Producer prices rose 1.8% in June, led by a rise in energy prices, and the core rate rose a greater than expected .05%. June retail sales rose .06%. I do not own any retail stocks, though I have been considering the possibility of doing a nibble on Home Depot over the past week.
1. CIT's Debt: Yesterday the cost to insure 10 million of CIT debt for five years rose to over 4 million plus $500,000 annually, a clear indication that the market has little confidence it CIT's ability to survive. S & P downgraded CIT four notches to CCC+/C and kept its negative outlook. The WSJ was reporting after the close yesterday that CIT and the government were in advanced talks to aid this critical company to small business. However, the company has clearly been mismanaged by its current leadership (see Cramer's take on CIT's management: TheStreet TV) , particularly in it disastrous forays into subprime lending and student lending. It would have had trouble weathering this financial storm in any event, and its reliance on short term borrowings was ill advised. Several of its customers, such as Eddie Bauer and Filene's Basement, have gone bankrupt. Still, it is the leading lender to small business with over 1 million customers, and it would be risky to assume that banks will step into the void left by a CIT bankruptcy.
2. Bill Gross Prediction on Debt as a Percentage of GDP: I read an article that Bill Gross was predicting that the federal debt as a share of GDP will increase to 300% over the next ten years. That number is consistent with what you would expect to see in a banana republic experiencing currency devaluation and rampant inflation. I would agree with the proposition that the secular bull market in bonds, which started at about the same time as the stock bull market in 1982, is getting long in the tooth. I would seriously doubt that it will continue for much longer. I am concerned that the result feared by Gross is almost inevitable. The U.S. lacks the political will to effectively deal with the spiraling out of control growth in the nation's debt with a considerable part of the population more concerned with receiving benefits rather than paying for them. It is a something for nothing culture now. As Dick Cheney said once, Reagan taught us that the deficits do not matter. And that is the underlying dogma of both political parties, notwithstanding their lip service to fiscal responsibility. It is not like the republicans were fiscally responsible during W's reign. They found their "talking points" about fiscal conservativism only after losing power, just give them another eight years and they promise to do better. And, the no member of the GOP in a position of power will ever recognize their responsibility for the biggest financial mess since the Great Depression which threatened the entire world's financial system, or any connection between their core ideology relating to regulations and the events that cratered our economy.
The budget deficit for the current fiscal year, which ends at the end of September, crossed 1 trillion during June. The entire debt of the U.S. was less than 1 trillion when Reagan first assumed office in 1980. United States public debt - Wikipedia, the free encyclopedia
3. Kraft Upgraded to Outperform by BMO Capital Markets: Kraft, a position added in March at $22.26/BOUGHT Kraft & NESTLE/ , was upgraded yesterday to outperform by BMO Capital Markets. That brokerage firm expects Kraft to outperform the S & P 500 over the next year with a 15% return, based on the weakening dollar, lower ingredient prices, new products and stronger sales for key brands.
4. Jefferies Raises Target On Google : Google, an owned position last bought at $395 in May, Bought Google, raised its price target on Google yesterday to $465 from $442, expecting year over year 20 to 25% growth in domestic paid clicks
5. Congressional Research Service Report on Judge Sotomayor's Decisions: I was listening yesterday to the GOP Senators complain about what they view as Judge Sotomayor's judicial activism. Some would say that anything that is not entirely reactionary would be labeled as liberal by the likes of Senator Sessions. The non-partisan Congressional Research Service, a division of the Library of Congress, just issued a report on Judge Sotomayor's decisions, concluding that her opinions "belie easy characterization along any ideological spectrum". You would think that would please Lindsey Graham, Orrin Hatch & Jeff Sessions, assuming they were focused on matters other than appealing to the Taliban wing of their own party.
The Congressional Research Service report characterizes her dominant approaches as adherence to the doctrine stare decisis , and "a careful application of particular facts at issue in a case and a dislike for situations in which the court might be seen as overstepping its judicial role". http://www.fas.org/sgp/crs/misc/R40649.pdf That sounds more like True Conservatism rather than what the GOP wishes to brand as Liberalism. But, it is my view that the reactionary forces in America have hijacked the GOP to such an extent that is not now, nor has it been for years, a conservative party. And calling themselves conservative until they turn blue in the face does not make them so. Ultimately, when stripped of its verbiage to arrive at a core meaning, they define conservatism as allowing Wall Street Masters of Disaster to do as they please, tax cuts primarily for the wealthy (convincingly sold as cuts for the middle class via brilliant PR obfuscation), AK-47s for everybody (a slight exaggeration) , and most importantly, abolition of privacy rights. Any philosophy inconsistent with those core beliefs is labeled liberalism, socialism or some other "ism" that conjurs up a bad impression, for word games and labels are more important than true meaning.
6. JNJ RESULTS-UNIMPRESSED: The first sentence in JNJ's second quarter earnings release started with the disclosure that sales declined 7.4 compared to the 2nd quarter a year ago. JNJ reaffirmed its full year guidance at $4.45 to $4.55. Pharmaceutical sales declined 13.3%. The decline in Cordis sales was worse, falling 23.2% in the U.S. Earnings of $1.15 beat forecasts of $1.11 per share. Net earnings, however, for the second quarter represent a 4.7% decline from a year ago (excluding a 40 million charge in this quarter)
7. Goldman Sachs Earnings Are Impressive: Goldman reported net income of $4.93 per quarter compared to the consensus estimate of $3.54. And, the reported earnings were hurt by a charge of 426 million connected to repaying the TARP money, and a loss of 700 million on commercial mortgage loans. I do not own the common, but I have positions in Trust Certificates contained a GS junior debt issue (PYT, GYB, JBK: Synthetic Floaters) and in an equity preferred floating rate security, GSPRA. Advantages and Disadvantages of Equity Preferred Floating Rate Securities
8. Mort Zuckerman Opinion Piece in the WSJ.com: I agree with Zuckerman's views on the origins of the mortgage crisis ( Zuckerman editorial) and in his opinion piece in todays WSJ that the Democrat's 787 billion "stimulus" contained a great deal of expenditures that were transfer payments to Democrat constituencies rather than expenditures designed to jump start an economy in a deep recession. But, Mort is just being sensible, something that would be a rarity among politicians from either Tribe.
9. Sinclair Broadcasting Threatens Chapter 11: SBGI, a former lottery ticket sold in an IRA after a 100% gainLOTTERY TICKET PURCHASES: LINKS IN ONE POST, threatened to file Chapter 11 unless it receives debt relief from its lenders. It has now fallen back to where I bought it originally. I expressed much concern about its debt levels in my earlier post. This is an example of another company being way too leveraged which increases the possibility of failure during an economic downturn, and downturns are inevitable.
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