That is a crushing beat of the 51 cents expected by analysts, who have been playing expectations catch-up for over a month, trying to get a handle on this quarter's earnings. JPM's earnings are more exciting than GS's earnings as JPM were supposed to be "dragged down" by Chase Banking. With $2Tn under management, the company put up $3.6Bn in quarterly profit, almost 10 times what they made last quarter (.09). "These results included the negative impact of the tightening of the firm's credit spread, offset by the positive impact of counterparty spread tightening and gains on legacy leveraged lending and mortgage-related positions," the firm said.
Of course we could nitpick and point out that last year they had competition from LEH and BSC and last year they didn't have $25Bn in bailout money to play with and they didn't have a Fed Discount window feeding them countless other Billions every month at 0.25% interest but we won't, because we are trying to get more bullish! Not wanting the Government to get the idea that they don't need any more free money, CEO Dimon said: "While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue." Frankly, I think the company sandbagged the earnings as they put $4.967Bn aside as a provision for credit card losses against $5.159Bn in total sales so either their clients are MAJOR dead-beats, or there will be some more profits recognized down the road (assuming all this recovery stuff is real).
INTC also beat earnings expectations last night but they are underperforming last year by a wide margin so not in any way as exciting as JPM's results. Our strategy for INTC yesterday was to short sell the Nov $20 puts and calls for a total of $1.95 so our upside break/even on INTC is $21.95 but even last night, on the announcement, I still said to members I thought they were a short at $22 but we're not going to fight the market, not now that we're over our breakout levels.
The levels we've been watching (Dow 9,829, S&P 1,071, Nas 2,146, NYSE 7,047 and Russell 620), should be crushed this morning and, hopefully, will hold up through the end of day. If this is a real rally then we should have no trouble and the last thing the bulls want to see is volume selling at this level, which we are still slightly concerned about. Our picks yesterday reflected those concerns as we went for a mix of bullish and bearish directional plays with ERY, AIB, FXP, C and EWZ – three longs and two shorts, so we are shifting! We also took a DIA spread ahead of the Fed, picking up the DIA $100 calls for .25 and the $97 puts for .25 and, with any luck, we can cash out the calls on the morning run for a nice profit and ride the puts back down into the Fed minutes at 2pm.
MBA Mortgage Application fell 1.8% from a week ago as mortgage rates skipped back above 5%. The drop follows a 16.4% gain last week. 30-year fixed mortgages averaged 5.02%, up from 4.89% the previous week so we know what the magic number is to get buyers off the sidelines. I have long maintained that the best way to turn housing around is through long-term rate reduction as that will both help people keep their homes and help people buy new ones and it's not even inflationary to the broader economy. I'm generally against bubbles but a little re-inflation of the housing bubble would make a huge difference to 100M American families who have 1/3 of their wealth tied up in their homes.
Overall Retail sales for September were down 1.5%, but that was to be expected as Cash for Clunkers came to a close. Also expected by us is that the Aug 2.7% gain was BS and that number has now been revised down to 2.2%, which is funny because without Cash For Clunkers in August, the outlook for consumer spending would have probably toppled the markets so it's "fortunate" that the Ex-Auto number was misstated by over 100%. So this month, compared to the covered-up drop in August, Ex-Auto sales are up 0.5%, beating the 0.3% expected by economists off the numbers they thought were 0.5% higher last month so really we're overall down about 0.3% from the fake number last month but by first revising it downwards and then using the lower revised number for a comparison the government can report gains in two consecutive months that actually had losses in each month – isn't math great! As George Orwell wrote in 1984:
Day by day and almost minute by minute the past was brought up to date. In this way every prediction made by the Party could be shown by documentary evidence to have been correct; nor was any item of news, or any expression of opinion, which conflicted with the needs of the moment, ever allowed to remain on record… The fabulous statistics continued to pour out of the telescreen. As compared with last year there was more food, more clothes, more houses, more furniture….
A new survey says the long, severe recession is over. The National Association for Business Economics poll of 44 economists showed more than 80% of them think recovery has begun, with real gross domestic product expected to rise at a 2.9% pace in the second half of 2009 and at a 3% rate next year. However, deleveraging by consumers and joblessness threaten to slow the healing. Consumer spending makes up 70% of GDP, which is the broad measure of U.S. economic activity. Incomes are flat, unemployment keeps rising, and many households are in hock. U.S. consumer credit has fallen seven months in a row, according to a Federal Reserve report last week that indicated people are still paying down debt even as the economy recovers. Their delevaraging began last fall, when the financial markets ran amok. The supply of credit is tight, too.
Import prices climbed just 0.1% in September vs. 0.3% expected by those 44 economists who think the recovery has begun. That is a dramatic fall from the 1.6% boost in August, which has also been revised down 20% now that no one is paying attention so we climbed 0.1% off a 0.4% drop which means this month's number is actually down 0.3% from the net 2.1% our economic brain trust had been expecting but, like I said, math is fun so we'll go with the good numbers. Year over year, prices are down what would be a shocking 12% but only shocking to those who understand what deflation is so don't worry about the media catching on and spoiling the party. Of course we can thank our government for being such good spenders:
So the people are spending 15% less than last year but the government is making up for it by spending 30% more. How long do we expect this to last? The best part is – when the government spends money we, the people, don't even end up with any assets. Rather than making loans available to the People to go out and buy houses and cars to stimulate the economy, the government is bailing out the banks for the loans the poor people can't pay, making the banks whole and leaving the people poor.
Anyway, I'm sorry, I'm supposed to be all positive so let's go out and BUYBUYBUY! As long as we hold our breakout levels we will shift to a bullish stance and that means dropping our short plays that haven't lost too much and pressing up our remaining put plays to build the 40% bearish side of a 60/40 bullish virtual portfolio. I may not adjust our $100KP until tomorrow as we're mostly rolling positions over to November and we will treat the morning run as a spike until it proves otherwise with confirming volume and more than an hour of staying power.
Don't forget the Fed Minutes at 2pm, it's going to be a crazy day!
