Well I talked about a one day rally last week. Will this be the two day rally?
We will see how the market digests these earnings tomorrow. The Merrill number was shocking. $9.7 billion dollar loss! Analysts were expecting a $5 billion dollar loss for the quarter. Here are Merrill's numbers.
"July 17 (Bloomberg) -- Merrill Lynch & Co., the third- biggest U.S. securities firm, reported a fourth straight quarterly loss that was wider than analysts estimated as the firm compounded its credit-market writedowns.
The second-quarter net loss of $4.65 billion, or $4.97 a share, compared with earnings of $2.14 billion, or $2.24, a year earlier, Merrill said in a statement. Analysts' estimates ranged from a loss of 93 cents to a loss of $4.21 a share, according to a survey by Bloomberg.
Chief Executive Officer John Thain is selling assets and cut about 4,200 jobs in the first half of the year to stem record losses and a 43 percent drop in Merrill's share price during the past 12 months. The New York-based company announced $9.7 billion of writedowns today; analysts at Citigroup Inc., Oppenheimer & Co. and Wachovia Corp. had predicted the company would book charges of at least $5 billion.
Merrill's loss was ``inexplicably larger than what people expected,'' Michael Holland, chairman of Holland & Co., which oversees more than $4 billion, said in a Bloomberg TV interview. Thain, 53, is ``going to have an explanation. How people perceive the explanation, how they perceive his vision of where we're going, is key to how the stock performs.''
Thain also broke off talks with Silverstein Properties Inc. about relocating the investment bank's headquarters to a skyscraper under construction at the World Trade Center site in downtown Manhattan. Discussions between Merrill, Silverstein and the Port Authority of New York and New Jersey, which owns the site, ``ended over economic terms,'' Port spokesman Steve Coleman said today in a statement. "
My Take:
I guess buying that shiny new headquarters in the new World Trade Center doesn't sound like such a good idea when you are balance sheet is bleeding red.
Man, the analysts must be fuming over getting burned like this. The street expects $5 billion in losses and Merrill then responds by puking up $10 billion. All I can say is wow. Merrill's credibility just went out the window.
This is why the Fed won't raise interest rates folks. These banks are walking zombies!
Who knows how many more skeletons are in Merrill's closet.
Now this being said, I still would not trade any financials short at this time. These stocks are way down from their highs. Everyone is now trying to figure out what these pigs are worth given the credit mess they are in. When you combine this uncertainty with the SEC meddling on the short side, it makes the financials untouchable from a trading standpoint.
If you long or short financials here you are gambling not investing. Now I can here the spin already on CNBC. Bubblevision is already calling this the "kitching sink" quarter for Merrill. Yeah right, I have heard that like 50 times. Merrill must own a lot of kitchen sinks!
Google
And now lets move on to our next after hours disaster. Here are the Google numbers:
"July 17 (Bloomberg) -- Google Inc., owner of the most popular Internet search engine, posted a second-quarter profit that trailed analysts' estimates, sending the shares down as much as 12 percent.
Net income rose to $1.25 billion, or $3.92 a share, from $925 million, or $2.93, a year earlier, the company said today in a statement. Excluding costs such as stock-based compensation, profit amounted to $4.63, trailing the $4.73 average of estimates compiled by Bloomberg.
Chief Executive Officer Eric Schmidt said international growth and higher Web traffic helped the company in ``a more challenging economic environment.'' Clicks on advertisements climbed 19 percent, decelerating from growth of 47 percent in the year-earlier period."
My Take:
I am sorry Google! Please don't take my ads away! I am just reporting the news:) USA Today also reported a massive drop in advertising revenue. I believe it was somewhere around a 30% drop. This shouldn't be a surprise as the economy slows.
Microsoft
Microsoft reported soft earnings as well today.
"July 17 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, posted fourth-quarter profit that trailed analyst estimates and gave a disappointing forecast after a sluggish U.S. economy crimped sales, sending the shares down 4.8 percent."
Final Take:
None of this should be a surprise today. On the plus side, IBM did report a strong quarter. It will be interesting to see how the market reacts to the mainly bearish earnings today. Financials will be especially interesting to watch.
Many are calling for a summer bear market rally of 5-10% followed by a retest of the lows in the fall. Remember, October is a common time for crashes. I personally don't see how we make it that long.
The debt bubble still appears to be blowing up even though the market is rallying. Wachovia was raided today by investigators:
"SAN FRANCISCO (MarketWatch) -- A team of state securities regulators showed up at the St. Louis headquarters of Wachovia Securities Thursday seeking documents and interviews about the firm's auction-rate securities operations, The Wall Street Journal reported in its online edition, citing Missouri authorities."
IndyMac is also being investigated by regulators according to AP.
In my eyes the Titanic is on the verge of sinking. The rally today reminded me of the quartet on the Titanic that kept playing music as the ship started to sink.
Could stocks go higher short term? Sure. Is this the bottom? Noooooooooo, not in my opinion. A lot of this rally was based on oil pulling back, and decent earnings from JP Morgan and Wells Fargo.
Note to the pigmen: Receding oil prices are not bullish. Why? Because it means we are witnessing demand destruction from the consumer that has just hit the canvass. Its obvious the consumer is tapped! People will not be buying new plasma TV's if oil drops .20 a gallon.
What the longs need to understand is that the damage to the consumer has been done. They keep thinking housing will stabilize and come back. How? People are in debt up to their eyeballs! This will not change with $100 oil. It won't change with $80 oil!
The consumer will be back after housing drops to affordable levels, and the debts are either payed off or defaulted on.
The only way this happens is via a long severe consumer led recession. Lets hope its not worse. I will consider myself lucky if we only have to suffer through a recession in order to work our way out of this.
So the bulls rallied the last two days on three things:
1. Lower oil. This should be considered bearish as I juust described.
2. JP Morgan's beat. I hardly consider things to be bullish when your earnings dropped 50% versus a year ago. As for
3. Wells Fargo. You know what? Nice quarter Wells! You can't expect every pigmen to be stupid!
Lets be realistic here. These three events should have never resulted in a 500 point rally. This is what happens when the market is full of shorts and severely oversold. Can you say short covering?
Bottom Line:
Stay on the sidelines. The risk of a bounce is high and the news flow is negative. We also have that giant "black cloud" of $5 trillion of Fannie/Freddie debt that needs to be dealt with. The market could swing either way here. There will be better entry points in the future.
If this bear market rally continues, it will create a nice shorting opportunity as the bad news flow keeps hitting the wires.
I will be shorting this rally when it looks tired. That is if if the SEC still allows this type of "wild" behaviour.
No comments:
Post a Comment