TBTF October 19, 2010 - Eleanor Rigby

Too Big to Flail

October 19, 2010

“Eleanor Rigby picks up the rice in the church where a wedding has been, Lives in a dream, Waits at the window, wearing the face that she keeps in a jar by the door, Who is it for? All the lonely people, Where do they all come from? All the lonely people, Where do they all belong?” (Beatles – 1966)

I chose a Beatles song, as opener, today because Apple was the main news last evening. (Apple records was founded by the Beatles in 1968). The problem with choosing a Beatles song is that you can never get the perfect one. There are too many good songs, not too mention all the better and really, really good songs! I could’ve gone with Sgt. Pepper’s Lonely Hearts Club Band, I should’ve gone with Helter Skelter, I really would have liked to go with Let It Be, but in the end I decided to go with ‘Eleanor Rigby’. I loved hearing this song growing up (no, I am not that old), performed, as a cover, by Bobby Womack.

So, Apple, more anticipated these days than GE, Intel, Goldman and Google combined. They beat estimates by a wide margin, Q4 EPS $4.64, Est. $ 4.10 with revenue $20.34B vs $18.90B, 14.1 IPhones were sold vs an estimate of 11.7 mln (whisper was as high as 13 mln), but there was a dark lining to this golden cloud: there were ‘only’ 4.19 mln IPads sold vs an estimate of 4.81 mln and they gave an almost traditional conservative guidance of $4.90 eps while analysts had expected $5.03. The stock is trading down $16 or 5% after hours. Apple however, always plays down the coming quarter and then comes out and beats expectations by a wide margin.

Big Blue, also down 5% after hours after beating expectations $2.82 vs $2.75. They boosted their full year forecast to $11.40 from $11.25, but this is because of a 15c tax gain, which means they actually come in at the low end of the analyst expectation range.

The Nasdaq future is down 1.35% after hours and the S&P is lower by 0.5% All in all this is the first day that corporate figures actually have more impact than talk about the state of the economy or QE II.

Was there nothing interesting to say today in the land of Macro Economics? Well yes, Europe announced new sanction rules for high-deficit countries, that weren’t really all that new. Instead of the automatic sanctions Germany has called for it was decided that sanctions are to be politicized, much to the dismay of the ECB. No country has been penalized for over-stepping the 3% deficit limit in the 12-year the euro exists. Not even Greece, Portugal, Ireland or Spain, because there was no automatic penalty system and after the current crisis, after months of bickering, it is decided that there will never, effectively, be a penalty.

Trichet today squared off with Weber on the stimulus exit. It looks like Weber, in his quest to become the new ECB President, overstepped his boundaries and is now being reigned in by Jean Claude. This can very well be a signal that the new ECB President won’t be Weber, but a more dovish, moderate one.

How did the US Markets end:

Dow +0.73% S&P500 +0.72% Nasdaq +0.48% EUR$ 1.395 WTI $83.08 Gold $1369

Financials were the best performers after losing more than 3 straight sessions. They were helped by Citi Group’s (+$0.22) better than expected earnings +2.29%, Semi Conductors were the worst performers -0.63%

Just after the close we had another flash crash. They still occur everyday in single stocks, more often than not triggering the curbs that were implemented to prevent a market meltdown. Today’s flash crash happened in the S&P ETF called SPY(der). They traded 9.6% lower erasing $7.9 bln of the value of the ETF on volume of 7.2 mln shares (in 8 seconds!). NYSE Euronext decided to “bust” all the trades as the bad trades ‘resulted from a software release’ This market is becoming a joke with all these computer programs running afoul at will. Perhaps it would be a good idea to stop cancelling trades, so people will become more careful when they ‘upgrade’ their software.

What to expect today: Apple and IBM will probably be a drag on technology stocks in the early going (Nasdaq future down 1.5% after hours). At 11 c.e.t. the al important ZEW in Germany will come out. Housing Starts will be the main US focus at 14.30 c.e.t.

There are no major earnings announcements in Paris or Amsterdam, so the focus will be on Bank of America $0.16 est on $27.154 bln revenue, CocaCola $0.89 on $8.296 bln rev., Goldman $2.28 on $8.089 bln rev and Johnson & Johnson $1.15 on $15.175 bln

Happy Hunting & Let’s Be Careful out there!!!