Sunday, July 31, 2011

Today's Major Market Move - U.S. Equity Futures Up 1.5% On News of Debt Deal

The over-dramatized and over-hyped debt deal is finally here and in pavlovian fashion, futures in the U.S., Australia, Japan, and the U.K. have all surged. The Dow Jones is up 1.5% and the All Ordinaries is up even more at +2.4%. I suppose the logic is as follows: Continued U.S. Deficit Spending=Continued Demand for Chinese Goods=Continued Demand for Australian Commodities. Here's the most recent table of global equity index futures:

Click on the image for a larger view.
Click here for the most recent version of the table.

Details on the deal are still emerging but here are some of the numbers that are being reported (from The Globe and Mail):
Under the agreement, a congressional committee would have to come up with a 10-year, $1.5-trillion deficit reduction plan by November. And Mr. Obama could increase the borrowing limit by $2.1-trillion, enough to avoid having to ask Congress for more before the 2012 election.
The $1.5 trillion in long term cuts is on top of an immediate $1 trillion in deficit reduction. That ends up being $2.5 trillion in cuts over 10 years while we are current running an annual deficit of over $1.6 trillion. Even if we wound the wars down completely today (a logistical impossibility), that $2.5 trillion in cuts wouldn't last for more than 3 or 4 years in terms of balancing the budget. In essence the government, and this applies to both parties, is betting the farm on rising revenues. Politicians are desperately hoping that tax revenue will pick up and subsequently the pressure to make further cuts will dissipate. In light of the current macro trends: continued high unemployment, weakening housing market, declining gdp numbers, I find that outcome highly unlikely.

According to the US debt clock, the U.S. federal government is spending 63% more than what it takes in (3.6 trillion vs 2.2 trillion). Over the next 5 years, according to the IMF, GDP is expected to grow 23%. This number is extremely optimistic considering that the poor GDP numbers from Friday's release haven't been factored in yet (they still have an estimate of 3.6% growth for 2011 and we'll be lucky if we see even half of that).

Click on the image for a larger view.
(Please be patient, it takes about a minute to load)

Without a change in the tax rate, which the Republicans so far have been dead set against, I don't see how tax revenue growth can outpace GDP growth by much. If revenues only increase by 23% over the next 5 years, there are going to have to be very significant spending reductions to bring the budget into balance.

Saturday, July 30, 2011

Today's Major Market Move - Venezuelan Stock Market Up 36% for the Year

At the beginning of the month we featured the Venezuelan equity market in our daily major market move post. At that time it was the best performer globally in 2011, with gains of 22%. One month later it is still the best performer in the world, and now it's up 36%.

Click on the image for a larger view.
Click here for the current version of the table.

One might be inclined to attribute the strong performance of the stock market to the increase in the price of oil. But a quick look at a chart of the Venezuela Stock Mkt Indx vs. WTI Crude Futures in terms of % gains quickly dispels that notion.

Click on the image for a larger view.
Click here for the current version of the chart.

WTI is only up about 10% for the year and when one focuses in on the May to July period, it seems like there's actually an inverse relationship. So what is driving the Venezuelan market higher? Since I haven't yet been able to locate a website for digging deeper into individual companies, I don't have a good answer to that question. This trend isn't just limited to 2011; going back to the end of 2007, the market is up 157%.

Click on the image for a larger view.
Click here to go to the chart on Bloomberg.

It's possible that the recent upsurge is attributable to Chavez's illness and the possibility of a more free-market oriented government, as this article from the Latin American Herald Tribune hypothesizes.
Venezuela's stocks continued moving up last week as investors continued buying the few shares available as a play on the possibility of political change in the country. The Caracas Stock Index was up 1.4% for the week, closing at 87,207.
But that still fails to explain the +100% of gains that have occurred in the 3 years prior.

Friday, July 29, 2011

Today's Major Market Move - 13-Week T-Bill (^IRX) Rate Up .03

Today we're going to move our focus over to the fixed income world, specifically the 13-Week Treasury bill (yahoo ticker: ^IRX). With all of the drama surrounding the raising of the debt ceiling in the U.S, this has created some turmoil in the short term bond market. This is particularly evident with the 13 week T-bill where the interest rate has gone from .005 to .09 in the span of a week and a half.

Click on the image for a larger view.
Click here for the current chart.

The interest rate curve has been flattening out in the past couple of weeks as the short end gets sold and the long end is bought as a safe haven. The 10 year rate is all the way down to 2.80.

Click on the image for a larger view.
Click here for the current chart.

There are competing forces at work in the long term US government bond market: on the one hand you have the default threat hanging over U.S sovereign debt but on the other hand you have the traditional safe haven role of U.S debt securities. So far the flight-to-safety effect has been the stronger of the two. There is also the fact that very few people actually believe that debt payments aren't going to be prioritized.

The 13-Week rate is still a long ways away from causing problems for the Fed. If the rate were to go above .25 (still 16 pips away) then the Fed would have to start seriously considering raising rates. This is the last thing that Bernanke would want to do, especially considering today's GDP data which showed that growth in the U.S. has slowed considerably. From the NY Times:
The three main indexes raced lower by about 1 percent shortly after the market opened, responding to the Commerce Department’s report that gross domestic product grew at an annual rate of 1.3 percent in the second quarter, well below analysts’ forecasts. The department also revised the first-quarter annual rate to 0.4 percent from earlier estimates of 1.7 percent.

Thursday, July 28, 2011

Today's Major Market Move - Cyprus Stock Market Drops 4% in Today's Session

Oh how the central bankers and politicians long for the days when a bailout could generate a stock market rally that would last longer than a week. Take the Cypriot equity market as an example: after the latest Greek bailout was announced on July 22, stock markets around the world, including Cyprus, surged (you can read our post about this here). But the euphoria in Cyprus barely lasted through the weekend as the market began to roll over on Monday. Here's a chart of the General Market Index CSE which is the main Cypriot equity index:

Click on the image for a larger view.
Click here for the current version of the chart.

After a 4% drop today, the gains from the bailout news have almost been completely reversed and the index is now nearing the lows of 2011. This article from Reuters does a good job of highlighting the different issues facing the island nation's economy which include:
  • recent debt rating cut by Moody's
  • exposure to Greek debt
  • loss of over 50% of power generation capability
  • gdp growth estimates cut to 0 for 2011
  • 10 year government bond trading at 9.5%, effectively cutting Cyprus out of bond market
Also mentioned in the article is a quote by the head of the Cypriot central bank that the government may be forced to seek a bailout. The impact of a Cypriot bailout would most likely be more psychologically damning rather than causing any actual economic damage. The Cypriot economy is after all only 10% the size of Portugal's which is then only 10% the size of Italy's.

(Data is courtesy of the IMF)

But with that being said, remember that when Iceland (who's economy is only half that of Cyprus) imploded in 2008, it had sent out some major economic shock waves, the effects of which are still being dealt with today. Just recently Iceland finally agreed to a payment scheme for reimbursing Dutch and UK depositors of Iceland banks.

Wednesday, July 27, 2011

Today's Major Market Move - Juniper Networks (JNPR) Drops 20% in Today's Session

On a day when there was much carnage in the U.S equity markets, one company that was hit particularly hard was Juniper Networks (ticker: JNPR). Juniper announced results for its fiscal second quarter yesterday. They missed on both the top and bottom lines as well as guided lower for the next quarter. Bad news all around and the stock price responded by dropping 20% in one day. More from Bloomberg:
“Across the board there was no shortage of concerns and cautionary comments,” said Jason Ader, an analyst at William Blair & Co. in Boston, who rates the stock “outperform.” “It’s a fairly large deterioration in their business.”
Second-quarter profit excluding some costs was 31 cents a share, the Sunnyvale, California-based company said yesterday in a statement. Revenue rose 15 percent to $1.12 billion from $978.3 million a year earlier. Analysts on average had projected profit of 33 cents a share and sales of $1.15 billion, according to data compiled by Bloomberg.
Third-quarter revenue will be $1.07 billion to $1.12 billion, Juniper said. Profit excluding some items will be 26 cents to 30 cents a share. Analysts projected $1.22 billion in sales and 38 cents in profit.
The bad news spilled over to some other network device makers with Tellabs (ticker: TLAB) and JDS Uniphase (ticker: JDSU) dropping 9% and 8.1% respectively. All 3 stocks were the worst performers in the S&P 500 today.

Click on the image for a larger view.
Click here for the current version of the above table.

JNPR missed the previous quarter as well. On a GAAP basis, they came in at .24 EPS with .34 EPS expected. Here's a chart of expected EPS vs actual EPS with the time scale in calendar quarters:

The stock price is back to where it was at the beginning of 2008. The following is a chart of % growth of actual eps, estimated eps and stock price by calendar quarters:

Click on the images for a larger view.
Click here for the current version of the above 2 charts.
Please be patient as it takes about 30 seconds for the data to load.

Tuesday, July 26, 2011

Today's Major Market Move - Swiss Franc Strengthens 14% vs the Dollar This Year

Even though the equity markets appear to be nonplussed about the whole debt ceiling drama, there are some signs of people taking cover with their money. Gold and Silver have been rising recently. Gold is an age old safe haven and more recently Silver seems to be assuming that role as well (margin rate hikes by the CME notwithstanding). In forex-land, the Paraguay Guarani which was discussed in this post and for reasons yet to be determined by this blog, seems to also have become a financial bomb-shelter. Then there is of course the Swiss Franc, which is on par with Gold in terms of its historical safe haven reputation. Due to all the turmoil in Europe and now in the US, the USDCHF (US dollar / Swiss Franc cross) is down 14% this year. The following is a chart of both the USDCHF and USDEUR in terms of % gains.

Click on the image for a larger view.
Click here for the current version of the chart.

One group of people that is not particularly happy with this trend are the members of the Swiss National Bank, although they appeared to have learned from back in 2009/2010 that resistance (i.e. intervention) is futile. This article from provides some good commentary on the strengthening of the Franc and the dilemma it poses for the Swiss authorities. Here's a snippet:

For a period from March 2009 through March 2010 the Swiss National Bank tried to turn back the tide of CHF/EUR. Their unilateral intervention, though massive, did little to help. The CHF gained on the European unit regardless of the amount of EURs that the SNB bought. Because of the intervention the SNB foreign currency reserves rose from Sfr45 billion at the end of 2007 to Sfr125 billion by the end of March 2010, the wrong time for that trade. They were, as it turns out, the only size buyer of EUR and seller of CHF and because of that the central bank lost Sfr21 billion in 2010.

Also mentioned in that article is how Swiss equities have not reacted well to the strengthening currency (which makes their exports pricier). Here's a chart of the % gains of 4 Swiss equity indexes which are down between 6 and 11% this year.

Click on the image for a larger view.
Click here for the current version of the chart.

Monday, July 25, 2011

Today's Major Market Move - Chinese Stock Markets Down Over 3% in One Day

The Chinese equity markets were down significantly in Monday's trading session, with the ChiNext Price Index being one of the biggest decliners at down 4%.

Click on the image for a larger view.
Click here to go to the current chart.

We had last mentioned the ChiNext Price Index on June 25:
Of the Chinese equity indexes we track on PikeFin, the worst performer for 2011 is the ChiNext Price Index at -18.4%. The ChiNext index is a listing of high growth companies (i.e. high risk) based in Shenzhen. According to this article on Want China Times, it's barely over a year old and is down over 15% since its inception (it hit 986 on opening day 6/1/2010 and the most recent print was 832).

Since that mention, the ChiNext Index in particular, and Chinese equity markets in general, had rebounded nicely. Part of the rebound was due to the boost that stock markets around the globe received at the news of another Greek bailout. Here is a chart of the % gains of 3 Chinese equity indexes along with the USDCNY (US $ / Chinese Yuan cross in blue):

Click on the image for a larger view.
Click here to go to the current chart.

There are several issues facing Chinese markets in the near future: a potential popping of the real estate bubble, rising commodity prices (which we've talked about here) and a slow down in the U.S. as a result of reigned-in government spending.

Sunday, July 24, 2011

Today's Major Market Move - Cyprus Equity Market Up 18.5% in the Past Week

Europe equity markets, along with the rest of the world, have caught a case of bailout fever and are surging on the news that the German taxpayers are willing to continue to support early retirement for Greek pensioners. The equity market that has benefited the most from the recent turn in events is the one in Cyprus (which makes sense since it was the one that was most beaten down at the possibility of a Greek default). The following table shows % gains for the past week of equity markets around the globe. The biggest gainers were almost exclusively in PIIGS countries, with the exception of Cyprus and Hungary.

Click on the image for a larger view.
Click here for the current version of the above table.

Despite these recent gains, Cypriot equities still have a ways to go before recouping all of 2011's losses.

Click on the image for a larger view.
Click here for the current version of the above table.

Our June 26 post also focused on Cyprus where we mentioned how it was the worst performing equity market in 2011. That still remains the case today.

Contributing to the country's woes was the annihilation of its main power plant when (you can't make this stuff up) confiscated munitions being stored nearby accidentally exploded. From the WSJ:
The power plant's destruction has led to rolling blackouts that have forced people to endure temperatures of over 40 degrees Celsius (104 degrees Fahrenheit) without air conditioning, sending business productivity plunging at the height of the tourist season.

Companies across the island are taking creative measures to keep things running; electronic tills have been replaced by cash boxes, while vendors now handwrite receipts. Taxi drivers complain that road accidents have increased amid traffic-light blackouts.

Saturday, July 23, 2011

Today's Major Market Move - Silver Futures Up 46% for the Year

Silver prices have been insanely volatile in the past few months. On 5/22 we discussed how prices had dropped by 24% in a month which happened to coincide with a series of margin rate hikes by the CME. Since then the price has resumed the upward trend and recently eclipsed the $40 mark, yet again.

Click on the image for a larger view.
Click here for the current version of the above chart.

The margin rate hikes occurred in April, right before the cliff dive at the beginning of May. Whether the rate hikes had a direct impact, a merely psychological effect or no effect at all remains a subject of debate. I happen to agree with the opinion expressed by Karl Denninger in this post, in that the size and direction of any move caused by rate hikes depends on where and how much leverage is being employed. If leverage (i.e. borrowing on margin) is concentrated on the long side, then rate hikes should result in a drop in price as those positions are closed out (assuming that the holders of those positions don't have the desire or ability to bring in additional capital to meet the new margin requirements).

Silver is back to being the best performing commodity for 2011, followed by wool and gasoline.

Click on the image for a larger view.
Click here for the current version of the above chart.

Thursday, July 21, 2011

Today's Major Market Move - Bangladesh Equity Market Up 14.7% for the Month

An equity market that is off most people's radar screens is the Bangladeshi market which has posted strong gains this past month. The main Bangladeshi index, the DSE General Index DGEN, is up almost 15% for the month and has reached a new high for 2011.

Click on the image for a larger view.
Click here for the current version of the above chart

Over a longer time frame, the index is still trying to return to the highs from the end of 2010.

The Bangladeshi currency has weakened some over the past year, about 5%, but the correlation between the equity and currency movements is pretty weak. The following chart shows % gains of the USDBDT (USD / Bangladeshi Taka cross) and the DSE General Index. Our historical data for the DSE General Index only goes back to March.

Click on the image for a larger view.
Click here for the current version of the above chart

Wednesday, July 20, 2011

Today's Major Market Move - Abercrombie & Fitch (ANF) Up 50% for the Year

One of the best performing stocks in the U.S equity markets this year has been Abercrombie and Fitch (ticker: ANF). Its nearly 50% gain so far this year puts it in the top 10 of the S&P 500 (Citigroup shouldn't be in the list; they reversed split earlier in the year and we are in the process of adjusting our historical data).

Taking a look over longer time frame, ANF's stock price has recovered to pre-crisis levels, thanks mainly to a big earnings beat in the calendar 4th quarter of last year. (eps estimate: .03, eps actual 1.03). Expectations are now high for the calendar 4th quarter of this year where Abercrombie is expected to double earnings YOY.

(Note: the earnings announcement for the calendar 2nd quarter is scheduled for aug 17th).

The clothing retail business in general has received a boost from depressed cotton prices, which are down over 50% from their 2011 high. Of the commodities we track on, cotton is by far the worst performer being down 35% since the beginning of the year (wheat is the next worst, down 14%).

Part of the reason for the decline in cotton prices may be the result of a less expensive cotton alternative being developed. From the motley fool:
Other more cotton-dependent companies have turned to natural alternatives. Naturally Advanced Technologies has developed a method of making a cotton-like fabric from flax, which is cheaper and easier to grow. The company is still in the process of commercializing but has already signed deals with the likes of Hanesbrands (NYSE: HBI ) and Levi Strauss.

(Click here for a larger view.
Click here for the current performance of stocks in the S&P 500.
Click here for a chart comparing % growth of eps estimates, eps actuals and stock price.
Click here for the current chart of cotton futures.)

Tuesday, July 19, 2011

Today's Major Market Move - Indonesian Stock Market Up 17% for the Year

For this edition of our Major Market Move feature we're going to be looking at the Indonesian equity market which has posted a strong gain so far this year. Both major Indonesian equity indexes, the Jakarta LQ-45 Index and the Jakarta Composite Index, are up over 17% this year. That performance has made the Indonesia stock market the second best globally after Venezuela.

The Jakarta Composite Index has been on a steady climb since the beginning of the year.

Indonesia's full year forecasted gdp growth is 11.8% so the equity markets are outpacing that by roughly 3X (17% equity market growth vs 6% midyear gdp growth). The 11.8% annual target puts Indonesia towards the upper end for the south pacific region.

Often times these days a growing economy is partly the result of currency devaluation. That isn't the case with Indonesia who's currency has strengthened over 6% vs the US dollar this year. This also means that US based investors in Indonesia have done particularly well.

(Click on the images for a larger view.
Click here for the current table of global equity indexes.
Click here for the current chart of the Jakarta Composite Index.
Click here for the motion chart of global gdp estimates (requires flash).
Click here for the current chart of the USDIDR (indonesian rupiah) cross.)

Monday, July 18, 2011

Today's Major Market Move - Hungarian Stock Market Down 4.7% in Today's Session

Many European equity markets were hit hard today, but the hardest hit of all was the Hungarian Traded Index which plunged through its 2011 low and finished down 4.7%. The other main Hungarian equity index, the Budapest Stock Exchange Index, was down 3.7% for the day.

The Forint has also started weakening again, although the USDHUF is still well off of its highs for the year.

Part of Hungary's problem is that the government is failing to reduce their budget deficit by the amount that was promised. In the first 6 months Hungary has already used up 87% of the target deficit for the full year. The Hungarians don't have the luxury of getting a potential bailout from the EU or the ECB, however they do have the ability to devalue their currency (which for foreign investors, would be exactly what they are worried about).

According to wikipedia their debt to gdp is currently at 80%, which is a level to generate concern but not quite enough to cause the klaxons to be blaring. Yet. On the PIIGS scale of indebtedness, they lie between Spain and Portugal.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of the USDHUF cross.)

Saturday, July 16, 2011

Today's Major Market Move - Rough Rice Futures Up 21% in Past 30 Days

Most commodities have made nice gains over the last 30 days and rough rice futures have led the way posting a 21.7% gain. Of the 29 commodities we track on, 23 were up and only 6 were down. With QE2 having ended on June 30, I think this move in the commodities complex has taken many people by surprise. Here's a table of the top performing commodities:

There are several notable price points to mention from that table:
* Gold has passed its all time nominal high and is now approaching $1600/ounce
* Silver has rebounded nicely off of its recent low and is pushing towards $40/ounce
* Rough Rice has shot past the high of 2011 and is on the verge of passing $17/bushel
* WTI Crude is still hovering just under the psychologically important $100/barrel level
* Cotton is the primary contrarian, down 20% in the last 30 days and 35% for the year

This is the second time in the past month we've mention rice futures where previously we discussed how rice prices possibly factored into the Chinese central bank's decision to raise rates. If the recent parabolic move from rice continues, there may be a surprise rate hike coming from China's central bank.

The CBOT put out a small blurb indicating that reduced acreage and weather concerns are driving the recent move. They also made a passing reference to Thailand's "rice policies". In order to support farmers, Thailand has established a floor under rice prices that is 50% above the market level. From the Manila Bulletin:
She has promised rice farmers a minimum price of 15,000 baht per ton, much higher than the current market price of less than 10,000 baht.

"It will be the highest rice price in the world," said Korbsook Iamsuri, director of the Thai Rice Exporters Association.

"It will definitely affect our exports. With this price, we can sell our white rice only after Vietnam sells all its rice," she told AFP.
I wonder how rice consumers feel about the price intervention. It would also be a problem if there is rice that ends up not being sold at all because of insufficient external demand at the inflated price.

Friday, July 15, 2011

To All Keynesians: Is There Such a Thing as Too Much Debt?

Keynesians advocate for deficit spending by a government during a recession to make up for declining private sector demand. This boost from public funds is seen to be a temporary catalyst to re-energize the virtuous circle of private spending drives private industry which drives private job growth which drives private spending and round and round we go. What I have yet to hear from the Keynesian argument is the qualifier "Because our public debt has yet to reach X, the government should continue to borrow and spend to support the economy..." So to all Keynesians out there: "Does there exist an upper limit on government debt that is independent of other economic conditions, such as GDP growth?" Or in other words, can a nation reach a debt saturation point where regardless of any other metric, such as negative GDP growth, it becomes more harmful for the government to continue deficit spending? And if the answer to that question is yes, the obvious follow-up would be, how is that limit calculated?

Keynes alluded to the possibility of unlimited government borrowing in a low/zero interest rate environment in "The General Theory of Employment, Interest and Money." I pulled the following quote from a critique of Keynes' "General Theory" by Brett DiDonato (I highly recommend reading it):
There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. But whilst this limiting case might become practically important in future, I know of no example of it hitherto. Indeed, owing to the unwillingness of most monetary authorities to deal boldly in debts of long term, there has not been much opportunity for a test. Moreover, if such a situation were to arise, it would mean that the public authority itself could borrow through the banking system on an unlimited scale at a nominal rate of interest.
I think every economist would have to agree that in the real world, there is no such animal as "unlimited borrowing." Eventually interest rates would rise to the point that additional borrowing becomes unfeasible. For Greece it was a debt to gdp ratio over 140% and for Ireland it was over 90%. Japan, on the other hand is over 200% and is still deficit-spending with abandon (I'm using the data from EU's Eurostat and CIA Factbook as listed on Wikipedia) So perhaps this a case of, "Yes of course there is a limit to the amount of debt the US, or any country for that fact, can take on, but like a detailed audit of the Federal Reserve, this information is too dangerous for the public arena."

Today's Major Market Move - Google (GOOG) Up 13% for the Day

Yesterday afternoon Google (ticker: GOOG) announced their 2nd quarter results and the stock immediately shot up after hours. It ended today's trading session up a little under 13%. Results were better than expected on both the top and bottom lines, with revenues coming in at 6.92 billion (6.54 expected) and GAAP earnings coming in at 7.68 (6.78 expected). The stock is now only down 5% for the year; it took a big hit earlier in the year when the first quarter missed by a wide margin (actual eps: 5.51, expected 7.88).

Google's earnings are back on the track that analysts expected at the beginning of the year. I wouldn't be surprise the next couple of quarters of earnings estimates to be revised higher in the near future. Here's a chart of % growth of acutal eps, exepcted eps and stock price (with the just-released quarter not yet included):

Google may be considered a high tech company, but the bulk of their revenues still come from advertising and they are probably more exposed that most other software/internet companies to macro fluctuations. As shown in the above chart, GOOG's earnings were hit hard during the apex of the crisis at the end of 2008. The fact that GOOG missed big in Q1 of 2011 before QE 2 had a chance to fully kick in may also be more than a coincidence.

Make no mistake, this was a stellar earnings report and Google's core search business remains impregnable. Beyond search, Android is a clear hit but is not creating any direct revenue since Google is still giving it away, YouTube generates ad revenue but I haven't seen the detailed numbers to know exactly how much of an impact it is having and even with all the recent hype surrounding Google+, how much staying power will it really have? Facebook appears as entrenched in social media as Google is in search.

(Click on the images for a larger view.
Click here for the current chart of GOOG stock price.
Click here for the chart comparing % growth of eps actuals, eps estimates and stock price.)

Thursday, July 14, 2011

Today's Major Market Move - Akamai Technologies (AKAM) down 40% for the Year

It's been a few days since we've covered an individual equity so today we're going to take a look at Akamai Technologies (ticker: AKAM) for our Major Market Move feature. Akamai has had a rough 2011, dropping 40% since January while the S&P 500 index is up 2.8%. AKAM has been the third worst performer of the S&P 500 this year, after Eastman Kodak (ticker: EK) and Tellabs (ticker: TLAB). (Ignore BLL, FAST and HRML in the following chart, their stocks have all split and we're still in the process of updating our historical data).

After their stock price recovered from the 2008-2009 crisis, it collapsed again after missing estimates in the last 2 earnings announcements (although it was only by a penny each time). Here's the chart of eps actuals vs. eps estimates:

And here's the chart of % growth of eps actuals and eps estimates along with stock price:

It's been a wild ride since 2008, with the stock first dropping 40% during the financial crisis, then surging up 80% in "stimulus" phase, and finally coming back down to being essentially flat. Akamai's next earnings announcement is on 7/27, and according to this analyst on, they should meet or beat with strong forward guidance. His rational:
Streaming volume should be up -- helped by a re-up of its relationship with Netflix (Nasdaq: NFLX ) -- while the introduction of Apple's (Nasdaq: AAPL ) iCloud should provide more downloading work. (Though, as analyst Dan Rayburn rightly points out here, the bigger opportunity would be a video version of iCloud.)

There's also e-commerce and mobile to consider. A new survey from the Pew Research Center finds that 35% of Americans now own a smartphone. Of this group, 87% access the Web or email on their device with 68% using these services daily.

As far as the most recent quarter is concerned, Netflix has been around since 2003; has their growth rate surged all of a sudden in the past few months?. I also see it being too early to even decipher what the future growth rate is going to be for iCloud (it was only just unveiled a little over a month ago). Google (ticker:GOOG), who has struggled in the early part of 2011, just announced a bang-up quarter so that may bode well for AKAM also getting out of the dole drums.

(Click on the images for a larger view.
Click here for the current table of the performance of stocks in the S&P 500.
Click here for the charts of eps estimates, eps actuals and stock price.)

Wednesday, July 13, 2011

Today's Major Market Move - Paraguayan Guarani Strengthens 15% vs the US Dollar this Year

Is the Paraguay Guarani now the Swiss Franc of the southern hemisphere? Over the past year it's been behaving like a safe haven currency, strengthening during times of turmoil. It's up 15% since January, making it the best performing currency on the planet (I'm leaving out Zimbabwe, for obvious reasons. The Zimbabwean dollar has effectively been replaced by the US dollar. A few weeks ago our data provider started showing a USDZWD cross of 1.869 and I've yet to figure out why.)

This year the USD is down or flat vs approximately 80% of the currencies in the world and from the recent comments made by Bernanke regarding additional easing, it looks like that trend will continue. That being said, the DXY (US dollar index) has seen a fair amount of support (for the DXY we unfortunately only have historical data going back to April):

It's not surprising that the DXY has held up so well when you consider that the Euro comprises 60% of the basket of currencies and that the Euro has been under pressure from all the PIIGS related turmoil. Here's the breakdown from wikipedia:

Euro (EUR), 58.6% weight
Japanese Yen (JPY) 12.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight and
Swiss franc (CHF) 3.6% weight

Because the DXY is so overweight the Euro, and couple with the fact that no emerging market currencies are represented (no real, no ruble, no rupee and no yuan), its this authors opinion that the DXY is a poor indicator of overall US dollar strength/weakness.

(Click on the images for a larger view.
Click here for the current performance of global currencies.
Click here for the current chart of the DXY.)

Tuesday, July 12, 2011

Today's Major Market Move - Italian Stock Market Down Over 8% for the Week

We're going to stick with European equity markets for out Major Market Move post, specifically European countries that border the Mediterranean. Because of heightened sovereign debt concerns, Italy's stock market, as well as the stock markets for a good portion of the world, have taken a hit over the last 5 trading days. All of the Italian equity indexes we track are down well over 8%.

There was a pretty decent bounce back in equity markets in the latter part of the European trading day after the successful completion of an Italian bond auction. There were some concerns that the auction might fail. From the Wall Street Journal:
European stocks came off lows Tuesday as the Italian market pared losses following a broadly successful, albeit expensive, Italian bond auction.

Yields at Italy's auction of 12-month Treasury-bills came in at 3.67%, against expectations of 3.1%. Still, UniCredit's Luca Cazzulani said that considering the tense market environment and despite the higher auction yields, the auction result "is good and shows the recent tensions have not weighed negatively on demand for Italian paper."

In fact the auction turned out so much better than expected that rumors began circulating that the ECB was involved. From reuters:
They later slipped back below 6 percent on market talk the ECB was buying Italian and Spanish bonds even though bond traders who normally see such transactions said there was no sign of purchases.

I have a hard time believing that there wasn't some form of intervention. In fact what would really surprise me is if intervention had ONLY been limited to the Italian bond auction. Everyone with two firing neurons knows the game by now. The powers that be will throw everything they have at their disposal, and then some, to kick the can just a little bit further down the road. There are only 2 things that will give them pause.


Or This:

Coincidentally (or maybe not so much), after the equity markets received their boost from the auction results, the commodity markets also started to surge higher. The soft commodities such as rice, wheat, corn, sugar, cattle all had particularly robust gains of over 5%. Gold is nearing its all time nominal high in US dollars and WTI Crude is back to threatening 100$/barrel.

As a nice little twist, the Fed meeting minutes were released today which indicated that some FRB members support additional easing. It will most likely be in the form of more QE but that term is now tainted so don't be surprised if they tweak the program and give it a different name. The releasing of the minutes coinciding with the European turmoil today reeks of coordination but bear in mind that the Fed meeting took place weeks ago and the timing of the release is planned well in advance.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of WTI crude futures.
Click here for the current performance of commodity futures.)

Monday, July 11, 2011

Today's Major Market Move - Cyprus Equity Market Down 8% for the Day

As a result of the worsening situation with Italian and Portuguese sovereign debt, there's a bloodbath going on in European stock markets right now. All the other news sources will be reporting on the usual suspects: Greece, Spain, Italy, Portugal, etc., but the largest downward moves at the moment are in Cyprus and Hungary.

The Cypriot equity markets are down a vertigo inducing 8% (imagine a 1000 point drop in the DOW in a single day). Hungary had managed to stay out of the limelight for the past few months, showing resilience after it saw dramatic weakening in it's currency at the beginning of this year. Chart of the USD - Hungarian Forint cross:

All of the recent gains in the equity markets of the PIGS have essentially been lost and those markets are now plumbing new lows for 2011. Oh how we pine for the days when a bailout-induced market boost would last longer than 2 weeks. Here's the FTSE MIB Italian Equity Index:

Italy and Spain are of course the big kahunas in the european debt minefield, but there has been almost no mention of Cyprus in the media. As mentioned here in an earlier post, Cyprus has a GDP twice that of Iceland and will most likely also require a bailout in the not-too-distant future.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of the USDHUF cross.
Click here for the current chart of the FTSE MIB Index.)

Sunday, July 10, 2011

Today's Major Market Move - Nasdaq Industrial Index Up 10% in Past 30 Days

It's no secret that US equities have done extremely well over the past few weeks. One of the best performing indexes in both the US and the world over the past 30 days has been the Nasdaq Industrial Index, posting a 10.2% gain.

The index has over 1000 components, so it's difficult to focus in on the companies that have given it the biggest boost. I perused the list and I found a lot of decidedly non-industrial oriented companies, such as Ebay, BJ'S Restaurants and Buffalo Wild Wings, so it isn't immediately apparent based off of the name of the index what criteria is being used to select the components.

It doesn't appear that the incredibly weak jobs data that came out on Friday will dampen positive expectations for U.S earnings season. If anything, it looks like it will strengthen expectations with the mindset being that companies are either able to boost earnings without adding new employees or they are adding employees in low cost areas outside of the U.S.

The index has eclipsed its high for the year and is also up 13.6% since the middle of January. With US GDP growth estimates continually being revised down, it will be interesting to see if U.S equities can sustain their fairly robust performance for the remainder of the year.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of the Nasdaq Industrial Index.)