Market internals are placid: The advance/decline line is about even, and the VIX is down. » Read More
U.S. political risk is rising because the story is changing. » Read More
The Buttonwood Agreement was the foundation for the New York Stock Exchange. » Read More
Mom and pop crowdfunding for startups is about to become a reality.
That's good news, but it also comes with a lot of red flags.
On Friday, the Securities and Exchange Commission is expected to issue a final rule regarding Title III of the JOBS Act. This will allow small companies to directly raise debt or equity capital from friends, family, and interested investors.
The SEC has taken three years to consider what they are doing, and with good reason.
Read MoreThe CNBC Crowdfinance 50 Index
In 2012, Congress passed the Jumpstart Our Business Startups Act, known as the JOBS Act. One of its provisions allows new businesses to raise capital from directly from private investors.
This is a radical idea. Since the 1930s, only "accredited" investors — those with $1 million in net worth or who earn at least $200,000 per year — were allowed to invest in startups.
In other words, only rich people could get in on these private equity deals.
I've been noting the "revenue recession" that corporate America has been facing for the last six months.
We are faced with the prospects of four consecutive quarters of negative revenue growth in 2015.
Companies cannot even beat the lowered revenue guidance for this quarter. With 20% of the S&P 500 reporting, 70% of the companies have beat earnings estimates, but only 38% have beat revenue estimates.
That is pathetic!
Why has this been happening? I've been pointing out the negative influence the strong dollar has had on corporate earnings for two quarters now.
There's no question that the strong dollar is hurting companies, particularly those that get more than half of their revenues overseas.
However, I've noticed a certain tendency to dismiss the disappointing revenue numbers as solely due to the influence of the strong dollar.
That, it seems to me, is an exaggeration.
Orders are definitely deteriorating for many companies, and that is due to the slower global economy, not a strong dollar.
The problem is, there is no easy way to sort this thread out, to say, for example, "The strong dollar is 60% of the reason companies have missed revenue expectations."
But you can get a clue by looking at who is beating revenue expectations, and who is not, by sector.
All the larger sectors get roughly 50% of their sales outside the U.S.
If the stronger dollar was the only issue, there should be a roughly even distribution of sectors beating--or missing—revenue expectations.
But that's not the case. Look at this:
Q3 Revenue beats
Source: S&P Capital IQ
Healthcare and tech are clearly doing better, and industrials and materials are lagging noticeably.
Why are the results so lopsided? Because industrials and materials are exposed to the slower global industrial economy and are reporting lower sales. Tech and healthcare, while also exposed to the global economy, are in sectors with better growth prospects.
This is why we hear of so many companies carving out small gains on earnings but miss on revenues: just yesterday, we heard from DuPont, Cummins, Paccar, and Textron, all global materials/Industrial names that are exposed to China and Brazil. Their sales are slowing because of the slower economies.
So let's call it a draw. The dollar and the slower global economy are the two major reasons revenues are light, and let's leave it at that.
The Wall Street Journal report that Walgreen Boots Alliance is in talks to acquire Rite Aid makes sense, even with antitrust concerns.
This is all about cost savings. The Affordable Care Act is putting pressure on companies to lower costs. Faced with ever-higher drug prices, pharmacy benefit managers are pushing back against both the pharmaceutical companies and the retail drugstore chains. If they can't get them to lower prices, they will force their beneficiaries (that's you and me) to pay a higher portion of the costs.
What about antitrust issues? Given that the three main drugstore chains control a good portion of the retail business, you would think there would be some antitrust issues, and like the Anheuser-Bush InBev and SABMiller, it seems there would be some divestiture where there is significant overlap.
But closer inspection reveals that Rite Aid is significantly smaller than its rivals:
Retail pharmacy stores
Walgreens 8,200 in 50 states
CVS 7,800 in 44 states
Rite Aid 4,600 in 31 states
Vishnu Lekraj, an analyst at Morningstar, thinks the deal would make sense, since it has a large presence in only a few regions (parts of the northeast, for example), making antitrust issues manageable.
Also, Lekraj notes that the retail drug space has seen notably increased competition, everything from Wal-Mart to Target to Kroger and even small local grocery stores, greatly diminishing the chances that antitrust alone would blow up the deal.
Richard Evans, analyst at Sector & Sovereign Research, estimates that Walgreens would only have to divest 9.9 percent of the acquired Rite Aid stores.
As for other winners and losers, pharmacy benefits manager McKesson would be a loser, since it has a relationship with Rite Aid but not Walgreens or CVS. Express Scripts also has a relationship with Rite Aid that would be hurt, but the stock is also down because they were rumored to be an acquisition target of Walgreens. AmeriSourceBergen is partly owned by Walgreens and would be a beneficiary of the deal.
We are in the core of earnings season, and once again this morning's crop of earnings illustrates the very severe "revenue recession" we are experiencing.
DuPont, for example, beat on the top line but revenues were notably light.
Diesel engine maker Cummins also beat on the top line but revenues were notably light.
Truck maker Paccar also beat on the top line but revenues were notably light.
Global industrial player Textron also beat on the top line but revenues were notably light.
And specialty glass maker Corning also beat on the top line but revenues were light.
Detect a trend?
This is a problem. The S&P 500 is trading at close to 19 times forward earnings with little or no growth. When you have negative revenue growth, that means your margins are under pressure. To keep margins near the record highs we have seen in a negative growth world, you have to keep aggressively cutting costs.
Surprise! October has been a great month for the stock market, and not just the U.S. This has been a global rally:
Global markets in October
S&P 500 up 6.9%
Germany up 8.6%
China up 10.3%
Japan up 6.0%
Once again, the Street has been surprised. What's behind the October rally?
1) Lower probability of Fed hike. This is the most important factor. The current rally began on October 2nd, the day of the disappointing September nonfarm jobs report. That is also the day the CBOE Volatility Index began its most recent slide, going from roughly 21 to below 15 today.
2) ECB, China, Japan central banks more dovish. The rally continued this morning, when Europe and U.S. futures popped on the ECB's Mario Draghi dovish commentary. Much of the China rally has been attributed to a belief that the People's Bank of China would enact more stimulus, particularly after the 6.9 percent print of third quarter GDP.
3) Revenue declines: strong dollar gets much of the blame. I've made a lot of what I call the "revenue recession" that has been developing this year. If current estimates hold up, we are facing four consecutive quarters of negative revenue growth:
Revenue recession (S&P 500)
Q1: down 2.9%
Q2: down 3.4%
Q3 (est): down 3.4%
Q4 (est) down 1.9%
However, this quarter companies have become increasingly vocal about the impact the strong dollar is having on their bottom line. They are not exactly asking for a "pass," but they are asking for some understanding, and I am seeing signs that some investors are indeed listening.
This morning, for example, 3M noted that sales declined 5.2 percent year-over-year, but then noted that the strong dollar reduced sales by 7.4 percent year-on-year. In other words, the revenue decline was mostly attributable to currency.
There is some truth to this, but no one should be fooled into thinking that a strong dollar is the primary source of our revenue worries.
We are facing lower demand due to slow—and in some cases declining—global growth.
You can see this in Caterpillar's report today. They too missed on revenues. Sales were down 19 percent, but management specifically said it was due mostly due to lower volume in Latin America, Europe, and Asia, though they did note that negative currency impact was roughly 3.5 percent.
So negative currency was a significant, but not the primary factor, for Caterpillar's revenue decline.
This is an old story, of course, and at times when the dollar is weak this same phenomenon works to the advantage of revenues.
I have said all week the Ferrari IPO, which priced at the high end of the price talk, was an anomaly. The IPO market is suffering from a large number of withdrawals and postponements, and those that have priced recently are typically roughly 20 percent below the midpoint of the price talk.
That trend is continuing this morning. Two companies priced overnight, and look what happened.
Multi-Packaging Solutions (MPSX): packaging primarily for consumer and health care products
Dimension Therapeutics: liver disease treatments
And earlier this week, look what happened to American Farmland, a farm REIT that owns property California, Illinois and Florida that began trading on Tuesday:
American Farmland: farmland REIT
Ouch! Not only did all three price below the range expected, but two of them lowered the amount of shares offered!
You've heard the good news on Ferrari: the deal is tight, there are small allocations, and it's likely to price above the range.
This is great news for Ferrari, but it has nothing to do with the recent IPO market.
The price talk: 12 million shares at between $8.50 and $10.50.
It priced 6 million shares at $8, opened at $7, and is trading at $6 and change.
So instead of raising $114 million at the midpoint of $9.50, they ended up raising $48 million.
That's not only disappointing, it's downright embarrassing.
THAT is what the IPO market looks like today.
Call it the "Oh my God what a mess but at least we got it done" IPO market.
You've heard a lot about IPOs that have been postponed (Albertson's) or withdrawn (Digicell, Sungard). I concentrate on the stuff that has gone public, and how it is doing.
It is still early in the third quarter earnings season, but traders are already focused on the quarter that matters most: the fourth quarter.
For those 58 or so companies that have reported third quarter earnings by Friday, analysts have lowered fourth quarter earnings an average of 3 percent, according to Earnings Scout.
Fourth quarter earnings are continuing to come down and are now negative.
Read MoreEarnings season: How low can you go?
S&P 500 fourth quarter earnings estimates (source: Factset)
It's typical for earnings estimates to be revised downward in the middle of a quarter, but even accounting for this the decline is more aggressive than usual.
That means what analysts are hearing — either in the form of direct guidance or by body language — is not encouraging them.