The MasterCharts: July 2011
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Friday, July 29, 2011

CHART OF THE DAY: Apple Made Twice As Much Profit On Phones As Everybody Else COMBINED

CHART OF THE DAY: Apple Made Twice As Much Profit On Phones As Everybody Else COMBINED
Matt Rosoff | Jul. 29, 2011, 2:37 PM | 449 | 6

Apple is now the leading phone manufacturer by market share. It passed Nokia for the first time last quarter.

But more impressive: it captured two-thirds of all profits in the mobile phone business last quarter, according to statistics from Asymco.

Another way of looking at it: Apple made about twice as much profit on mobile phones as Samsung, RIM, and HTC did -- combined. Nokia, Motorola, Sony-Ericsson, and LG all saw losses.

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CHART OF THE DAY: Apple Made Twice As Much Profit On Phones As Everybody Else COMBINED

Wednesday, July 27, 2011

A head and shoulders top may be forming - Mark Hulbert - MarketWatch

A head and shoulders top may be forming

Commentary: Prominent technical analyst alarmed by what he sees

By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) — As if we didn’t already have enough to worry about, with a completely dysfunctional political system possibly leading the government into a default, a prominent technical analyst just issued a bombshell:

According to an email he sent out on Tuesday, the stock market is very possibly forming a massive head and shoulders top — with quite bearish implications.

The analyst is W. H. C. Bassetti, who is an adjunct professor of finance and economics at Golden Gate University in San Francisco. He is better known in investment circles as the editor of the latest edition of the classic textbook on technical analysis, originally written many decades ago by Robert Edwards and John Magee: Technical Analysis of Stock Trends.

A head and shoulders formation, for those of you not familiar with the strange language of technical analysis, exists when the market rallies on three successive occasions and when the second of those three rallies rises to a higher level than the other two. The “shoulders” in this pattern are formed by the first and third rallies, while the second one forms the “head.”

The “neckline” is defined by the lows set between each of the two shoulders and the head. The formation is complete when that neckline is broken following the third rally.

SPX 1,304.89, -27.05, -2.03%

Consider the S&P 500 index (SNC:SPX) . The head came in the rally into the late April high, while shoulders were formed by the rallies in February and early July. The neckline is in the 1250-1270 area and, if that neckline is broken, Bassetti says the downside target is S&P 1127.52.

It’s tempting for those who aren’t technical analysts to dismiss this talk as little more than crazy mumbo jumbo. And, indeed, in the 1970s and 1980s, finance professors had great fun dismissing technical analysis as a huge joke — a complete waste of time.

But in more recent decades there have been a number of academic studies of technical analysis, including of the head and shoulders formation in particular, that found that chart formations have some predictive abilities after all.

One of the more prominent defections from that erstwhile academic orthodoxy is Andrew Lo, a finance professor at MIT and director of that institution’s Laboratory for Financial Engineering. Lo also is chief investment strategist at AlphaSimplex Group, a hedge fund firm.

To be sure, neither technical analysis in general, nor head and shoulders formations in particular, are foolproof, so the market is not automatically doomed just because of what Bassetti sees in the chart.

In any case, note carefully that the formation to which he draws our attention is not yet complete; the market would need to drop another 5% to 6% for that to happen.

Still, Bassetti points out, the chart formation is “not encouraging,” especially given what’s going on in Washington. “Playing with matches is never something irresponsible children should do, and especially not around head and shoulders formations.”

Copyright © 2011 MarketWatch, Inc. All rights reserved.
A head and shoulders top may be forming - Mark Hulbert - MarketWatch

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Monday, July 25, 2011

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Sunday, July 24, 2011

Weekly Chartology And Key Event Summary

Weekly Chartology And Key Event Summary
zero hedge 
Author: Tyler Durden
Date: July 24, 2011 00:29: CEST

Two for the price of zero: first, we present David Kostin's weekly chartology, which once again focuses on the only good thing to discuss these days: US corporate earnings which have now seen 45% of companies report (note: not European ones which as we pointed out on Friday have been abysmal so far). Here, among other things we learn that Apple now accounts for 40% ($0.23/share) of the $0.57 aggregate in EPS surprise beat for the S&P 500. Said otherwise, and the cumulative trailing "beat" for all the remaining companies in the S&P would have been 40% lower. In summary: "Three key numbers: 18% year/year EPS growth, 13% revenue growth, and 64 bp of margin expansion" Another notable observation which is in line with our prediction from mid May that staples will outperform discretionary: "Market participants will be surprised to learn that Consumer Staples growth is stronger than Consumer Discretionary growth for both sales (8% vs. 4%) and earnings (7% vs. 5%). Philip Morris International (PM) is a key contributor to growth in Consumer Staples. Actual results together with consensus expectations indicate slight margin declines in Telecom Services and Consumer Staples relative to 2Q 2010." Some may indeed be surprised, others not so much. Lastly, Kostin still sees 1450 on the S&P by the year end despite Hatzius' cut to estimates last week. Second, also included is last week's key event summary.

Here is the one chart that summarizes corporate earnings so far:

The full presentation is below, but first, last week's key bullish and bearish events courtesy of Rational Capitalist Speculator


+ IBM, Microsoft, and Intel earnings results point to continued business spending and expanding operations.  Meanwhile, a very positive report from GE points to credit demand making a come back.  Businesses are preparing for increased global demand led by China. Meanwhile, growth  in offshore earnings will ensure that S&P500 companies maintain steady earnings growth and keep the bull market chugging. (Don't own nor am I shorting any of these companies)

+ This week's rally was set off by the inevitable solution to the Eurozone debt crisis.  For all who were chicken-littling, you missed a great opportunity to buy.  The Nasdaq and S&P were up almost 4% this week, while the Dow was up roughly 3%.  Markets like to climb a wall of worry and that's exactly what they did.      

+ The slowdown in the global economy is transitory as Japan, the main victim of the exogenous shock that was the earthquake and nuclear disaster, just reported a trade surplus and signals that supply is making its way back online.  Their economy is recovering and will translate to a global rebound in the second half of the year.  The Eurozone is also bouncing back with manufacturing orders for May zooming higher by 3.6% vs. expectations of a 0.8% rise; the increase was led by Spain, Italy, and France.     

+ Slowly but surely, the construction sector is getting back on its feet.  The US Housing Starts report posts a surprise gain and its best result since the beginning of the year.  Another indicator, the Buildfax Residential Remodeling Index just turned in its highest reading in the index's history.  Housing affordability is at its best in 3 decades.  Construction affects large swaths of the economy, so these news-bits deal a double bull effect.  


- China's HSBC flash PMI for July just hit its lowest level in over 2 years and is signaling contraction for the first time in over a year.  Speaking of China being in contraction, didn't Premier Wen say that inflation was conquered just a month ago?  So what's this?  This goes to show you that officials have no idea what they're up against.  They are way behind the curve.  More tightening to come.  Pssst….the Shanghai Composite notched a lower close in 4 of the past 5 days; it looks to be rolling over again.  

- So Europe decides to turn the EFSF into a TARP Clone/Quasi-QE Machine.  They also declare that Greece will undergo a "transitory" default (I'm glad "transitory" isn't Pee Wee's word of the month or I'd be deaf).  Now that the US has stopped QE, here comes the EU.  Now the American consumer will be held hostage by the Europeans as oil just hit $100 a barrel….again. 

- Sentiment is slowly turning.  If China is contracting, Europe is a hair away, and the US is perilously  close, any negative event at this point will tip the scale.  Confidence can be fickle.  Just look at the follow through from the Eurozone deal rally on Thursday, not very good.    

- The recent good news in housing is…"transitory".  Purchase applications to buy a home have been flat to down in the past 2 months, while existing home sales "unexpectedly" declined.  As long as the job market remains depressed, don't count on any rebound in housing anytime soon.  The same can be said for commercial real estate. 

And now, the complete David Kostin chartology.

Kickstart 7.23 

Read more…

Monday, July 18, 2011

Inflationistas vs. Deflationistas: What Does CPI and PPI Tell Us?

Inflationistas vs. Deflationistas: What Does CPI and PPI Tell Us? 
July 18, 2011 06:46: CEST
Author: Econophile -  zero hedge

This article originally appeared in the Daily Capitalist.
Inflationistas are probably confounded by Friday's Consumer Price Index report that showed a decline of 0.2% in June. The report pins the decline, the first since June 2010, on falling energy costs. As a large component of CPI it:
declined 4.4 percent in June, the largest decline since December 2008. The gasoline index, which fell 2.0 percent in May, declined 6.8 percent in June. (Before seasonal adjustment, gasoline prices fell 5.8 percent in June.) Despite the recent declines, the gasoline index has increased 35.6 percent over the past 12 months. 
On the other hand, the deflationists are probably using the data to confirm their belief that we are in a deflation.
The data shows that "core" price inflation, all items less food and energy, was still +0.3%, and up 1.6% for the year. The broad CPI-U was up 3.4% for the year. Core was up 0.03% for the second month, the biggest back-to-back gain in two years.
Some key items:
[E]nergy dropped 4.4 percent, following a 1.0 percent decline. Gasoline fell 6.8 percent after decreasing 2.0 percent in May. Within the core new vehicles increased 0.6 percent, used cars and trucks jumped 1.6 percent, and apparel increased 1.4 percent in June. And owners' equivalent rent is no longer as soft as in recent months, rising 0.2 percent.
Food:  The food index rose 0.2 percent in June after rising 0.4 percent in each of the prior two months. The index for meats, poultry, fish, and eggs turned down in June, falling 0.4 percent after increasing more than one percent in each of the previous four months. The fruits and vegetables index declined for the third month in a row in June, falling 0.3 percent as the fresh vegetables index continued to decline. In contrast, other major grocery store food groups increased. The index for cereals and bakery products rose 0.6 percent in June, and the dairy and related products advanced 0.5 percent, as did the index for other food at home. The index for nonalcoholic beverages increased 0.3 percent as the coffee index continued to rise. The index for food at home has risen 4.7 percent over the last 12 months, with all the major groups increasing 3.2 percent or more. The index for food away from home rose 0.3 percent in June after rising 0.2 percent in May.

There are some things to take away from this report. Core is still trending upward, but oil seems to be declining and bringing CPI down. Oil is not based so much on market factors as it is by OPEC. Supply and demand has an impact on these prices, but as we all know, OPEC can influence prices by increasing or decreasing production. Thus when economist look at CPI they like to remove the impact of oil to see if they can get a better read on the data without the influence of OPEC.
I would not entirely agree with that. If demand was superfluous to OPEC, then prices wouldn't fluctuate as much as they have. As demand for oil grows, oil prices rise worldwide. But, I believe prices rise not only because of demand, but because of the impact of a devalued dollar. And we aren't the only country in the world that is devaluing their currency. So, I believe it is possible to look at oil much as any other commodity that impacts our cost of living, regardless of OPEC's impact. All I know right now is that demand is down worldwide because of falling industrial production, and prices have fallen. It shouldn't be excluded from CPI calculation and that is why CPI went down.
As my readers know, I believe "inflation" is an increase of money supply brought about by the Fed, and that price increases are an effect of inflation. To distinguish this from the common definition of "inflation," I will refer to price increases as "price inflation." The reason we are not seeing rapid price inflation is that money supply growth has been rather modest considering the Fed's attempts to pump the economy full of money and credit. Quantitative easing is an inefficient way to create price inflation, at least as compared to an expansion of money and credit by banks. And as we all know, banks aren't lending robustly these days.
But the Fed is indeed pumping money, and monetary inflation is the reason we aren't seeing deflation. True (Austrian) Money Supply (TMS2 - green line) exploded post-Crash until January, 2010, dropped like a rock until, late 2010, when it started growing again. See this chart from Michael Pollaro which I have amended with the dates of QE1 and QE2:

As you can see, the Fed has been pushing on a string, attempting to create price inflation and prevent "deflation." They think they have succeeded in the deflation part, but they are dissatisfied with their attempts at inflation.
The next monetary data report should show more growth in TMS2. QE1 kept TMS2 expanding for about 10 months after it stopped in March, 2009-- through January, 2010, when it collapsed again. I would expect the effect of QE2 to be shorter than QE1 because of the post-Crash chaos has been resolved to the extent that now positions are known and we are in a slow but steady debt liquidation process. This liquidation phase is much stronger than the Fed realizes and the resolution of malinvestment is going slowly, no thanks to them. This hampers the formation of new capital and discourages businesses from expanding as the economy remains in the doldrums. Thus more monetary steroids loses its efficacy as this process continues.
So, as an inflationista, why haven't we seen prices go crazy? Let me summarize my thoughts:
  1. Inflation is a monetary phenomenon, and price inflation is a result of it.
  2. Price inflation is caused by an expansion of the money supply.
  3. There is no such thing as demand-pull price inflation, or that we cannot have price inflation because capacity utilization of factories is low.
  4. In order for prices to really take off, money supply needs to take off.
  5. We have had a roller coaster of monetary stimulus through QE, causing significant gyrations in money supply.
  6. QE (helicoptering money into Wall Street) has a lesser impact on money supply than bank money and credit expansion. It works, it just doesn't have the multiplier bang for your buck.
  7. Money supply growth has been historically lower as compared to prior inflations that expanded through bank credit (see 2001 on the chart above).
  8. The monetary impact of QE2 is not done yet, but it will have a shorter impact on money supply than QE1.
  9. CPI prices are increasing modestly. The producer price index (PPI) is showing much higher price increases and this is starting to squeeze wholesalers and retailers. They will attempt to raise prices.
  10. A question arises as to whether or not price increases will be accepted by consumers since wage growth has been flat. I believe increases will be rejected by consumers who will further restrict consumption in response. Or, retailers will swallow the difference, see profits squeezed, and either way, the economy will be harmed from monetary expansion.
  11. Ultimately the CPI will rise further, especially if the Fed does QE3, which I believe will happen. Flat-to-declining growth will put pressure on the Fed to act. A low CPI (or PCE) and stagnating employment will encourage the Fed to do QE3 to revive a moribund economy.
  12. That will lead to continued stagnation.
  13. The key to recovery will be the liquidation of malinvestment and its related debt. It is happening, but the process is slow and more money pumping will only slow it down further.
  14. Stagflation.

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