If you are trying to make sense of Bank of America's earnings report ... good luck. The press release is 38 pages. I kid you not, 38 pages! And that's just the press release. The official document — the 10-Q — ran to 265 pages for the last quarter's results. Still waiting for the current quarter 10-Q to get posted, but it will certainly be even bigger.
All that — 265 pages — to find out that there is not a lot BofA can do can do in a low rate environment where margins are pressured. You can slowly put legacy issues behind you, and you can keep downsizing. That's what it is doing. Cutting salaries and firing people. How many prople? Just over 14,600 people were let go last year of the 267,000 they employ. It's right there, on page 5 of the press release.
While I'm on the subject of earnings, the lack so far of any inspiring, or even directional, guidance is a big problem.
Look at Wells Fargo, which gave a competent report and declined to say anything. JPMorgan Chase is ridiculously efficient ... eking out profit by cutting costs in a low rate environment. It gave no guidance: The farthest Jamie Dimon would go is saying he was "optimistic" about 2013 earnings. Gee, thanks.
And Bank of America? Nothing. OK, there was this from Chief Executive Brian T. Moynihan: "We enter 2013 strong and well positioned for furthergrowth." CFO Bruce Thompson: "Our primary focus this year isto grow revenue, manage expenses, and drive core earnings growth." Really?
Well, we know one thing: For most traders, the attitude on earnings very much depends on which side of the revenue growth picture you are on. This "beating on the bottom line, but flat on top line" story is not going to keep going in 2013. At some time, earnings will fall without revenue gains, or revenues will pick up in the second quarter or beyond, and drive bottom line gains. That is the divide today.
1) Why is it so ... quiet? Trading desks are not active. The Volatility Index (VIX) is near a better-than-five-year low at 13.3. We are all worried about sequestration and the debt ceiling. Huh?
Here's why it is quiet:
a) the VIX is only measuring implied volatility one month out, and no one believes there will be any deal on the debt ceiling before then. Look a little further out, however, and options on the VIX start getting more expensive. One options trader tells me there was strong activity in the March 18 calls;
b) earnings season just started, and collectively the Street does not believe what they are hearing so far is going to significantly move the indexes. The familiar dance is again playing out: Analysts have lowered numbers, so expectations are low. Next step: modest beats on the bottom line. What's missing this quarter?: The likelihood that a significant number of companies will raise guidance;
c) economic news is neither taking off nor tanking; and
d) Europe is stable.
Bottom line: You have a market on pause. In the interim, it's all stock picking.
Don't get me wrong: Just because it looks like the markets are not expecting a big market reaction to earnings season, it doesn't mean some individual stocks won't move, just that there is little conviction there will be a big move in the S&P 500.
That's not a bad thing: For the last months, the S&P 500 has been driving individual stocks like Oracle. Now it is the other way around: ORCL driving the S&P 500.
Look at banks. Goldman Sachs and JPMorgan hit new highs yesterday. The rest of the market yawned.
What do you do if you're a trader? We know puts are cheap now ... go ahead and buy them. Sell near-term stuff, and buy longer-term stuff to take advantage of likely higher volatility down the road. March through June stuff. And sell January through February options.
2) December housing starts at highest level since June 2008. The problem: Lots of multi-family. Single starts up 18.5 percent on single family year over year, 91 percent multi-family. Lots of private capital coming in to build apartments. Lennar said earlier this week said they would build 6,500 apartment units in the next few years. THAT is from a home builder. That tells you that there is demand for housing, but there is still big demand for apartments.
3) Another MLP IPO: CVR Refining, which owns petroleum refining operations in Kansas and Oklahoma, priced 24 million shares at $25 a share, in the middle of the price talk of $24 to $26 a share, but above the 20 million shares expected. The big attraction: an 18.8 percent dividend yield!
A third MLP, SunCoke Energy Partners (SXCP), which owns cokemaking facilities to aid in steel production, is pricing tonight.
USA Compression Partners, which provides provide natural gas compression services, priced 11 million shares at $18 yesterday.