Earnings Disaster After Hours

Stocks were quiet today as many on Wall St. waited for the big earnings reports after hours. Unfortunately for the bulls, the reports were flat out ugly.

American Express

Apparently, American Express cardholders decided to "leave home without it" this quarter. Earnings came in at .56/share versus analysts estimates of .83/share. This is a gigantic miss. There guidance going forward was even worse. They refused to give any until the economy turns around! Yikes!

Here is the ugliness on Bloomberg:

"July 21 (Bloomberg) -- American Express Co., the biggest U.S. credit-card company by purchases, said second-quarter profit fell 37 percent on worse-than-expected consumer defaults. The shares dropped 9.6 percent in extended trading.

Profit from continuing operations was $655 million, or 56 cents a share, declining from $1.04 billion, or 86 cents a year earlier, the company said today in a statement. The average estimate of 17 analysts surveyed by Bloomberg was 82 cents. American Express abandoned its prior earnings forecast after saying conditions ``weakened considerably'' and it added $600 million to reserves for U.S. loan losses.

``They're like any other consumer lender right now, caught behind the 8-ball,'' Craig Maurer, analyst at New York-based Calyon Securities who rates the company ``buy,'' said in a Bloomberg Television interview. ``I don't think the environment's going to be helpful to the company over the next nine to 12 months.''

Quick Take:

Whats most concerning about this earnings miss is American Express is the card of the "wealthy". This tells me that even the high end consumer is starting to fall apart.

Stock Futures Tumbled after Hours on the AmEx/Apple News

July 21 (Bloomberg) -- U.S. stock futures tumbled after the close of U.S. exchanges, dragged down by lower-than-estimated earnings at American Express Co. and disappointing forecasts at Apple Inc. Treasury yields and the dollar also dropped.

American Express, the biggest U.S. credit card company by purchases, fell 11 percent from its 4 p.m. close after second- quarter profit trailed analysts' estimates by 32 percent. Apple, maker of the iPod music player, lost 6.5 percent after saying sales and earnings will fall short of projections. SandDisk Corp. tumbled 12 percent after reporting a loss."

My Take:

Amex will take its toll on the bank stocks tomorrow. The financials may be in deep trouble tomorrow as many regional banks report earnings including Wachovia. Regional bank earnings reports are expected to be horrific as bad loans continue to clog up the balance sheet.

I think we need to rename the quarterly earnings reports for financials. Every three months banks should report their quarterly "losses". We can call them earnings reports again in about 10 years when they have earnings again.

The I-Phone:

Just a couple comments here. I think this is an interesting example of the deflation that we are about to start seeing in all assets including tech. Everyone has seen the ongoing massive deflation in home prices.

It looks like Apple is the first tech company that sees deflation as the only way out of this. A great axample of this is the I-phone. The first Apple I-phone had a pricing point of $599 about a year ago. The newer faster 3G I-phone that launched last week was priced at $199.00.

A faster phone at less than half the price.

So how did consumers respond? Apple was expecting to sell about 500,000 phones the first weekend. They ended up selling over 1 million. Note to home sellers: Your bubble house is not going to sell at 2005 prices! If you price the home right, it will sell! Apple new I-phone is proof of this.

Apple is a smart company. They see whats coming. The lowering of earnings guidance is what hurt the stock today. Many blame lower prices on the I-phone and Mac as the main reason why their guidance had to be lowered going forward.

Kudos to Apple for stepping up and selling new technology at affordable prices. This will make Apple a stronger company in the long run. The companies that do not deflate will pay for it with crippled sales. Corporations need to face the reality of selling to a different consumer.

The New USA

Every other company better realize that deflation is here. If they don't, their sales are going to drop like a rock. Peter Schiff said it best this weekend: " Most of us have borrowed our way into Bankruptcy".

We have no disposable income after we pay our bloated mortgage payment in the face of higher inflation. Many are still paying off their credit cards after splurging on that $4000 65" HDTV. Oh and don't forget that Hummer that we financed with all of the "equity" that was borrowed in the form of HELOC loans.

There are already signs of a more simple standard of living as we pay off debts. The Hummer now sits in the driveway with a for sale sign on it because it only gets 9 miles to the gallon. Cruising the streets in the Hummer doesn't sound so fun when its cots you $10 roundtrip just to go the grocery store and back.

Another sign of deflation:

Look at how the summer movies are doing this year. Every weekend it seems there is a new movie that does $100 million during its first weekend. This week the new Batman movie broke the all time opening for a non holiday weekend by raking in $150 million.

Gee you think maybe because this might be because its the only form of family entertainment that doesn't cost you at least $100? The days of taking your family to a baseball game at $250 a pop are over. These million dollar athletes will be taking pay cuts as attendance begins to drop over the next few years.

The signs are everywhere folks. Look around and see how your friends are living. My guess is they are acting a little more frugal.

If you don't think this is going to murder our "consumer obsessed" economy then you need to rethink your position.

70% of our economy is based on the consumer. Sadly, all he can afford to do on a summer weekend right now is watch Batman battle the Joker.