Friday, July 22, 2011


Before we jump up and down about MSFT's headline earnings beat, I would mention that while deferred revenue was good, the company's 4Q tax rate was much lower, only 7% vs. 25% a year earlier. As a result, nearly all the bottom-line beat was due to the change in the effective tax rate!!

Run, don't walk, to read about the most recent reviews of the new Apple MacBook Air 13-inch notebook.

A must buy -- from my perch.

Crude is once again approaching $100 a barrel.

I suppose you can say what we have learned from history is that we have not learned from history.

Adding to Peter Boockvar's comments, below is what the IMF wrote about the lessons learned in Argentina's debt crisis in the early 2000s:

As stated in the text, an important lesson of the Argentine crisis is that market-based and voluntary financial engineering operations, such as debt swaps transacted at current market yields, do not work during a crisis. This follows from the voluntary or market-based nature of such operations, which implies that they are by definition NPV-neutral. But interest rates are typically higher during crisis, and any NPV-preserving transformation of cash flows made at higher rates would mean a much higher debt-service burden calculated at more normal rates and serves to worsen debt sustainability.

Voluntary debt swaps (and debt buybacks) done during a crisis can be likened to the case of an individual who, unable to service mortgage undertaken when interest rates were low, decides to refinance it at a much higher interest rate in exchange for temporary relief. -- "The IMF and Argentina, 1991-2001"

Miller Tabak's Peter Boockvar reports that there is a big condition in the Greek bailout agreement:

DJ is reporting that the ECB is not willing to accept possibly newly defaulted (selectively) Greek debt as collateral for loans to Greek banks out of the goodness of their heart but because the EFSF may be willing to guarantee the ECB's Greek bond holdings from any loss. This is an ECB demand and it remains to be seen if the EU will agree to have the EFSF used for this too in addition to its other newly announced functions.

For the fifteenth week in a row, initial jobless claims exceeded 400,000. Claims rose back to 418,000 this past week, which is about 9,000 higher than consensus. More of the same -- and further evidence of structural employment issues and the screwflation of the middle class.

I don't think it is going to be fun in the market overall, for the averages, nor will it be easy in the weeks ahead, and a healthy dose of skepticism should not be abandoned as we move toward S&P 500 1400, which many expect to reach. Worries:

1. Eurozone slowdown. The composite output for Germany decreased to a 24-month low of 52.2 in July from 56.3 in June. The flash services activity index dropped to 52.9 in July from 56.7 in the previous month and was well below forecasts for a reading of 56.1. The latest reading was the lowest in 17 months. The flash purchasing managers' index for the manufacturing sector fell to a 21-month low of 52.1 in July from 54.6 in June. (Consensus was for 54.1.) The flash eurozone composite PMI fell to a 23-month low of 50.8 in July from June's 53.3. (Consensus was for 52.6.) The latest reading was the lowest since August 2009 and signaled a near-stagnation of private-sector output, the rate of growth having slowed sharply in each of the past three months. The eurozone manufacturing PMI slid to 50.4 from 52, well below economists' forecast of 51.5. The services PMI declined to 51.4 from 53.7. (Consensus was for 53.2.) Both manufacturing and services index readings were the weakest in 22 months.

2. China slowdown. HSBC's China "flash" purchasing managers' index fell to a 28-month low of 48.9 in July, down from 50.1 in June, marking the first time the gauge has indicated a contraction since July 2010. The preliminary version of the PMI output index also showed further deterioration, dropping to 47.2 in July from 49.8 in June. Both these prints were below expectations.

3. Can-kicking continues both in the eurozone and on our shores. A selective default in Greece appears likely, and a temporary fix appears likely in the U.S. Investors should see themselves through both. Again, growth-deflating forces, in the aftermath of the credit crisis, seem to be the order of the day around the world.