Volatility – Yellen, Earnings, Economics

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Yellen confirmation, some economic data, and a couple of late earnings could equate to a little market excitement. While most of the earnings are already out this quarter, a few big names left to report could inject some volatility. Yellen’s confirmation hearing will surely elicit some questions and set the tone as to when and if a Taper is coming soon. Lastly, Cisco and Walmart earnings could jolt the market with some concerns.



Courtesy of Wikipedia

Cisco Systems (CSCO) is a company worth following for two reasons. First, it is a core driver in internet hardware technology and second, the CEO is usually a no-holds-barred type of talker. He sure doesn’t sugar coat anything and that has garnered him and his company respect in both the technology industry and Wall Street. The company reported an increase of revenue to $12.09 billion from $11.88 billion, but that fell below expectations. The net income dropped to $2 billion, from $2.1 billion. CEO, John Chambers, cut to the chase and said that sales are expected to drop 10%; he is very concerned and cautious about next year and is seeing client lack of confidence on the rise. Pretty much he just shot straight and called it like it was and it was certainly not what ANYONE wanted to hear. It was an ugly conference call that stated real concerns in the next quarter and going forward. Some, like Jim Cramer, were very critical of Chamber’s conference call, saying this is NOT how you do it. I am not sure if Cramer wanted to hear more fluff or what. I sure didn’t like what Chambers had to say, but would I rather NOT have him blow smoke up my bum. The stock is down sharply in the pre-market (over 13%) and dragging down the NDX futures.

Courtesy of Wikipedia

Walmart (WMT) stores reported lower than expected sales, which predominately came from the U.S. (sales down 0.3%). Overall revenue did increase to $115 billion from $114 billion, but that fell short of expectations and was helped solely from their international sales. The company also lowered full-year guidance to $5.11 to $5.21 range. This doesn’t bode well for their holiday sales expectation. The stock is down in the pre-market over 2%.

Weekly Jobless Claims

Weekly jobless claims fell 2,000 to a “seasonally adjusted” 339,000 and the previous week was, of course, revised HIGHER by 5,000. So far the Labor Department is batting 1,000 for upward revisions on claims; go figure. Either their model is broken or there is an inherent bias in it. To have revised higher every week is a statistical improbability. Economists expect it to fall to 330,000, so it was certainly a disappointment.

Trade Gap

Meanwhile, the Commerce Department reported an 8% increase in the trade gap, up to $41.8 billion, which is the largest move higher in months. Again, significantly higher than expected. Add in the inflation adjustment and the trade gap widened to $50.4 billion, but if we use the previous model for inflation adjustment the trade gap widened significantly more. Does this mean the GDP will most likely be revised lower? Trade had contributed 0.31 percentage points to the initial 2.8% initial third-quarter GDP report. I think a revision down to 2.5% or lower is certainly in the cards; however, with the new GDP model and non-tangible assets baked in, who knows, it could go up.

Courtesy of Shadowstats.com

Yellen Confirmation

Yellen is about to head into her confirmation hearings. Yesterday she released her opening statements, which leaned towards more QE with no hints of taper in the near future. It will be interesting to hear the questions and her responses. I suspect that she needs to offer a tone of regret that we MUST take these current drastic actions (QE) and that it is not a permanent solution. However, she will also point out that there has been NO inflation (and perhaps deflation), so that the QE policy is not a concern. She is a very intelligent person and very well spoken; however, this will be a test to see if she can keep her rather Keynesian and Socialist verbiage in check.

Courtesy of Wikipedia

The one question I would like to hear and wonder as to how she would answer is regarding the expansion of regulatory powers at the Federal Reserve. The Dodd/Frank regulation expanded power designation and has the Treasury expanding the Systemically Important designation and possibly to the Federal Reserve. This has many in the financial community concerned that it will expand more power to the Federal Reserve, especially in the regulatory area. Yellen, in her past remarks, has alluded to a Fed with a more active role, some of which borders on designing legislation. It will be interesting if anyone puts forth these questions about Dodd/Frank and the Treasury report and expanded powers.

As for the confirmation hearings, I think she is more than qualified and will be easily confirmed. The question is not about her qualifications, but rather her economic ideology. This appointment is one of the most powerful positions in the world and is on par, in many cases, with the President. While it certainly doesn’t get the limelight, it no doubt can send ripples around the world with just a word. She is up to the task, no one will refute that, the question is do we want a Keynesian with Socialist ideology running the most powerful central bank in the world?

Support & Resistance

INDU 15,800
After some selling pressure in the morning, the market rallied back. However, I would continue to look at this area with some natural resistance. Earnings have been mixed and this morning the Walmart and Cisco earnings are certainly not good. However, more QE and the continued belief that it will be there, is fueling the rally.

NDX 3400
We had a good pop in the tech heavy index. Cisco is pulling it down this morning with a rather sharp decline (over 13%). However it is still holding up well.

SPX 1780
We opened down and then a rather robust late session rally pushed the market higher and sent the VIX even lower. However, the VIX is still holding up in the mid 12′s.

RUT 1080
The RUT also got a pop, but not back up to that 1125 area. It is still trailing the other indices and I would continue to use it as a lead indicator.

Yellen Rally

What caused the pop in the market and also in the Asia markets? Well, I think one item that created a lot of optimism was Yellen’s pre-hearing statement. There was no hint or inkling at all about taper; in fact, if it leaned at all, it was for MORE QE. It was the Yellen Rally, as her comments were more dovish than expected.

Today is the hearing, I expect her to sound more dovish, but that is already baked into the cake. It will certainly be one very important hearing to watch and I suggest anyone that is interested in our future, our economy, monetary policy, inflation/deflation, interest rates, and pretty much our nation’s future ideology – should watch this hearing.

What was concerning was a story that is not getting much media coverage out of Venezuela. That nation has the same anti-capitalist theme going on: Blaming business and banks for their economic failure. Could something like that happen in this nation? Probably not, but while it maybe improbable, it doesn’t mean it is impossible. Venezuela government seizes major retail stores.

Courtesy of USATODAY

A recent Pew Poll reflects that more people (between 18-29) prefer Socialism to Capitalism by a significant amount. The trend is only increasing. One only has to listen to the likes of Elizabeth Warren and Janet Yellen, and the Keynesian/Socialist agenda that is gaining popularity.

Socialism on Campus

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