What’s the Story Morning Glory?

by CC January 10, 2012 9:18 am • Commentary


Tiffany cut its full-year earnings forecast following a holiday season dampened by conservative holiday spending in the U.S. and Europe, adding to worries that economic uncertainties in the regions have dashed demand from luxury shoppers. Shares were off 7.5% to $61.90 in premarket trade as the cut reverses a boosted forecast offered by the luxury retailer less than two months ago.

Alcoa swung to a fourth-quarter loss as the aluminum producer’s prices slumped and costs jumped. In the latest period, Alcoa’s average realized price for aluminum fell 5.5% from a year earlier and 12% sequentially. Its margin of goods’ costs to total sales slipped seven percentage points to 12.7%. The pressure outweighed a 5.1% increase in shipments of aluminum products. Shares were up 2.5% to $9.66 premarket.

Focus Media said it will begin paying its shareholders a quarterly dividend, a plan that the besieged Chinese digital-advertising company said reflects confidence in its business. American depositary shares leapt 6.9% to $20 in premarket trade as investors cheered a new dividend policy that aims to distribute shareholders payments equal to roughly 25% of the company’s annual adjusted profit in the preceding fiscal year.

Nexen Inc. said President and Chief Executive Marvin Romanow has left the company, prompting the Canadian oil-and-gas producer to name its chief financial officer as a temporary replacement. Shares climbed 6.3% to $17.75 in premarket trading.

Juniper Networks Inc. lowered its guidance for the fourth quarter because of weaker-than-expected router demand from service providers. Shares in the maker of routers and switches for communications networks were down 1.2% at $21.30 premarket.

Yoga-wear maker Lululemon Athletica Inc. said Tuesday it has bumped up guidance for the current fourth quarter after revenue for the period got a boost from an increase in inventory. Shares were up 11% to $59.48 premarket.

Cirrus Logic Inc. projected better-than-expected revenue for its fiscal third quarter as the company also forecast current-quarter revenue sharply above Wall Street expectations. Shares were up 9.7% at $18.61 in premarket trading.

Emulex Corp. raised its fiscal second-quarter guidance as the company said it overcame mid-quarter supply constraints related to flooding in Thailand, and returned to full capacity. The networking and storage company’s shares were up 10% at $8.13 in premarket trading.

French pharmaceutical company Sanofi SA and venture-capital companies Third Rock Ventures and Greylock Partners will together invest up to $125 million in biotech start-up Warp Drive Bio over the next five years. Shares were up 1.3% to $36.24 in light premarket trading.

Health Management Associates Inc. raised its fourth-quarter outlook, citing cost controls and effective hospital partnerships that boosted its bottom line. Shares were up 0.7% to $7.01 premarket.

WD-40 Co.’s fiscal first-quarter earnings dropped 25% as high input costs and an unfavorable mix of products continued to weigh on the maintenance and cleaning-products company’s margins. Shares were down 6.8% to $38.30 premarket.

Jones Group Inc. cut its fiscal 2011 revenue guidance and expects fiscal first-quarter revenue to fall short of analysts’ estimate due to its need to increase promotions. The owner of brands such as Nine West, Jones New York and RachelRoy also cut its full-year revenue projection. Shares were down 4.3% to $8.70 in premarket trading.

Standard Microsystems Corp ‘s fiscal third-quarter loss narrowed amid fewer charges. The result was worse than expected and the company gave a weak view for the current quarter. Shares were down 5.3% to $23.65 premarket.


European stock markets rose sharply on Tuesday, with investors inspired by results from Alcoa Inc., while French stocks got a lift on comments from Fitch Ratings that it doesn’t plan to downgrade the country this year.

The Stoxx Europe 600 index  rose 1.8% to 250.97 in afternoon trade.

The prospect of the European debt crisis boiling over is rearing its head again as Germany’s Angela Merkel and France’s Nicolas Sarkozy are holding meetings – and once again they are pointing fingers at Greece.

U.S. stock futures traded sharply higher after Alcoa’s quarterly sales exceeded expectations.

Also boosting sentiment, China’s December trade surplus was wider than expected. The data indicated a soft rather than a hard landing for the economy, according to some analysts.

John Ventre, fund manager at Skandia Investment Group, said there’s a growing market belief that some of the risks surrounding China’s growth picture are beginning to fade. “That got people more on the bullish foot in Europe,” he said.

Business Insider

It could boost disposable household income and household consumption by cutting income and consumption taxes, and as German household income grows relative to the country’s total production, the national savings rate would automatically drop and the trade surplus contract and eventually become a deficit.  Or Germany could engineer a massive increase in infrastructure spending.

If Germany doesn’t do either, and especially if it imposes austerity, there must be a surge in unemployment for many years within Europe as German excess capacity meets dwindling demand in peripheral Europe. This surge in unemployment will force the peripheral countries into the unenviable choice either of absorbing that surge in unemployment themselves, or of forcing the unemployment back onto the core countries by abandoning the currency that is at the heart of their lack of competitiveness.

The historical precedents – and much of the commentary coming out of Germany – suggest that Germany will not take steps to reverse the trade surplus.  Countries that run large and persistent trade surpluses never seem to understand that their surpluses are mainly the consequences of domestic policies that generate additional domestic growth by absorbing foreign demand.

On the contrary, they usually insist that the surpluses are the consequences of domestic virtue, and they see no reason to give up being virtuous.  Surpluses, they seem to believe, are the way God rewards them for their enviable behavior, and as their surpluses decline – an inevitable consequence of the malaise affecting their trading counterparts – they actually try to limit the decline and do all they can do to prevent it from becoming a growing trade deficit.

But this violates simple arithmetic.  Trade deficit nations have received capital inflows for many years from surplus nations as the automatic counterpart to their deficits.  If the surplus nations ever hope to get repaid – i.e. to reverse those capital flows – then it must be obvious that the trade imbalances must also reverse.

Spain, for example, can only support net capital outflows if it is running a current account surplus.  Germany can only receive net capital inflows if it is running a current account deficit.  If Spain wants to repay its debt to Germany, and if Germany hopes to have its Spanish loans repaid, this can only happen if the former runs a current account surplus and the latter a current account deficit.


Stocks to Watch

Juniper Networks lowered its guidance for the fourth quarter because of weaker-than-expected router demand from service providers. Shares in the maker of routers and switches for communications networks were down 2.1% at $21.08 after hours.

Cirrus Logic projected better-than-expected revenue for its fiscal third quarter as the company also forecast current-quarter revenue sharply above Wall Street expectations. Shares were up 8.3% at $18.35 in after-hours trading.

Emulex raised its fiscal second-quarter guidance as the company said it overcame mid-quarter supply constraints related to flooding in Thailand, and returned to full capacity. The networking and storage company’s shares were up 10% at $8.13 in after-hours trading.

Overnight Headlines (Links)


Italy Is Biggest Risk to Euro, Says Fitch

China Yearly Trade Surplus Narrows

Syria’s Assad Says He Won’t Quit


Key Nomura Executive Resigns

Siemens Cautious on Earnings

BBVA to Take Hit on U.S. Unit

Philips Issues Profit Warning

Swatch Logs Record 2011 Sales


Banks Unite to Battle Online Theft


  • At 7:30 a.m. ET we get the NFIB small-business optimism index.
  • At 10:00 a.m. we get wholesale inventories data for November. Try to control yourselves. Economists think inventories rose 0.6% from 1.6% in October.
  • At 10:30 a.m. San Francisco Fed President John Williams speaks.
  • At 12:45 p.m. Kansas City Fed President Esther George speaks.
  • Republicans vote for their favorite, or least-un-favorite, presidential candidate in New Hampshire.

Key Earnings

  • None.