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Will the trickle turn into a flood? That’s what investors are furiously trying to figure out when it comes to earnings warnings.
Today, we got a handful of them from a diverse group of companies. The first came courtesy of department store chain Macy’s (M).
It said sales dropped another 2.6% in the second quarter that ended August 1. That was the fourth drop in the last six quarters, with the $6.1 billion in revenue missing analyst estimates. Adjusted earnings per share of 64 cents also missed targets, and Macy’s said things won’t get better anytime soon.
Next up was telecom giant AT&T (T), which just finished swallowing satellite television firm DirecTV for $49 billion. It said revenue would grow at a double-digit rate for the remainder of 2015, and that earnings per share and free cash flow would benefit from the acquisition.
But that didn’t satisfy investors, who were apparently expecting better news. Result: The stock fell almost 2% on the day to a three-month low.Â
Perhaps the most telling – and troubling – warnings came from the Chinese Internet darling Alibaba Group Holding (BABA). It launched the biggest initial public offering (IPO) in the world last September, raising $25 billion. But anyone who bought right after the offering has gotten his or her head handed to them.
Indeed, the stock just sank to a post-IPO low after revenue missed estimates in the fiscal first quarter amid slowing online sales growth. While the company announced it would buy back $4 billion in shares to try to bolster their value, that didn’t placate investors.
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| Alibaba launched the biggest IPO in world history. But now investors are getting hammered. Photo: www.alibabagroup.com |
Why should you care about BABA? Because it’s the Amazon.com of China. It also has other online operations and businesses in China. If it’s having these kinds of problems, it could be just a precursor of what to expect down the road from U.S.-based companies with significant operations in that country and elsewhere in Asia.
After all, China allowed its yuan currency to devalue by as much as another 2% overnight (before intervening to ease the decline to around 1% late in the session). We also got the first competitive response from another regional player when Vietnam widened its currency trading band last night.
Jitters over weakness in that part of the world are already hurting the very popular and widely held tech giant Apple (AAPL), as I mentioned recently. The company has been generating around 25% to 30% of its sales from China in recent months.
Automakers like Ford (F)and General Motors (GM), as well as large diversified manufacturers like 3M (MMM) and Dow Chemical (DOW) are also likely to come under pressure if we get a wave of competitive devaluations in Asia.
Per Bloomberg, MMM generated almost 30% of its sales in the Asia-Pacific region last year, while Dow gets about 17% of its sales there. What about global tech behemoth IBM (IBM)? Almost 22% of sales come from the Asia-Pacific region. Airplane maker Boeing (BA)? Its Chinese sales just topped 12% last year, with another 13% of sales from elsewhere in Asia.
| Â “Why should you care about BABA? Because it’s the Amazon.com of China.” |
See what I’m getting at? China isn’t some small economic backwater like Greece. It’s a major global behemoth.
So don’t believe all those mainstream talking heads on CNBC who keep blathering on about how the weakness in Asia and elsewhere doesn’t matter. It does. It’s yet another reason I have made it crystal clear that I’m more cautious now than I’ve been in a long, long time. It’s also why I have been urging protective action and cash-raising for the last couple of months.
Haven’t gotten started on that yet? Then I urge you not to delay much longer!
So what do you think? Are Macy’s, AT&T, and Alibaba just the first of many to warn about lackluster earnings and sales growth? Is the Chinese devaluation going to cause major headaches for big multinationals? What does all this mean for stocks? Are we finally headed for a real, honest-to-goodness correction … or something even worse? Head over to the Money and Markets website and let me know as soon as you have a minute,.
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China’s aggressive currency move reverberated throughout global markets yesterday, and it was a major topic over at the website, too.
Reader Rick said he sees a distinct motive behind China’s move, offering this perspective: “Looks like the U.S.-influenced decision to keep China out of the IMF for another year is already having consequences.”
Reader Ted F. said China’s economy is suffering because the government failed to re-focus on domestic demand versus exports. His take: “China built way too much of their economy on selling abroad, but failed to build their own internal consumer base. That worked fine for the Chinese until everybody’s economy started slowing. Then China went on massive building programs with no customers.
“The big question is, ‘Will Obama sit on his hands as usual? Or will he counteract the Chinese move, as every other Asian country is a sure bet to do?'”
Finally, Reader John said we should be very worried about the signal China’s actions are sending out. His view:
“What the Chinese devaluation of the yuan means is that things are worse in China that you might think just from reading about it in the news media. And that they did it twice (another cut in the yuan on Wednesday followed the one Mike wrote about on Tuesday) is puzzling – since they seem to have stated on Tuesday that the cut was a ‘one time’ thing. I guess after promising there would be no more, they couldn’t hold off another cut in the yuan, even for 24 hours. Hmmmm.”
Meanwhile, in the other global hotspot of Greece, Reader Carl said the latest deal won’t change the underlying fundamentals at all. He said:
“Greece can’t pay. Their economy must expand enormously to service their debt, and it’s tanking. Everyone knows the fundamentals. Loans and bailouts are political theater and maneuvering to have the bomb go off on someone else’s watch. It’s not even a secret anymore!”
Thanks for sharing your observations. I agree that China’s economy is clearly on the ropes, or else officials wouldn’t be launching so many panicky moves one after the other. Rate cuts, direct stock market interventions, and now currency manipulation aren’t the kinds of things you’d see when things are humming right along.
Throw in the still-simmering European debt problems, and you have a potent mix for more volatility – and potentially severe stock market losses. That’s why I’ve gotten much more aggressive lately with paring down portfolios, and adding downside hedges and/or profit-seeking investments.
Anything I didn’t cover here? Then let me hear about it over at the website.
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General Electric (GE) confirmed it will sell its health care financing business to credit card and regional banking firm Capital One Financial (COF) for $9 billion. GE has now sold off $78 billion in assets as part of its plan to shrink its financing operations and re-focus on industrial units.
Will they or won’t they? No, I’m not talking about the Federal Reserve and hiking interest rates (this time). I’m talking about Germany, and whether or not the country will sign on the latest Greek bailout deal. The agreement needs legislative approval in the Bundestag, but Chancellor Angela Merkel is having trouble cobbling it together.
I may have issues with Obamacare, and judging by the comments online, many of you do too. But one thing the health care program is doing is cutting the number of uninsured Americans. New figures from the National Center for Health Statistics show 29 million Americans lacked health insurance as of early 2015. That’s down 15.8 million from two years ago.
Will Greece get its (umpteenth?) bailout? Is the drop in uninsured Americans a sign Obamacare is working? Any other stories you want to comment on that I didn’t cover here? Then let the website be your outlet.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Obamacare is not good insurance, high deductibles and copay. the cheapest plan has $6000 deductible . The users of Obamacare can’t afford that . Medicaid would have been better. All it did was increase persons “with insurance” (statistical games) Exchanges (unfunded mandate) are losing money. Raises rates for all of us who have real insurance.
It’s quickly becoming irrelevant whether or not we like Obamacare. Like ALL entitlement programs it’s roots are growing and spreading rapidly. It will never be repealed. Get used to it. Jim
You can bet that this is on Mr Obama’s mind. Just saw another picture of him playing golf. There’s nothing going on in the world and nothing to worry about. Makes you feel confident doesn’t it?
It seems more and more financial bloggers are predicting a collapse in markets and currencies. I think it is more about fear than economic reality and that we will continue to muddle along until governments get out of the way and let smaller business’es compete.
CURRENCY BASKETS AND “BASKET CASES”
China is just compensating for the accomplished fact their currency has already appreciated quite a bit in the past year, effectively. China is just doing Janet Yellen’s job for her, but on their terms.
Janet Yellen is a hopelessly incompetent academic who is afraid of her shadow. She should have raised interest rates already ( last year, not “next year” ). Janet Yellen is way behind the curve, as it is. So, the dollar got too dear and China took the initiative. They need to make the Yuan more accessible and its value determined by Market Forces prior to being formally included in the SDR “Basket of Currencies” by the IMF this Fall or now, next year.
We are becoming less relevant in the world every day when as we let foreign countries take away our initiative and let them make the changes on their terms. We no longer lead. The next President won’t likely change this imbedded trend as it reflects our collective views and attitudes ( apathy ).
You’d rather go back to “bumbles” Greenspan? Didn’t he usher in the Crash?
Mike, I don’t understand why you place your faith in any of these people. The professional politician will be the ruin of us all. It was once said Democracy will be doomed when people discover they can vote themselves a raise from other peoples pockets. We are there. Jim
H
What we don’t need in 2016 if we want to survive is someone already in Washington. We need a new broom to sweep all the bums out.
Right Mr. H. I keep hearing Ben Carson doesn’t have any experience in Washington. I bet he can figure it out. A genius in the White House! Unthinkable! Jim
I was a young man attending USC in 1970, and early one morning I was penniless and walking along a California beach near Santa Monica when I stumbled on an old lamp partially buried in the sand.
I uncovered it and picked it up… The lamp was very bright and shiny and I brushed the remaining sand off of it.
Suddenly a genie appears out of the lamp and told me, “I will grant you one wish.â€
I thought for a moment and said, “I want to live forever.”
“Sorry,” said the genie, “I’m not allowed to grant eternal life.”
“OK then, let’s see… Okay, I want to die after the Democrats and Republicans balance the budget and eliminate the debt.”
“You are one cunning fellow,” said the genie.
Looking back, and given the condition America is in now, I’m not sure that was my best choice.
You know, I graduated from College in the early 1970’s after a stint in the Army…. I was dirt poor and thanks to the GI Bill (Thanks FDR) I was able to afford it (while still living in poverty)….. That training in Business allowed me to understand the markets and it left me retired early and wealthy….
That said, the deficit/debt began to go parabolic after Reagan cut taxes but did not cut spending….. Then came the unfunded war with the senior Bush and the deficit/debt grew even greater…. Under Clinton the deficit/debt leveled off. Then came Cheney/bush and they brought us an unfunded Medicare Drug Coverage and another war and the deficit/debt went higher at an even greater parabolic rate!…. Then before Cheney/bush left office they brought in the greatest Stock Market Crash since 1929 in November 2007…
Next came Obama and within 90 days, his Administration and a majority Democratic Congress brought the bottom of the Stock Market Crash through PIP to save the Banks (most of which has been repaid) and QE by the Fed (which is independent of the President), which spent a lot of money to recover the Cheney/bush Crash…..
That said, please explain why this is a Republican and Democratic caused problem when the vast majority of this deficit/debt spending happen on the watch of Republican Administrations and Republican Majority Congresses?
Didn’t Mr. Obama and his totally Democratic Congress saddle us with more debt than all of the previous presidents combined, something on the order of $10 trillion with very little to show for it? I have always contended that Democrats and Republicans do the same stuff only the Republicans do it at a slower pace. Our problem is bad policy from both parties for a long time now. The difference between the parties is negligible. To even imply that the. Democrats are innocent of contributing to our current malaise and peril is ludicrous. Jim
Well done Jim
Jim,
The FEDERAL RESERVE did that . Not Obama… You need to do your own research…
A couple of more facts: Jimmy Carter was an unmitigated disaster. Reagan’s tax cuts and deregulation unleashed pent up capital and created millions of new jobs. Revenues to the Federal Treasury soared. The Democratic Congress spent it even faster than it was coming in, hence the deficit increase. Clinton was forced to adopt responsible spending levels by the first Republican Congress in forty years. Newt Gingrich and a young John Kasich with their Contract With America forced welfare reform and a balanced budget on a very reluctant Bill Clinton. George Bush and his “Passionate Conservatism” was indeed a disaster. He cut taxes then started a war we couldn’t pay for and decided to give away billions in free drugs, all approved by a Democratic Congress. Mr. Obama inherited a mess that I think can be single handed blamed on Barney Frank and his sub prime initiative ( invented by Bill Clinton ). Obama and his trillions only made things worse and delayed the inevitable crash that’s just around the corner. The Keynesians are simply wrong and The Austrians correct. You cannot borrow your way to,prosperity. His folly will also probably be blamed on the next Republican President by the sycophantic Liberal Media. Jim
Makes you wonder whether a successful business man like the Donald could do any worse?
We may have more uninsured, but the question is are they actually paying for it? Did they sign up and never make a premium payment or is some government program paying their premiums. The way this administration spins the data, who can believe any information they put out? They will do anything to make themselves look good. I personally don’t believe it.
All those who depend on government largesse may soon find themselves residing in Darwin’s basement. Jim
Think the Chinese are in control? Wait until the average American decides that they are NOT going to buy anything made in China! Yea, I know it will take a while for America to retool, but if the Chinese screw around to much they are very likely going to get themselves a HUGE reaction from the biggest Consuming nation in the world. If they can not sell their slave labor built materials in America, they are screwed!…
I do not believe it will matter to the Chinese all that much as the rest of the world combined buys more than the U.S.
Besides, the American industrial complex is never going to be convinced to come back to unions, corporate taxes, and a bunch of hostile bureaucratic restrictions…
It will never happen in my lifetime and I’m going to live until the Democrats and Republicans balance the budget and eliminate the national debt…
Who are you kidding? America consumes over 29% of the world’s goods and with the exception of China (at about 5%) the rest of the consuming world (with the exception of Russia (about 5%) is aligned with America… If America decides to make that shift, what do you think the rest of the civilized, consuming world is going to do?
While obamacare is a mandate: buy or pay a fine… even though more may have health insurance now very few of them can afford the deductibles that run into the thousands of dollars before your health insurance kicks in.
Yesterday China showed the world what their promises really mean: nothing.
After their first devalue of the renminbi they promised that was the last time. Then in a in surprise announcement, they devalued the renminbi twice in 36 hours.
That means the renminbi tumbled to as low as $6.57 per US dollar, which is a 6% decline in roughly 36 hours… Perhaps with similar actions to come…?
What about the future of the US dollar…? Because if an economy as large and powerful as China’s has had to concede defeat, does this mean that King America’s Dollar will dominate world economics forever? The US dollar is not the first global reserve currency, and it certainly won’t be the last.
The dollar’s strength is derived from its status as the global reserve currency.
A few years ago gold backed the US dollar. Now the only thing sustaining the dollar’s reserve status is “confidence.â€
How much confidence do you have in the Federal Government and the current administration…?
It’s foolish to expect that any reserve currency will last forever, and it’s even crazier to expect a reserve currency with only the backing of “confidence†as is the US dollar, and you can take it to the bank (no pun intended) assuming there will be one to take it to, the dollar not will last too much longer (think digital reset accepted worldwide currency).
Aloha..well lets see here.. First..its a Government..True? secondly…its China..also true? Then I must ask why…by any STRETCH of the Imagination…you would expect any semblance or even a reasonable facsimile…of the TRUTH..?? lolol thanks for reading
Any worldwide currency would be the same to all countries as the Euro is to Greece.
Macy’s here in CA is not competitive in the malls.
For example, a Ralph Loren sport shirt cost $120 at Macy’s, the same quality shirt cost $65 at Brooks Bro, and slightly lower quality shirt cost $20 at JC Penny. Why would anyone buy at Macy’s? Maybe we should look at JCP stock!
Tib C
Macy’s sells more clothing that any store in America…
More than Amazon who may surpass Macys any day…
Much more than Walmart also
On the stock market, the 50 day M A just crossed over the 200 day M A. Just another of many things saying this market is about ready to roll over.
Saudi Arabia lowered the price of oil by bumping their lower cost wells flat out, now China is going to make the cost of consumer goods cheaper by lowering the Yuan, so that other countries can’t compete with their relatively cheap goods. This will increase employment in their factories, and make Chinese businesspeople happy. Just as cheap Saudi oil has hurt American oil producers, cheap Chinese goods will hurt American employers and employees. Again. A very clever way of warfare. What would Sun Tsu think of it.
He’d be pleased because Sun Tzu’s approach to warfare is unlike that of Western warfare in that force is not at the center of the any war procedure. The mention of force only occurs nine times in Sun Tzu’s text that includes thirteen chapters.
In China at that time period, force was of limited utility as it was Sun Tzu’s conviction that victory and defeat are fundamentally psychological states.
He saw war, therefore, not so much as a matter of destroying the enemy materially and physically, but delivering something unsettling to the enemy psychologically.
His goal was to force the enemy’s leadership and society from a condition of harmony, in which they can resist effectively, toward one of chaos which is tantamount to defeat.
Oh gosh, that’s what Saudi Arabia and China are doing to America…
No wait, that’s what Obama’s administration is doing to American…
Doc, you are one smart guy. I’d drink a cup if coffee with you anytime! Jim
Thank you sir… I’ve been around the block more than once…!
Aloha Dr Smith! I think it safe to say while we are not on the Best of terms with the Saudi’s we are still their Largest Military Provider…not to mention the Home (for now) of The Petro-Dollar. I find it hard to understand that people do not realize that China was “Duped” into copying a “Western-style” Financial structure..for which they had No long-term Experiences nor Knowledge..Sun Tzu’s CONFUSION is now well at work within China’s Financial system..true? Also,as far as the General American Population goes..it would much rather be Entertained…than Read..THINK..or God forbid ” DO Something” lolol thanks for reading~~aloha
This country seems to be under attack from all sides… and from within, as well. Especially by both of our major bunches of politicians.
A excellent report easy to read and to the point on many stocks. Thank you
Aloha friends! I find it interesting,that if one LOOKED at the Solicitations ALIBABA was sending to Retail business customers over the past year…only a fraction of them were from Chinese companies..they were littered with countries like India..Pakistan..etc etc..and now people are Surprised at its Money problems..?
ok in a nutshell Crash before Xmas of next year then Q E 5 or whatever it will be called
Big D DEFLATION that is will take hold all over the world . . a FALSE FLAG to take the country to another unwanted WAR remember we are in a DECEPTION TIMES we cannot trust NO ONE but JESUS CHRIST JEHOVAH and buy good companies that PAY DIVIDENDS dollar will lose more of its value … so Hard Assets are a MUST OWN
and hope Trump will take it all tired of EVIL CROOKED POLITICIANS Red or Blue they are the same ……… so help us GOD
Mike:
Insurance coverage numbers from the Feds are as accurate as the unemployment numbers!! Wake up!! Pure BS!! Do some simple math, insert the government, cost goes up, insert insurance companies cost can only go up. Take out the government, the insurance lobby, and the insurance company and cost can only go down. It is only a free market when you have a willing buyer and willing seller. No other parties needed. Obama care is pure political clap trap for the uneducated and victims of public indoctrination, er make that education. Just like every other government program.
Why would you not expect for the number of uninsured Americans to be reduced by Obamacare? After all it took them From Medicade and out patient waiting rooms.
Just saw item that China has devalued again – 3rd time in 3 days. Can’t confirm, but would be like a declaration of economic war if true.
Obamacare is NOT working. Some people are getting insurance either because they will be fined if they do not have it or they can get it with someone else that is working paying for it. Part time 30 hour work weeks so companies do not have to pay for insurance has left the people with no money. No wonder the mainstay of the economy ie housing ownership is at its 50 year low!!
So I am one person who benefited greatly from The Affordable Care Act. We sort of got on it when my hubby switched jobs and since we knew we couldn’t afford the Cobra payment, applied for “Obamacare.” What a difference in our lives. For the first time in the 20 years we’ve been married, we haven’t been in the red from owing hospitals. I am so sick of making payments to the clinics and hospitals, seeing locals with cancer die because they won’t put their families in debt because of medical procedures, seeing people spend a little money on ineffective homeopathic treatments because they can’t afford to see a doctor. (Such as using essential oils to try to control high blood pressure. Not a good plan.) We pay lots of taxes and we pay a premium on our Affordable Care Act insurance that now piggy backs on our regular insurance, paying our deductibles off. And no, there’s no comparison on price. We benefit greatly from the help. If wages had kept up with inflation, if secretaries got paid more proportionally to the CEOs, if health care costs hadn’t gone through the sky, maybe some of us wouldn’t need Obamacare. But we do. And they will need time to work out the bugs. So just because some of you richer people don’t need the help, maybe you should think about those of us who appreciate a helping hand up. As an observation: I see lots of people complaining about the money spent for Medicare and Medicaid, but the minute they get older, the first thing they do is run out and use that government program to help with medical needs they’ve been putting off, saying all the while how “they paid taxes, so they should use it.” I think these whiners need to stop being hypocritical.
I read a corporation that owned hospitals in more than one state reported their profits for the first six months of this year were up 17%. They attributed this to a decrease in their charity and unrecoverable accounts. Could this be a sign that more people have insurance?
Well said Beth, even though I do not need Obama Care I would not be against it.
Compared to the trillions of dollars spent on two lost wars.American families may
As well benefit from the Money.
OK I agree with everyone and am glad I didn’t find the lamp.
The only answer I want is the one to this unasked question.
If market timing never works, why are all the pundits telling me to sell my crashing stocks and go to cash?
Hi I want a market that if I enter I will boom with my investment
We have a record number of unprofitable IPOs companies are going public to access capital markets for funding, even when they aren t generating earnings. That s a risky and speculative game.
As far as China s bubble, perhaps the levers available to them in order to maintain their own unrealistic economy afloat are too limited and as such are showing themselves unable to maintain such an unsubstantiated position without drastic overt actions, the likes of which typically lead to massive civil unrest and a desperate attempt to export such domestic discontent outside its borders through a sundry of equally unpleasant methods and means. China s gold holdings?