JP Morgan (NYSE:JPM) Destroys Estimates

Banking giant, JP Morgan destroys analysts' estimates

JP Morgan reported earnings per share this morning of $0.87 (ex items) versus the $0.67 analyst estimate, even topping the whisper number at $0.80. Though JPM missed on the top line with $25.6 billion in revenues versus $26 billion expected. Earnings were "driven by a significantly lower provision for credit losses, partially offset by lower net revenue and higher noninterest expense". CEO Jamie Dimon offered his usual cautious stance and thoughts on financial reform in his outlook stating "It is too early to say how much improvement we will see from here. We recognize a number of positive aspects of the pending regulatory reform legislation, including systemic risk oversight and resolution authority. However, many challenges and uncertainties remain which may result in unintended consequences for our clients, the markets and our businesses." Shares of JPM are trading higher by 1% pre-market.

Most of Asia sold off last night after China disappointed with slightly slower GDP growth for Q2 of 10.3% versus 10.5% expected. Notably, inflation remains very tame with June CPI at 2.9% versus the 3.3% expectation. The Shanghai Comp lost 1.87% while Tokyo closed 1.12% lower. Europe is holding up better and London is currently flat on the session.

Good stuff from the blogosphere

Just so everyone knows, the chicken or the egg problem has officially been solved. Thank you to The Reformed Broker for making us aware of this pressing research! It is official, the chicken came first!

A Dash of Insight produced a great post titled "Biggest Investor Mistakes. My favorite tidbit:

Investors do not know how to interpret economic events, nor do most of the pundits. Here are three key blunders:

1. Most of the economic bloggers who are not actually economists miss the default condition -- normal economic growth. They think that unless there is stimulus of one sort or another, the economy will fail.

2. Most current pundits blunder about the state of the stimulus package. Only half of the money has been spent. It is not about to dry up.

3. Even if there was no additional stimulus, the ongoing deficits certainly must be considered.

Wade Slome over at Investing Caffeine has a great post highlighting the incredible technological evolutions we have seen in just the past few decades. Much of his point is obvious as anyone could see but it's worthwhile to appreciate how far we've come in such a short time. Measuring simple wage increases fails to account for how much more we can buy with the same wages. The chart below was my favorite portion of his piece.

Still long puts and volatility

I am holding my puts as a hedge against my longs and I tried a short on the market yesterday afternoon through NYSE:SPY. I nearly nailed the top but held my position all the way back and covered most of my position for minimal profit. I was looking for momentum to take hold through $109 but alas, it didn't. I am staying long individual names with my hedges. Strangely, my hedge of long NYSE:VXX has been one of my best actual trades even though the market has risen. I have the ETF from nearly the dead lows so I will hold until that low is taken out or we see much higher premiums on volatility. There are a lot of hedgers buying volatility so long-dated premiums are extremely high on the underlying VIX and the ETF is seeing much greater than expected buying.


Disclosure: Long SPY and IWM puts. Long VXX. Short SPY.

Intel Earnings (INTC) Crush but Optimism Fades

Tokyo leaps after Intel (NASDAQ:INTC) but optimism fades in Europe

The Nikkei lept 2.71% following the extremely bullish report out of Intel (NASDAQ:INTC). INTC reported EPS of $0.51 handily topping estimates for $0.43. The top line was strong as well coming in at $10.8 billion versus $10.3 billion expected. I continue to reiterate, productivity gains are the under-appreciated story in this economic recovery. INTC has expanded its gross margins to 67% from 51% a year ago! And, it is even more encouraging to see a company grow on the top line as well. Guidance was excellent as well with Q3 revenues forecasted to be $11.6 billion versus analyst consensus of $10.9 billion. Revenues from Europe were weak but Asia and America easily made up the difference. This was Intel's "best quarter in the company's 42-year history." CEO Paul S. Otellini believes "PC and server segments are healthy and the demand for leading-edge technology will continue to increase for the foreseeable future." Shares of INTC are trading up 5.6% pre-market.

On the other side of the coin, Yum! Brands (NYSE:YUM) also beat expectations but disappointed investors with lowered guidance. Find the full report here.

China rebounded 82 basis points after yesterday's drubbing. Optimism faded into the European session and all major markets are trading marginally lower. London is off 68 basis points. US futures are trading off 40 basis points despite INTC's excellent report now having faded over 10 handles from last night's after hours excitement.

Continue with hedges, was too early, Telsa Motors (NASDAQ:TSLA)

I am continuing to hold my puts on the indexes despite yesterday's rally. I was too early, there is no doubt about that and I hedged away the gains I could have made in my longs. I initiated a small position in TSLA but was quickly stopped on most yesterday as the rally into yesterday's close brought TSLA through the $18 level. Buying was found at the $17 IPO price for now. I am down to a feeler position just to be in it and watching. I still believe the stock is wildly overvalued now at $1.69 billion and selling pressure will win out eventually.

I also bought volatility yesterday through the NYSE:VXX at $24.58 and will look for a large upside move. Trading volatility can be a low probability game that is evened out by the potentially large moves that can occur relative to the risk. I think this scenario against the 24% offers good risk-reward. The long-dated VIX options are trading at a very high premium and even the ETF VXX is holding up better than the underlying VIX. Daily Options Report had a good piece on this; he seems to think it's a bullish but we will see.


Disclosure: Short TSLA. Long IWM and SPY puts. Long VXX.