Trip to Volatilityville; Oracle Falls Short; Bond Yields Up
Recapping the day's news and newsmakers through the lens of CNBC.
Mired in the Vol
The major indexes undulated Friday. But like in quicksand, the more they moved, the deeper they sank. Two days after the Fed's FOMC meeting, the markets are still trying to figure out which way to go. The best prediction thus far is toward "Volatilityville."
One strategist said what is happening is a major deleveraging, likening it to a temper tantrum. Another says a big correction is bound to come to the S&P 500 within the next three-to-six months. Blackrock is playing it conservative by sitting on a lot of cash (about 25 percent of its portfolio), staying out of Treasurys, nibbling at preferred stock, buying S&P 500 puts and generally stripping out duration.
Of course, not everyone wallowed in the vol; Morgan Stanley CEO James Gorman said the stock market's fall is an overreaction, and that once the smoke clears, we'll be looking at a stronger economy.
"The world was highly levered to this notion of continued QE. Taking this further out, I'm not necessarily that surprised about the selloff. But it's more the notion that everything is selling off. It's rates, it's equities, it's credit; there's no hiding place"—Fredrik Nerbrand, head of global asset allocation at HSBC
"We do think that vol will be with us and particularly in the fixed income markets where I think we were all lulled a little bit by the very low volatility we saw in the fixed income side. We think that's over for the short run. We think there will be more volatility. I think it's the magnitude and pace of this adjustment to the Fed announcement that's been jarring. But I think the time to prepare for this was in the last four to six weeks."—Blackrock's Michael Fredericks
"Chairman Bernanke, I think, has done a tremendous job and is weaning the country off as we're seeing economic recovery. That the market would be skittish during this transition, given what we've been through the last five or six years, is not surprising to me."—Morgan Stanley CEO James Gorman
Oracle's Downbeat Divination
Shares of Oracle were hammered as its earnings fell short for the second-straight quarter. Software license revenues, a key measure, were up only 1 percent, the low end of its range. The company's sales in Asia fell short and Brazil dragged down the Americas, but there is speculation that the company's problems go a bit deeper.
"There has been lots of debate about whether to believe Oracle's story on what the problems are. Their competitors keep trying to tell me it's cloud business they're losing. The weak spots they showed, Brazil and Australia, aren't places the cloud is particularly strong. Plus engineered systems, the hardware, actually seems to be doing better. The next earnings support is September, right around the time of Oracle's big open world conference. It's the buzz around new products that will have to get the stock moving since buybacks don't seem to be doing it."—CNBC's Jon Fortt
Bond Yields at 22-Month High
Treasury prices fell Friday, as yields on five-, seven- and 10-year notes hit 22-month highs amid a broad market selloff. The move comes in the aftermath of the Fed's Wednesday meeting in which it appeared to signal that continuing economic improvement would mean that asset purchases would be tapered off sooner rather than later.
"This isn't about trading strategy of money moving. This is a pain trade."—CNBC's Rick Santelli
Up, Up and Away
In-flight Wi-Fi provider Gogo listed on the Nasdaq Friday. Though no fault of its own, Gogo's timing could have been better; it's shares—priced at the high end of its range—sagged under the weight of taper talk and China's credit crunch. Also, a story in The Wall Street Journal suggested that the FAA would relax rules for electronic gadget on flights, which could have unforeseen implications for Gogo.
"I think it's Gogo versus the Fed and China, and we're holding our own."—Michael Small, CEO of Gogo
Early Release for Enron's Skilling?
Former Enron CEO Jeffrey Skilling was in court on Friday where his sentence reduced to 14 years from 24 years. He's been in the federal pokey since 2006 and has been ordered to pay $50 million in restitution to victims. Enron's collapse left 5,000 jobless and cost investors about $1 billion in pension assets in what was the biggest corporate fraud in U.S history.
"He has served seven years, whether he serves three more years, four more years, even seven more years, it's a long prison sentence. He's seen his parents die, his youngest son die. He's paid a steep price, but there's still a lot of animosity towards him for failed leadership, and I almost think it's a holdover from 2008, you know, where no one has been prosecuted for the collapses of Lehman Brothers or Bear Stearns or Merrill Lynch and so forth."—Enron whistle-blower Sherron Watkins
No More Embargoed Data
The Conference Board will no longer provide economic data in advance to news organizations because it can't ensure whether the information will be embargoed. The line between news providers and data providers becomes increasingly blurred, they said. Instead, the data will be emailed out at 10 a.m. sharp and be available simultaneously on its website.
About a week ago, Thomson Reuters was called out for giving some elite clients an early peek at key consumer confidence data provided by the University of Michigan. Reuters, which provides major funding for the report, defended its practice.
"With the growing influence of private-sector data as market movers, the blurring of lines between news outlets and data providers, and ongoing pressure for trading advantages measured in milliseconds, these situations are often impossible to monitor with any legal or technological clarity."—Conference Board statement
—By Doug Cubberley, Special to CNBC.com.