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What's New
Earnings reports say more about companies than about the economy
Uncertainty about uncertainty
News Scan - SAC settlement; Wall Street woes; Lenovo's bid for BlackBerry Also Noted: Spotlight On... Siemens moves out of the matrix
GE's good or bad quarter; The dollar agrees that the U.S. economy isn't so hot; and much more... News From the Fierce Network:
1. Morgan Stanley beats estimates handily
2. Goldman Sachs misses revenue estimates
3. SAC Capital nearing deal to settle criminal charges
Today's Top News Earnings reports say more about companies than about the economy
The third-quarter earning reports that started rolling in this week are a mixed bag so far. That matches up with analysts' expectations, given the challenges posed by the rise in U.S. interest rates, a weaker dollar and the uncertainty created by the budget standoff in Washington. Earnings posted by the big banks were particularly disappointing. JPMorgan reported a legal bill of $7.2 billion after taxes and posted a loss of $400 million as the result of those legal costs. Citigroup saw revenue drop 5 percent from the year-ago period as rising rates slowed mortgage financing and bond trading, and Goldman Sachs also reported lower revenue than expected that it attributed to a decline in trading activity. But American Express saw its revenue rise 6 percent and cited a pickup in spending by corporate cardholders. Verizon reported better than expected earnings per share driven by its wireless business, Johnson & Johnson achieved better than expected results on strong drug sales, and PepsiCo beat analysts' expectations thanks to strong sales of its snacks, rather than its sodas.
A number of companies, including eBay and Philip Morris, lowered their guidance for the fourth quarter or full year, citing the impact of the government shutdown on their business. The shutdown prevented the release of some regular economic reports, most notably the September jobs data, leading to speculation about what could be gleaned about the state of the U.S. economy from the earnings reports. But Joel Naroff of Naroff Economic Advisors argued that while corporate earnings may have been aligned with changes in U.S. payrolls in the past, that's no longer true. "In fact, to some extent they're inversely related," Naroff said. "The better a company is doing at keeping wages down and payroll down, the greater the earnings are. I can't use the earnings number to tell me what fourth-quarter jobs growth may be like." Of course, with the federal government back in business, the need to wring economic meaning from corporate earnings is subsiding. The Labor Department said yesterday that it will release the September jobs report originally due out on Oct. 4 on Tuesday, Oct. 22, the September consumer price index on Oct. 30, and the October jobs report on Nov. 8.
For more:
- see this CNBC article
- see this Bloomberg article Read more about: PepsiCo, Philip Morris
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Uncertainty about uncertainty
The crisis atmosphere in Washington, D.C., over the federal budget has led to charges that the government is creating so much economic uncertainty that companies are now less likely to hire and invest. But a closer look shows that Washington's problems mirror the confusion that reigns in public discourse about what policy measures it should take. No question, caution among CFOs is on the rise as a result of what passed for federal budget deliberations. "It's crazy what they're doing," Verizon finance chief Frank Shammo told CFO Journal about the budget battle that led to the government shutdown and near-default on its debt. "They need to solve their long-term problem," Shammo said. "This just builds a lot of anxiety." The shutdown itself cost the economy $24 billion, or 0.6 percent of GDP in the fourth quarter, according to Standard & Poor's. That's a reflection of lost revenue from activity related directly and indirectly to government spending. But others say that the government's inability to agree to spend less is the problem. An index developed by the Peter G. Peterson Foundation that correlates economic uncertainty with the failure of federal budget negotiations to reduce the deficit has spiked as a result of the latest impasse. But is it uncertainty over the course of policy that is dampening economic growth or the policies themselves that have created that unfortunate result? Contrary to what much of the press is saying, the federal budget deficit has been falling as a result of those policies. Yet the Peterson Institute and other groups like Fix the Debt suggest that the economy would take off if only further budget cuts were certain. Others who worry about uncertainty say further budget cuts are the last thing the economy needs. Here's Mark Zandi, chief economist at Moody's Analytics, on the problem: "I'm of the view that the reason why our economy can't kick into a higher gear is because of the uncertainty created by Washington." But he says that deficit-reduction policies enacted during the past two years, including the end of the payroll tax and unemployment and disability insurance and the government spending freeze known as sequestration, have cost the economy 2.2 million jobs. Without those policies in place, Zandi estimates that unemployment would now be around 6.3 percent instead of 7.7 percent. Verizon's most recent results certainly seem to support that view. State and federal government cutbacks took a bite of almost $400 million, or 3.5 percent, out of revenue for the company's global enterprise unit in the first nine months of the year. In other words, uncertainty is in the eye of the beholder. And there's as much confusion about what it represents in the rest of the U.S. as in its capital. For more:
- see this Reuters article
- see this New York Times article Related Articles:
Clearing up a confusing interest rate outlook
Bracing for an economic shutdown Read more about: GDP, Jobs
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News Scan - SAC settlement; Wall Street woes; Lenovo's bid for BlackBerry
>> Compliance: Insider trading gets expensive SAC Advisors and regulators are close to record settlement for an insider-trading case. All told, Steven Cohen's hedge fund could pay as much as $2 billion to the government. Still up in the air is whether he will still be able to run other people's money any time soon. Read more >> Management: Wall Street's woes seem to be back Goldman Sachs' fixed income trading revenues took a huge hit in Q3, while other banks also did poorly in what has historically been a huge source of revenue and bonuses. And the Volcker rule that requires banks to cease and desist from proprietary trading isn't even in effect yet. Read more >> Management: BlackBerry or Phoenix? For a company said to be dead as a doornail, BlackBerry seems to be drawing a lot of interest. Lenovo's reported bid is just the latest option that has materialized. Read more >> Management: Growth picks up in China Good news for multinationals that have been counting on emerging markets to provide the growth so sorely lacking in the developed world, though one always, always has to take the numbers that the Chinese government reports with a huge dose of MSG. Read more >> Capital: No NYSE IPO glitches? The NYSE is out to make sure the same thing that happened to the Facebook IPO on Nasdaq doesn't happen to the Twitter IPO. And if the NYSE is successful, the deal will be another source of bragging rights over its rival. Read more Read more about: Lenovo
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Also Noted SPOTLIGHT ON... Siemens moves out of the matrix Siemens' chief Joe Kaeser may be a former CFO, but he isn't just a bean counter. Witness his latest move to get the troubled German conglomerate turned around. After announcing 15,000 job cuts a few weeks ago, Kaeser has decided to remove a layer of management from the company's global structure so as to base decision-making more on local market needs. That sort of thinking takes straight aim at the management matrices that many multinationals employ, where local managers face oversight based on geography as well as business line. The arrangement has always struck us as more than a little awkward. After all, how can, say, the CEO of a Brazilian electronics unit serve both his South American boss and the corporate head of his business line if they aren't on the same exact page? If Siemens is successful here, look for other multinationals to escape the matrix, and for Kaeser to get kudos as a strategic thinker. Read more here. > Get Subscriptions to the Leading Finance Magazines for FREE Mercury Magazines offers top Finance titles for Free to professionals. No Credit Card Required. Stay Ahead in your Industry. Sign up now. > Whitepaper: Smarter Service: The Contact Center of the Future This eBook explores the challenges facing traditional contact centers and the benefits of deploying the contact center of the future. You'll find links to further resources on the final page. Download today. > Whitepaper: eBook: Technical Analysis of the Stock Market Organized to walk traders through the primary technical skills to more sophisticated techniques, Technical Analysis of the Stock Market will teach you how to read charts, identify trades, spot buy signals, spot sell signals, and use pivot points to boost returns. Download today! > Whitepaper: Customer Experience for Service This Executive Brief explores the role of service and support in creating great customer experiences, the service goals market leaders use related to customer experience and the Oracle approach for empowering new service experiences. Download today! | |
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