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| 2010-08-17 09:36 |
SELLING LIKE HOTCAKES...BUT TO WHOM? (FINAL EDITION)
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I'm Hosting "Varney & Co." on the Fox Business Network today at 9:20- 11:00
am EST.
Boosters of more government spending are saying all the cash thrown against the wall thus far hasn't hurt the U.S. or its
reputation in the world. They point to our Treasuries and the notion that someone must be real impressed to give up money for ten years. I must
disagree, this isn't a Sally Field moment, they may like us but don't think they really like our paper that much. Sure, the auctions are going well,
and someone is buying up all that paper, but it's not like we need to put up a velvet rope to control the flow of investors so eager to scarf up
government debt. Fact is the world has been selling government debt, or simply holding the line, except for the curious case of the United Kingdom.
I'm not sure why the UK has increased its U.S. Treasury holdings to $362.2 billion through June 2010 from $90.8 billion a year earlier. I
don't know why the UK is buying up so much of this super low yielding paper. There has to be some kind of backroom deal on this situation. Of course,
for many nations, 2.57% over ten years is worth the price of admission considering their own economic dire straits. But, there is something odd about
the appetite from the UK and Hong Kong ($141.0 billion from $95.7 billion year over year).
U.S. Treasury Holding Trends
* China's Treasury holdings
are down $96.2 billion from last July to this June
* Japan's Treasury holdings up $95.4 billion June to June
* Oil exporter's holdings up $12.0
billion
* Brazil holdings up $22.9 billion
* Intergovernmental ownership is $4.528 trillion
* Public ownership is $8.786 trillion
So, the notion that everyone is buying our debt, and therefore the mountain of the
debt is mitigated or not a big deal is a folly. Moreover, it's just weird the Fed buys Treasuries and takes the proceeds and gives most of it to
Treasury. Monetizing debt is like playing Russian Roulette with all but one chamber in the gun filled with a round.
The market held up okay
yesterday, not violating key technical parameters, but volume was light as was news. Today, it's about retail earnings, and it's clear the same theme
is in place. Low, to no top line growth, but better-than-expected earnings per share is the message for retailers. Another message is the rest of the
world is rocking.
While top line growth was
disappointing for Wal-Mart (WMT) and Home Depot (HD), the 32.6% increase in capital expenditures at Home Depot is a very bullish sign. During the
quarter, the company laid out $240.0 million up from $181.0 million a year earlier. Pricing power is the issue as the average ticket price was $52.30
from $52.25 (for the first six-months average ticket price was down $0.04 year over year).
Hot Stock
Today's hot stock
is Potash (POT) as the company revealed it has turned down an "inadequate offer" from BHP Billiton. I said a couple of months ago to be overweight in
this space and in fact, POT is open on the Swing Strategies service (the gyrations made me hesitate from putting it on the Hotline). So,
hopefully, the entire space will climb today. All of the agriculture positions on the Hotline are poised to open sharply higher.
Economic Data
Housing permits came in at an annual rate of 556,000; the Street was looking for 573,000. Housing starts
came in at an annualized rate of 546,000 versus consensus of 555,000.
Equity futures actually edged higher after the news; maybe reading is
less supply.
Producer prices climbed 0.2%, in line
with expectations, with the core up 0.3% beating consensus of +0.1%.
Two Different Stories, Once Again
By: Brian Sozzi, Equity
Research Analyst
After the $0.01 earnings miss for 2Q10 and tepid FY guidance/commentary by Lowe's (LOW) yesterday, it's safe to say the
market was waiting on pins and needles for the report from Home Depot (HD) this morning. Post our meeting with management last month, we left under
the impression that 2Q10 would be solid overall, but not as robust on the bottom line as in previous periods. Home Depot continues to invest in
technology and in store initiatives to better utilize its asset base and with margin comparisons becoming tougher, and housing related data softening,
it was apparent that Home Depot's wow factor as it pertains to earnings was moderating.
Please visit www.wstreet.com to read remainder of piece.
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Disclaimer: Securities Operations Forum is providing this research to assist investors in determining when to buy and when to sell. All investment decisions are yours and as a result you could make or lose money. Securities Operations Forum, its employees and/or its affiliates and family members may from time to time take positions in the open market or otherwise with respect to the securities discussed, but not have stock ownership equal to or greater than 1% of the outstanding stock of the covered company nor does any employee of Securities Operations Forum sit on the Board of Directors of any covered company. The statements made herein include information obtained from sources believed to be reliable, but no independent verification has been made and we do not guarantee its accuracy or completeness. The statements made herein contain general information and do not constitute an offer to buy or sell any security. |
