Taper or no Taper, the Fed will never end QE: Marc Faber

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When the Federal Reserve announces its next move on Wednesday, some expect it to reduce its $85 billion monthly bond-buying program, targeting an eventual end to quantitative easing in late 2014. Others expect the Fed to begin to reduce the program in early 2014, or to finish it off by 2015. But Marc Faber has a different take altogether .

"The Fed will never end QE for good," the editor and publisher of the Gloom, Boom & Doom report said Tuesday on CNBC's "Futures Now." "They will continue because these programs, once they're introduced, usually keep on going."

The Fed will announce its decision at 12:30 p.m. EST on Wednesday, and Fed Chairman Ben Bernanke will follow that up with a 2:30 p.m. news conference. Expectations for the meeting are mixed, but more that 50 percent of Wall Streeters expect the Fed to taper its QE program in either December or January, according to the CNBC Fed Survey. As economic data have improved, many investors are guessing that the Fed no longer considers QE to be as vital as before.
(Read more: Fed taper expected sooner: CNBC survey)

But Faber said the good times cannot last.
"The economic recovery, or so-called recovery, by June of next year, will be in the fifth year of the recovery," Faber said. "So at some stage the economy will weaken again, and at that point, the Fed will argue, 'Well, we haven't done enough, we have to do more.'"

The noted bear has little admiration for the economists at the Federal Reserve.
"The Federal Reserve—all of them—could be sitting on a barrel of dynamite, and then pouring gasoline on top of it, and then light a cigar with matches, throw the match into the gasoline, and then not notice that there is any danger," Faber said. "That is the state of mind of the professors at the Fed, who never worked a single [day] in business."

And while Faber actually believes that a reduction in QE could happen, he wouldn't view it as a true tapering, as he says it will be a largely meaningless, one-time move that will eventually be reversed as the economy worsens.

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News Source: www.cnbc.com

If Bernanke really shakes the tree, half the world may fall out ...

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We no longer have a free market. The world’s financial asset prices have become a plaything of central banks and the sovereign wealth funds of a few emerging powers. Julian Callow from Barclays says they are buying $1.8 trillion worth of AAA or safe-haven bonds each year from an available pool of $2 trillion. Nothing like this has been seen before in modern times, if ever.

The Fed, the ECB, the Bank of England, the Bank of Japan, et al, own $10 trillion in bonds. China, the petro-powers, et al, own another $10 trillion. Between them they have locked up $20 trillion, equal to roughly 25pc of global GDP. They are the market. That is why Fed taper talk has become so neuralgic, and why we all watch Chinese regulators for every clue on policy.

We will find out tomorrow whether Ben Bernanke is ready to blink after the market ructions of the last three weeks, sobered by the cascading upsets across the Brics and mini-Brics; or whether he will stay the course with Fed tapering sooner rather than later.

Investors seem to think he will indeed blink, or at least blink enough to put off the day of reckoning for another three month investment cycle, which is what hedge funds care about, and that if he doesn’t blink it will be because the economy is picking up speed. They cling to the Bernanke Put, when the new reality may instead be the Bernanke Call.

Perhaps Bernanke will oblige one more time, knowing that the US economy has yet to absorb the full shock of fiscal tightening, the biggest squeeze for half a century. Besides, core PCE inflation is down to 1.1pc. Jim Leaviss from M&G says the Fed would normally be cutting rates by 1.5pc under the Taylor Rule in these circumstances, not tightening.

Yet what causes me to hesitate is the drip of reports and comments from key figures in – or near – the Fed seeming to suggest a loss of nerve, or who fear that QE has turned counterproductive.
First we had a paper co-written by Frederic Mishkin – Bernanke’s close friend and a former board member – warning that is becoming ever harder for the Fed to extricate itself safely from QE, and the door my shut altogether from 2014.

“Crunch Time: Fiscal Crises and the Role of Monetary Policy” said the Fed’s own capital base could be wiped out “several times” once borrowing costs spike. It said trouble could compound at an alarming pace, with yields spiking up to double-digit rates by the late 2020s. By then Fed will be forced to finance spending to avert the greater evil of default.

Then we had the minutes of the Federal Advisor Council arguing that it is “not clear” whether QE is really boosting the economy, while the toxic side-effects are all too clear. It warned of “unsustainable bubbles” in asset prices. It said zero rates are pushing pension funds underwater on their liabilities, and even claimed that QE may be causing firms to defer investment.

Since then the Bank for International Settlements has issued a full frontal attack on the credibility of QE, saying it “doesn’t work” and is doing more harm than good. Even the Boston Fed’s ultra-dove Eric Rosengren has talked of early tapering, a clear sign that the Fed’s centre of gravity has shifted.
So don’t be surprised if Bernanke talks tough tomorrow, and don’t underestimate the implications if he does. The point was put nicely by Jan Loeys from JP Morgan in a note last week:

In Fed hiking cycles over the past half century, 10-year US Treasury yields on average bottomed some 6 months before the first rate hike. In the current cycle, where rate cuts have been complemented by large-scale asset purchases, the end of the easy money period is harder to define. It is surely well before the first rate hike.

The end of the current easy money regime is set to have a bigger impact than previous ones as the current one will have lasted much longer and was much more extreme.We have learned from past regime changes that the longer they last, the more the market will have got used to them, and could even be said to become leveraged and addicted to the old regime.

In addition, after major regime changes, we find that the leverage to the old one was each time much larger and in different places than most of us had assumed. A regime change is like shaking a tree and having no idea who or what will fall out. Brazil, South Africa, and Turkey, are already falling out. Any other candidates?

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News Source: www.reuters.com                         

Fed, uneasy over ‘QE,’ plans bond-buy debate One idea: Hold balance sheet even during exit

Get ready for a rock’ em, sock ‘em debate over quantitative easing in March.

Minutes of the Federal Reserve’s January meeting released Wednesday reveal that many Fed officials are worried about the costs and risks arising from the $85 billion–per–month asset-purchase program. And they all seem to have their own ideas on how to proceed. 

Several Fed officials said the central bank should be prepared to vary the pace of the asset-purchase plan depending on the outlook or how the program was working. One wanted to vary it on a meeting-by-meeting basis. 

One new idea backed by a “number” of Fed officials would have the central bank promising markets that it will not sell its massive holdings of Treasurys and mortgage-backed securities as quickly as the market now expects. Read selected text of Fed meeting minutes.

This could be a substitute for asset purchases, they argued. 

But that was only one of a flurry of proposals.

“The minutes ... show a committee that is far less unified than at any other time in the past few years,” said Millan Mulraine, senior economist at TD Securities.

The Fed said a review of the program had been set for March. Fed Chairman Ben Bernanke will hold a press conference at the end of the two-day meeting on March 20. 

Without the Fed’s unconventional program, the 10-year Treasury would yield 3% or more, according to research published by Goldman Sachs. See related blog post on The Tell.

 

A number of Fed officials said the central bank may have to taper off or end the purchases before reaching the stated goal of a substantial improvement in the labor-market outlook. On the other hand, several Fed officials warned that ending the asset purchases too soon would damage the economy. 

They stressed that it was important to communicate that the Fed would hold to an ultra-easy policy stance as long as warranted by the weak economy. 

One Fed official said that the central bank could adjust the size of the asset-purchase program every meeting.

Some officials said they were worried about the effects of more asset purchases on “the functioning of particular financial markets.” 

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News Source: www.marketwatch.com

Wall Street pauses after rally to five-year high

The S&P 500 was buoyed by General Electric (GE.N) after cable company Comcast Corp (CMCSA.O) said it will buy from GE the the part of NBCUniversal it didn't already own for $16.7 billion.
Comcast's stock hit the highest since 1999 before closing up 3 percent at $40.13 and GE gained 3.6 percent to $23.39.
The S&P 500 is up 6.6 percent so far this year, partly due to stronger-than-expected corporate earnings and a better economic outlook. The Dow industrials is about 1 percent away from an all-time intraday high, reached in October 2007.
Volume has been weak in recent days with the S&P moving sideways around 1,520. The index is about 3 percent away from closing at a record high.
A scarcity of sellers after a consistent string of gains is a positive sign and shows the uptrend is intact, King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco, said.
"Last year we had double-digit returns in the first quarter. It's fairly possible we can move higher from here," he said.
The Dow Jones industrial average .DJI fell 35.79 points or 0.26 percent, to 13,982.91, the S&P 500 .SPX gained 0.9 point or 0.06 percent, to 1,520.33 and the Nasdaq Composite .IXIC added 10.38 points or 0.33 percent, to 3,196.88.
The S&P gained 12 percent in the first three months of 2012.
Deere & Co (DE.N), the world's largest farm equipment maker, forecast a modest increase in sales this year despite the prospect of the biggest corn crop in U.S. history. The forecast fell short of analysts' expectations, sending shares of Deere down 3.5 percent to $90.68.
In extended trading, shares of technology bellwether Cisco Systems (CSCO.O) fell 2 percent after it posted results.
Dr Pepper Snapple (DPS.N) fell 5.8 percent to $42.69 after it forecast profit for the current year below analysts' estimates.
Cliffs Natural Resources (CLF.N) lost a fifth of its market value a day after the miner reported a quarterly loss and slashed its dividend by 76 percent. Its shares fell 20 percent to 429.29.
According to the latest Thomson Reuters data, of the 364 companies in the S&P 500 that have reported results, 70.3 percent have exceeded analysts' expectations, above a 62 percent average since 1994 and 65 percent over the past four quarters.
About 5.9 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average in February last year of 6.94 billion.
On the NYSE, roughly seven issues rose for every five that fell and on Nasdaq more than six rose for every five decliners.
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News Source: www.reuters.com

Earnings to Watch (31/01/2013) Thursday BMO:

Earnings to Watch (31/01/2013)

Thursday BMO:

Altria Group Inc. (NYSE: MO) is engaged in the manufacture and sale of cigarettes and certain smokeless products in the U.S. The company has a market capitalization of $67.74 billion. It is expected to report FY 2012 fourth-quarter EPS of 55 cents on revenue of $4.33 billion, compared with a profit of 50 cents a share on revenue of $4.35 billion in the year-ago period. The analysts' consensus full-year forecast calls $2.21 per share earnings on revenue of $17.4 billion. That compares to $2.05 per share and $16.62 billion in the previous year. Altria Group is trading at around $33.45 a share. Over the past 12 months, the stock has gained 16.6 percent.

The Blackstone Group L.P. (NYSE: BX) is a manager of private capital and provider of financial advisory services. The company has a market capitalization of $22.61 billion. It is expected to report FY 2012 fourth-quarter EPS of 47 cents on revenue of $1.1 billion, compared with a profit of 40 cents a share on revenue of $925.01 million in the year-ago period. The analysts' consensus full-year forecast calls $1.64 per share earnings on revenue of $3.93 billion. That compares to $1.25 per share and $3.28 billion in the previous year. The Blackstone Group is trading at around $18.22 a share. Over the past 12 months, the stock has gained 14.5 percent.

Cameron International Corporation (NYSE: CAM) provides flow equipment products, systems and services to worldwide oil, gas and process industries. The company has a market capitalization of $14.98 billion. It is expected to report FY 2012 fourth-quarter EPS of 96 cents on revenue of $2.38 billion, compared with a profit of 77 cents a share on revenue of $2.03 billion in the year-ago period. The analysts' consensus full-year forecast calls $3.14 per share earnings on revenue of $8.45 billion. That compares to $2.67 per share and $6.96 billion in the previous year. Cameron International Corporation is trading at around $60.72 a share. Over the past 12 months, the stock has gained 13.8 percent.

Colgate-Palmolive Company (NYSE: CL) is a consumer products company. The company has a market capitalization of $52.04 billion. It is expected to report FY 2012 fourth-quarter EPS of $1.4 on revenue of $4.31 billion, compared with a profit of $1.3 a share on revenue of $4.17 billion in the year-ago period. The analysts' consensus full-year forecast calls $5.36 per share earnings on revenue of $17.12 billion. That compares to $5.03 per share and $16.73 billion in the previous year. Colgate-Palmolive is trading around $110.15 a share. Over the past 12 months, the stock has gained 23.8 percent.

The Dow Chemical Company (NYSE: DOW) is a diversified manufacturer and supplier of products used primarily as raw materials in the manufacture of customer products and services worldwide. The company has a market capitalization of $41.47 billion. It is expected to report FY 2012 fourth-quarter EPS of 34 cents on revenue of $13.7 billion, compared with a profit of 25 cents a share on revenue of $14.1 billion in the year-ago period. The analysts' consensus full-year forecast calls $1.91 per share earnings on revenue of $56.56 billion. That compares to $2.54 per share and $59.99 billion in the previous year. The Dow Chemical Company is trading around $34.58 a share. Over the past 12 months, the stock has gained 3.6 percent.

Dunkin Brands Group Inc. (Nasdaq: DNKN) is a franchisor of restaurants serving coffee and baked goods, as well as ice cream within the quick service restaurant segment of the restaurant industry. The company has a market capitalization of $3.89 billion. It is expected to report FY 2012 fourth-quarter EPS of 33 cents on revenue of $170.79 million, compared with a profit of 30 cents a share on revenue of $168.51 million in the year-ago period. The analysts' consensus full-year forecast calls $1.27 per share earnings on revenue of $667.47 million. That compares to 94 cents per share and $628.2 million in the previous year. Dunkin Brands Group is trading around $36.85 a share. Over the past 12 months, the stock has gained 38.9 percent.

Mastercard Inc. (NYSE: MA) is a global payments and technology company. The company has a market capitalization of $64.68 billion. It is expected to report FY 2012 fourth-quarter EPS of $4.82 on revenue of $1.89 billion, compared with a profit of $4.03 a share on revenue of $1.73 billion in the year-ago period. The analysts' consensus full-year forecast calls $22.01 per share earnings on revenue of $7.39 billion. That compares to $18.7 per share and $6.71 billion in the previous year. Mastercard is trading around $519.42 a share. Over the past 12 months, the stock has gained 52.47 percent.

Time Warner Cable Inc. (NYSE: TWC) is a provider of video, high-speed data and voice services in the U.S. The company has a market capitalization of $30.36 billion. It is expected to report FY 2012 fourth-quarter EPS of $1.55 on revenue of $5.5 billion, compared with a profit of $1.31 a share on revenue of $4.99 billion in the year-ago period. The analysts' consensus full-year forecast calls $6.69 per share earnings on revenue of $21.41 billion. That compares to $4.56 per share and $19.68 billion in the previous year. Time Warner Cable is trading around $100.6 a share. Over the past 12 months, the stock has gained 45.7 percent.

United Parcel Service Inc. (NYSE: UPS) is a package delivery company that operates in the U.S. less-than-truckload industry, and the provider of global supply chain management solutions. The company has a market capitalization of $78.66 billion. It is expected to report FY 2012 fourth-quarter EPS of $1.38 on revenue of $14.44 billion, compared with a profit of $1.28 a share on revenue of $14.17 billion in the year-ago period. The analysts' consensus full-year forecast calls $4.58 per share earnings on revenue of $53.99 billion. That compares to $4.23 per share and $53.11 billion in the previous year. UPS is trading at around $82.45 a share. Over the past 12 months, the stock has gained 9.3 percent.

Viacom Inc. (NASDAQ: VIAB) is an entertainment content company. The company has a market capitalization of $29.64 billion. It is expected to report FY 2013 first-quarter EPS of 91 cents on revenue of $3.52 billion, compared with a profit of $1.06 a share on revenue of $3.95 billion in the year-ago period. Viacom is trading at around $59.02 a share. Over the past 12 months, the stock has gained 23.9 percent.

Xcel Energy Inc. (NYSE: XEL) is a holding company with subsidiaries engaged primarily in the utility business. The company has a market capitalization of $13.43 billion. It is expected to report FY 2012 fourth-quarter EPS of 28 cents on revenue of $2.93 billion, compared with a profit of 29 cents a share on revenue of $2.57 billion in the year-ago period. The analysts' consensus full-year forecast calls $1.81 per share earnings on revenue of $10.6 billion. That compares to $1.72 per share and $10.66 billion in the previous year. Xcel Energy is trading at around $27.55 a share. Over the past 12 months, the stock has gained 3.6 percent.

Aetna Inc. (NYSE: AET) is a diversified health care benefits company. The company has a market capitalization of $16.64 billion. It is expected to report FY 2012 fourth-quarter EPS of 95 cents on revenue of $8.97 billion, compared with a profit of 97 cents a share on revenue of $8.54 billion in the year-ago period. The analysts' consensus full-year forecast calls $5.15 per share earnings on revenue of $35.56 billion. That compares to $5.17 per share and $33.61 billion in the previous year. Aetna is trading at around $49.76 a share. Over the past 12 months, the stock has gained 13.8 percent.

Thursday AMC:

Standard Pacific Corp. (NYSE: SPF) is a geographically diversified builder of single-family attached and detached homes. The company has a market capitalization of $1.79 billion. It is expected to report FY 2012 fourth-quarter EPS of 7 cents on revenue of $372.87 million, compared with a profit of 4 cents a share on revenue of $293.16 million in the year-ago period. The analysts' consensus full-year forecast calls 19 cents per share earnings on revenue of $1.19 billion. That compares to a loss of 5 cents per share on revenue of $882.99 million in the previous year. Standard Pacific Corp. is trading at around $8.44 a share. Over the past 12 months, the stock has gained 107.4 percent.

Boeing reported a profit of $978 million

Boeing reported a profit of $978 million, or $1.28 a share, down from $1.39 billion, or $1.84 a share, a year earlier.

Core operating earnings--which adjusts to exclude pension components related to market fluctuations and other impacts--were $1.46 compared with $1.92 a year earlier, which included 52 cents a share related to a favorable tax settlement.

Revenue increased 14% to $22.3 billion.

Analysts polled by Thomson Reuters most recently projected earnings of $1.19 on revenue of $22.36 billion.

George Soros's most-promising picks

Small- and mid-cap stocks don't get as much attention from bankers, third-party analysts and the media, which often leaves them less-efficiently priced than their larger peers. Generally speaking, hedge funds take advantage of this by dedicating their research teams to work on the little guys, and consequently, they generate a significant portion of their alpha from the small-cap world.

At Insider Monkey, we've empirically tested this phenomenon, and according to our own analysis, investing in the hedge fund industry's top small-cap picks has generated an alpha of about 120 basis points per month. 

Let's take a look at the top small-cap stock picks of one hedge fund in particular: George Soros's Soros Fund Management. The stocks presented here have market capitalizations between $1 billion and $5 billion, which is consistent with the criterion used in our strategy ( see all of George Soros's stock picks ). 

According to its last 13F filing with the SEC, the No. 1 small-cap stock in Soros's fund was Adecoagro SA AGRO +1.34% . With a little under 26 million shares, Soros owns approximately 21.3% of Adecoagro's outstanding shares. Since its U.S. IPO roughly two years ago, the agricultural holding company has lost 25.5% of its value, but shares have been in the green since the start of 2013.

The crux of Adecoagro's bullish thesis lies in its exposure to one of the best asset classes out there for the long run: arable land. The company owns around 40 different farming properties throughout Argentina, Brazil and Uruguay. Though most investors are aware that farmland prices have been skyrocketing in the United States, Brazil, for example, has also seen the average value of its arable land increase by nearly fourfold over the past decade ( via Informa Economics FNP). Uruguayan and Argentinian farmlands have experienced a similar boom. 

Another benefit of Adecoagro's portfolio — which is most heavily concentrated in Argentina — is its crop diversity, which reduces its exposure to one commodity in particular, like corn or wheat. At a mere 14.9 times forward earnings, shares of Adecoagro are cheap at the moment, and the sell-side expects the company to finish 2013 with earnings of 63 cents a share — nearly twice its 2012 forecast. Ospraie Management's Dwight Anderson is also very bullish about this stock ( see Anderson's top picks ). 

Acacia Research Corporation ACTG -1.18% is the second-largest small-cap stock in Soros's portfolio, worth a little over 1.1% of his total 13F holdings. The company and its subsidiaries match patent owners and inventors to corporate partners. Acacia holds 250 different patent portfolios for use in medicine, media, IT and energy. Oil and gas production is the company's latest play as we head into the third week of 2013. 

Some bears may cry "troll," while others may believe that its business model is perfectly legitimate, but the fact is this: The number of patent portfolios under Acacia's banner has close to quadrupled over the past half-decade. The sell-side expects earnings growth of 38% annually through 2017. At a price-to-earnings growth multiple near 0.7, the markets are clearly undervaluing these prospects, and we'll be watching Acacia's presence in the energy industry closely. Famed "magic formula" man Joel Greenblatt was also quite bullish on this company in his last 13F filing ( see all of Joel Greenblatt's stock picks here ). 

Internet-based photo-publishing service Shutterfly SFLY +1.17% is George Soros's third-largest small-cap investment. The hedge fund manager owns about 8.4% of Shutterfly's outstanding shares, with short-sellers shorting another 21% of the company. Despite this abnormally high level of bearish investors, shares of Shutterfly have actually gained 9.2% since the start of the year on the back of an upgrade from Topeka Capital Markets and the acquisition of ThisLife, a cloud-based media storage provider. 

Topeka now holds a $40 price target on the stock, specifically citing the belief "that current competitors will continue to struggle to achieve sustained profitability." Generally speaking, Wall Street sees an upside of 15%-16% from these levels. At depressed book (1.9x) and sales (2.2x) multiples, Shutterfly offers investors value as well. 

Cheniere Energy LNG -0.30% , the liquefied-natural-gas company, sits at No. 38 in Soros's 13F portfolio, and is his next largest small-cap holding. Cheniere has been a beast since mid-November, gaining over 40% in value. As its ticker symbol suggests, the company is currently the U.S.'s only approved LNG export terminal. The Department of Energy's Federal Energy Regulatory Commission believes the site will have the capacity to ship 2.6 billion cubic feet of gas per day when export activity commences in late 2015. 

While it remains to be seen exactly how many of Cheniere's peers — like Dominion Resources (D), for example — will gain terminal approval, forward-looking investors can take solace in this exclusivity at the moment. 

Last, but certainly not least, rounding out our top five is U.S. Airways Group LCC -0.74% . U.S. Airways is closing in on a merger with American Airlines, which, if completed, should generate around $500 million in cost savings, and additional revenue close to twice this estimate. Up 9.5% in the New Year, investors are certainly cheery on the prospects of a deal being done, but it's worth noting that in isolation, LCC still trades at a measly 0.18 times sales. The iconic David Tepper and his fund, Appaloosa Management, are also bullish on U.S. Airways.

Apple erases $17 billion from stock market

Apple Inc.’s near 4% drop wiped out $17 billion from the U.S. stock market on Monday, pushing two of the three benchmark indexes into negative territory.

Apple AAPL +0.15% shares fell $18.55, or 3.6%, to end at $501.75 after the Wall Street Journal and Japan’s Nikkei reported that the company had cut iPhone production plans because sales had come in below expectations.

The S&P 500 index SPX -0.09%  shed 1.37 point, or less than 0.1%, to 1,470.68, with telecommunications hardest hit and consumer staples faring best among its 10 industry groups.

“It would be positive without,” Apple, said Howard Silverblatt, senior index analyst at the S&P Indices, the stock’s impact on the index of 500 public companies.

The Dow Jones Industrial Average DJIA +0.14%  rose 18.89 points, or 0.1%, to 13,507.32, with Hewlett-Packard Co. HPQ +4.89%  leading the gains after J.P. Morgan upgraded the personal-computer maker to neutral from underweight. H-P also reclaimed the top PC-maker ranking from Lenovo Group Ltd.

International Business Machines Corp. IBM -0.14%  dropped 0.9% after J.P. Morgan downgraded it to neutral from overweight.

Shares of Dell Inc. DELL +12.96%  rallied 13% after Bloomberg News reported that the company was in buyout talks with private-equity firms.

Sprint Nextel Corp. S -3.89%  dropped 3.9% after the stock was downgraded by some brokerage firms. Read more about Monday’s biggest gaining and declining stocks.

The Nasdaq Composite COMP -0.26%  lost 8.13 points, or 0.3%, to 3,117.50.

Apple has a significant impact on the major stock indexes. It has a 3.8% weight in the S&P 500 and a 10% weight in the Nasdaq Composite, and is the largest stock on both. It’s not a member of the Dow average. Read more about the decline in Apple’s share price.

“In terms of the general negative sentiment, it’s a combination of Apple and a bit of poor industrial production number out of Europe. That was a pretty ugly wake-up call,” said Bill Stone, chief investment strategist at PNC Wealth Management. Industrial output for the 17-nation euro zone dropped 0.3% in November.

Decliners and advancers ran in a virtual dead heat on the New York Stock Exchange, where 590 million shares traded.

Composite volume approached 3 billion.

“As the week wears on, we’ll have a much more robust earnings calendar. Of those 27 S&P 500 companies reporting so far, they’ve lowered estimates significantly in the last three months,” said Art Hogan, market strategist at Lazard Capital Markets.

Companies reporting so far have managed to “squeeze out some sort of beat of lowered expectations,” said PNC’s Stone.

Of the first 27 companies in the S&P 500 to report fourth-quarter results, 67% exceeded earnings-per-share growth expectations, 15% were in line and 18% missed, according to Nick Raich, director of research at Key Private Bank. Of those companies, which represent 5% of the 500 that will eventually report, 11% raised their first-quarter 2013 guidance; 19% maintained and 70% lowered their outlooks.

“The new consensus expectation for fourth-quarter 2012 earnings growth is only 2%,” said Raich. “The guidance companies are providing after reporting results is still very weak.” 

In Washington, President Barack Obama talked about efforts to reduce the U.S. deficit at a Monday news conference in which he urged lawmakers not to use the debt ceiling as leverage in the political wrangling over government spending.

With a battle looming with Congress in the weeks ahead over hiking the $16.4 trillion debt ceiling, Republican lawmakers are mulling a government shutdown or default as a way to force cuts in government spending. Read a blog post on the U.S. Treasury thinking the unthinkable about the debt ceiling.

In separate statements, Senate Republican leader Mitch McConnell called the debt-ceiling debate the “perfect time” to confront government spending, and House Speaker John Boehner also indicated his intention to link spending cuts to hiking the debt ceiling.

The Treasury market did not signal distress over the danger of a government default, with yields on the benchmark 10-year note 10_YEAR +0.16%  off 1 basis point, or 0.01 percentage point, to 1.85%.

Federal Reserve Chairman Ben Bernanke spoke at 4 p.m. Eastern in Michigan, following comments delivered by Chicago Fed President Charles Evans that the central bank should continue to keep monetary policy accommodative as lawmakers cut U.S. spending.

“The market will be watching Bernanke to get a better take on when the Fed might start to take the punch bowl away,” said Stone of the Fed’s monetary policy.

Banks Find Promise Unfulfilled in China Forays

In June 2005, when Bank of America Corp.'s then-Chief Executive Ken Lewis flew to Beijing to sign a $3 billion pact to acquire a 9% stake in one of China's biggest state-run banks, he hailed the deal as "a long-term investment."

In Mr. Lewis's view, the money the bank put into China Construction Bank Corp. should have given the Charlotte, N.C., lender an entry into the world's fastest-growing economy and a clear shot at tens of millions of potential banking customers.

The Bank of America chief at the time was part of a parade of top international bankers who piled ...

Apple Cuts Orders for iPhone Parts

Apple Inc. AAPL -3.57% has cut its component orders for the iPhone 5 because of weaker-than-expected demand, people familiar with the situation said Monday, indicating sales of the latest smartphone haven't been as strong as anticipated.

Apple's orders for iPhone 5 screens for the first quarter, for example, have dropped to roughly half of what the company had planned to order, the people said.
The Cupertino, Calif., company also cut orders for components other than screens, one of the people said.

Customers stood outside a KDDI Corp. outlet prior to the launch of the Apple Inc. iPhone 5 in Tokyo in September.

Apple cut orders for iPhone 5 components on lower-than-expected demand. The WSJ's Juro Osawa talks about whether sales of Apple's latest smartphone are slowing. 

Apple has set the agenda for the smartphone market since it released its first iPhone in 2007.
But South Korea's Samsung, which sells Android-based models at various price points, has overtaken the U.S. company as the world's largest smartphone vendor by market share. Demand also is growing for inexpensive smartphones from Chinese makers such as Huawei Technologies Co.
While the popularity of iPhones and iPads has been boosting Apple's earnings and investors' expectations over the past few years, there have been concerns in recent quarters about how long the growth can continue. Apple's stock, which peaked at about $705.07 in September, was down 3.2% at $503.70 in midday trading Monday in New York.

Apple held 14.6% of world-wide smartphone shipments in the third quarter, down from a peak of 23% in the fourth quarter of 2011 and the first quarter of last year , according to IDC.
Samsung's market share, meanwhile, rose to 31.3% in the third quarter, compared with 8.8% in the third quarter of 2010. The Korean company said this month that it expects to report another record operating profit for the fourth quarter of last year, capping its best year ever amid strong sales of its Galaxy line of smartphones. The company expects an operating profit of between $8.1 billion and $8.5 billion for the quarter.

Analysts continue to cite multiple explanations for a potential trim to orders unrelated to demand, including the ebb of flow of Apple's supply chain and a strong holiday quarter.
Brian Blair, an analyst with Wedge Partners, says order cuts are typical after the holidays. He also noted that Apple uses multiple suppliers for individual parts making across the board cuts difficult to assess.

He estimates that Apple, which reports earnings for the December quarter on Jan. 23, sold 50 million iPhones during the quarter, ahead of average analyst estimates around 47 million.
Sanford Bernstein analyst Alberto Moe, said Apple may have made particularly large iPhone 5 orders to suppliers for the fourth quarter because of earlier concerns about manufacturing difficulties with some components such as screens.
Citigroup C -0.28% last month lowered its rating for Apple to "neutral" from "buy," citing concerns about cuts to iPhone orders. The brokerage noted that a sharp increase in iPhone 5 production during the fourth quarter may have left Apple with more inventory than expected. Still, it also said that "good not great" demand is likely a factor behind the order cuts.
"It is unlikely that Apple is cutting orders in a 'great' demand environment," Citigroup analysts said in the Dec. 16 report.
The iPhone 5, released in September, represents Apple's effort to maintain its strong position amid intensifying competition. The model comes with a longer, four-inch screen than the 3.5-inch screens in previous iPhone models.
Japan's Sharp Corp., 6753.TO +12.63% Japan Display Co. and South Korea's LG Display Co. 034220.SE -2.20% are the three suppliers of the screens, according to people with knowledge of the matter. When the iPhone 5 was introduced, there were concerns that suppliers might not be able to produce enough to keep up with demand.
Apple's cut in orders may affect first-quarter sales of component makers, some of which are largely dependent on the U.S. company. The fact that some iPhone components are highly customized makes it difficult for suppliers to find alternative buyers in a short time frame. Sharp, one of the screen suppliers, has been struggling with a cash crunch and losses from its television-set operations.
Japan's Nikkei reported Monday that Apple has slashed its orders for iPhone 5 components.

Obama Warns Republicans on Debt Limit

WASHINGTON—The next phase in the bitter, two-year-long battle between the White House and congressional Republicans began in earnest Monday, with President Barack Obama and GOP leaders digging in over spending and the debt limit.

Mr. Obama, speaking at a hastily called news conference, sought to blunt any momentum gathering around congressional Republican plans to use the vote on raising the debt limit as leverage in coming budget fights, saying it is "irresponsible" and "absurd" to even consider defaulting on U.S. debt in an attempt to extract spending cuts from Democrats.

The president said the threat of default already is harming ...

Will Obama Ruin the Economy to Ruin the Republicans?

With both the 14th Amendment and platinum coin options to defuse a debt-limit crisis (apparently) off the table, only two possible outcomes are left: a debt- ceiling increase or the government's missing required payments and economic chaos ensuing. This is exactly the choice President Barack Obama laid out in his news conference this morning.
Politico reported today that top Republican staff members believe “more than half” their conference is prepared to push the government into default on some payments rather than cave on their demands for further spending cuts.
This isn’t because Republicans are reckless, as such. Many conservatives are sincerely convinced that excessive government spending poses a dire risk to the U.S. economy, and that even if missed payments have severe negative short-term economic consequences, they will be worth it if the long-term outcome is a smaller government.
The conviction that everything is about to come apart in the U.S. if the government maintains its current economic-policy course -- through tremendous inflation, a debt crisis, and/or all of the productive members of society Going Galt -- animates the huge Republican resistance to anything Obama proposes, even if that’s just the government paying the bills it has already run up. They’re trying their very hardest to save the country from a madman.
This sincere outlook is also insane, as you can see from how the stock and bond markets have behaved in recent years in response to various policy actions. The markets like fiscal expansion, monetary expansion and deals that keep the government operating as usual without drastic policy change. They do not cry out for massive disruption in pursuit of smaller government.
But the conservative worldview is robust because of its imperviousness to evidence. Economic data, like polling data or climate data, cannot get in the way of the narrative. Conservatives are sure that the Obama presidency will lead to an economic calamity, and they will prove it, if necessary.
Mike Konczal of the Roosevelt Institute has a good rundown of the game theoretical implications of the White House’s choices to take the coin and the 14th Amendment off the table. By removing the options to hit the debt ceiling without economic disaster, maybe the White House will force Republicans to give the White House the policy it most wants: a clean debt-ceiling increase. Or maybe we’ll hit the debt ceiling anyway.
But there is another explanation for the White House’s choice that is missing from Konczal’s analysis. If Obama had minted the coin, he would have taken the blame for whatever problems ensued, real or imagined. He might have saved the economy while bearing the political cost of ruining it. Foreclosing that option has an indeterminate impact on the economy, but it will ensure that Republicans get all the blame for whatever bad economic events happen in the next few months.
By creating an object lesson of how unfit the Republican Party has become to govern, Obama can ensure himself a political “win.” But with a new recession sparked by a government payments crisis, the country would lose -- and Obama, whose second-term plans would be hampered by the need to manage yet another recovery, would lose, too.
(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)
Read more breaking commentary from Bloomberg View at the Ticker.

Bernanke: 'We're Not Out of the Woods' Despite 'Fiscal Cliff' Deal

Although the "fiscal cliff" deal made "some progress" in resolving the nation's debt problem, "we're not out of the woods yet," Federal Reserve Chairman Ben Bernanke said Monday.

"We are approaching a number of other fiscal critical watersheds," Bernanke told the University of Michigan's Gerald R. Ford School of Public Policy. "We have the funding of the government, we have the so called sequester…and we have the infamous debt ceiling which will come into play."

Echoing comments made earlier in the day by President Barack Obama, Bernanke said raising the debt ceiling merely gives the government the ability to pay its existing bills.

"It doesn't create new deficits, it doesn't create new spending," he said. He said it was like a family deciding that to save money, it won't pay its credit card bill.

"It's very, very important that Congress take necessary action to raise our debt ceiling to avoid a situation where our government doesn't pay its bills," Bernanke said.

(Read More: Geithner Letter Warns Congress: We Will Hit the Debt Ceiling Soon)
The Fed chairman also said it would actually be better if the country didn't have a debt ceiling.
"I don' think that's going to happen, I think it's going to be around," Bernanke added, "but I do hope Congress will allow the government to pay its bills, not raise the possibility of default , which would be very costly for our economy, and then address very seriously these fiscal issues."

While some progress was made in working out the country's fiscal problems with the tax deal beginning of January to extend tax cuts for all American families earning less than $450,000 a year, Bernanke said the big challenge remains finding long-run debt sustainability without unduly hampering the U.S. economic recovery.

He said that the fiscal cliff probably would have created a recession in the U.S. this year, but some of that risk has been avoided.

Bernanke downplays inflation risk of QE3

Worst thing Fed could do would be to hike rates prematurely

Federal Reserve Chairman Ben Bernanke played down fears on Monday from some more hawkish central bankers and investors that the Fed’s bond-buying program will lead to higher inflation.

“I don’t believe significant inflation is going to be the result of any of this,” Bernanke said in a speech at the University of Michigan. 

The Fed will watch closely to see whether the zero-interest rate policy that has been in place for four years could eventually lead investors to make unwise decisions, creating an asset bubble, he added.

Bernanke also said there is a continuing debate over whether Fed policy is a cause of asset bubbles. The Fed has an “open mind” on the issue, he remarked, and will continue to monitor markets and toughen bank supervision to guard against financial instability. 

But the worst thing for the central bank to do would be “to raise interest rates prematurely,” according to Bernanke. 

At their meeting in December, the Fed boosted its stimulus program by adding $45 billion of monthly Treasury purchases to an existing program to buy $40 billion in mortgage-backed securities a month.

Last week, several Fed officials expressed their concerns over the central bank’s loose policy. Read: Fed hawks get their day in the sun. 

Kansas City Fed Bank President Esther George noted that prices of assets such as bonds, agricultural land and high-yield and leveraged loans were at historically high levels.

In addition, Richmond Fed President Jeffrey Lacker dissented from all eight Fed policy statements in 2012, saying that the central bank might be undermining its ability to control inflation.