the impact of the coronavirus and resultant government responses to containing its spread.
Stay-at-home orders, forced business shutdowns, and other social distancing recommendations during the period had an indelible impact on business globally. Especially hard-hit were small to mid-sized companies many of which contract with Paychex (PAYX) for their tax accounting and payroll administration.
Paychex (PAYX) announced its fiscal fourth quarter earnings prior to the opening bell on Tuesday, reporting net income of $220.7 million, or 61 cents a share, in their fiscal quarter ended May 31, down from $230.4 million, or 64 cents a share, in the year-earlier period.
The company was expected to report quarterly earnings at $0.60 per share, so it is technically a beat in Wall Street parlance, but the company has given some reason to pause, considering this statement by Chief Executive Martin Mucci:
The company ended the quarter with $1.0 billion in cash and $801.9 million in debt and pays an annual dividend of $2.48 (3.19% yield). Along with ongoing operations their outflows are tremendous and the accumulated debt has been growing over the past two years. While their cash to debt ratio is still positive, they may be headed for zombie territory if the companies they do business with fail to remain going concerns.
Paychex repurchased $350 million of its common stock from July 2016 through May 31, 2019, and more than $500 million prior to that. A year ago, the company announced a share repurchase program of another $400 million.
After reaching a high of 90.23 on February 20, the price of Paychex shares was cut nearly in half, hitting a low of 50.39 on March 23, as panic over the coronavirus hit Wall Street hard. Since then, share price improved to a closing price of 77.78 on Monday, July 6, though after the announcement, shares were sliding in pre-market trading.
This particular earnings report does offer some insight, even though it's backdated to May 31. Some of their business may have taken a hit in June and there may be more going forward, as there's a lag time between companies going bust and formally ending their business relationships. Paychex's fortunes may not be so rosy going forward. The company sees earnings and revenue falling in 2021, a gloomy picture for a perennial high-flier and another negative for the economy. As far as stocks - and, in particular, Paychex - are concerned, their performance will largely be the function of investor sentiment and the level of largesse bestowed upon Wall Street by the Fed in the next round of emergency financing.
Here's another somewhat frightening vision of the future: The only restaurants will be chains like Applebee's, Taco Bell, and McDonald's.
It just could go that way since most mom-and-pop individually-owned restaurants were forced to shut down during the COVID crisis and most of them don't have the financial resources to weather a shutdown for a month or longer. It's already been estimated that more than half the small, local one-location restaurants in America will be permanently out of business by September, if not sooner.
Those that are fortunate enough to stay in business will likely be burdened by loans they were forced to take on due to the government lockdowns. And, as the above-linked article suggests, the chain reaction to other businesses servicing restaurants may be even more severe, affecting delivery services, linen companies, pest-control firms, farmers, and even the local and state taxing authorities, who will take an enormous hit to revenue when hundreds or thousands of sales tax and property tax producers are no longer around.
Under this scenario, companies like Paychex, which cater to small businesses, could see dramatic declines in revenue and profits.
Elsewhere, Argentina's government representatives have apparently sweetened the deal for bond-holders in the ongoing discussions over some $65 billion in debt on which the country recently defaulted. The deadline for a formal agreement has been pushed back (again) to August 4.
Stay liquid.
At the Close, Monday, July 6, 2020:
Dow: 26,287.03, +459.67 (+1.78%)
NASDAQ: 10,433.65, +226.02 (+2.21%)
S&P 500: 3,179.72, +49.71 (+1.59%)
NYSE: 12,160.01, +168.49 (+1.41%)
Stay-at-home orders, forced business shutdowns, and other social distancing recommendations during the period had an indelible impact on business globally. Especially hard-hit were small to mid-sized companies many of which contract with Paychex (PAYX) for their tax accounting and payroll administration.
Paychex (PAYX) announced its fiscal fourth quarter earnings prior to the opening bell on Tuesday, reporting net income of $220.7 million, or 61 cents a share, in their fiscal quarter ended May 31, down from $230.4 million, or 64 cents a share, in the year-earlier period.
The company was expected to report quarterly earnings at $0.60 per share, so it is technically a beat in Wall Street parlance, but the company has given some reason to pause, considering this statement by Chief Executive Martin Mucci:
"We currently anticipate that cash, restricted cash, and total corporate investments as of May 31, 2020, along with projected operating cash flows and available short-term financing, will support our business operations, capital purchases, share repurchases, and dividend payments for the foreseeable future."
The company ended the quarter with $1.0 billion in cash and $801.9 million in debt and pays an annual dividend of $2.48 (3.19% yield). Along with ongoing operations their outflows are tremendous and the accumulated debt has been growing over the past two years. While their cash to debt ratio is still positive, they may be headed for zombie territory if the companies they do business with fail to remain going concerns.
Paychex repurchased $350 million of its common stock from July 2016 through May 31, 2019, and more than $500 million prior to that. A year ago, the company announced a share repurchase program of another $400 million.
After reaching a high of 90.23 on February 20, the price of Paychex shares was cut nearly in half, hitting a low of 50.39 on March 23, as panic over the coronavirus hit Wall Street hard. Since then, share price improved to a closing price of 77.78 on Monday, July 6, though after the announcement, shares were sliding in pre-market trading.
This particular earnings report does offer some insight, even though it's backdated to May 31. Some of their business may have taken a hit in June and there may be more going forward, as there's a lag time between companies going bust and formally ending their business relationships. Paychex's fortunes may not be so rosy going forward. The company sees earnings and revenue falling in 2021, a gloomy picture for a perennial high-flier and another negative for the economy. As far as stocks - and, in particular, Paychex - are concerned, their performance will largely be the function of investor sentiment and the level of largesse bestowed upon Wall Street by the Fed in the next round of emergency financing.
Here's another somewhat frightening vision of the future: The only restaurants will be chains like Applebee's, Taco Bell, and McDonald's.
It just could go that way since most mom-and-pop individually-owned restaurants were forced to shut down during the COVID crisis and most of them don't have the financial resources to weather a shutdown for a month or longer. It's already been estimated that more than half the small, local one-location restaurants in America will be permanently out of business by September, if not sooner.
Those that are fortunate enough to stay in business will likely be burdened by loans they were forced to take on due to the government lockdowns. And, as the above-linked article suggests, the chain reaction to other businesses servicing restaurants may be even more severe, affecting delivery services, linen companies, pest-control firms, farmers, and even the local and state taxing authorities, who will take an enormous hit to revenue when hundreds or thousands of sales tax and property tax producers are no longer around.
Under this scenario, companies like Paychex, which cater to small businesses, could see dramatic declines in revenue and profits.
Elsewhere, Argentina's government representatives have apparently sweetened the deal for bond-holders in the ongoing discussions over some $65 billion in debt on which the country recently defaulted. The deadline for a formal agreement has been pushed back (again) to August 4.
Stay liquid.
At the Close, Monday, July 6, 2020:
Dow: 26,287.03, +459.67 (+1.78%)
NASDAQ: 10,433.65, +226.02 (+2.21%)
S&P 500: 3,179.72, +49.71 (+1.59%)
NYSE: 12,160.01, +168.49 (+1.41%)
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