Today's Coffee - Death Match!: Tech Vs. Housing
(Stocks in article: Nasdaq: YHOO, Nasdaq: INTC, NYSE: MTG, NYSE: KO, NYSE: MAN, NYSE: JPM, NYSE: ABT, NYSE: HOV)
Let's get ready to rumble!!! In this corner, the champion of market-moving news... Weighing in at a 14-year low annual pace of 1.191 million housing starts; recording a National Association of Home Builders' 23-year record low builders' confidence measure of 18; and continuing to threaten economic recession, the housing industry! And in this corner, the challenger; a blast from the past and champion of years ago; reporting strong and Nasdaq leading quarterly earnings, the technology sector! Now let's keep it clean fellas; no rabbit punches and no errand extraction of data to inspire speculative investment!
The housing market offered two pieces of very negative news this morning, with housing starts and home builder confidence both reaching extreme lows. Ara Hovnanian, founder and chief of home builder Hovnanian (NYSE: HOV), looked like a desperate man on CNBC on Tuesday. In fact, in interview after interview, he keeps harping on how many cycle troughs his company has been through. He talks about it even when not asked how his specific company is doing. I suspect this is a sign that his Board of Directors and institutional shareholders might be asking a lot of questions. In my experience as an analyst, I've found that when managers look desperate they sometimes are. HOV's recent fire sale ahead of quarter end was another obvious sign of the company's walking the ledge, in my view. Does this mean some home builders could go bankrupt, sure, but there are plenty of measures companies can do to avoid or prolong that end. Selling assets is one way, and while land might not fetch the best price now, there are always vulture investors available to buy. The "Potters" of this world are plenty.
Meanwhile, on the sunny side of the road, or perhaps Sunnyvale, California, tech giants Yahoo! (Nasdaq: YHOO) and Intel (Nasdaq: INTC) both reported sweet results last night. Intel's chief was on CNBC speaking of market expectations, which are viewed as rosy, being less positive than what the company is actually seeing in the global marketplace. Intel beat analysts' consensus by a penny, as compiled by Thomson Financial, and the shares are up some 4% today. The market is now pondering if results were excessive and represent customer overstocking, but there's an easy way to figure that out. Just take a look at the book-to-bill ratio, which measures actual orders to sales. Odds are that this figure builds ahead of the holidays every year, so we would want to compare the current reported figure to last year and say the five-year median or average for this time of year. We put a call in to the company's new CFO, Stacey Smith, and are awaiting the return call. We will update the story and let you know about it once we have the data.
Yahoo! (Nasdaq: YHOO) surprised some with its results in Jerry Yang's first opportunity to show he means business. Recall, Jerry returned to the company he co-founded to take over the CEO position. He and investors' hoped he might help give strategic direction to Yahoo! and lead it to make up the valuation ground lost to Google (Nasdaq: GOOG). YHOO is up near 7% today, as the company beat expectations by $0.03 in earning $0.11 a share. Some of the gain had to do with share repurchases in the current period, but the company also beat analysts' revenue forecasts, adding credibility to the results.
In other important economic news, the Consumer Price Index for September was reported today and it was hot. Headline CPI, the part that includes food and energy, jumped 0.3%, ahead of the 0.2% view seen by Bloomberg's consensus of economists. Core CPI, excluding the two volatile yet important components, climbed 0.2%, in line with views. For the year through September, Core CPI rose 2.1%, slightly outside of the Fed's comfort range of 1-2%. While others disagree, we view this figure instrumental in keeping the Fed restrained from action on Halloween. While we think there is a 25% chance of a Fed cut of 25 basis points, we expect the Fed will not act this time around. Credit markets are functioning more fluidly now, and there is clearly growing concern at the Fed about the falling dollar and the related risk of decreasing foreign investment in U.S. assets.
Tuesday's Treasury International Capital Report showed an August net outflow of $69.3 billion of capital out of long-term U.S. securities. This provides further support for the case against Fed follow up to its rate cut of September. This figure was so significant that it dwarfed the previous record outflow of $21.2 billion in March of 1990. While the outflow of capital was not caused by the Fed action in September, more like the credit crisis that spurred it, a case can be made that foreign reserve investment and other investment in the U.S. could find other home if the dollar is anticipated to continue weakening. Fed rate cuts would probably only lend to dollar weakening, and if credit markets have been thawed and the job market is still alive, the Fed may wait awhile before taking further action, if it acts at all. Much depends on the American consumer, and how he handles the many pressures upon him. We continue to anticipate recession.
If you would like to advertise in the space below our articles, we are now offering tailored plans, including assistance in ad design. Contact us at WallStreetGreek @gmail.com to find out more. (disclosure)
Let's get ready to rumble!!! In this corner, the champion of market-moving news... Weighing in at a 14-year low annual pace of 1.191 million housing starts; recording a National Association of Home Builders' 23-year record low builders' confidence measure of 18; and continuing to threaten economic recession, the housing industry! And in this corner, the challenger; a blast from the past and champion of years ago; reporting strong and Nasdaq leading quarterly earnings, the technology sector! Now let's keep it clean fellas; no rabbit punches and no errand extraction of data to inspire speculative investment!
The housing market offered two pieces of very negative news this morning, with housing starts and home builder confidence both reaching extreme lows. Ara Hovnanian, founder and chief of home builder Hovnanian (NYSE: HOV), looked like a desperate man on CNBC on Tuesday. In fact, in interview after interview, he keeps harping on how many cycle troughs his company has been through. He talks about it even when not asked how his specific company is doing. I suspect this is a sign that his Board of Directors and institutional shareholders might be asking a lot of questions. In my experience as an analyst, I've found that when managers look desperate they sometimes are. HOV's recent fire sale ahead of quarter end was another obvious sign of the company's walking the ledge, in my view. Does this mean some home builders could go bankrupt, sure, but there are plenty of measures companies can do to avoid or prolong that end. Selling assets is one way, and while land might not fetch the best price now, there are always vulture investors available to buy. The "Potters" of this world are plenty.
Meanwhile, on the sunny side of the road, or perhaps Sunnyvale, California, tech giants Yahoo! (Nasdaq: YHOO) and Intel (Nasdaq: INTC) both reported sweet results last night. Intel's chief was on CNBC speaking of market expectations, which are viewed as rosy, being less positive than what the company is actually seeing in the global marketplace. Intel beat analysts' consensus by a penny, as compiled by Thomson Financial, and the shares are up some 4% today. The market is now pondering if results were excessive and represent customer overstocking, but there's an easy way to figure that out. Just take a look at the book-to-bill ratio, which measures actual orders to sales. Odds are that this figure builds ahead of the holidays every year, so we would want to compare the current reported figure to last year and say the five-year median or average for this time of year. We put a call in to the company's new CFO, Stacey Smith, and are awaiting the return call. We will update the story and let you know about it once we have the data.
Yahoo! (Nasdaq: YHOO) surprised some with its results in Jerry Yang's first opportunity to show he means business. Recall, Jerry returned to the company he co-founded to take over the CEO position. He and investors' hoped he might help give strategic direction to Yahoo! and lead it to make up the valuation ground lost to Google (Nasdaq: GOOG). YHOO is up near 7% today, as the company beat expectations by $0.03 in earning $0.11 a share. Some of the gain had to do with share repurchases in the current period, but the company also beat analysts' revenue forecasts, adding credibility to the results.
In other important economic news, the Consumer Price Index for September was reported today and it was hot. Headline CPI, the part that includes food and energy, jumped 0.3%, ahead of the 0.2% view seen by Bloomberg's consensus of economists. Core CPI, excluding the two volatile yet important components, climbed 0.2%, in line with views. For the year through September, Core CPI rose 2.1%, slightly outside of the Fed's comfort range of 1-2%. While others disagree, we view this figure instrumental in keeping the Fed restrained from action on Halloween. While we think there is a 25% chance of a Fed cut of 25 basis points, we expect the Fed will not act this time around. Credit markets are functioning more fluidly now, and there is clearly growing concern at the Fed about the falling dollar and the related risk of decreasing foreign investment in U.S. assets.
Tuesday's Treasury International Capital Report showed an August net outflow of $69.3 billion of capital out of long-term U.S. securities. This provides further support for the case against Fed follow up to its rate cut of September. This figure was so significant that it dwarfed the previous record outflow of $21.2 billion in March of 1990. While the outflow of capital was not caused by the Fed action in September, more like the credit crisis that spurred it, a case can be made that foreign reserve investment and other investment in the U.S. could find other home if the dollar is anticipated to continue weakening. Fed rate cuts would probably only lend to dollar weakening, and if credit markets have been thawed and the job market is still alive, the Fed may wait awhile before taking further action, if it acts at all. Much depends on the American consumer, and how he handles the many pressures upon him. We continue to anticipate recession.
If you would like to advertise in the space below our articles, we are now offering tailored plans, including assistance in ad design. Contact us at WallStreetGreek @gmail.com to find out more. (disclosure)
posted by The Greek | 2:27 PM
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