“Today is a reminder that the United States means what it says, and we will rally the international community in standing up for the rights and freedom of people around the world”
-President Obama
Yesterday, the rally faded quickly as Europe ratcheted up sanctions against Russia, with America following suit. Make no mistake, this is a high-stakes gambit; there is no guarantee it works, or how long it would take Russia to cry, “Uncle.” On that note, it does seem like our definition of civilized behavior would be Ukraine separatists allowing international observers to review the crash site and to gather more bodies.
When asked if this was the start of a new Cold War, President Obama replied, “No,” and made the point that Ukraine is better armed than the separatists. It might not be the start a cold war officially, but the stock market reacted with a strong chill. And speaking of the cold, Russia has a long history of suffering for the cause, while the west has a long history of losing to them during winter. This could get ugly if this non-Cold War drifts long enough. Bundle up.
In the meantime, those Russian sanctions have sent money rushing into bonds, sending European yields to levels not seen in a few years: Spain since 1789, France for 200 years, Germany since the 1800s, and the Netherlands for 500 years. These funds would be better used to help the continent recover, instead of bracing for the worst.
Recommended
|
Europe |
Yield |
1 Year |
|
Germany |
1.12% |
-54 |
|
Britain |
2.54% |
+23 |
|
France |
1.50% |
-77 |
|
Italy |
2.64% |
-182 |
|
Spain |
2.46% |
-221 |
|
Netherlands |
1.31% |
-75 |
|
Portugal |
3.56% |
-288 |
|
Greece |
5.76% |
-419 |
|
Switzerland |
0.47% |
-54 |
Earnings Parade
Speaking of Resolve… Twitter shook up the world, yesterday. The company posted strong earnings and offered even better guidance. It has been interesting to watch the naysayers still talk down the results, although some are relenting and jumping into the bandwagon. The action in the stock underscores a couple of truths about the market: Good companies can have stocks that get ahead of themselves, but pull backs, even the crushing kind witnessed in April and May, aren’t indictments of the business- just present value.
The key is hanging on for the ride. Remember this lesson because you will have to refer to it over and over again during dark periods for the stock market when you have to separate individual names from wholesale panic and destruction. While Twitter hogs the headlines, maybe the most important earnings reports were from US Steel (X) and Trinity Industries (TRN).
US Steel lost $0.12 last quarter versus a loss of $0.54 a year earlier and against consensus estimate of a loss of $0.29. Maybe this isn’t the bellwether it once was, but this news and the direction of prices for flat-rolled steel hints to this stumbling recovery becoming more stable.
Trinity’s railcar division had a $176 million operating profit, a new record on 9,880 new orders that has created a record backlog of 45,350 cars valued at $5.5 billion. I was also impressed with the energy equipment business that saw revenue climb to $227.6 million from $152.5 million.
Gross Domestic Product
The 4.0% GDP growth for the second quarter is well above consensus of 3.0% with virtually all signs pointing in the right direction. The big question, considering the inconsistancy of theis recover (still the worst post WWII) is: if this is the start of something that will last? The only negative from the quarter was higher inflation signs, but its not enough to make the Fed alter course.
|
2Q14 |
Component |
1Q14 |
|
4.0 |
Headline |
-2.1 (revised) |
|
2.5 |
Consumption |
1.2 |
|
14 |
Durable Goods |
3.2 |
|
7.5 |
Housing |
-5.3 |
|
2.3 |
Inventory |
-1.0 |
|
5.5 |
Non-residential |
1.6 |
|
5.3 |
Savings |
4.9 |
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