The Banking and Strategy Initiative

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It’s Monday Again! : How we were just saved from another Russian crisis, some residual Buffetology and Pfizer

The flight to safety has brought US 10 y bond yields to a low 2.58% with Mortgages on the 30 Y ear end probably dipping below 4% before the yield curve straightens itself again, but that does not really mean bond investors are heading to safety. In fact a punt on russian bonds kept many private investors and Big banks busy thru the April and it is only towards the end of the month post sanctions that some banks have actually published exposure data pointing to a reduction of $1 Bln at each of the Big Four US banks and the also rans like Morgan Stanley , who incidentally is also thinking of splitting up into two distinct banks at the continued insistence of its wealth bank employees who want to run a brick and mortar branch network away from the pretty sucky colleagues in the otherwise healthy Corporate Investment Banking Business on Wall Street.

The 20% cut in trading income at JP Morgan and even at Goldman Sachs will be more than made over by Investment Bank Advisory business with Goldman Sachs firmly in the lead for more M&A business in the fee rich Americas and Europe and JP Morgan continuing to do well in the refined renewal of the Muni markets including Detroit and Puerto Rico. As mentioned adventurous Bond investors have been all over the place ( according to a piece by Md El Erian in the FT in search of better credit spreads instead of base yields) and been risking everyone else yet again even as Oil prices fall across the board and Gold remains itchy to prove it is a speculators safe time trades indeed at above $1300 after Chinese factory data fell on its head again negating any positive innovation in the flash dat to come in at the basal 48.1 mark for manufacturing.

That actually leaves a basic coupling of two large economies like US and India who remain at the top of recovery marks even as Europe again redefines the inflation mark ahead of a fundamental spread of QE confetti in structurally strategic nooks and crannies of the United Europe dream which we guess has another month to go. Janet Yellen in the meantime appears for the JEC and the Senate Budget Committee hearings on the hill midweek to confirm if rates will indeed be increased in “six months” as a Fed impetus to nudge up rates seems to have become de rigeur after the taper was wilfully ignored by investors buying into US fortunes even as PIMCO’s TRF continues losing investors and Blackrock’s(BLK, Fink is moving out) unconstrained strategies are having an easy time buying 2’as 5s and 10s at the same time

BOJ is keen to take off as the Aussie perceptibly weakened on the Chinese news even as Asia opened the weak to a euphoric (finally! in 26 weeks or more) open on a 300k jobs report. Of course the Jobs report was easily dismissed in the first flush of post snow data expected to revise all naysayings in the housing and jobs front anyway as consumer spending shows itself to be insufficient to pull up the GDP numbers after the exports crunch and the manufacturing slowdown because of the weather.

Even as Case Schiller returned to 13% year on year increases in the SA data series, and Pending Home Sales did indeed come higher to wash off the bad taste in the mouth, markets opened the week dull again from the 16550 levels of Friday down more than a 100 points on Monday but things can only look up from here as the over buying in US Treasuries comes to an end, Chinese Banks’ results are found to be nice and uppity with double digit increases in Net Profit over last ear managing to expand spreads and keep new loan adds at nearly $200 Bln a month between the top four banks.

Buffet’s dream opening on the weekend and other good news spreading out fromt he Ira Sohn conference that gets underway today will come back to give the market new impetus as it gets rid of excess baggage in Twitter faith and even Facebook and Linkedin to get back into other old economy sectors. BEA’s halo’ed Q1 showing on Monday means even with Ukraine we could be looking at apne of the most expensive bidding wars for the showpiece right in the middle of M&A season

Pfizer’s Astrazeneca bid, it turns out will actually make three big businesses out of the behemoth (check again for details) as it looks to consolidate its disparate businesses in the portfolio under generics, new drugs & R&D and the vaccines and consumer businesses. Pfizer apparently made anothe faux pas in ranting about being over the cliff in Q3 last year as its Q1 again shows discouraging sales and no drug launches coming soon despite the great news on the R&D investment and new drug pipeline in that quarter but we’d ask investors to keep the faith in this very well managed and suitably aggressive business. Pfizer’s Earnings fell 15% on a 9% downtick in Sales, as the company turned around a 12% increase in EPS on buybacks and full disposal of Zoetis (Animal health business IPO’ed last year) The company also did not change its 2014 guidance that includes Celebrex contributions for the full year, taking care of business on the stock which will continue to see sustained buying as it stays in the ring all month on Astrazeneca. The non FX drop in Sales comes from the sloughing off Enbrel sales from the companys topline. Flu wasn’t so bad this winter but oncology revenues continue to be buoyant at the drug major.

Those selling down the media business or the quick service restaurants businesses may also be in for a shock in Ira Sohn and outside in the markets as the year truly gets underway. Buffet is returning cash to investors as it vetoes/embargos any thoughts of new IPOs from the house assets including Coke which is changing its Comp plans after the Warren Buffet veto

Legg Masons results last week showed Equities inflows improving to $500 mln for the quarter, negated of course by outflows from Fixed Income funds. MLPs are still in place and though the lag was unfortunate for investors earnings in MLPs are likely to bloom in Q2. AUMs are up 4% at Western($467B) and Brandywine($52B) and 5% at Clearbridge($90B) The Fund business also saw inflows of more than $3.2 Bln in the second half in the long term funds both equities and Fixed income

Blackrock , two week s earlier similarly reported better equity performance as long term AUM increased to $4.1 T and fees to $2.2 Bln for 1Q2014. ishares business and fee share outgrew institutional inflows 3:1 in the quarter even as institutional and passive low fee accruing index business remained 65% and 42%. 1Q2014 earnings and EPS are up 30% and 50% respectively to $762 MM and $4.43 respectively. The Dividend Payout ratio at the merged entity has been stabilsed back at near 50% after 2 years (81% non GAAP reported data)

Chicago PMI also hit a new high last week back in the 60s as Auto companies including the now Mark Fields led Ford showed up with a 16 mln /13.5 mln April and credit card spending remained down despite the upward price pressures as some inflation came to town on fuel price changes at retail on extended heating bill laden winters. New Durable orders ex transportation were tepid but positive at 0.5% the Boeing part(transportation) accounting for another 0.5% any positive enough to jump start the big news of changing interest rates to follow the continuing taper now down to 45%

Elsewhere for sports fans, keeping up with F1 and the coming Soccer deluge is important even in the week of the big NFL draft that features a QB and Offensive Line rich line up with almost no one affording big trades to switch up to the top of the draft line yet.

Tomorrow’s trade report and Wednesday’s Consumer Credit (G.19) reports are key this week after the Services PMI turned upward again from a positive 54 to over 55 on new orders and exports but no hiring was visible in this report, putting the number back on Friday in question. The week’s JOLTS report on Friday is again unlikely to show much change after a very positive jump in March and the Friday jobs number seems to have been a relay effect of a lumped change in labour in March which meant April showed 800k less in the running in the long term unemployed. The Ameritrade index later tonight will again jump thru record levels as buying continues on Wall Street  and hedge funds seem to survive anti bets on Green Mountain and Chipotle Mexican Grill to again get into a positive play on the SPY futures

The Euro in the meantime seems set to hit the 1.40 mark before Draghi gets a word in sideways and the UK BoE starts action against an asset bubble in the housing market brought on by UHNW investors and emigrating bureaucrats  from China

Disney (ESPN, Studio income) adidas (incl Reebok) and Whole Food Markets report tomorrow, and Anheuser Busch (Budweiser) and some MLPs on Wednesday and Thursday when NAB from Australia also reports with Liberty Media and Cablevision cornering a lot of analyst interest as well.

Also i heard on the  networks last week that the Cash iceberg for American multinationals could be thawing with the increasing cash pile now getting some bigger ones to call the money home. EBay ended up paying more than 30% tax this quarter as they repatriated these cash piles and thus paid double tax even as Apple continues to borrow against the same for its expanded buyback in the USA. Arcelor Mital, Ralph Lauren and Petrobras effectively close out the earnings season for us this weekend





This entry was posted on May 5, 2014 by in Amitonomics, Bailout Nation, Banking, Bonds, Brazil.


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