Inflation Complaints Rise, But Credit Card Earnings Boom
European bourses are lower today as European banks are continuing to report poor earnings--this morning Deutsche Bank reported its first loss in five years,abandoned its 2008 profit targets and wrote down over $4 b in mortgage-related assets. Allianzalso said that their profit targets would be harder to attain.
Spain's biggest bank, Santander, did much better, but only because Spanish regulations prevent their banks from holding the riskier assets their northern cousins held.
In the U.S., bonds are opening higher, stocks lower, and the modest rally in the dollar continues.
1) Inflation complaints are everywhere:
a) Paper company Temple Inland said pricing was not keeping up with inflation. Average prices for recycled fibers was up 21 percent from last year.
b) The inflation Domino's Pizza complained about cost inflation and soft domestic sales. They say they are implementing "pricing strategies to attract lower-ticket customer customers, a segment we've left behind in the recent past, as we dramatically increased our prices." Uh, not to be sarcastic, but isn't pizza a lower-ticket item by definition?
2) Many companies complained of slower conditions:
a) Example: Office Depot . Florida and California notably weak, but even outside those states there was also a deterioration. Still, they beat by a wide margin. North American retail sales were down 7 percent, and the North American Business Solutions Division was down 5 percent, but International was up 6 percent (tired of this "North American weak, International strong story yet? It's happening with all the international companies). Up 7 percent pre-open.
3) Credit cards earnings are simply outstanding.
Visa beat, their numbers were strong by any metric you would care to look at. Many analysts raising estimates.
Here's an important point: management said there was no deceleration in transaction or payment volume growth, even though consumer spending is clearly slowing. What does that mean? It's an indication that credit cards as a payment method are clearly winning out over cash and checks. More people are using them, so volume is still growing even though overall consumer spending is slowing. Get that?
Visa is trading down fractionally. Why? Some are whining that the second half operating margin guidance is a bit weak. The real reason it is down is that fast money is taking some profits after a two-week tear that saw the stock go from $65 to $75.
Mastercard was even better. They beat earnings estimates by 30 percent; it's up 10 percent pre-open. Strong growth overseas.
4) Corning beat, the CEO said demand for LCD TV sales was still up compared to a year ago and saw no evidence of an inventory buildup. Guidance above estimates. Up 4 percent.
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