Here are my thoughts this morning:
1) Producer Price Index is hot, above expectations, but core (ex-food and energy) below expectations, retail sales stronger than expected, so market has moved up on this because it watches core inflation and is happy retail sales are stronger than expected. This is good news, but don't brush off the strong non-core PPI, as one guest on our air noted, producers and consumers do care about non-core inflation, only the Fed factors it out.
2) Yesterday's midday selloff brought forth the usual hand-wringing about the miserable history of October, how you can't trust October--oh please. The markets were overextended, and there have been plenty of companies in financials, energy and retail that have been lowering earnings.
The truth about October is that while there have been notable crashes in 1929, 1987, and 1997, October: 1) is the end of the "worst six month period" (November-April outperforms May-October), and 2) has been a top month for the S&P for the last nine years. Bear that in mind when everybody runs stories about the twentieth anniversary of the 1987 crash next week.
3) This is personal. It's very rare when an influential strategist comes out and personally attacks management. It's usually couched in very careful terms, using words like "lack of execution."
Not so with Mike Mayo at Deutsche Bank, who this morning downgraded Citi to Sell, blasting Citi's management: "P/E contraction is likely, in our view, given increased market concern about governance short-falls...we feel that changes are needed in The Office of the Chairman given the statement by the CEO that this is the year of 'no excuses', repeated shortfalls with targets for operating leverage, previous poor management moves, and a company that we feel has been too bureaucratic." Citi is down 2% pre-open.
4) Company news: McDonalds is guiding higher for Q3...Sept comp store sales higher than expected...they are executing superbly... breakfast sales again strong GE in line with expectations...gas turbines, jet engines strong...affirmed Q4 and full year guidance.
Oracle's $6.66 b offer for business software maker BEA Systems for $17 a share, 25% above the close yesterday, shows that strategic acquisitions are still very much alive and may take up a good part of the slack from LBOs. This was a bit of a surprise.
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