There is nothing a fundamental trader likes better than earnings!
This is the time when we get proven right or wrong, a time when technical analysts get blown out of the water by those "unpredictable" Q1 earnings reports that we at PSW have been predicting would be stronger than expected all year. It's a little early in the game to say I told you so but I did tell you so and now INTC is telling you so by raising guidance.
Intel's report of stong chip demand comes along with LPL's report of booming (yes, booming) LCD demand as the world's second-largest panel maker posted record profits and raised gidance. "LCD demand is exploding ahead of the Beijing Olympics and is likely to remain solid this year," said Chang In-whan, chief executive and fund manager at KTB Asset Management. LG Display is expected to more than double its net profit in 2008 to 2.7 trillion won, according to Reuters Estimates.
In another end of the PC market, STX had a 62% increase in net profit but (having not heard from Intel yet) issued weak guidance. I said in comments I thought they were wrong about their own business and now we'll have to wait until next Q to see if INTC or STX are better at predicting the market. On the transport end, CSX posted a 46% jump in income, blowing the doors off estimates with record revenues despite the slowdown in housing and autos, which drove the bulk of their volume for the first half of this decade.
WM was bad but not a disaster and even BSC posted a profit of .86 per share, making $115M on $3.4Bn in sales in Q1 – hardly worth a run on the bank that shaved 95% off the company's value, now "all the way back" to $10 and holding. At Q1's pace, BSC has a p/e of 2 and was almost sold to JPM for $200M, a p/e of 0.25 who were poised to get the company, BSC's $1Bn headquarters and a $30Bn bonus from the Fed for being such swell guys. As I said at the time – Hey, I'll take that deal!
JPM did take that deal and they are having a regular party over there, posting a $2.4Bn quarterly profit despite taking a $2.6Bn tax deduction markdown on assets that will cost our government $1Bn in uncollected taxes on top of the $30Bn they just gave the company.
I posted my solution to the housing crisis earlier this morning and my solution to the oil crisis back on January 21st. Aside from the fact that earnings outside of the financials are generally coming in better than expected, my other reason to be bullish is that if I can see an easy way out of this crisis, then someone in charge must see it too. As I've been saying for quite some time, we don't have an economic crisis in this country, we have a leadership crisis that is panicking investors, who have given the US a massive "no confidence" vote for the past few months.
While $114 oil continues to cast a pall on the markets, our investing premise for the month was to take a bullish posture on the markets along with some bearish plays on energy as we either have a booming global economy that can support $100 oil or oil was going to take a massive dive. So the bulk of our virtual portfolio should perform well and we need to move our oil puts out further in time and sell front-month puts as I still see oil heading lower, just not right now.
Oil prices sent consumer prices soaring up 0.34% in March while home construction fell 12% to the lowest level in 17 years, back when Bush's Dad was in charge of screwing up the country. Energy prices, which are, of course, not part of the "core" CPI but do make up the core expense of many middle class families, are up 17% from last year. Not to worry though, we are exporting our inflation (or the deflation of our currency) to the rest of the world and the EU and China are getting hammered as well, keeping our economy from sucking more than theirs by a small fraction of an inflated percent.
Consumer prices in the EU rose 3.6% in March, far beyond the ECB's target rate of 2% which will make it very difficult for the ECB to support the dollar by lowering their own rates. Unlike our Fed, the ECB has a mandate to make sure that the currency saved by their citizens during their lifetime of labor maintains some value… In China things are REALLY getting out of control with a CPI rise of 8.6%, double Beijing's target of 4.8% and the PBOC will raise reserve requirements yet again to attempt to tighten up the money supply in an economy that is posting a 10.6% gain in Q1.
This drove the Shanghai Composite down an additional 2.5% this morning, close to fully retracing an entire year's worth of gains. That kept the Hang Seng flat for the day while the Nikkei posted a 1% gain, climbing back over 13,000 on Intel's good news. Europe is humming along ahead of our open with 1% gains and the OECD has issued a report warning that the fallout from the subprime crisis could take a heavy toll on the U.S. economy if further action isn't taken. Well duh!
Our futures are looking very bright indeed and let's hope we don't revisit the Wednesday curse (the highest point of the week) as we have many earnings heavyweights yet to report, including our beloved Google, who are being held down this morning by a WSJ report that ad clicks were weak in March, recylcling the same story for the third consecutive month as GOOG's policy change works it's way through the system so let's be thrilled with the opportunity to pick up the $460s again for $9 this morning, this time I feel good enough to make it an official 10 in the DTP!
It's going to be an exciting day, don't lose your heads, we're still nervous enough to be taken down by a high-profile miss but let's enjoy the ride…
