At the open 4-15-11

News –

• Equity markets were mostly lower in Asia overnight…European indices are mixed in morning trading and in the US, futures indicate a lower opening.
• In specific earnings of interest, Google announced after the close yesterday earnings that were 20% above last year’s level but with cost growth higher than analysts expected the stock sold off 5.5% in after hours trading. This morning Bank of America announced earnings that missed analysts expectations but settlements in the aftermath of the mortgage market mess should clear a path for the bank going forward.
• Today we’ll get data on the CPI (both month over month and year over year) for March (looking for +0.5% sequentially and +2.6% over last March); we also get Industrial production for March (looking for +0.6% vs. 0% in February); and Capacity Utilization (looking for 77.4% up 0.4% from February).
• Chinese economic growth exceeded expectations in Q1 with 9.7% growth and the fastest pace of inflation seen since 2008 (no coincidence that it was the last spike in oil prices). Expectations are growing that the central bank will announce an increase in short term interest rates, increase reserve requirements at Chinese banks or both, perhaps as early as today.
• Ireland has its credit rating cut by Moody’s Investor Services 2 notches to Baa3 (the lowest investment grade rating). The rating was left on negative “outlook” as the government continues to struggle with high unemployment, a crippled banking system and a slow growing economy.
• Greece claims that they will not have to restructure their debt load as the government meets to discuss a new austerity plan that will cut $32 billion from the deficit through 2015 and raise 15 billion euro via asset sales. The Greek prime minister Popandreuou said that the structural problems that Greece has can’t be solved without real reform and he’s right. It’s just not clear that the country has the will to institute and then live with real economic reforms. Having said that, while Greece may be the most extreme example, the entire developed world is in one way or another having to come to grips with making do with less and relearning that hard work is what gets you ahead in life, not how well you can manipulate the system.
• The IMF and World Bank hold their semi-annual meeting today in DC…the lead topic for discussion is the outlook for global economic growth (that’s pretty much everyone’s lead topic) and the current headwinds that suggest that while growth will not fail in the near term it could clearly falter. The US economy struggles with what now appears to be higher structural unemployment going forward, a situation exacerbated by rising energy and food costs; the world’s 2nd largest economy, China, has a high rate of growth but much of that is driven by inflation in commodities and with inflation there hitting highs not seen since ’08 (the last oil spike) real growth rates are clearly much lower than the headline rate; Japan the 3rd largest economy continues to struggle after the quake/tsunami and it isn’t clear when the cleanup/rebuilding process will begin in earnest, much less when it will finish and finally Europe continues to struggle with the sovereign debt crisis that has gripped the EU for over 12 months claiming Portugal as its most recent victim and dealing with the very real possibility that Greece will be forced to restructure its debt load. All in all it isn’t a very pretty picture for the OECD countries which makes the situation even more problematic for the developing countries.
• Bank of England policy maker Andrew Sentence says that inflation may surge above 5% as sterling weakens…Sentence has been an inflation hawk at the BoE’s policy meetings since last summer…the BoE’s stated inflation target is 2%.
• For those who so readily complain that privatizing retirement accounts and placing more of the responsibility on the recipient is such a horrible idea, consider the plight of the $1.2 billion retirement obligation Louisiana Municipal Police Employees’ Retirement System which went from fully funded in 2003 to underfunded by $836 million via a series of poor investments (mostly commercial real estate based) and outright fraud committed by the pension funds trustees…do you think that those pensioners would have rather had the money in their own E-trade/Schwab/TDAmeritrade accounts now? This is an extreme situation but it goes to point out that large bureaucratic organizations are interested in one thing and one thing only, remaining large bureaucratic organizations.
• Qaddafi drives around Tripoli sticking out of an SUV sunroof with fists raised in defiance of the west’s attempts to overthrow his government illustrating the folly of the existing plan to extricate him from the North African country…this is only going to get worse, one way or another. Gasoline remains over $4 in Connecticut and New York...only New Jersey's low gasoline tax (4th lowest state assessed tax in the country) keeps them below $4 as the national average is roughly $3.95.

Phillip Pennell, CFA
Turnberry Capital Management
(203) 861-2708 (Direct)
(203) 861-2700 (Trading)
(203) 917-2255 (Mobile)

The information included in the above discussion is not intended to be used as a basis for making investment decisions nor should it be construed as a recommendation by the author to buy or sell any specific security. Individuals should consult their investment advisor prior to making any investment decisions.