31 Temmuz 2011 Pazar
29 Temmuz 2011 Cuma
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT DEAL LATEST
- CNBC’s John Harwood reports from Washington.
WASHINGTON DEBT DEAL … VIEW FROM THE SENATE
-Sen. Mark Udall (D) Colorado
-Sen Bob Corker (R) Tennessee
VIEW FROM THE HOUSE
-Rep. Ron Paul (R) Texas
THE MARKET AND ECONOMY
U.S. DOWNGRADE? GDP DOWNGRADE?
-Don Luskin, Trend Macro
-Brian Wesbury, First Trust Advisors
-Carly Fiorina, Former HP CEO
DEBT SHOWDOWN IN WASHINGTON
-Rep. Carolyn Maloney (D-New York)
-Rep. Kevin Brady (R-Texas)
REACTION FROM SENATE
-Sen. Jon Kyl (R) Arizona
MAD RUN TO CASH?
-Jim Lacamp, Macro Portfolio Advisors
FREE MARKET FRIDAY
-Jimmy Pethokoukis, Reuters BreakingViews
-Mark Simone, WABC Radio
-Keith Boykin, Daily Voice/Democratic Strategist
The Circus In Washington Continues
Yesterday's vote on Rep. Boehner's plan failed to garner enough support to go to a vote. One more black eye on the political process in Washington. Again, while most people will only look to those headlines and equate them to what is going on in the market, there is more to the story.
Preliminary readings on Q2 GDP came in below expectations at 1.3%. This is another datapoint highlighting the global economic slowdown we have seen recently. The Chicago PMI came in slightly above expectations at 58.8 (vs. 58.0 consensus).
There was another round of solid earnings reports, including the likes of SBUX, MET, CHK, and DECK to name a few. Most earnings reports have not garnered much attention as the debt ceiling talks have dominated the headlines.
The dollar is lower, and commodities are mixed. Oil prices are down near $96, while gold prices are higher to $1625.
Asian markets were lower overnight, and Europe was down this morning. Moody's has put Spain on review for a downgrade, and yields in Italy have been rising. The credit default swaps on most of the PIIGS nations have been breaking to new highs this week. Very few people are talking about this.
The 10-year yield is dropping sharply this morning, down to 2.85%; and the VIX has spiked to a 4-month high near 26 before settling back around 23.80 currently.
Trading comment: The markets opened sharply lower this morning, on disappointment over no debt deal and a lower than expected GDP reading. But within the first hour of trading, the selling seemed to dry up, and the markets began to rebound. Rumors on the trading floor was that traders wanted to get long ahead of the weekend in case a deal got done before the open on Monday. The markets rallied all the way back to positive territory as I am finishing this post. The SPX briefly touched its 200-day average at 1285, but has since recaptured 1300.
As for the fears about the debt ceiling, the chart below shows the persistent downtrend recently in the 10-year Treasury note. This is the exact opposite of the action witnessed in Italy, Spain, etc., where yields are rising. So the bond market isn't too worried about the debt ceiling.
long CHK
Preliminary readings on Q2 GDP came in below expectations at 1.3%. This is another datapoint highlighting the global economic slowdown we have seen recently. The Chicago PMI came in slightly above expectations at 58.8 (vs. 58.0 consensus).
There was another round of solid earnings reports, including the likes of SBUX, MET, CHK, and DECK to name a few. Most earnings reports have not garnered much attention as the debt ceiling talks have dominated the headlines.
The dollar is lower, and commodities are mixed. Oil prices are down near $96, while gold prices are higher to $1625.
Asian markets were lower overnight, and Europe was down this morning. Moody's has put Spain on review for a downgrade, and yields in Italy have been rising. The credit default swaps on most of the PIIGS nations have been breaking to new highs this week. Very few people are talking about this.
The 10-year yield is dropping sharply this morning, down to 2.85%; and the VIX has spiked to a 4-month high near 26 before settling back around 23.80 currently.
Trading comment: The markets opened sharply lower this morning, on disappointment over no debt deal and a lower than expected GDP reading. But within the first hour of trading, the selling seemed to dry up, and the markets began to rebound. Rumors on the trading floor was that traders wanted to get long ahead of the weekend in case a deal got done before the open on Monday. The markets rallied all the way back to positive territory as I am finishing this post. The SPX briefly touched its 200-day average at 1285, but has since recaptured 1300.
As for the fears about the debt ceiling, the chart below shows the persistent downtrend recently in the 10-year Treasury note. This is the exact opposite of the action witnessed in Italy, Spain, etc., where yields are rising. So the bond market isn't too worried about the debt ceiling.
long CHK
28 Temmuz 2011 Perşembe
DEVILS ADVOCATE
The persistent and mindless bullishness on gold lately has got me nervous. When I get nervous the first thing I do is pull up a multi-year chart and look at the big picture.
A couple of things are apparent when one looks at the chart below. First as I've noted many times in the past gold has a tendency to move above a big round number before topping. It did it at $1025, $1225, $1432, and gold recently tagged $1630.
Another glaring discrepancy in that chart is the utter failure of the miners to participate in the last 200 point rally in gold. As a matter of fact the miners could possibly be forming a head and shoulders top.
We can also add to this the fact that sentiment has reached levels that in the past have triggered intermediate declines. Plus gold is now stretched above the 200 day moving average.
Now I don't want anybody to think that I have all of a sudden become bearish on gold, I haven't. Gold is quite obviously in a secular bull market. I am however beginning to question whether or not the low we saw three weeks ago was an intermediate bottom. I have been riding this bull market long enough to know that when everyone is rabidly bullish (especially me) it's about time for gold to throw a curveball.
Until the dollar breaks below the May bottom I think we need to be very careful in assuming that gold is going straight up.
A couple of things are apparent when one looks at the chart below. First as I've noted many times in the past gold has a tendency to move above a big round number before topping. It did it at $1025, $1225, $1432, and gold recently tagged $1630.
Another glaring discrepancy in that chart is the utter failure of the miners to participate in the last 200 point rally in gold. As a matter of fact the miners could possibly be forming a head and shoulders top.
We can also add to this the fact that sentiment has reached levels that in the past have triggered intermediate declines. Plus gold is now stretched above the 200 day moving average.
Now I don't want anybody to think that I have all of a sudden become bearish on gold, I haven't. Gold is quite obviously in a secular bull market. I am however beginning to question whether or not the low we saw three weeks ago was an intermediate bottom. I have been riding this bull market long enough to know that when everyone is rabidly bullish (especially me) it's about time for gold to throw a curveball.
Until the dollar breaks below the May bottom I think we need to be very careful in assuming that gold is going straight up.
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT CEILING LATEST: THE HOUSE
- CNBC’s Eamon Javers reports from Washington.
DEBT DEAL DRAMA FROM THE HOUSE SIDE
- Rep. Chris Van Hollen, (D) Maryland, Fmr. DCCC Chair
- Rep. Jeb Hensarling, (R) TX; House Republican Conference Chmn
CAN HOUSE & SENATE BRIDGE THEIR DIFFERENCES? IMPACT ON BUSINESS
- Jared Bernstein, Center on Budget and Policy Priorities Sr. Fellow; CNBC Contributor; Fmr. Sr. Economist for VP Biden
- George Pataki, Fmr. NY Governor
- Steve Forbes,Forbes Media Chairman & Editor-in-Chief
- Julian Epstein, LMG CEO; Fmr. Democratic Chief Counsel
DEBT CEILING LATEST: THE SENATE
- CNBC’s John Harwood reports from Washington.
COMMON GROUND RECONCILIATION? WHAT'S SENATE GOING TO DO?
WILL SENATE TAKE UP HOUSE/BOEHNER BILL?
- Sen. Mike Crapo, (R) Idaho
THE MARKETS
- Michael Cuggino, Permanent Portfolio Funds; President & Portfolio Manager
THE WHITE HOUSE VS. BOEING
- Andy Stern, Service Employees International Union
- Peter Schaumber, Fmr. NLRB Chairman
Debt Ceiling Headfake
Most people are looking at the stalled talks about the debt ceiling as the culprit for the market selloff. But I think the debt talks are just a sideshow. If the markets were really worried about the potential for default and ratings downgrade, we would see that worry manifest in the bond market. Yields on the 10-year Treasury are still very low at 2.95%. So where's the worry?
All you have to do is look at Italy to see what real concern looks like. Italy held a bond auction yesterday for 10-year notes that saw the yield surge to 5.77% (from 4.94% previously). And bond yields have risen in many of the PIIGS countries in response to debt concerns.
A more likely scenario for the selloff in stocks is the global slowdown we are seeing. Emerson (EMR) talked about it yesterday and said how its affecting their sales. Other large industrials have said the same thing. The financials are also weak due to uncertainty about increased regulations here and possible capital raising requirements, and banks abroad are weak due to debt issues in Europe. All of these are more likely causes to the recent weakness in the stock market.
In earnings, one of our recent buys Borg Warner (BWA) is up 11% on a strong earnings report and raised guidance. This company continues to execute very well, in addition to be positioned for growth. On the flip side, the reaction in Stericycle (SRCL) looks overdone to me, as the company topped revenue estimates and only missed EPS by a penny. This is still a good growth story.
Asian markets were mostly lower overnight; commodities are mixed, with oil prices higher near $98 and gold lower to $1607; and the VIX is down -4% back near the 22 level after a sharp spike higher yesterday.
Trading comment: I still favor employing the strategy of picking at stocks that have pulled back to take advantage of the recent dip. I think that when the dust settles we will look back at this correction as another good buying opportunity. I also like to watch investor sentiment, which hasn't flashed the same signs of bearish extremes that we have seen at other trading bottoms, but we are starting to see some in terms of a spiking VIX and rising put/call ratios.
long BWA, EMR, SRCL
All you have to do is look at Italy to see what real concern looks like. Italy held a bond auction yesterday for 10-year notes that saw the yield surge to 5.77% (from 4.94% previously). And bond yields have risen in many of the PIIGS countries in response to debt concerns.
A more likely scenario for the selloff in stocks is the global slowdown we are seeing. Emerson (EMR) talked about it yesterday and said how its affecting their sales. Other large industrials have said the same thing. The financials are also weak due to uncertainty about increased regulations here and possible capital raising requirements, and banks abroad are weak due to debt issues in Europe. All of these are more likely causes to the recent weakness in the stock market.
In earnings, one of our recent buys Borg Warner (BWA) is up 11% on a strong earnings report and raised guidance. This company continues to execute very well, in addition to be positioned for growth. On the flip side, the reaction in Stericycle (SRCL) looks overdone to me, as the company topped revenue estimates and only missed EPS by a penny. This is still a good growth story.
Asian markets were mostly lower overnight; commodities are mixed, with oil prices higher near $98 and gold lower to $1607; and the VIX is down -4% back near the 22 level after a sharp spike higher yesterday.
Trading comment: I still favor employing the strategy of picking at stocks that have pulled back to take advantage of the recent dip. I think that when the dust settles we will look back at this correction as another good buying opportunity. I also like to watch investor sentiment, which hasn't flashed the same signs of bearish extremes that we have seen at other trading bottoms, but we are starting to see some in terms of a spiking VIX and rising put/call ratios.
long BWA, EMR, SRCL
27 Temmuz 2011 Çarşamba
A Downgrade Is Serious Business
Standard & Poor’s government-credit-ratings guru David Beers played his cards close to the vest on the topic of a U.S. downgrade in our CNBC interview this week. However, this head of S&P’s global sovereign-ratings business -- with a staff of 80 covering 126 countries -- issued three strong warnings to the debt-ceiling negotiators in Washington.Beers avoided direct comments on any of the key debt-limit plans. But when I asked him about joint congressional committees that would report back with additional budget savings at the end of the year, he said, “Well, naturally, it’s going to raise questions . . . we would have to look at the balance of incentives and disincentives that might increase or decrease the probability of that type of approach being effective.”
In other words, both the Harry Reid plan and the John Boehner plan could contribute to a downgrade this summer since it’s uncertain whether joint committees will get the necessary votes for large-scale budget cuts and deficit reduction by year-end. There are no guarantees.
I then asked Beers about a two-step debt increase. This is part of Speaker Boehner’s plan -- a roughly $1 trillion debt-ceiling hike now and a roughly $1.8 trillion increase next year. Beers has a problem with that.
“Well, we’ll look at it,” he said. “But we’ve also said on the 14th of July that we would be concerned if we thought that the debt-ceiling debate would come back and be open, and we’d have to go through all this again and again and again.”
I asked, “And that would be a negative in your view?”
He responded, “That would be a negative in our view.”
We then talked about prioritizing debt payments, where the government would parcel out incoming revenues in August in order to cover federal obligations, including interest on Treasury securities.
From the Jay Powell analysis (bipartisanpolicy.org), Uncle Sam could pay off interest on the debt, benefits for Social Security, Medicare, and Medicaid, defense payments, and unemployment benefits with incoming cash, but would still be $134 billion -- or 44 percent -- short of budget-obligation requirements.
Beers said that would not constitute a formal default. But he added, “It would mean a very sudden fiscal shock . . . you’d essentially be running a cash surplus to pay off the debt as it matures. So potentially that would be deeply disruptive to the economy. . . . We would suspect that that’s not a tenable situation for very long.”
On July 21, S&P issued a warning that there’s a 50 percent chance of a U.S. downgrade. A week earlier, S&P placed the U.S. on “credit-watch negative” based on the rising risk of a policy stalemate. Of course, that clock continues to tick.
Mr. Beers is looking carefully at all the debt plans on the table, and he wants to know three things: Are they actionable? Can they be implemented? And are they credible?
In particular, he’s looking for “some buy-in across the political divide, across both parties, because politics can and will change . . . And if there’s ownership by both sides of the program, then that would give us more confidence.” In other words, bipartisanship compromise.
More generally, Beers wants to see the U.S. federal-debt-to-GDP ratio move on a downward trend. Unlike other AAA countries -- such as Britain, France, or Canada -- the U.S. has not yet undertaken large-scale policy changes that would reverse its rising trajectory of government debt. That trajectory must fall over the medium-to-longer term. And that has Beers worried.
And like a lot of analysts, he’s concerned that a U.S. debt downgrade could raise Treasury rates by 25 to 50 basis points if the rating drops from AAA to AA. “That, of course, would filter through to other interest-rate-sensitive kinds of debt,” said Beers, like mortgages, Fannie and Freddie, insurance companies, overnight bank lending, and on and on.
Stock prices already seem to be falling around 100 points a day on investor fears of the negative economic consequences of a U.S. debt downgrade. People may be moving out of stocks and bonds into cash and government-guaranteed savings accounts to protect themselves in the event of a worst-case scenario.
CEOs are hoarding cash for their companies. The economy is barely growing. And folks are leaving the dollar for gold and foreign currencies.
And with less than a week until the August 2 debt-limit deadline, Congress still dithers.
A debt downgrade is very serious business. Does Washington get that? S&P’s David Beers most certainly does.
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT DEAL DEBACLE: COMPROMISE? REID & BOEHNER RE-WRITES; GOP FACING CONSERVATIVE MUTINY? 6 DAYS FROM DEFAULT?
- Sen. Michael Bennet, (D) Colorado
- Sen. Mike Lee, (R) Utah
- Rep. Peter Welch, (D) Vermont
WASHINGTON TO WALL STREET ... DEBT DEAL DEBACLE: TEA PARTY VS. GOP MODERATES & DEMS ... PLUS, ECONOMY, DEBT & JOBS - WHY AREN'T BUSINESSES HIRING?
- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author ; CNBC Contributor; Univ. of CA., Berkeley
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
THE HOUSE SIDE OF DEBT DEBATE
- Rep. Brad Sherman, (D) CA; Budget & Financial Services Cmtes
- Rep. Paul Ryan, (R) Wisconsin; Budget Cmte Ranking Member; President Obama's Fiscal Commission
MARKETS TAKE A BIG TUMBLE
- Gordon Charlop, Rosenblatt Securities Managing Director; CNBC Markets Analyst
- Art Laffer, Laffer Associates Chairman
-Stephen Weiss, Short Hills Capital managing partner
Markets Growing Impatient With Washington
The markets are lower again in early trading. The last couple of days have seen mild pullbacks, but this morning's selling pressure is more pronounced than we have seen. It is still early in the day, but the market seems to be growing increasingly frustrated with the delays in getting something done in Washington with respect to the debt ceiling.
Earnings reports have continued to come in strong for the most part. Amazon (AMZN) topped estimates and the stock is hitting all-time highs. Boeing (BA) and Aetna (AET) were strong also. Where we have seen weakness has been in the optical industry, and that likely hurt Juniper (JNPR) last quarter, as networking stocks have been laggards.
Asian markets were lower overnight, and Europe was down this morning. I think more than the debt ceiling, the continuing problems in Europe and the banks over there is weighing on investor sentiment. The euro is lower today on concerns about financials in Italy, U.K., etc.
Commodities are mixed, with oil trading lower to $97.65 but gold trading higher once again to new highs near $1625.
The flight to safety is not boosting Treasury prices today. Treasuries are lower, pushing the yield on the 10-year up to 2.96%. I think if the bond market were really worried about the debt ceiling, you would see these yields well above 3.00%, probably closer to 3.25% at least.
The VIX is getting jumpy this morning. It was more than 10% higher earlier, getting as high as 22.50. It has currently eased off from those levels, and is hovering around 21.85.
Trading comment: I still think that this whole debt ceiling show will prove to be a headfake for the market. Today is day 3 of this recent pullback, although the S&P 500 still remains above its 50-day average. (50-day for SPX = 1310). As the market continues to pullback, I want to continue to look for places to put money to work. I think the earnings picture remains strong, and that once this bit of uncertainty is behind us the markets should firm up and trade higher.
Earnings reports have continued to come in strong for the most part. Amazon (AMZN) topped estimates and the stock is hitting all-time highs. Boeing (BA) and Aetna (AET) were strong also. Where we have seen weakness has been in the optical industry, and that likely hurt Juniper (JNPR) last quarter, as networking stocks have been laggards.
Asian markets were lower overnight, and Europe was down this morning. I think more than the debt ceiling, the continuing problems in Europe and the banks over there is weighing on investor sentiment. The euro is lower today on concerns about financials in Italy, U.K., etc.
Commodities are mixed, with oil trading lower to $97.65 but gold trading higher once again to new highs near $1625.
The flight to safety is not boosting Treasury prices today. Treasuries are lower, pushing the yield on the 10-year up to 2.96%. I think if the bond market were really worried about the debt ceiling, you would see these yields well above 3.00%, probably closer to 3.25% at least.
The VIX is getting jumpy this morning. It was more than 10% higher earlier, getting as high as 22.50. It has currently eased off from those levels, and is hovering around 21.85.
Trading comment: I still think that this whole debt ceiling show will prove to be a headfake for the market. Today is day 3 of this recent pullback, although the S&P 500 still remains above its 50-day average. (50-day for SPX = 1310). As the market continues to pullback, I want to continue to look for places to put money to work. I think the earnings picture remains strong, and that once this bit of uncertainty is behind us the markets should firm up and trade higher.
An Interview with S&P's Global Head of Sovereign Ratings
Last night, I spoke with David Beers, head of S&P's sovereign debt rating committee on CNBC’s Kudlow Report. He made it very clear: the U.S. must take steps to lower its debt/GDP trend over the long run. He is looking at all the plans, and he is waiting for a final product. But right now a U.S. downgrade is 50-50. S&P's next step could come very soon.
The video and transcript follow below.
LARRY KUDLOW, host:
On July 14th, Standard & Poor's placed the US on credit watch negative on the
rising risk of a policy stalemate. That clock continues to tick, August 2nd,
less than a week from tonight. How real is the US debt downgrade threat?
What will come of us? Here now for an exclusive interview is David Beers.
He's the global head of sovereign ratings at S&P, Standard & Poor's.
David, welcome to the show. I appreciate it very much. If I'm not mistaken,
on July 21 you issued a warning there's a 50 percent chance of downgrade.
Where are you tonight? Where are you today?
Mr. DAVID BEERS: Well, we're still at 50 percent, at least a 50 percent
possibility of a downgrade.
KUDLOW: All right. I want to ask you, what will it take to avoid a
downgrade? What are your guidelines telling you? What are you looking for?
Mr. BEERS: Well, given the continuing political gridlock, I guess what we're
looking for is some program which we think will make a difference over the
medium term in slowing the, if not reversing, the rising trajectory of
government debt as, for example, as a percent of GDP.
KUDLOW: And United States is around 70 percent. I believe the Congressional
Budget Office has us running up to 90 or 100 percent. You like to use total
government debt. So you want to see that instead of going up, you want to see
it ramping down. Is that fair?
Mr. BEERS: Yeah. Or at least stabilizing, with the prospect of it falling
over the medium to longer term.
KUDLOW: All right. I want to ask a couple of questions. I appreciate that
you don't want to speak specifically about the political plans. Really, when
you take the three plans that are on the table, more or less, they're running
about $3 trillion in lower deficits. I mean, they've got pluses and minuses.
Mr. BEERS: Mm-hmm.
KUDLOW: And I don't want to get into that. Is a $3 trillion reduction over
10 years, would that meet your criteria to avoid a downgrade?
Mr. BEERS: Well, to be honest, we can't answer that question tonight. I
think what we've said is we'll look at the deal, whatever the deal is, when
it's agreed by Congress and the administration, and we will measure it on a
number of parameters. One is, is it actionable? Is it actually likely to be
implemented and, therefore, is it credible? And credibility, among other
things, means to us that there has to be some buy-in across the political
divide, across both parties, because politics can and will change...
KUDLOW: Yes, sir.
Mr. BEERS: ...going forward. And if there's ownership by both sides of the
program, then that would give us more confidence.
KUDLOW: But you don't want to commit to a ballpark number?
Mr. BEERS: No. Because it's not just about the number. It's about the
all-in intent.
KUDLOW: But if it was low--if it as low as $1 1/2 trillion, would that be,
you know, downgrade city?
Mr. BEERS: It depends on what's folded into the deal. It depends on what
comes along with that number. As you know, there are lots of ideas out there
about doing this incrementally. But, ultimately, we've got to look at the
overall plan to make a judgment as to whether it's likely to make a difference
in terms of the rising tide of US debt.
KUDLOW: All right, the rising tide of US debt. Two of the three plans have a
special joint congressional committee which is supposed to find additional
spending and debt reduction cuts down the road. Now, does the down the road
part trouble you? Is that a plus or a minus in the debt--in the downgrade
discussion?
Mr. BEERS: Well, naturally it's going to raise questions. And, again, we
would have to look at the balance of incentives and disincentives that might
increase or decrease the probability of that type of approach being effective.
KUDLOW: Does it matter to you if the debt ceiling is raised in one or two
tranches? In other words, if they raise, let's say for argument sake, half
this year and the rest next year. How does that affect your thinking?
Mr. BEERS: Well, we'll look at it. But we've also said on the 14th of July
that we would be concerned if we thought that the debt ceiling debate would
come back and be open and we'd have to go through all this again and again and
again.
KUDLOW: And that would be a negative in your view.
Mr. BEERS: That would be a negative in our view.
KUDLOW: Right. That's what I thought.
All right, let me ask you this, the last scenario. The business about revenue
allocation. If we go through August 2nd, we've got some big Treasury
redemptions and interest expenses coming, 50, 60, $70 billion in August alone.
What happens in your view if that's where the US government goes? Is that a
downgrade situation? Or worse, is that a default situation? If we're
parceling revenues, let's say to pay the interest on the debt, and a little
bit to Social Security, a little bit to health care, and then half the budget
is not funded. How does that affect your thinking?
Mr. BEERS: Well, first of all, we're rating debt. Right? So it's
theoretically possible that for some period of time the government could take
that strategy while the negotiations continue. But it's worth remembering
what that would mean. It would mean a very sudden fiscal shock that the
longer it lasted would filter powerfully through the system because the US has
got--running a budget deficit right now of roughly 10 percent of GDP.
Suddenly, for a period of time, you'd essentially be running a cash surplus to
pay off the debt as it matures. So potentially that would be deeply
disruptive to the economy.
KUDLOW: Would it be default?
Mr. BEERS: No, it would not be default so long as the government is
continuing...
KUDLOW: Is covering...
Mr. BEERS: ...to pay its debt as it matures and its interest payments. But
we would suspect that that's not a tenable situation for very long.
KUDLOW: So it sounds like that would signal a downgrade.
Mr. BEERS: Well, we'll deal with that as and when the time comes.
KUDLOW: When do you reckon you'll make your next decision? Is it imminent,
this week, next week, a month from now, six months from now?
Mr. BEERS: Well, it kind of depends on what happens over the coming days.
But, you know, we had said that we'll be very--looking very closely as we
approach the 2nd of August to see if there's a deal or not.
KUDLOW: You heard the two senators. All right? They're both prominent
senators. There's nothing happening in Washington tonight. Nothing I can
report that's any good. In fact, one plan's gone back to the drawing board.
It's hard to know what the second plan is. The third plan's buried in the
White House. They admit they don't even have a plan. We're getting pretty
close it, aren't we? Downgrade is imminent?
Mr. BEERS: I'm not going to say that a downgrade is imminent. We knew that
this was going to come close to the wire, and it is, as you say. There's
still every possibility that they're going to get--come up with a plan. And
we'll--when they do...
KUDLOW: Yeah.
Mr. BEERS: ...we'll look at it and we'll make a judgment then.
KUDLOW: You published a paper where you had several scenarios, and I want to
ask you about the middle scenario. What would the downgrade scenario do to
the economy and interest rates, based on your work?
Mr. BEERS: OK. Well, there's obviously some uncertainty around this because
it hasn't happened before. We sketched out a scenario, which I think is sort
of common ground in the marketplace right now, where it's possible if the
rating went into the AA category for example, the yield on government
securities could rise anywhere between, you know, 25 and 50 basis points.
KUDLOW: From AAA to AA.
Mr. BEERS: Yeah. That, of course, would filter through to other interest
rate sensitive kinds of debt, like mortgages, for example. So it would mean,
you know, that holders of mortgages, over time, as this filtered through,
would have to pay a higher mortgage rates.
KUDLOW: Fannie, Freddie?
Mr. BEERS: Yeah.
KUDLOW: Insurance companies?
Mr. BEERS: Yep.
KUDLOW: Overnight bank lending? What--can our economy take--let's say in the
short end.
Mr. BEERS: Mm-hmm.
KUDLOW: We have the best rating A-1 plus right now.
Mr. BEERS: Mm-hmm.
KUDLOW: If you notch that down to A-1 and rates jumped up 50 basis points,
how damaging you reckon that would be to our economy?
Mr. BEERS: Well, it would--it would have an impact. It would--it would have
an impact. And it would be negative. It would be a depressing effect on
economic output, on economic growth.
KUDLOW: Let me ask you one final one in the remaining seconds we have. I
know you're very active in the European ratings and so forth. Greece, have we
seen the last of the Greece crisis? You've rated them CCC. There is stuff
below that. Do you think that will be challenged?
Mr. BEERS: Well, the rating has a negative outlook, so we're pretty certain
it's going to go lower because, of course, an actual debt restructuring is now
on the table. But we've also expressed the opinion before that we think that
any near term restructuring is probably not the end of the story. There may
be another bigger restructuring down the road after that.
KUDLOW: How far down the road do you reckon that would be?
Mr. BEERS: Well, that's partly in the hands of Greek politics, but it
certainly wouldn't surprise us if a second restructuring had to be looked at
over the next couple of years.
KUDLOW: Couple of years. All right, David Beers from S&P, we really
appreciate your coming on here and talking about this...
Mr. BEERS: Thanks for having me, Larry.
KUDLOW: ...as calmly and honestly as possible.
The video and transcript follow below.
LARRY KUDLOW, host:
On July 14th, Standard & Poor's placed the US on credit watch negative on the
rising risk of a policy stalemate. That clock continues to tick, August 2nd,
less than a week from tonight. How real is the US debt downgrade threat?
What will come of us? Here now for an exclusive interview is David Beers.
He's the global head of sovereign ratings at S&P, Standard & Poor's.
David, welcome to the show. I appreciate it very much. If I'm not mistaken,
on July 21 you issued a warning there's a 50 percent chance of downgrade.
Where are you tonight? Where are you today?
Mr. DAVID BEERS: Well, we're still at 50 percent, at least a 50 percent
possibility of a downgrade.
KUDLOW: All right. I want to ask you, what will it take to avoid a
downgrade? What are your guidelines telling you? What are you looking for?
Mr. BEERS: Well, given the continuing political gridlock, I guess what we're
looking for is some program which we think will make a difference over the
medium term in slowing the, if not reversing, the rising trajectory of
government debt as, for example, as a percent of GDP.
KUDLOW: And United States is around 70 percent. I believe the Congressional
Budget Office has us running up to 90 or 100 percent. You like to use total
government debt. So you want to see that instead of going up, you want to see
it ramping down. Is that fair?
Mr. BEERS: Yeah. Or at least stabilizing, with the prospect of it falling
over the medium to longer term.
KUDLOW: All right. I want to ask a couple of questions. I appreciate that
you don't want to speak specifically about the political plans. Really, when
you take the three plans that are on the table, more or less, they're running
about $3 trillion in lower deficits. I mean, they've got pluses and minuses.
Mr. BEERS: Mm-hmm.
KUDLOW: And I don't want to get into that. Is a $3 trillion reduction over
10 years, would that meet your criteria to avoid a downgrade?
Mr. BEERS: Well, to be honest, we can't answer that question tonight. I
think what we've said is we'll look at the deal, whatever the deal is, when
it's agreed by Congress and the administration, and we will measure it on a
number of parameters. One is, is it actionable? Is it actually likely to be
implemented and, therefore, is it credible? And credibility, among other
things, means to us that there has to be some buy-in across the political
divide, across both parties, because politics can and will change...
KUDLOW: Yes, sir.
Mr. BEERS: ...going forward. And if there's ownership by both sides of the
program, then that would give us more confidence.
KUDLOW: But you don't want to commit to a ballpark number?
Mr. BEERS: No. Because it's not just about the number. It's about the
all-in intent.
KUDLOW: But if it was low--if it as low as $1 1/2 trillion, would that be,
you know, downgrade city?
Mr. BEERS: It depends on what's folded into the deal. It depends on what
comes along with that number. As you know, there are lots of ideas out there
about doing this incrementally. But, ultimately, we've got to look at the
overall plan to make a judgment as to whether it's likely to make a difference
in terms of the rising tide of US debt.
KUDLOW: All right, the rising tide of US debt. Two of the three plans have a
special joint congressional committee which is supposed to find additional
spending and debt reduction cuts down the road. Now, does the down the road
part trouble you? Is that a plus or a minus in the debt--in the downgrade
discussion?
Mr. BEERS: Well, naturally it's going to raise questions. And, again, we
would have to look at the balance of incentives and disincentives that might
increase or decrease the probability of that type of approach being effective.
KUDLOW: Does it matter to you if the debt ceiling is raised in one or two
tranches? In other words, if they raise, let's say for argument sake, half
this year and the rest next year. How does that affect your thinking?
Mr. BEERS: Well, we'll look at it. But we've also said on the 14th of July
that we would be concerned if we thought that the debt ceiling debate would
come back and be open and we'd have to go through all this again and again and
again.
KUDLOW: And that would be a negative in your view.
Mr. BEERS: That would be a negative in our view.
KUDLOW: Right. That's what I thought.
All right, let me ask you this, the last scenario. The business about revenue
allocation. If we go through August 2nd, we've got some big Treasury
redemptions and interest expenses coming, 50, 60, $70 billion in August alone.
What happens in your view if that's where the US government goes? Is that a
downgrade situation? Or worse, is that a default situation? If we're
parceling revenues, let's say to pay the interest on the debt, and a little
bit to Social Security, a little bit to health care, and then half the budget
is not funded. How does that affect your thinking?
Mr. BEERS: Well, first of all, we're rating debt. Right? So it's
theoretically possible that for some period of time the government could take
that strategy while the negotiations continue. But it's worth remembering
what that would mean. It would mean a very sudden fiscal shock that the
longer it lasted would filter powerfully through the system because the US has
got--running a budget deficit right now of roughly 10 percent of GDP.
Suddenly, for a period of time, you'd essentially be running a cash surplus to
pay off the debt as it matures. So potentially that would be deeply
disruptive to the economy.
KUDLOW: Would it be default?
Mr. BEERS: No, it would not be default so long as the government is
continuing...
KUDLOW: Is covering...
Mr. BEERS: ...to pay its debt as it matures and its interest payments. But
we would suspect that that's not a tenable situation for very long.
KUDLOW: So it sounds like that would signal a downgrade.
Mr. BEERS: Well, we'll deal with that as and when the time comes.
KUDLOW: When do you reckon you'll make your next decision? Is it imminent,
this week, next week, a month from now, six months from now?
Mr. BEERS: Well, it kind of depends on what happens over the coming days.
But, you know, we had said that we'll be very--looking very closely as we
approach the 2nd of August to see if there's a deal or not.
KUDLOW: You heard the two senators. All right? They're both prominent
senators. There's nothing happening in Washington tonight. Nothing I can
report that's any good. In fact, one plan's gone back to the drawing board.
It's hard to know what the second plan is. The third plan's buried in the
White House. They admit they don't even have a plan. We're getting pretty
close it, aren't we? Downgrade is imminent?
Mr. BEERS: I'm not going to say that a downgrade is imminent. We knew that
this was going to come close to the wire, and it is, as you say. There's
still every possibility that they're going to get--come up with a plan. And
we'll--when they do...
KUDLOW: Yeah.
Mr. BEERS: ...we'll look at it and we'll make a judgment then.
KUDLOW: You published a paper where you had several scenarios, and I want to
ask you about the middle scenario. What would the downgrade scenario do to
the economy and interest rates, based on your work?
Mr. BEERS: OK. Well, there's obviously some uncertainty around this because
it hasn't happened before. We sketched out a scenario, which I think is sort
of common ground in the marketplace right now, where it's possible if the
rating went into the AA category for example, the yield on government
securities could rise anywhere between, you know, 25 and 50 basis points.
KUDLOW: From AAA to AA.
Mr. BEERS: Yeah. That, of course, would filter through to other interest
rate sensitive kinds of debt, like mortgages, for example. So it would mean,
you know, that holders of mortgages, over time, as this filtered through,
would have to pay a higher mortgage rates.
KUDLOW: Fannie, Freddie?
Mr. BEERS: Yeah.
KUDLOW: Insurance companies?
Mr. BEERS: Yep.
KUDLOW: Overnight bank lending? What--can our economy take--let's say in the
short end.
Mr. BEERS: Mm-hmm.
KUDLOW: We have the best rating A-1 plus right now.
Mr. BEERS: Mm-hmm.
KUDLOW: If you notch that down to A-1 and rates jumped up 50 basis points,
how damaging you reckon that would be to our economy?
Mr. BEERS: Well, it would--it would have an impact. It would--it would have
an impact. And it would be negative. It would be a depressing effect on
economic output, on economic growth.
KUDLOW: Let me ask you one final one in the remaining seconds we have. I
know you're very active in the European ratings and so forth. Greece, have we
seen the last of the Greece crisis? You've rated them CCC. There is stuff
below that. Do you think that will be challenged?
Mr. BEERS: Well, the rating has a negative outlook, so we're pretty certain
it's going to go lower because, of course, an actual debt restructuring is now
on the table. But we've also expressed the opinion before that we think that
any near term restructuring is probably not the end of the story. There may
be another bigger restructuring down the road after that.
KUDLOW: How far down the road do you reckon that would be?
Mr. BEERS: Well, that's partly in the hands of Greek politics, but it
certainly wouldn't surprise us if a second restructuring had to be looked at
over the next couple of years.
KUDLOW: Couple of years. All right, David Beers from S&P, we really
appreciate your coming on here and talking about this...
Mr. BEERS: Thanks for having me, Larry.
KUDLOW: ...as calmly and honestly as possible.
26 Temmuz 2011 Salı
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT TALKS LATEST
-NBC’s Luke Russert reports from Washington.
DEBT TALK PLANS COMING TOGETHER?
- Sen. Jeanne Shaheen, (D) New Hampshire
- Sen. Kay Bailey Hutchison, (R) Texas
Kudlow Exclusive
WHAT DEFICIT & DEFAULT RISK MEANS FOR U.S. CREDIT RATING
- David Beers, Standard & Poor's Global Head of Sovereign Ratings
MARKETS; WHAT HAPPENS TO MONEY MARKET FUNDS IF TREASURYS GET DOWNGRADED?
- John Carney, CNBC.com Senior Editor
- David Goldman, Former Head of Fixed Income Research at Bank of America
- Michael Farr, Farr, Miller & Washington/CNBC Contributor
Free Market Matters
IS OBAMA LOSING HIS BASE?
- Tony Blankely, Syndicated Columnist; Executive vice president at Edelman
- Jim Nussle, Fmr. OMB Director; CNBC Contributor
- David Goodfriend, Fmr. Clinton W.H. Official; Sirius/XM "Left Jab" Co-host
Kudlow Exclusive
SNAIL MAIL VS. EMAIL
- Patrick Donahoe, Postmaster General
- Chris Edwards, CATO Institute Director of Tax Policy; DownsizingGovernment.org Editor
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT TALKS LATEST
-NBC’s Luke Russert reports from Washington.
DEBT TALK PLANS COMING TOGETHER?
- Sen. Jeanne Shaheen, (D) New Hampshire
- Sen. Kay Bailey Hutchison, (R) Texas
Kudlow Exclusive
WHAT DEFICIT & DEFAULT RISK MEANS FOR U.S. CREDIT RATING
- David Beers, Standard & Poor's Global Head of Sovereign Ratings
MARKETS; WHAT HAPPENS TO MONEY MARKET FUNDS IF TREASURYS GET DOWNGRADED?
- John Carney, CNBC.com Senior Editor
- David Goldman, Former Head of Fixed Income Research at Bank of America
- Michael Farr, Farr, Miller & Washington/CNBC Contributor
Free Market Matters
IS OBAMA LOSING HIS BASE?
- Tony Blankely, Syndicated Columnist; Executive vice president at Edelman
- Jim Nussle, Fmr. OMB Director; CNBC Contributor
- David Goodfriend, Fmr. Clinton W.H. Official; Sirius/XM "Left Jab" Co-host
Kudlow Exclusive
SNAIL MAIL VS. EMAIL
- Patrick Donahoe, Postmaster General
- Chris Edwards, CATO Institute Director of Tax Policy; DownsizingGovernment.org Editor
More Debt Ceiling Delays
The market is lower in early trading, although it is already bouncing from its opening lows. The President was on TV last night talking about the debt ceiling, and the continuing posturing that is going on. It's too bad that some are actually hoping for a market reaction to scare people into action.
There were more solid earnings reports last night, which would be garnering a lot more attention were it not for the debt debates. Positive reports came from Ford (F), Lockheed Martin (LMT) and Simon Properties (SPG). But Netflix (NFLX) gave lower guidance than the Street was looking for, and its stock is down -10% today.
In economic news, the Case-Schiller home price index fell -4.5% in May as the housing market continues to limp along a bottom.
Asian markets were higher overnight. India surprised markets by raising its benchmark rate 50 basis points to 8.00%.
The 10-year again tried to get above 3.0% but failed and currently sits near 2.97%. The bond market still does not seem too worried about the debt ceiling issue.
Oil prices are lower to $98.50, and gold prices are off a touch to $1611; the VIX is up 3% sitting right at the 20 level.
Trading comment: Some growth stocks (look at GOOG and AAPL) continue to power higher day after day despite all of the banter about the debt ceiling. I think the market could rip if we get some sort of resolution. My feeling is that there is considerable cash on the sidelines, waiting to get back into the market either way. If the market sells off from lack of action in Congress, the people will likely buy the dip. And if we get the resolution everyone wants, then a relief rally could unfold.
long AAPL, GOOG, SPG
There were more solid earnings reports last night, which would be garnering a lot more attention were it not for the debt debates. Positive reports came from Ford (F), Lockheed Martin (LMT) and Simon Properties (SPG). But Netflix (NFLX) gave lower guidance than the Street was looking for, and its stock is down -10% today.
In economic news, the Case-Schiller home price index fell -4.5% in May as the housing market continues to limp along a bottom.
Asian markets were higher overnight. India surprised markets by raising its benchmark rate 50 basis points to 8.00%.
The 10-year again tried to get above 3.0% but failed and currently sits near 2.97%. The bond market still does not seem too worried about the debt ceiling issue.
Oil prices are lower to $98.50, and gold prices are off a touch to $1611; the VIX is up 3% sitting right at the 20 level.
Trading comment: Some growth stocks (look at GOOG and AAPL) continue to power higher day after day despite all of the banter about the debt ceiling. I think the market could rip if we get some sort of resolution. My feeling is that there is considerable cash on the sidelines, waiting to get back into the market either way. If the market sells off from lack of action in Congress, the people will likely buy the dip. And if we get the resolution everyone wants, then a relief rally could unfold.
long AAPL, GOOG, SPG
25 Temmuz 2011 Pazartesi
What’s So Bad about the Reid Plan?
The big sticking points between the House GOP leadership and Sen. Harry Reid’s latest plan are 1) the House wants two debt increases, one this year and one next year (Reid has just one increase) and 2) the House Republicans want a guaranteed balanced-budget-amendment vote. Regarding the Reid plan itself, it really looks like a Republican plan: A $2.7 trillion spending cut to raise the debt ceiling by something like $2.5 trillion, and no tax revenues. So, really, what’s so bad about the Reid plan? Increasingly, Wall Street gurus want one debt-ceiling increase, not two.
The Reid package includes $1.2 trillion in discretionary-spending cuts and a small $100 billion savings in mandatory accounts, apparently from the Biden meetings, although it will not impact either health care or Social Security.
There are other nicks and knacks from waste, fraud, and abuse, fees on Fannie Mae and Freddie Mac, revenues from spectrum sales, and some sort of farm-subsidy reform. And there is, of course, a huge $1 trillion piece from winding down the wars in Iraq and Afghanistan. But that’s also in the budgets from Paul Ryan and the CBO. Interest savings come to $400 billion.
Reid’s plan also includes a Mitch McConnell-like joint-congressional committee to find future savings. The committee’s recommendations will be guaranteed an up-or-down Senate vote without amendments by the end of 2011.
The GOP House plan undoubtedly has more real spending reduction. Plus, the balanced-budget amendment, which makes it consistent with cut, cap, and balance.
But the Reid no-tax piece is really important in terms of economic growth. At least things may not get worse on the tax front.
Finally, all these plans hinge on tough enforcement for the spending caps. In particular, first-year 2012 savings, and then sequestration penalties. It just looks like the House and Senate are coming together.
Monday Morning Musings
The markets are lower in early trading, after a failure to make any progress on the U.S. debt ceiling issue. While that is certainly being cited, a bigger issue might be another downgrade of Greek debt by Moody's, and saying that a Greek default was all but certain.
That has put the flight to safety trade back on so far today. Gold prices are hitting new records above $1615, and the Swiss franc is also trading at record levels.
The bond market does not at all seem worried about the debt ceiling, as the 10-year bond trades calmly with the yield barely higher to 2.98% after failing to get through the 3.00% level.
Corporate earnings have continued to come in at a healthy clip, and the markets were nicely higher last week.
Commodities are mostly lower so far today. Oil prices are down near $99.25. And ag prices are lower across the board.
The VIX is up 9.7% today to 19.22, still below the 20 level.
Trading comment: Despite the early pullback this morning, the market continues to hang in pretty well. It doesn't look like the market is overly concerned with the debt ceiling issue. The major averages continue to trade above their 50-day averages; the 10-year yield remains below 3.00%; and the volatility index is trading below the 20 level, signaling option investors aren't predicting a big pickup in volatility near-term. I think the debt ceiling issue is proving to be a head fake and diverting attention from strong corporate earnings. I agree with those who have said if there is some sort of market dislocation relative to the debt ceiling issue, I think it would be a short-term political event, and a buying opportunity for stocks.
That has put the flight to safety trade back on so far today. Gold prices are hitting new records above $1615, and the Swiss franc is also trading at record levels.
The bond market does not at all seem worried about the debt ceiling, as the 10-year bond trades calmly with the yield barely higher to 2.98% after failing to get through the 3.00% level.
Corporate earnings have continued to come in at a healthy clip, and the markets were nicely higher last week.
Commodities are mostly lower so far today. Oil prices are down near $99.25. And ag prices are lower across the board.
The VIX is up 9.7% today to 19.22, still below the 20 level.
Trading comment: Despite the early pullback this morning, the market continues to hang in pretty well. It doesn't look like the market is overly concerned with the debt ceiling issue. The major averages continue to trade above their 50-day averages; the 10-year yield remains below 3.00%; and the volatility index is trading below the 20 level, signaling option investors aren't predicting a big pickup in volatility near-term. I think the debt ceiling issue is proving to be a head fake and diverting attention from strong corporate earnings. I agree with those who have said if there is some sort of market dislocation relative to the debt ceiling issue, I think it would be a short-term political event, and a buying opportunity for stocks.
24 Temmuz 2011 Pazar
THE REAL STOCK MARKET AIN'T SO PRETTY
When priced in something that has real value and cannot be debased (gold), one can clearly see that stocks have been in a severe bear market since 2000. (If one were to look at PE valuations during the same period they would see the same bear market.)
In the chart below I have marked the final phase of several gold C-waves. These highly speculative periods tend to end as a parabolic blowoff rally with gold stretched quite far above the 200 day moving average. The final phase of a C wave rally also tends to correspond with another leg down in the Dow:gold ratio.
After an extended two year consolidation I think we are now due for that final explosive move that should drive the next repricing of stocks against gold.
I expect we will see a combination of gold rallying wildly higher while stocks rollover into the next cyclical bear market. I'm looking for a Dow:gold ratio somewhere around 6 to 1 later this fall. If gold rallies to $1800 (my best guess) then we can look for the Dow to drop down around 10,000.
As many of you may have noticed stocks tend to put in major intermediate lows in November and March. The dollar often forms it's yearly cycle low in November. If the dollars three-year cycle bottom is still ahead of us, and it's starting to appear that it is, then the currency crisis that we avoided in May should come in late October or November this year.
That currency crisis should drive the final parabolic C-wave move in gold and the first major leg down in the stock market.
We should then see a relief rally in stocks as the dollar crisis comes to an end and gold will enter a severe D-wave, regression to the mean, profit-taking event.
The relief rally in stocks unfortunately will be short-lived. With no true productivity to drive it the stock market is not going to be able to fight a rising dollar.
Now that the last true period of productivity has ended (the personal computer and Internet boom) the only way stocks can resist the forces of the secular bear is through expansion of the money supply. That becomes painfully obvious when one looks at a 10 year chart of the Dow priced in gold.
The problem of course is that printing money is not true productivity. Printing money has consequences, as we found out in 2008.
It won't be long before we begin to suffer the consequences of Bernanke churning out trillions of dollars to save the financial system.
But who's gonna save us from Bernanke!
In the chart below I have marked the final phase of several gold C-waves. These highly speculative periods tend to end as a parabolic blowoff rally with gold stretched quite far above the 200 day moving average. The final phase of a C wave rally also tends to correspond with another leg down in the Dow:gold ratio.
After an extended two year consolidation I think we are now due for that final explosive move that should drive the next repricing of stocks against gold.
I expect we will see a combination of gold rallying wildly higher while stocks rollover into the next cyclical bear market. I'm looking for a Dow:gold ratio somewhere around 6 to 1 later this fall. If gold rallies to $1800 (my best guess) then we can look for the Dow to drop down around 10,000.
As many of you may have noticed stocks tend to put in major intermediate lows in November and March. The dollar often forms it's yearly cycle low in November. If the dollars three-year cycle bottom is still ahead of us, and it's starting to appear that it is, then the currency crisis that we avoided in May should come in late October or November this year.
That currency crisis should drive the final parabolic C-wave move in gold and the first major leg down in the stock market.
We should then see a relief rally in stocks as the dollar crisis comes to an end and gold will enter a severe D-wave, regression to the mean, profit-taking event.
The relief rally in stocks unfortunately will be short-lived. With no true productivity to drive it the stock market is not going to be able to fight a rising dollar.
Now that the last true period of productivity has ended (the personal computer and Internet boom) the only way stocks can resist the forces of the secular bear is through expansion of the money supply. That becomes painfully obvious when one looks at a 10 year chart of the Dow priced in gold.
The problem of course is that printing money is not true productivity. Printing money has consequences, as we found out in 2008.
It won't be long before we begin to suffer the consequences of Bernanke churning out trillions of dollars to save the financial system.
But who's gonna save us from Bernanke!
22 Temmuz 2011 Cuma
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT DEAL DEBATE LATEST
- CNBC chief Washington correspondent John Harwood reports from Washington.
INSIDE THE DEBT TALKS: GRAND BARGAIN OR SMALL BALL?
- Rep. Peter Welch, (D) VT
- Rep. Scott Garrett (R) New Jersey; House Budget Cmte. Vice Chair
Free Market Friday
WHY CAN'T WE GET A $6T DEAL? OR A CUT, CAP & BALANCE DEAL DONE? WHY IS WASHINGTON ADDICTED TO DEBT?
- James Freeman, Wall Street Journal Editorial Page Assistant Editor
- Tim Carney, Washington Examiner Senior Political columnist
- Joe Conason, The New York Observer Columnist; "It Can Happen Here: Authoritarian Peril in the Age of Bush" Author
KUDLOW MAYOR'S CONFERENCE: DEBT CRISIS TRICKLE DOWN EFFECT; IMPACT ON STATES/CITIES IF U.S. DEFAULTS
- Vince Gray, (D) Mayor District of Columbia
- Mitch Landrieu, (D) Mayor of New Orleans
- Scott Smith, (R) Mayor of Mesa, AZ
HEATWAVE STRESSING NATION'S POWER GRID
- Ann Thompson, NBC News
MARKETS: WHAT ARE ECONOMIC INDICATORS CAT & GE TELLING US?
- Lincoln Ellis, Linn Group (CME) Managing Director
- Tommy Belesis, John Thomas Financial Founder and CEO
- Denny Strigl, Fmr. CEO Verizon Wireless in New York
21 Temmuz 2011 Perşembe
Euro Bounces On New Plan To Aid Greece
The market is nicely higher this morning on a combination of positive news items. Reports out of Europe hint at a new plan to help aid Greece, with the support of both France and Germany. This has boosted the euro, while the dollar is under pressure for a third straight day.
There were also more solid earnings reports, with strong numbers from Morgan Stanley (MS) and American Express (AXP) boosting the financial sector. Financials are leading the early action, followed by energy stocks. Surprisingly, technology shares are lagging. Investors were disappointed with FFIV's results, and the stock is down -9%.
A big merger between Express Scripts (ESRX) and Medco Health (MHS) has sparked enthusiasm in the healthcare sector. Usually the acquiring company's stock goes down on a big merger, but in this case both stocks are higher. ESRX (+4%) offered $71 in cash and stock for MHS (+12%), which represents a 27% premium to yesterday's closing price.
In economic news, the Philly Fed survey rose to 3.20, a nice bounce from last months low reading of -7.70.
Commodities are higher on the lower dollar. Gold prices are back at the $1600 level, and oil prices are back knocking on the door at $100.
The 10-year yield has rallied back to 3.00%; and the VIX is down -6% to 18.00.
Trading comment: The major averages are putting in more distance above their 50-day moving averages. I like the strategy of using pullbacks to add to stocks that reported good earnings. I think we could start to see performance anxiety set in, just at the time when news stories started to come out about huge hedge funds like Soros sitting with 75% cash.
long ESRX, MHS
There were also more solid earnings reports, with strong numbers from Morgan Stanley (MS) and American Express (AXP) boosting the financial sector. Financials are leading the early action, followed by energy stocks. Surprisingly, technology shares are lagging. Investors were disappointed with FFIV's results, and the stock is down -9%.
A big merger between Express Scripts (ESRX) and Medco Health (MHS) has sparked enthusiasm in the healthcare sector. Usually the acquiring company's stock goes down on a big merger, but in this case both stocks are higher. ESRX (+4%) offered $71 in cash and stock for MHS (+12%), which represents a 27% premium to yesterday's closing price.
In economic news, the Philly Fed survey rose to 3.20, a nice bounce from last months low reading of -7.70.
Commodities are higher on the lower dollar. Gold prices are back at the $1600 level, and oil prices are back knocking on the door at $100.
The 10-year yield has rallied back to 3.00%; and the VIX is down -6% to 18.00.
Trading comment: The major averages are putting in more distance above their 50-day moving averages. I like the strategy of using pullbacks to add to stocks that reported good earnings. I think we could start to see performance anxiety set in, just at the time when news stories started to come out about huge hedge funds like Soros sitting with 75% cash.
long ESRX, MHS
Operation Bank Bust
I have an important announcement, so I'm departing from my usual blogginess to cut-and-paste and publish this Facebook post about a Bank Bust action like I've been wanting to start. I'm glad to see I don't have to: somebody else already has the ball rolling. Please spread the word:
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Operation Bank BustTime: Saturday, November 5 · 8:00am - 9:00pm Location: Everywhere Created by: Nightingale Jones This Operation is from The Plan! www.whatis-theplan.org On November 5th, 2011, people are encouraged to remove their funds from their bank, close any accounts and throw away credit cards (cut them up first) in order to promote personal independence from the banking system. We encourage people to purchase a heavy safe that can be bolted down to secure their money or place it into a trusted, local credit union. This is an ONGOING Operation! It's never too late or too early to reclaim your fiscal independence! |
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| El 5 de noviembre de 2011, la gente se anima a sacar sus fondos de su banco, cerrar todas las cuentas y tirar las tarjetas de crédito (se cortan primero) con el fin de promover la autonomía personal en el sistema bancario. Animamos a la gente a comprar un seguro pesados que pueden ser atornillados para asegurar su dinero o el lugar en una de confianza, unión de crédito local. Se trata de una operación en curso! Nunca es demasiado tarde o demasiado temprano para recuperar su independencia fiscal! | |
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My Zero-Cents-Worth CommentIf we're activists protesting various evils in the world, our activism is of little use if we keep feeding the root of the problem: banks (and also if we give our business to the banks' bedfellows, big corporations). It's pretty simple: if we give banks and corporations our business, we are the banks and we are the corporations and all our protesting against them is totally absurd. Get out of the helpless victim mentality and know that we the common people are the power of the "people in power"! If you don't like the monster, stop feeding it! Take responsibility!My purist moneyless self would like to see everybody walk away from all money, but my practical self says, if you use money, please do not use banks, unless you want to feed world poverty, war, environmental destruction, and mental duress. At the very least, please put your money in a local credit union instead.In case you have doubts about participating in this Bank Bust, or aren't clear about the nature of banks and banking, please see the clear and simple video below I keep pushing, "Money As Debt". You may also want to check out the essays in my website on the nature of money: What Money Is and What Money Is Not and Is Banking Criminal? What The World's Ancient Philosophers & Religions Say | |
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| Still in the Northwest On my usual blogger note, I'm still in Portland, Oregon. I plan to spend the next week or so on a pack trip on the Olympic Peninsula with a new friend, maybe two. That means I'll be out of cyber contact for a while | |
20 Temmuz 2011 Çarşamba
A Pro-Growth Plan from the Gang of Six
There are a lot of known unknowns about the new “Gang of Six” budget proposal. But conservatives should hold back from trashing it. Why? There’s a large, pro-growth tax-reform piece in the plan that would lower tax rates across-the-board. This is a stunning reversal of the Obama Democrats’ soak-the-rich, class-warfare campaign.
The best part of the Gang of Six plan is a reduction in the top personal tax rate from 35 percent to a range of 23 to 29 percent. For businesses, the rate would drop in the same manner. And the corporate tax would be territorial rather than global, thereby avoiding the double tax on foreign earnings of U.S. companies. Finally, the plan would abolish the $1.7 trillion alternative minimum tax. That’s huge. It’s another pro-growth tax reform.
In a more perfect world, the Congressional Budget Office would score the pro-growth incentives of lower marginal tax rates in terms of a tax-revenue increase. That’s the history stretching back to JFK, Reagan, and George W. Bush circa 2003.
And right now, the Gang of Six package is the first real pro-growth tax reform of all the debt-ceiling plans. It acknowledges the need for a growth element in order to solve our budget bankruptcy and limit spending, deficits, and debt. It would boost the economy and broaden the base (by reforming or limiting numerous deductions). As a result, more income would be taxed at lower rates in a rising economy, throwing off a hell of a lot more revenues than we’re getting today. Rising revenues from lower tax rates are a good thing.
Now, there are glitches in this plan that cannot be overlooked. The biggest is the harsher treatment of capital gains. In a CNBC interview on Tuesday, Sen. Tom Coburn (R., Okla.) told me that the investment tax rate would rise to 20 percent from 15 percent. This is a black mark. It’s anti-growth. Coburn, however, also told me that the tax treatment of IRAs and 401(k)s would not change in this plan. That’s good.
Additional problems, however, are raised by Rep. Paul Ryan (R., Wis.). He notes first of all that the Gang of Six plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” He also notes that the plan claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. That’s important. But Ryan then reminds us that the CBO baseline assumes the expiration of the Bush tax cuts, which would increase revenues by a static $3.5 trillion.
So Ryan concludes that there’s a $2 trillion revenue increase. And he notes that this number could jump by another $800 billion from Obamacare taxes, which would increase revenues by $2.8 trillion.
Okay, this is tricky business. It’s a baseline-matching game. But let’s not get hung up on that right now. Let’s flesh out the details. Let’s see how the crony-capitalism deductions and loopholes will be treated.
So I’m not prepared to trash the Gang of Six plan. I am impressed by the lower marginal tax rates and tax simplification it contains. These are decidedly pro-growth measures. And we need growth.
If the economy were functioning decently, revenues as a share of GDP would move back towards 18 percent or more. And that would be a good place to balance the budget with spending restraints.
I get the uncertainty of the Senate Finance Committee regarding Social Security, health-care, and tax reform. I get that. But Rep. Dave Camp (R., Mich.) runs the House Ways and Means Committee, and he’s not going to let Sen. Max Baucus (D., Mont.) destroy the economy.
In the Gang of Six plan, there are a lot of planned spending cuts across-the-board for all the cabinet departments. There is spending-cap enforcement. And, importantly, the plan would repeal the CLASS Act, an Obamacare entitlement for long-term health-care insurance that would exponentially elevate future federal spending. This would mark the first step toward undoing Obamacare.
But -- and I acknowledge this weakness -- the health-care savings look inadequate and murky. And the Social Security reform is completely unknown. The cut-and-cap Paul Ryan budget, which would reduce spending by $110 billion in 2012, or $6 trillion over ten years, looks a lot more powerful than the Gang of Six proposal. Ditto for the Ryan domestic discretionary budget cut of $76 billion in 2012, which stretches out to $1.8 trillion in ten years. And of course, I acknowledge that two-to-one or three-to-one formulas for spending cuts and tax increases have always broken down in the past. You get the taxes but not the lower spending.
Nonetheless, with all the known unknowns and maybe some additional unknown unknowns, I still think it’s time to give the Gang of Six plan a chance.
The best part of the Gang of Six plan is a reduction in the top personal tax rate from 35 percent to a range of 23 to 29 percent. For businesses, the rate would drop in the same manner. And the corporate tax would be territorial rather than global, thereby avoiding the double tax on foreign earnings of U.S. companies. Finally, the plan would abolish the $1.7 trillion alternative minimum tax. That’s huge. It’s another pro-growth tax reform.
In a more perfect world, the Congressional Budget Office would score the pro-growth incentives of lower marginal tax rates in terms of a tax-revenue increase. That’s the history stretching back to JFK, Reagan, and George W. Bush circa 2003.
And right now, the Gang of Six package is the first real pro-growth tax reform of all the debt-ceiling plans. It acknowledges the need for a growth element in order to solve our budget bankruptcy and limit spending, deficits, and debt. It would boost the economy and broaden the base (by reforming or limiting numerous deductions). As a result, more income would be taxed at lower rates in a rising economy, throwing off a hell of a lot more revenues than we’re getting today. Rising revenues from lower tax rates are a good thing.
Now, there are glitches in this plan that cannot be overlooked. The biggest is the harsher treatment of capital gains. In a CNBC interview on Tuesday, Sen. Tom Coburn (R., Okla.) told me that the investment tax rate would rise to 20 percent from 15 percent. This is a black mark. It’s anti-growth. Coburn, however, also told me that the tax treatment of IRAs and 401(k)s would not change in this plan. That’s good.
Additional problems, however, are raised by Rep. Paul Ryan (R., Wis.). He notes first of all that the Gang of Six plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” He also notes that the plan claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. That’s important. But Ryan then reminds us that the CBO baseline assumes the expiration of the Bush tax cuts, which would increase revenues by a static $3.5 trillion.
So Ryan concludes that there’s a $2 trillion revenue increase. And he notes that this number could jump by another $800 billion from Obamacare taxes, which would increase revenues by $2.8 trillion.
Okay, this is tricky business. It’s a baseline-matching game. But let’s not get hung up on that right now. Let’s flesh out the details. Let’s see how the crony-capitalism deductions and loopholes will be treated.
So I’m not prepared to trash the Gang of Six plan. I am impressed by the lower marginal tax rates and tax simplification it contains. These are decidedly pro-growth measures. And we need growth.
If the economy were functioning decently, revenues as a share of GDP would move back towards 18 percent or more. And that would be a good place to balance the budget with spending restraints.
I get the uncertainty of the Senate Finance Committee regarding Social Security, health-care, and tax reform. I get that. But Rep. Dave Camp (R., Mich.) runs the House Ways and Means Committee, and he’s not going to let Sen. Max Baucus (D., Mont.) destroy the economy.
In the Gang of Six plan, there are a lot of planned spending cuts across-the-board for all the cabinet departments. There is spending-cap enforcement. And, importantly, the plan would repeal the CLASS Act, an Obamacare entitlement for long-term health-care insurance that would exponentially elevate future federal spending. This would mark the first step toward undoing Obamacare.
But -- and I acknowledge this weakness -- the health-care savings look inadequate and murky. And the Social Security reform is completely unknown. The cut-and-cap Paul Ryan budget, which would reduce spending by $110 billion in 2012, or $6 trillion over ten years, looks a lot more powerful than the Gang of Six proposal. Ditto for the Ryan domestic discretionary budget cut of $76 billion in 2012, which stretches out to $1.8 trillion in ten years. And of course, I acknowledge that two-to-one or three-to-one formulas for spending cuts and tax increases have always broken down in the past. You get the taxes but not the lower spending.
Nonetheless, with all the known unknowns and maybe some additional unknown unknowns, I still think it’s time to give the Gang of Six plan a chance.
Apple Trounces Earnings Estimates
Here is a copy of my write-up of AAPL's conference call yesterday:
I call Apple (AAPL) the Rodney Dangerfield of tech, since the stock gets no respect. I'm sure plenty would argue that Apple has had a huge run over the years, and the stock is also up nicely this year, as well as after hours today. But the valuation is a slap in the face considering the accomplishments of this company. If this were any time period other than the post-recession negativity bubble, Apple's stock would probably trade at 25x earnings. That would have it trading almost double where it stands today, at a mere 13x forward earnings (which go up every quarter).
The company absolutely trounced the estimates. The analysts who were appearing on CNBC when the earnings came out could only say "Wow". EPS topped consensus by almost $2, coming in at $7.79. That is up 122% from the year-ago period. Revenue was equally surprising, coming in at $28.57 billion, up 82% from a year ago. That is astounding growth for a company the size of Apple. So much for the law of large numbers catching up this quarter.
The company sold 20.34 million iPhones during the quarter, representing 142% year over year unit growth. This was way above Street estimates and helped drive gross margins higher to 41.7% this quarter. Asia-Pacific was particularly strong, with sales nearly quadrupling. The iPhone launched at 42 new carriers globally during the quarter and is now available in 105 countries.
iPads were also stronger than expected, with 9.25 million sold during the quarter (183% unit growth). The company sold every single iPad it made during the quarter. The iPad continues to revolutionize the way corporate sales forces are working, and 86% of Fortune 500 companies are either testing or deploying iPads in the enterprise.
Macs were a little light vs. Street estimates at 3.95 million sold. But the 14% unit growth still healthily outpaced the PC market and IDC estimates. Apple will launch the new Lion operating system tomorrow. One thing that could have limited Mac sales during the quarter was that some consumers opted for an iPad instead of another laptop. That's what I am looking to do.
As for guidance for next quarter, it was typically conservative. Earnings per share are expected to be around $5.50, and revenue was guided to $25 billion. Gross margins are forecasted at 38%. But as we have seen quarter after quarter, the company's guidance means very little in the end, and I believe it is almost being tossed aside in forming expectations.
The stock touched $400 after hours, a nice pop. That makes for a nearly 30% rally from the recent June lows. As such, it wouldn't surprise me to see Apple rest again around the $400 level. But looking out further, I still like the stock to go higher, and am holding on to the shares we own and keeping it as one of our largest positions.
long AAPL
I call Apple (AAPL) the Rodney Dangerfield of tech, since the stock gets no respect. I'm sure plenty would argue that Apple has had a huge run over the years, and the stock is also up nicely this year, as well as after hours today. But the valuation is a slap in the face considering the accomplishments of this company. If this were any time period other than the post-recession negativity bubble, Apple's stock would probably trade at 25x earnings. That would have it trading almost double where it stands today, at a mere 13x forward earnings (which go up every quarter).
The company absolutely trounced the estimates. The analysts who were appearing on CNBC when the earnings came out could only say "Wow". EPS topped consensus by almost $2, coming in at $7.79. That is up 122% from the year-ago period. Revenue was equally surprising, coming in at $28.57 billion, up 82% from a year ago. That is astounding growth for a company the size of Apple. So much for the law of large numbers catching up this quarter.
The company sold 20.34 million iPhones during the quarter, representing 142% year over year unit growth. This was way above Street estimates and helped drive gross margins higher to 41.7% this quarter. Asia-Pacific was particularly strong, with sales nearly quadrupling. The iPhone launched at 42 new carriers globally during the quarter and is now available in 105 countries.
iPads were also stronger than expected, with 9.25 million sold during the quarter (183% unit growth). The company sold every single iPad it made during the quarter. The iPad continues to revolutionize the way corporate sales forces are working, and 86% of Fortune 500 companies are either testing or deploying iPads in the enterprise.
Macs were a little light vs. Street estimates at 3.95 million sold. But the 14% unit growth still healthily outpaced the PC market and IDC estimates. Apple will launch the new Lion operating system tomorrow. One thing that could have limited Mac sales during the quarter was that some consumers opted for an iPad instead of another laptop. That's what I am looking to do.
As for guidance for next quarter, it was typically conservative. Earnings per share are expected to be around $5.50, and revenue was guided to $25 billion. Gross margins are forecasted at 38%. But as we have seen quarter after quarter, the company's guidance means very little in the end, and I believe it is almost being tossed aside in forming expectations.
The stock touched $400 after hours, a nice pop. That makes for a nearly 30% rally from the recent June lows. As such, it wouldn't surprise me to see Apple rest again around the $400 level. But looking out further, I still like the stock to go higher, and am holding on to the shares we own and keeping it as one of our largest positions.
long AAPL
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT CEILING TALKS … THE LATEST
- CNBC chief Washington correspondent John Harwood reports from Washington.
KUDLOW DEBT SUMMIT: CEILING THE DEAL?
- Sen. Kay Baily Hutchison, (R) Texas
- Steve Forbes, Forbes Media Chairman & Editor-in-Chief
- Rep. Dennis Kucinich, (D) Ohio; House Domestic Policy Subcmte Chmn
- Byron Dorgan, (D) Fmr. North Dakota Senator
ONE-ON-ONE WITH RUDY GIULIANI
BUDGET; ECONOMY; RUN FOR THE WHITE HOUSE; NEWS CORP/MURDOCH & 9/11 VICTIMS
- Former NYC mayor Rudy Giuliani joins us.
THE GANG OF SIX PLAN & TAXES
- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy & America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
MARKETS
- Jeffrey Kleintop, LPL Financial Chief Market Strategist
IS THERE A U.S. DEBT DOWNGRADE CATASTROPHE LOOMING?
- Dan Mitchell, CATO Senior Fellow
- David Goldman, Former Head of Fixed Income Research at Bank of America
RAJ CO-DEFENDER: DANIELLE CHIESI SENTENCED TODAY
- CNBC’s Scott Cohn reports.
Debt Ceiling Drama Coming Down to the Wire: An Interview with Key Washington Policymakers
There seems to be a spirit of compromise in the new “Gang of Six” proposal. But the plan also raises a lot of important questions. Can it get done in time for the critical August 2nd debt-ceiling deadline? Are the spending cuts real? There are lower tax rates and tax reform for personal and business, except the capital gains tax will go up. It appears IRAs and 401Ks will be tax exempt.
On last night's Kudlow Report, I spoke with three key congressional members on all of the latest developments. Joining me were Sen. Tom Coburn (R-OK), a member—perhaps the ringleader—of the aforementioned “Gang of Six” as well as Sen. Jeanne Shaeen (D-NH).
Shortly thereafter I spoke with GOP maverick Sen. Rand Paul. He’s got the right spirit and the right vision to shrink government and grow the economy. He also believes the tea party is winning.
Here are the videos of both interviews.
On last night's Kudlow Report, I spoke with three key congressional members on all of the latest developments. Joining me were Sen. Tom Coburn (R-OK), a member—perhaps the ringleader—of the aforementioned “Gang of Six” as well as Sen. Jeanne Shaeen (D-NH).
Shortly thereafter I spoke with GOP maverick Sen. Rand Paul. He’s got the right spirit and the right vision to shrink government and grow the economy. He also believes the tea party is winning.
Here are the videos of both interviews.
Flight-to-Safety Trade Coming Off
The market is roughly flat this morning, after a nice rally yesterday on strong volume. The flight-to-safety trade that we have seen over the last week or so seems to be coming off today.
All three of the flight-to-safety components are lower so far. Treasuries are lower, pushing yields up slightly to 2.93%. Gold prices are lower, nearing $1589. And the dollar is lower, helping to push most commodities higher. Oil prices are back to $98.33.
There was another batch of strong earnings reports last night. Apple (AAPL) was the poster child. The company trounced the estimates, and more than doubled its profits. It was an astounding quarter for a company the size of AAPL. I covered the conference call for TheStreet.com, and will post my write-up on the blog later (check back).
Other stocks that are higher after reporting earnings include ISRG and VMW, while RVBD missed revenue estimates and the stock is getting clobbered for -20%.
Asian markets were higher overnight on the improved tone in the U.S. markets and hopeful news on the debt ceiling. And markets in Europe were higher this morning after a relatively successful bond offering by Portugal.
Trading comment: The market is acting better in the big picture. The S&P 500 and Nasdaq are both trading above their 50-day averages. Growth stocks are acting better, and leading stocks continue to break out to new highs. But the market should be acting even better on the lessening of euro angst today. Plus, we're not fully out of the woods in terms of the debt ceiling issue. Another setback in the debates could whack the market again. That said, I do want to pick and add to stocks that are reporting solid earnings, I just don't want to get overly aggressive yet.
long AAPL, ISRG
All three of the flight-to-safety components are lower so far. Treasuries are lower, pushing yields up slightly to 2.93%. Gold prices are lower, nearing $1589. And the dollar is lower, helping to push most commodities higher. Oil prices are back to $98.33.
There was another batch of strong earnings reports last night. Apple (AAPL) was the poster child. The company trounced the estimates, and more than doubled its profits. It was an astounding quarter for a company the size of AAPL. I covered the conference call for TheStreet.com, and will post my write-up on the blog later (check back).
Other stocks that are higher after reporting earnings include ISRG and VMW, while RVBD missed revenue estimates and the stock is getting clobbered for -20%.
Asian markets were higher overnight on the improved tone in the U.S. markets and hopeful news on the debt ceiling. And markets in Europe were higher this morning after a relatively successful bond offering by Portugal.
Trading comment: The market is acting better in the big picture. The S&P 500 and Nasdaq are both trading above their 50-day averages. Growth stocks are acting better, and leading stocks continue to break out to new highs. But the market should be acting even better on the lessening of euro angst today. Plus, we're not fully out of the woods in terms of the debt ceiling issue. Another setback in the debates could whack the market again. That said, I do want to pick and add to stocks that are reporting solid earnings, I just don't want to get overly aggressive yet.
long AAPL, ISRG
19 Temmuz 2011 Salı
MONEY FLOW DIVERGENCE
I often keep tabs on the weekly Chakin money flow indicator, especially when I'm expecting an intermediate degree correction. More often than not there will be a divergence in money flow at intermediate tops as smart money exits ahead of a correction.
This indicator also diverged at the last two bull market tops. It is now showing a huge divergence that I think is probably indicative of a third cyclical bull market top forming.
This indicator also diverged at the last two bull market tops. It is now showing a huge divergence that I think is probably indicative of a third cyclical bull market top forming.
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.IS THERE A DEBT DEAL?
- Sen. Tom Coburn; (R) Oklahoma
- Sen. Jeanne Shaheen, (D) New Hampshire
CUT, CAP & BALANCE?
- Sen. Rand Paul, (R) Kentucky
APPLE’S BLOWOUT EARNINGS
- CNBC’s Jon Fortt reports.
MARKET SURGE
- Steve Grasso, CNBC Market Analyst; Stuart Frankel, Managing Director of Institutional Sales
- Jeremy Siegel, Professor of Finance Wharton School at Univ. of Pennsylvania
ECONOMISTS OPPOSE CONSITUTIONAL BALANCED BUDGET AMENDMENT
- David Webb, Tea Party, Host of The Grinder on AM 970; Founder, Co-founder TeaParty365
- Matt Miller, Host, Public Radio's "Left, Right & Center"; WashingtonPost.com columnist
- Sen. Mike Lee, (R) Utah; "The Only Solution Left to Save our Future" Author
NEWS CORP IN CRISIS: THE HACKING HEARING
-CNBC’s Kayla Tausche reports from London.
MURDOCHS AT THE HACKING HEARING: 'TOP EXECS KNEW NOTHING'
- Sarah Ellison, Fmr. WSJ Reporter; "The War At The Wall Street Journal" Author
- Ken Chandler, Newsmax Magazine Editor-in-Chief
- Lou Colasuonno, Fmr. NYPost/Daily News Editor-in-Chief
Midday Update
The market is nicely higher today, and holding on to its early gains so far. The improved tone started early this morning with Europe, where the markets across the pond bounced. There has also been a flurry of better than expected earnings reports which has bolstered sentiment.
Last night, IBM reported a strong quarter and raised guidance, and its stock is up nicely today. We have also seen bounces in Wells Fargo (WFC) and Coca-Cola (KO), to name a couple others. While Goldman Sachs (GS) has seen a disappointing reaction to its less than stellar results.
There was also some good economic data this morning in the form of stronger than expected housing starts for June.
The dollar is lower today, as the euro gets a bounce. This is helping commodities, with gold prices near $1603 and oil prices higher to $97.75.
The 10-year yield is higher to 2.92%; and the VIX is down -4.5% right at the 20 level currently.
Trading comment: It's tough to get aggressive here, even though bearish sentiment has been rising, the put/call ratio has been very elevated, and expectations seem to be low enough that companies reporting solid earnings are seeing nice pops in their stocks. I would rather take note of those stocks reporting strong earnings, and then looking to add to them on days when the overall market is down and they pull back. When the overall tone of the market improves, those are the stocks that should lead the next advance.
Last night, IBM reported a strong quarter and raised guidance, and its stock is up nicely today. We have also seen bounces in Wells Fargo (WFC) and Coca-Cola (KO), to name a couple others. While Goldman Sachs (GS) has seen a disappointing reaction to its less than stellar results.
There was also some good economic data this morning in the form of stronger than expected housing starts for June.
The dollar is lower today, as the euro gets a bounce. This is helping commodities, with gold prices near $1603 and oil prices higher to $97.75.
The 10-year yield is higher to 2.92%; and the VIX is down -4.5% right at the 20 level currently.
Trading comment: It's tough to get aggressive here, even though bearish sentiment has been rising, the put/call ratio has been very elevated, and expectations seem to be low enough that companies reporting solid earnings are seeing nice pops in their stocks. I would rather take note of those stocks reporting strong earnings, and then looking to add to them on days when the overall market is down and they pull back. When the overall tone of the market improves, those are the stocks that should lead the next advance.
18 Temmuz 2011 Pazartesi
A Good Debt-Ceiling Deal
As uncertain and unruly and disheveled as the debt-ceiling debate may be, there are still good grounds to reach a deal. It could help the economy. It could keep the policy ball moving in the direction of smaller government. It could add a key business tax incentive for economic growth. And it could even stabilize the dollar.
There really are two problems here: First is raising the debt ceiling to avoid default. (That’s a real good idea.) Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S&P and Moody’s, who want roughly $4 trillion in cuts over ten years in order to keep our AAA rating.
But here’s the tricky part for me: What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.
But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only $1 trillion in so-called cuts, this “Plan B” won’t pass the S&P/Moody’s test. The number is too small.
Then there’s the grand design for President Obama’s big-picture deal. It is over $4 trillion, but it includes taxes that look to be off the table from the Republican standpoint.
But this has me thinking. Assuming there are real spending cuts in the Obama package, I wonder if it’s possible to insert a business tax cut in the deal that would repatriate foreign earnings of U.S. companies. Let’s say with a 5 percent tax holiday. And let’s say it’s a two-to-three-year plan, or lasts until full-fledged business tax reform can come about. That would be a big plus for growth and jobs. We’re talking a base here of nearly $2 trillion in corporate cash that one way or another can come into our economy.
Next up is cut, cap, and balance. Did Obama budget director Jack Lew open the door to this Republican House plan during the Sunday shows? This is my preferred option right now. The burden of government on the economy would be reduced from roughly 24 percent to 20 percent. That narrows the wedge between work and reward. It strengthens private market resources by curbing government redistribution. This is probably the biggest philosophical sticking point in the whole political debate. Of course, I’m for free-market capitalism.
But here too I’m not sure about the numbers. Various news accounts talk about a $2.4 trillion debt-ceiling increase with an equal spending cut. I presume that’s a ten-year number on the spending side. But that wouldn’t pass the S&P/Moody’s test of $4 trillion.
Other accounts of cut, cap, and balance use the Paul Ryan fiscal-year 2012 spending cut of $110 billion. That would be a home run. It would come to $5.8 trillion over ten years and would certainly satisfy the credit-rating agencies. In other words, the GOP House plan is far better from a rating-agency standpoint than any other plan out there -- that is, if the Ryan numbers are actually part of the plan. But we don’t know the numerical details yet. That’s a problem.
We’ve learned from the cash-flow analysis of Treasury revenues and government spending that there just has to be a debt increase. As many have already written, the Jay Powell bipartisan policy analysis shows that you can cover the interest on Treasury debt along with Social Security and health entitlements. You could pay the Defense Department vendor bills. You could keep unemployment insurance benefits. But you’d still be $134 billion short for the rest of the August budget.
The U.S government has $172 billion of revenues coming in that month. But prior budgets have obligated $306 billion of spending. So you’re looking at a 44 percent budget cut. Maybe a good idea, but not realistic in one month. It’s just too big a shock to the system. And according to the Powell analysis, you couldn’t pay active duty military, veterans, or the FBI, to name just a few.
So the revenue-allocation view of not raising the debt ceiling really doesn’t hold any practical water. Why some of my conservative friends keeps pushing this is beyond me.
So is a deal possible? I still think it is. The high end of the budget cuts from the White House and the House GOP possibly could be coupled with a tax deal on repatriation and even future tax reform. After all, economic-growth measures should be crucial in this sputtering economy.
Reducing the corporate-tax wedge and reducing the budget-spending wedge, to quote my friend Arthur Laffer, would provide a tonic for the economy. In other words, a debt deal can still work and promote growth.
There really are two problems here: First is raising the debt ceiling to avoid default. (That’s a real good idea.) Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S&P and Moody’s, who want roughly $4 trillion in cuts over ten years in order to keep our AAA rating.
But here’s the tricky part for me: What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.
But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only $1 trillion in so-called cuts, this “Plan B” won’t pass the S&P/Moody’s test. The number is too small.
Then there’s the grand design for President Obama’s big-picture deal. It is over $4 trillion, but it includes taxes that look to be off the table from the Republican standpoint.
But this has me thinking. Assuming there are real spending cuts in the Obama package, I wonder if it’s possible to insert a business tax cut in the deal that would repatriate foreign earnings of U.S. companies. Let’s say with a 5 percent tax holiday. And let’s say it’s a two-to-three-year plan, or lasts until full-fledged business tax reform can come about. That would be a big plus for growth and jobs. We’re talking a base here of nearly $2 trillion in corporate cash that one way or another can come into our economy.
Next up is cut, cap, and balance. Did Obama budget director Jack Lew open the door to this Republican House plan during the Sunday shows? This is my preferred option right now. The burden of government on the economy would be reduced from roughly 24 percent to 20 percent. That narrows the wedge between work and reward. It strengthens private market resources by curbing government redistribution. This is probably the biggest philosophical sticking point in the whole political debate. Of course, I’m for free-market capitalism.
But here too I’m not sure about the numbers. Various news accounts talk about a $2.4 trillion debt-ceiling increase with an equal spending cut. I presume that’s a ten-year number on the spending side. But that wouldn’t pass the S&P/Moody’s test of $4 trillion.
Other accounts of cut, cap, and balance use the Paul Ryan fiscal-year 2012 spending cut of $110 billion. That would be a home run. It would come to $5.8 trillion over ten years and would certainly satisfy the credit-rating agencies. In other words, the GOP House plan is far better from a rating-agency standpoint than any other plan out there -- that is, if the Ryan numbers are actually part of the plan. But we don’t know the numerical details yet. That’s a problem.
We’ve learned from the cash-flow analysis of Treasury revenues and government spending that there just has to be a debt increase. As many have already written, the Jay Powell bipartisan policy analysis shows that you can cover the interest on Treasury debt along with Social Security and health entitlements. You could pay the Defense Department vendor bills. You could keep unemployment insurance benefits. But you’d still be $134 billion short for the rest of the August budget.
The U.S government has $172 billion of revenues coming in that month. But prior budgets have obligated $306 billion of spending. So you’re looking at a 44 percent budget cut. Maybe a good idea, but not realistic in one month. It’s just too big a shock to the system. And according to the Powell analysis, you couldn’t pay active duty military, veterans, or the FBI, to name just a few.
So the revenue-allocation view of not raising the debt ceiling really doesn’t hold any practical water. Why some of my conservative friends keeps pushing this is beyond me.
So is a deal possible? I still think it is. The high end of the budget cuts from the White House and the House GOP possibly could be coupled with a tax deal on repatriation and even future tax reform. After all, economic-growth measures should be crucial in this sputtering economy.
Reducing the corporate-tax wedge and reducing the budget-spending wedge, to quote my friend Arthur Laffer, would provide a tonic for the economy. In other words, a debt deal can still work and promote growth.
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.THE DEBT DIVIDE DRAMA - HOUSE
- Rep. Xavier Becerra, (D) California
- Rep. Jeb Hensarling, (R) TX
THE DEBT DIVIDE DRAMA - SENATE
- Sen. Mark Warner, (D) Virginia
- Sen. David Vitter, (R) Louisiana
$1600 GOLD
- Keith McCullough,Founder & CEO of Hedgeye Risk Management
THE PAWLENTY CAMPAIGN
-CNBC’s John Harwood reports from Urbandale, Iowa
MARKETS: IS GOLDMAN'S GDP PESSIMISM SHAKING UP STOCKS?
- Anthony Scaramucci, SkyBridge Capital Managing Partner
- Lee Munson, Portfolio Asset Management Chief Investment Officer
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist
NEWS CORP HACKING SCANDAL GROWS
- CNBC’s Kayla Tausche reports.
MURDOCH FACING MUTINY? WILL SCANDAL COME TO U.S.?
- Martin Dunn, Fmr. Editor in Chief, NY Daily News; Fmr. News Corp Executive
- Brian Stelter, The New York Times Media Reporter
SECOND DEATH AT PHARMA CEO'S HOME
- CNBC’s Jane Wells reports.
LEGAL LOOK AT CASE, AND POSSIBLE IMPACT ON MEDICIS
- Jay Fahy, Former Federal Prosecutor Fahy & Choi Partner
TOURNAMENT
The tournament this weekend was a big success. Two of our lifters made it onto the winners platform. Our lightweight took the bronze medal and our superheavyweight took the gold.
Considering this was their first national championship that was some pretty strong lifting.
Considering this was their first national championship that was some pretty strong lifting.
Monday Morning Musings
The markets are lower this morning on no real news, but rather a lack of any improvement in last week's issues. The bank stress tests in Europe last week did little to alleviate concerns about their financials. And the fact that no agreement on raising the debt ceiling here in the U.S. has been reached also continues to weigh on investor sentiment.
Other than that, there hasn't been a lot of market moving news. In earnings, Halliburton (HAL) posted an upside surprise, while IBM reports after the close this evening.
Financials remain the weakest group so far, while tech stocks are down the least as Apple (AAPL) and Google (GOOG) continue to buck the weakness and post gains in early trading.
Asian markets were mostly lower overnight. And the flight to safety trade is on today, which means the dollar, Treasuries, and gold are all higher.
Gold prices have hit the $1600 level, and silver prices are up nicely also. Treasuries are higher, pushing yields on the 10-year down to 2.90%. And the volatility index (VIX) is +10% higher today to 21.50.
Trading comment: No positive catalysts to embolden the bulls have the market in a position where it is vulnerable to pullbacks right now. The markets are working off their overbought conditions, and should be back to oversold again soon. Sentiment, which had become bullish again after the 2 week rally, should also begin to show more bearishness building. In addition, we are entering the low volume trading part of the summer. All of this makes me feel like staying defensive, raising more cash, trading around core positions, but waiting for a better buying opportunity down the road.
long AAPL, GOOG, HAL, IBM
Other than that, there hasn't been a lot of market moving news. In earnings, Halliburton (HAL) posted an upside surprise, while IBM reports after the close this evening.
Financials remain the weakest group so far, while tech stocks are down the least as Apple (AAPL) and Google (GOOG) continue to buck the weakness and post gains in early trading.
Asian markets were mostly lower overnight. And the flight to safety trade is on today, which means the dollar, Treasuries, and gold are all higher.
Gold prices have hit the $1600 level, and silver prices are up nicely also. Treasuries are higher, pushing yields on the 10-year down to 2.90%. And the volatility index (VIX) is +10% higher today to 21.50.
Trading comment: No positive catalysts to embolden the bulls have the market in a position where it is vulnerable to pullbacks right now. The markets are working off their overbought conditions, and should be back to oversold again soon. Sentiment, which had become bullish again after the 2 week rally, should also begin to show more bearishness building. In addition, we are entering the low volume trading part of the summer. All of this makes me feel like staying defensive, raising more cash, trading around core positions, but waiting for a better buying opportunity down the road.
long AAPL, GOOG, HAL, IBM
15 Temmuz 2011 Cuma
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.DEBT DEAL DRAMA RAGES ON
- Gov. Ed Rendell, (D) Fmr. Pennsylvania Governor; NBC News Political Analyst; Fmr. DNC Chairman
- Fmr. Rep. Artur Davis (D)
- Rep. Nan Hayworth, (R) New York
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist
DO 80% WANT HIGHER TAXES?
- Scott Rasmussen of Rasmussen Reports join us.
DEBT TROUBLE IN EUROPE
- CNBC’s Michelle Caruso-Cabrera reports from Rome.
THE MARKETS
- Steven Weiss, Author, "The Billion Dollar Mistake;" Fast Money Contributor
Free Market Friday
THE OBAMA DOWNGRADE
- Andrew Ross Sorkin, New York Times Business Reporter; Author, "Too Big To Fail: CNBC contributor
- Mark Simone, deputy managing editor of National Review
- Armstrong Williams, Radio Talk Show Host/Syndicated Columnist
CAN OBAMA PULL A 'CLINTON' ON THE GOP?
- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Steve Moore, Senior Economics Writer for WSJ Editorial Board;"Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth
Google Blows Past Estimates
There are lots of stocks on the move this morning, but the biggest mover is Google (GOOG), which is up $65 (12%) after a big earnings beat. I don't think that expectations were that high for GOOG, given all the rumors about how much hiring they were doing. But they beat EPS numbers by nearly $1, and grew earnings +35% vs. year-ago, a pretty nice growth rate for a company of its size.
In the oil patch, BHP Billiton (BHP) said it will acquire Petrohawk Energy (HK) for a huge 65% premium. That news has ingnited the natural gas group. I am pleased that one of our holdings, Chesapeake (CHK) is up 7% in sympathy.
Also, Carl Icahn's company has made an unsolicited offer for Clorox (CLX) for $76.50. The stock is up 7% on the news, but I doubt the board will accept this offer. My guess is that it would have to be a lot higher for them to take it seriously.
This morning we will get the results from another round of bank stress tests in Europe. The big question is what their exposure to the PIIGS countries looks like, and how they would be affected by any sort of default. Bank stocks are flat here in the U.S., despite Citi beating estimates this morning, and JPM beating estimates yesterday.
Asian markets were mixed overnight; the dollar is slightly lower today; the 10-year yield is flat near 2.92%; and the VIX is up slightly to 20.87.
Oil prices are higher above $97, and gold prices are flattish near $1588.
I'll wait to update my daily trading comment until I see how the market finishes today--
long CLX, CHK, GOOG
In the oil patch, BHP Billiton (BHP) said it will acquire Petrohawk Energy (HK) for a huge 65% premium. That news has ingnited the natural gas group. I am pleased that one of our holdings, Chesapeake (CHK) is up 7% in sympathy.
Also, Carl Icahn's company has made an unsolicited offer for Clorox (CLX) for $76.50. The stock is up 7% on the news, but I doubt the board will accept this offer. My guess is that it would have to be a lot higher for them to take it seriously.
This morning we will get the results from another round of bank stress tests in Europe. The big question is what their exposure to the PIIGS countries looks like, and how they would be affected by any sort of default. Bank stocks are flat here in the U.S., despite Citi beating estimates this morning, and JPM beating estimates yesterday.
Asian markets were mixed overnight; the dollar is slightly lower today; the 10-year yield is flat near 2.92%; and the VIX is up slightly to 20.87.
Oil prices are higher above $97, and gold prices are flattish near $1588.
I'll wait to update my daily trading comment until I see how the market finishes today--
long CLX, CHK, GOOG
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