Today's Coffee - Caterpillar's Metamorphosis (NYSE: CAT)
(Stocks in this article: NYSE: CAT, NYSE: HON, NYSE: DE, Nasdaq: GOOG, NYSE: SLB, NYSE: WB, NYSE: MCD, NYSE: MMM, NYSE: AMD)
On the 20-year anniversary of the great crash of 1987, the market is appropriately marking the day with significant declines in the three most widely followed indices. Today's decline is really being driven by bad news from Caterpillar, and a warning that its U.S. weakness is significant enough to impact results. CAT also warned that U.S. weakness might not be containable, and talking heads speculated finally about the impact to exporting Asian nations. Do you see the dominoes falling into place?
The scenario we laid out months ago, where U.S. weakness would lead to global market correction is getting setup for future play. We still expect the catalyst to be a geopolitical surprise, perhaps an event regarding Iran. We still put in play the idea that Iran could precede an American bombing with an act of war of its own. It would not be the first time the element of surprise played a key role in war. However, the catalyst could be anything that threatens the global economy or the great consumer, America.
International Markets
Asia:
Hang Seng Index +0.57%; Shanghai/Shenzhen CSI 300 -0.03%; NIKKEI 225 -1.71%; S&P/ASX 200 -0.91%; Taiwan TAIEX -0.26%; BSE SENSEX 30 -2.44%; KRX 100 -1.78%; Ho Chi Minh +0.77%
U.K., Europe & Middle East:
DJ STOXX 50 Index -0.21%; FTSE 100 -1.23%; CAC 40 -0.46%; DAX -0.47%; Russian RTS Index +0.28%; ASE General +0.46%; ISE National 100 (Turkey) -1.39%; Tel Aviv 25 -0.39%; Tadawul All Share +1.3%; DFM General +2.27%
In Asian trading today, the Hang Seng continued to appreciate while most other Asian markets gave up ground (see yesterday's discussion). The theme driving Asian stocks is the danger posed by American economic softness. No matter what you hear about the strength of the global economy, the most important consumption market in the world still matters, especially to export-centric Asia. This is why the international markets Wall Street Greek favors include developed Japan, Russia and the valuation favorable U.K.
The United Kingdom reported third quarter GDP today, noting a forecast beating 3.3% annual growth rate. Regional retail sales were reported strong yesterday, but American disease is expected to spread across the pond. Also, the Bank of England has been in tightening mode, and the effects of its rate hikes are anticipated to begin showing results soon.
Our mention of Russia must have caught your eye. Our reasoning is logical. Despite Russia's positioning on the opposite end of every table at which the U.S. sits, we view Putin's kingdom in advantageous position to benefit from the coming conflict of the U.S. with Iran. Over the past few years, Russia has been aggressively developing its energy resources and distribution capabilities, insuring its importance to energy hungry Europe and Asia. In a future article, I will discuss specific Russian investment ideas for the coming twelve months.
Economic Data & Analysis
Today, Fed Chairman Bernanke addressed a group on the topic of "Monetary Policy Under Uncertainty." As I combed through the reports of his speech, two conflicting bits of information caught my analytical eye. Bernanke once again pledged to act as needed, but he was also quoted as saying that it was important to "avoid overreacting to current economic information." Thus, from today's discussion, you could both make argument for a 25 bps cut on Halloween and inaction. We continue to view the likelihood of inaction at 75%.
Stock Specific News
The most interesting bit of news today, in my opinion, came from Caterpillar (NYSE: CAT) and Honeywell (NYSE: HON), two major beneficiaries of global economic growth over the past year. Honeywell reported earnings that were a penny short of analysts' consensus, while boosting its guidance for the full year to the high-end of its range. Analysts view was right in the middle of that high-end range already. While the shares were down about 3% today, they have still provided shareholders with a 32% total return this year. Still, they look pricey to us here.
The more important news came from Caterpillar, which provided broad reaching implications to the market. Remember when the Wall Street Greek said eventually large multinationals will feel the impact of the American recession, because I said, "it is the American consumer that butters the bread of American companies." Today, Caterpillar missed expectations by $0.03, and fell short on revenue expectations as well, attributing its result to "severe weakness in key U.S. markets." CAT also guided down forecasts for the full year, and this brought the shares of its peers Deere (NYSE: DE) and other multinationals to a crashing end as well. It looks like the trend of large cap multis' rise is over. This is where our value-add is. We don't just report the news and ride it like a roller coaster, but we foresee the future and prepare you for its shocks. We will address commodity markets more in future articles.
Market-Moving News
International Markets
Asia:
Hang Seng Index +0.57%; Shanghai/Shenzhen CSI 300 -0.03%; NIKKEI 225 -1.71%; S&P/ASX 200 -0.91%; Taiwan TAIEX -0.26%; BSE SENSEX 30 -2.44%; KRX 100 -1.78%; Ho Chi Minh +0.77%
U.K., Europe & Middle East:
DJ STOXX 50 Index -0.21%; FTSE 100 -1.23%; CAC 40 -0.46%; DAX -0.47%; Russian RTS Index +0.28%; ASE General +0.46%; ISE National 100 (Turkey) -1.39%; Tel Aviv 25 -0.39%; Tadawul All Share +1.3%; DFM General +2.27%
In Asian trading today, the Hang Seng continued to appreciate while most other Asian markets gave up ground (see yesterday's discussion). The theme driving Asian stocks is the danger posed by American economic softness. No matter what you hear about the strength of the global economy, the most important consumption market in the world still matters, especially to export-centric Asia. This is why the international markets Wall Street Greek favors include developed Japan, Russia and the valuation favorable U.K.
The United Kingdom reported third quarter GDP today, noting a forecast beating 3.3% annual growth rate. Regional retail sales were reported strong yesterday, but American disease is expected to spread across the pond. Also, the Bank of England has been in tightening mode, and the effects of its rate hikes are anticipated to begin showing results soon.
Our mention of Russia must have caught your eye. Our reasoning is logical. Despite Russia's positioning on the opposite end of every table at which the U.S. sits, we view Putin's kingdom in advantageous position to benefit from the coming conflict of the U.S. with Iran. Over the past few years, Russia has been aggressively developing its energy resources and distribution capabilities, insuring its importance to energy hungry Europe and Asia. In a future article, I will discuss specific Russian investment ideas for the coming twelve months.
Economic Data & Analysis
Today, Fed Chairman Bernanke addressed a group on the topic of "Monetary Policy Under Uncertainty." As I combed through the reports of his speech, two conflicting bits of information caught my analytical eye. Bernanke once again pledged to act as needed, but he was also quoted as saying that it was important to "avoid overreacting to current economic information." Thus, from today's discussion, you could both make argument for a 25 bps cut on Halloween and inaction. We continue to view the likelihood of inaction at 75%.
Stock Specific News
The most interesting bit of news today, in my opinion, came from Caterpillar (NYSE: CAT) and Honeywell (NYSE: HON), two major beneficiaries of global economic growth over the past year. Honeywell reported earnings that were a penny short of analysts' consensus, while boosting its guidance for the full year to the high-end of its range. Analysts view was right in the middle of that high-end range already. While the shares were down about 3% today, they have still provided shareholders with a 32% total return this year. Still, they look pricey to us here.
The more important news came from Caterpillar, which provided broad reaching implications to the market. Remember when the Wall Street Greek said eventually large multinationals will feel the impact of the American recession, because I said, "it is the American consumer that butters the bread of American companies." Today, Caterpillar missed expectations by $0.03, and fell short on revenue expectations as well, attributing its result to "severe weakness in key U.S. markets." CAT also guided down forecasts for the full year, and this brought the shares of its peers Deere (NYSE: DE) and other multinationals to a crashing end as well. It looks like the trend of large cap multis' rise is over. This is where our value-add is. We don't just report the news and ride it like a roller coaster, but we foresee the future and prepare you for its shocks. We will address commodity markets more in future articles.
Market-Moving News
- CNBC: Oil Breaks $90
- MarketWatch: Google (Nasdaq: GOOG) Profit Up 46%
- AP/Yahoo!: Bernanke Explains Decision Making
- CNN Money: Mortgage Delinquency Risk Rising
- CNN Money: Asian Markets Mostly Tumble
- CNN Money: Hong Kong Market Defiantly Rises
- Financial Times: European Stocks Tick Down
- Bloomberg: U.K. Economic Growth Ahead of Forecast
- Financial Times: Investors Bet on More Fed Cuts, Bond Yields Dip
- Bloomberg: Swaps and SIV Risk
- DailyFX: G7 Yen Volatility Play
- Yahoo! Earnings Calendar
- AP/Yahoo!: Caterpillar (NYSE: CAT) Earnings Rise 21%, Warns on Economy
- AP/Yahoo!: Honeywell (NYSE: HON) Beats and Boosts
- CNN Money: Wachovia (NYSE: WB) Hurt By Credit Market
- AP/Yahoo!: Schlumberger (NYSE: SLB) Profits Soar 35%
- TheStreet.com: McDonald's (NYSE: MCD) Meets Raised Views
- TheStreet.com: Cramer's Option Plays
- AP/Yahoo!: 3M (NYSE: MMM) Raises Outlook
- AP/Yahoo!: AMD (NYSE: AMD) Suffers in its Loss
- Economist: Welcome Back Bhutto, Bang!
- BBC: Kurds Plan to Defend Their People
- Iran Daily: Tales from the Dark Side
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posted by The Greek | 2:31 PM
2 Comments:
I'm not sure I agree about the Amerian Consumer being so important to the Asian/European markets. We stop consuming/spending, they will just start buying what they produce themselves instead of exporting everything. Remember, they have just been saving these last 10 years while we have continued spending like wreckless cowboys, thanks to the encouragement of our own government. Why manufacture/produce anything when you can just buy it? Services! What nonsense. You can't export that. We are in big trouble. Asia and China will be fine without us. We need new leadership here in America.
first of all i am 100% agreeing with Uncle's comment.The american consumer is not a mojor role player in asian/european markets, i think the eauropeans have more effect on the asian markets than the americans. Asia's market will be just fine without the americans.
cheers,
Lian ti
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