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.

Markets Up After China Denies FT Story

Volatility is king! This highly volatile tape offers opportunity if you are flexible and active yet it can be highly painful if you are stubborn and committed to positions. While active traders should not be complaining about a VIX at 35 it seems that most active traders would not mind a little more sanity in price movements.

Tuesday's 269-point upside reversal was followed by a 205-point downside reversal yesterday. The Financial Times reported yesterday that China's State Administration of Foreign Exchange (SAFE) was reviewing its €630 billion of Eurozone holdings. These rumors incited fear across trade desks and investors sold into the close taking markets into the red for the day. Late last night SAFE issued a statement claiming the FT story is "groundless" and they support the European Union and International Monetary Fund's stabilization plan. Most Asian markets closed up over 1% last night and European markets were solidly in the green with many up over 2%. US futures are up 1.5% pre-market following the enthusiasm and recouping yesterday's afternoon sell-off.

Microsoft (MSFT) was a major drag on the indices yesterday losing 4.1% for the day. The weakness was attributed to comments from CEO Steve Ballmer talking about contagion risks in Europe. This only seems to be a random excuse to sell an already extremely weak stock that is down 19.2% YTD v. a market that is down less than 5% over the same time period. FBR Capital issued an upgrade on shares this morning offering a $32 price target. MSFT now trades at a very modest 13 times trailing earnings even while in the midst of a voluminous upgrade cycle in many of its key products. Clearly, this stock is a slow mover but could offer a nice, stable return as a value play for the patient. Microsoft's decline pushed Apple (AAPL) into the spot as the second-largest company in the United States at $222 billion besting MSFT's $219 billion market cap. Only Exxon Mobil is larger at $279 billion.

The euro continues struggling to mount a sustained bounce off the $1.2143 low made last week. Tuesday's upside reversal along with equity markets looked promising but selling has brought the embattled currency back to lows. The recent few days of relative stabilization have been helpful to calming contagion fears but it may be a transitory feeling. Now trading at $1.2232 a new break of lows will only continue the global volatility and further stoke contagion fears.

Equities Dive as Greece Downgraded to Junk, Gold Surges

The stock market took a dive today dropping 213 points (1.9%) as Standard & Poor's downgraded the sovereign debt of Portugal two steps to A- and then soon followed with a cut of Greek debt to junk status at BB+. S&P warned that investors in Greece's government notes could recoup as little as 30% of their initial investment should Greece restructure its debt. The euro crashed to new lows on the year now trading at $1.316. The VIX, commonly referred to as the fear gauge, vaulted 30% to close at 22.81, now well off the lows of earlier this month at 15.23. Executives from Goldman Sachs spent the day on Capital Hill being grilled by Senators. I didn't hear much that was unexpected.

The downgrade of American International Group (NYSE:AIG) by Keefe, Bruyette & Woods that I highlighted this morning hit shares hard. AIG dropped 16% for the day taking out any short-term support level. AIG was a classic momo play and typically these plays collapse when the momentum stalls. There is very little fundamental justification for even the $37 price shares are trading at after today's fall.

Gold had a strong day today gaining 1.25% fueling a 1.68% jump in GLD (NYSE:GLD). I doubled my initial position early this morning and then doubled it again in the early afternoon. Yet, I sold 1/3 into the NYSE close because the electronic futures market failed to hold new highs when the GLD ETF was closing for trade at 4:00PM. While GLD looks excellent on a chart closing above prior resistance levels, I took some caution given the lack of confirmation from the futures market. Below are the charts highlighting my thought process. I am looking for a move to new highs in this market and now have a solid cost basis to hold for a move.

There was a great documentary released in early March titled "Quants: The Alchemists of Wall Street". Even with its strangely morose overtones it is well worth watching if you are curious about financialization of our economy. This short film hits on the several decade wave of securitization that we have seen from our banking system and the recent rise of high frequency trading.