Q2

Q2 ended

ECB rolled it all over

Greece weathered the quarter end storm without going parabolic as in previous spikes, as ECB buying continues to provide the secondary market liquidity that enables dealers to buy the auctions.

Euro back up towards 1.24

This would be the time for equity markets to bottom and start discounting fading solvency risk

Might get a temporary pull back on tomorrow’s employment report but seems a weak economy is already fully discounted by US equities, probably also well beyond the actual weakness.

PCE/Personal Income

Very good, looks like continuing muddling through with moderate growth unemployment drifting lower in a few months when there are no more hours to add to the existing labor force.

Welcome to Japan, Mr. US bond market?

Ok market for stocks, especially with Euro zone risk fading. Just China h2 risk left, seems.


Karim writes:

PCE data today was encouraging and showed the positive impact of hours on labor income.

Personal income up 0.4% with wage and salary income up 0.5%.

Personal spending up 0.3% and headline deflator unchanged, so strong advance in real consumption spending.

For all the slowdown fears, real private sector demand will be stronger in Q2 than Q1.

Core deflator up .162%, largest advance in 7mths. Recent divergence from core CPI (PCE data has been firmer) reflective of lower weight of housing in PCE data.

Not saying inflation is picking up, just that deflation fears seem overblown.

Bloomberg- Millionaires’ Ranks Grow 14%

govt deficits = ‘non govt’ savings:

The recovery in wealth last year was a result of resurgent financial markets and increased savings, the report said. The Standard & Poor’s 500 Index rose 20 percent in 2009 and the U.S. savings rate averaged 4.2 percent compared with 2.6 percent a year earlier.

>   
>   (email exchange)
>   
>   On Fri, Jun 11, 2010 at 3:57 AM, wrote:
>   
>   What’s interesting about this to me is Slovakia. The Capital, Bratislava,
>   is 45 minutes from Vienna by car, and they’re third on the list! Ever
>   hear bad things about Slovakia? FLAT TAX of 19 percent for several years
>   now and more and more industry growing there. Great restaurants, clubs,
>   and more so quality of life has greatly increased. Magna has several
>   facilities there as do VW etc etc.
>   

Yes, it’s a ‘race to the bottom’ with whoever has the lowest taxes winning business from other EU nations, eventually forcing them to do same.

This is what’s happened to US States, with the States with the lowest tax rates and benefits getting businesses from other States. The problem is that means that States have to spend the least on education and public services to win business, in a race to the bottom.

It’s a fallacy of composition in action. If you stand up at a football game you see better, but soon everyone is standing up so nothing’s gained and no one can sit down (in the case of the football game at least until the front row sits down).

One of the public purposes of the federal govt is to set min standards that prevent races to the bottom

World’s Millionaires Increase by 14%, Boston Consulting Reports

By Alexis Leondis

June 10 (Bloomberg) —The global millionaires’ club expanded by about 14 percent in 2009 with Singapore leading the way, The Boston Consulting Group said.

The number of millionaire households increased to 11.2 million, according to the study released yesterday by the Boston-based firm. Singapore posted a 35 percent gain, followed by Malaysia, Slovakia and China. In 2008, the number of millionaire households fell about 14 percent to 9.8 million.

“Given the severity and magnitude of the crisis, I’m surprised at how fast global wealth has come back,” Bruce Holley, a senior partner in the firm’s New York office and topic expert for wealth management and private banking for the U.S., said in a telephone interview before the report was released.

Global wealth rose by 11.5 percent after falling 10 percent in 2008, as assets under management increased to $111.5 trillion, close to the annual study’s record $111.6 trillion in 2007. North America, defined as the U.S. and Canada, had the greatest gain in assets at $4.6 trillion to $35.1 trillion. The U.S. also had the most millionaire households at 4.72 million, the survey said, while Europe remained the wealthiest region, with $37.1 trillion.

Current numbers may differ from those in last year’s report because of currency fluctuations and newer available data, said Peter Damisch, a BCG partner and a co-author of the report. The study looked at 62 countries representing more than 98 percent of global gross domestic product.

Wealth Recovery

The recovery in wealth last year was a result of resurgent financial markets and increased savings, the report said. The Standard & Poor’s 500 Index rose 20 percent in 2009 and the U.S. savings rate averaged 4.2 percent compared with 2.6 percent a year earlier.

Global wealth dropped in 2008 for the first time since the survey’s 2001 inception as the credit crisis sent stock indexes tumbling and slashed the value of real-estate holdings, hedge- fund and private-equity investments.

Less than 1 percent of households globally were considered millionaires, which is defined as investable assets of more than $1 million, exclusive of real estate and property such as art. Wealth became more concentrated with millionaire households controlling 38 percent of the world’s assets compared with 36 percent a year earlier, the study said.

Singapore also had the highest proportion of millionaire households at 11.4 percent, followed by Hong Kong and Switzerland. The fourth, fifth and sixth spots were in the Middle East — Kuwait, Qatar and the United Arab Emirates. The U.S. was seventh-highest at 4.1 percent.

Growth Rate

The amount of offshore wealth, defined as assets housed in a country other than the investor’s legal residence, increased to $7.4 trillion after declining to $6.8 trillion in 2008 as global regulators pressured countries such as Switzerland to cut down on bank secrecy. Switzerland remained the largest offshore center, with about 27 percent, or $2 trillion, of assets, the report said.

Global wealth will increase at an average annual rate of almost 6 percent from yearend 2009 through 2014, which is higher than the 4.8 percent annual growth rate from yearend 2004 through 2009, the study said. Wealth in the Asia-Pacific region, excluding Japan, is expected to rise almost double the global rate. Last year’s survey said total wealth wouldn’t return to pre-recession levels until 2013.

‘Still Feel Burned’

The report’s authors also looked at the performance of 114 wealth management firms worldwide and found revenue declined by an average of 7.3 percent as assets under management increased an average of 14.3 percent. Reasons for decreased revenue include fewer transactions, tougher price negotiations and a shift to lower-risk asset classes and investments that are liquid and simple, the study said.

Investors feel frustrated and distrustful following the market events beginning in 2008, despite the increase in wealth, Holley said.

“People still feel burned,” said Holley. “I think the numbers in the report suggest a much rosier experience than how people actually feel.”

more weak July data


[Skip to the end]

>   
>   (email exchange)
>   
>   On Wed, Aug 19, 2009 at 9:38 AM, Morris Smith wrote:
>   
>   Really lousy economic data continues about July
>   

Yes, looking awful from a lot of angles.

This latest govt. attack on bank capital, especially small banks, might be biting deeper than the media is on to.

Amazon (AMZN-Hold)

Yesterday, comScore released July online retail data, showing total online spending falling by 7% y/y including a 5% y/y decline in non-travel spending. This data, combined with soft July retail and same-store-sales (SSS) and a weak outlook from Wal-Mart (WMT-Not Rated), reinforces our opinion that consumer spending may be slower to recover than anticipated. We reiterate our Hold rating on Amazon (AMZN) and our $83 per share price target.

comScore reported that July non-travel spending declined by 5% y/y, a sequential deceleration from the 1% y/y decline experienced in June and below the 4% y/y decline witnessed in May. Key category results were somewhat soft, with only Books & Magazines growing by 4% y/y and Consumer Electronics up 5% y/y.

eMarketer released data from the National Retail Federation (NRF) at the end of July indicating that nearly 50% of participating consumers were cutting spending on back-to-school supplies. Additionally, only 22% of respondents said that they would purchase back-to-school supplies on the web, down from 25% a year ago, with 75% opting to shop at traditional discount retailers.

July SSS fell 5% y/y, with the large majority of retailers posting greater than expected declines. The US Census Bureau reported that July total retail sales were flat sequentially but down 8% y/y, with sales down 9% y/y from May through July.

We now estimate that the impact on US eCommerce sales will be a 4% y/y decline in 3Q09 versus a 2% y/y decline in 2Q09, with low single digit growth in 4Q09. Ecommerce spending may decline by 1% y/y in 2009. This lack of consumer demand recovery represents a bit of an overhang on stocks like Amazon.

Amazon’s stock carries a premium valuation to other ecommerce, retail, Internet stocks and the S&P 500 Index, trading at 50x 2009E EPS and 21x 2009E OIBDA. The S&P 500 Index trades at 16x 2009E EPS of $60. Our ecommerce peer group averages 23x 2009E EPS and 10x OIBDA. Using a PEG ratio of 2.0x or 50x our 2009E EPS of $1.65, which equates to 21x our estimated 2009 OIBDA of $1.7 billion, our price target is $83 per share. We rate Amazon.com a Hold.

Orbitz (OWW-Buy)

We are reiterating our Buy on Orbitz (OWW) and raising our price target from $6 to $8 per share. We anticipate that Orbitz will be able to grow EBITDA by 20% y/y in 2009 and could nearly triple free cash flow through increased transaction volume growth and a sustainable cost savings program.

Transaction volumes improved 22% sequentially in Q2, helping to offset the removal of bookings fees on single-carrier flights, resulting in a better-than-expected gross bookings decline of 12% y/y. The removal of booking fees has stimulated consumer demand and shifted share from airlines to online travel agents (OTAs) like Orbitz. We expect further improvement in Q3, forecasting gross bookings to decline by 10% y/y. Q4 may only show a mid-single digit y/y decline in gross bookings, given an easier comparison and some potential price stabilization.

Despite the capacity cuts made last September, all of the major airlines have increasingly turned to the OTAs to shed excess inventory and generate revenue. Given the poor outlook published by the International Air Transport Association (IATA) for the global airline industry ($5 billion in losses, and normal traffic growth not returning until 2011), we anticipate that this trend will continue and may be very difficult to reverse.

Looking forward, Orbitz has committed to expanding its under-indexed hotel business globally. We believe that both Europe and Asia remain growth opportunities for Orbitz. Despite both Priceline (PCLN-Buy) and Expedia (EXPE- Buy) already establishing meaningful franchises on both continents, Orbitz should be able to capture a fair share of the rapidly growing international hotel market.

The cost savings program implemented in 1Q09, reducing expenditures by $40 million to 45 million annually, has driven EBITDA growth of 28% y/y through 1H09. Debt leverage has fallen from 5x to 4x based on our recently raised 2009E OIBDA of $160 million. Interest coverage has improved from 2x to 3x. Free cash flow is also forecast to nearly triple from $0.31 in 2008 to $0.88 in 2009.

Orbitz trades at 10x our 2010E EPS of $0.50, below a market P/E multiple of 14x. Our domestic e-Travel group reflects an average 2010E EPS trading multiple of 14x. Using a PEG of 1.1 or 16x 2010E EPS of $0.50, our 12-month price target is $8 per share. We rate Orbitz a Buy.

Yahoo (YHOO-Hold)

Recent data support our concerns about a sustained slowdown in online advertising. We continue to believe online advertising will remain muted in the third quarter as there has been no evidence of an advertising recovery to date. Yahoo remains vulnerable to declining fundamentals and a long complex integration process with Microsoft. We maintain our Hold rating.

Yesterday, comScore reported that July e-commerce non-travel spending declined 5% y/y and 6% sequentially. This was the largest monthly annual decline in 2009. We do not believe this bodes well for an online advertising recovery in the third quarter, particularly when combined with the University of Michigan’s preliminary consumer confidence sentiment number for the month of August, which showed a continued decline from July.

Yahoo continues to experience a continuous search market share loss in the US. According to comScore, Yahoo’s US search share stood at 19.3% in July, which represents a consistent monthly decline from 21.0% in January.

Data suggests Yahoo’s search ad coverage is down significantly y/y and dropped materially month/month in July. Ad coverage data coincides with a poor July e-commerce report.

This news does not bode well for Google, which also experienced a sequential decline in ad coverage during July. Google also saw a slight US search market share loss to Bing in July to 64.7% from 65.0% in June.

Our channel checks and the comScore data do not support Yahoo’s commentary at last week’s investor conference, where the Company remarked that it saw “green shoots” in ad sales and saw near-term ad budgets coming back. In addition, this commentary is inconsistent with Yahoo’s weak third quarter guidance.

Yahoo continues to battle departures amongst its executive team. Last week, Yahoo’s VP of West Coast sales announced his departure after three years at the Company. Yahoo also recently lost its VP of sales in New England and Canada.

We maintain our cautious view of the online advertising space as we forecast no growth in online advertising during 2009. Yahoo trades at 7x 2009E OIBDA, which is fairly valued in our view, particularly given expectations of a long drawn-out integration process with Microsoft and our concerns about Yahoo’s strategy and growth.


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ISM (non-Mfg)


[Skip to the end]

(email exchange)

yes,

seems second quarter earnings should be better than expected and that costs are way down which will
add to profitability even with flattish sales.

and very wide net interest margins will support bank earnings growth even with low volume and continuing losses.

this can be a very good environment for stocks.


Karim writes:

Details a bit firmer than headline.

Overall, still contracting at a slower rate.



June May
Composite 47.0 44.0
Activity 49.8 42.4
Prices paid 53.7 46.9
New Orders 48.6 44.4
Employment 43.4 39.0
Export Orders 54.5 47.0
Imports 47.0 46.0

“Business has improved and holding steady.” (Arts, Entertainment & Recreation)

“Activity level is flat. Clients are delaying capital spending decisions.” (Professional, Scientific & Technical Services)

“Economy may be stabilizing. Second half looks more positive than first half.” (Information)

“Have begun spending government stimulus funding, and expect conditions to gradually improve in the near future.” (Public Administration)

“Occupancy levels continue to increase at a slow pace.” (Accommodation & Food Services)

“Activity is still slow and little has changed since last month.” (Wholesale Trade)


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Microsoft/yahoo

Expect a lot more takeover activity supporting equities.

Forces are stacked against ‘normal’ shareholding, as management is incented to dilute shareholders as previously discussed, and as repeatedly demonstrated during the last 6 months via dilutive converts, etc.

By taking over the entire company, that risk goes away.

This means that since public companies trade cheap enough for shareholders to own, that price will be cheap enough to make takeovers attractive.

Expect this bit of institutional structure to result in a new, massive, round of takeovers/consolidation.


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