Sunday, January 16, 2011

Itz Week End Review 1-16-11

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JP Morgan reported earnings this past week and beat estimates pushing the banking sector higher and the S&P closer to the 1,300 level. For this week the heavy hitters are Apple and IBM  report on Tuesday followed by Ebay and Goldman on Wednesday and Google on Thursday. Bank America and General Electric close out the week on Friday. JP Morgan reported earnings on Friday of $1.12 that beat the street estimates for $1.00 a share. The +47% rise in earnings came on from a pickup in consumer banking and lower reserves for loan losses. JPM said it could raise its annual dividend from $0.20 to as much as $1.00 if the Fed approves its plans later this year. Since the financial crisis the Fed requires the top ten banks to submit detailed financials for their review. If the Fed likes what it sees it could approve the dividend increase. JPM CEO Jamie Dimon said the bank would raise another $30 billion in working capital from operations in 2011 and the bank's capitalization would be well in excess of that required by the Basel accords. 
The big loser this week was the metals, gold & silver. Surprisingly, gold prices collapsed despite a continued decline in the dollar. The improving economics in the U.S. suggests the Fed will not announce QE3 and the dollar will not decline much longer. Bascially, the QE2 trade in commodities is slowly fading.
Another hard blow to gold came from China, it raised its bank reserve requirement by 50 basis points on Friday. That was the fourth hike in the last two months and the seventh since 2009. China is trying to slow consumer prices, which have risen more than 5% over the last 12 months led by food and real estate. By raising the reserve requirement it takes more money out of the banks and makes it harder to do real estate loans. Investors fear China is going to tighten the screws too far and put the country back into low single digit growth. Numerous analysts believe China's inflation rate is much higher than government figures show. Some believe it could be as high as 20%. China has raised the minimum wage twice in the last six month by 20% each time. That means the inflation is rampant and the large labor pool is shrinking. China is racing towards a business cycle top but it could still be a couple years away. The decline from that top is going to be very painful for the world economy.
So considering with the Fed, QE2, Chinese inflation and the European debt crisis, is it time to get out gold or to buy the corretcion? John Mauldin  renowned financial expert and New York Times best-selling author suggests Europe has only delayed their debt problems and kicked the can down the road.  He gives his views on the current state of the global economy and commodities. Interview & Website

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