We are certainly getting an interesting start to
the week. Steve Jobs is taking a health-related leave of absence from
Apple (Nasdaq:AAPL) and the shares are down around 5%. Apple stock traded down
8% yesterday in Europe, so there may be some more downside. Apple sold off around15%
the last time Jobs took a leave of absence, so we may see Apple trade
down to $300 a share.
Of course, Jobs’ absence is unlikely to affect
Apple’s earnings, revenues and innovative products.
*****Citigroup (NYSE:C) reported a $1.3 billion
profit in the fourth quarter. That works out to $0.04 a share, but
estimates were for $0.08. That’s a pretty big miss. Revenues were light
We get IBM
(NYSE:IBM) and Apple
after the close today.
*****The explanation for the earnings miss at Citi
was largely due to a $1.1 billion charge related to the value of Citi
bonds and tightening credit spreads. Readers should recall that one of
the accounting rules that was changed to help banks related to how banks
account for their bond liabilities.
If a bank’s bonds are trading lower that what they
were sold for, the bank can count that as a profit, under the assumption
that it could buy them back for less than the original selling
The accounting rule change was solely designed to
improve banks balance sheets, as no bank has the cash to buy back bonds.
Now we are seeing the flipside of this accounting rule. Citi bonds have
rallied, and so the company has to take the hit.
But that wasn’t the only problem. Citi also
suffered from lower fixed income revenue and lower revenue from fixed
income and securities.
The one bright spot was that Citi was able to
lower loan loss reserves by $2.3 billion. But we should also note that
even without the accounting charge, Citi would have been essentially
break even with the improvement in loan loss reserves. Yes I know, Citi
and other banks suffered as they had to put more money aside to cover
losses from their loans, but still, I’d like to see Citi operate at a
profit from operations.
*****We’ve been watching the financials and oil
stocks as the leaders of this rally. The financials are clearly taking a
hit today after Citi’s disappointing results. But oil stocks are doing
The International Energy Agency (IEA) just raised
its demand number for 2011 again for the fourth month running. I don’t
put much stock in the IEA’s estimates as this group is notorious for
underestimating the effect of declining production in non-OPEC oil
Still, the IEA has the basic idea right: economic
growth is leading to higher demand and higher prices.
*****I told you I would keep you up to date on
what my Wyatt
Investment Research Jason Cimpl is doing at
TradeMaster Daily Stock Alerts. If you don’t
know, Jason is our resident technical analyst. He leads his
TradeMaster Daily Stock Alerts to short-term
profits form the market’s direction.
His readers have made some excellent gains during
this rally, including 40% and 17% from China MediaExpress (Nasdaq:CCME),
21% on LDK Solar (NYSE:LDK), 19% on Covenant Transportation
and 17% on Gannett (NYSE:GCI). One of his open positions
is up 54%.
Jason’s market forecast has been relentlessly
bullish since late August, and his readers have done very well. But on
Friday, Jason initiated his first bearish trade in months.
The stock market will correct at some point. And
Jason notes that a correction began during January options expiration
week last year…
And, yes, this is January options expiration week.
We’ll see if Jason can continue his remarkable run of profitable
*****As always, send your
questions and comments to [email protected].