Month: October 2011

PepsiCo Rises on Third-Quarter Earnings

by Jason Jenkins, Investment U Research
Friday, October 14, 2011

PepsiCo Inc.’s (NYSE: PEP) third-quarter profit rose four percent due to higher prices and rising sales of its snacks and beverages – especially overseas.

Wall Street seemingly approves of the third-quarter EPS and revenue numbers, which came in above analyst predictions. Here are the highlights that made everyone so giddy:

• The company reported Wednesday that it earned $2 billion, or $1.25 per share, for the period ended September 3. That’s up from $1.92 billion, or $1.19 per share, a year ago.

• Earnings were $1.31 per share. Analysts surveyed by FactSet expected $1.30 per share.

• PepsiCo’s stock added $0.55 to $61.50 in premarket trading.

• Revenue climbed 13 percent to $17.58 billion. That topped analyst expectations for $17.11 billion in revenue.

• For the past five quarters, net income has increased 1.7 percent on average year over year.

• PepsiCo has averaged revenue growth of 26.2 percent over the past five quarters.

The Current Climate for Multinationals

PepsiCo, like many multinational stocks, was recently trying to find the right mix during this period of global economic uncertainty. It found its recipe for success in this international economic environment by raising prices and promoting growth in emerging markets.

Many other multinational consumer brands – including McDonald’s (NYSE: MCD) and Nike, Inc. (NYSE: NKE) – increased prices in an attempt to offset their rising costs for ingredients, packaging and transportation. Also, to a larger degree, multinationals are reliant on emerging markets to bolster performance. Domestic consumption was stagnant due to the current U.S. economy coupled with a 9.1-percent unemployment rate.

Global Markets Crucial to 3Q Numbers

PepsiCo European markets reported a 37-percent revenue increase due to higher prices and the addition of Russian juice and dairy company Wimm-Bill-Dann. The combination of revenue for Asia, the Middle East and Africa rose 25 percent on increased prices and volume growth stemming particularly from emerging markets.

The Latin America Foods division, led by Brazil and Mexico, posted a 19-percent increase in revenue. Overall, global snacks volume increased by eight percent and worldwide beverage volume climbed four percent. As stated in its release, PepsiCo’s volume gains were driven by growth in emerging markets. For the full year, PepsiCo maintained its forecast for high single-digit earnings growth.

Investor’s Take

PepsiCo is definitely taking advantage of global demand from emerging economies, racking up annual revenue growth of about 24 percent in those same markets.

And with no clear view of how this market is going to work out, what you should be looking for is a formula to reduce risk – gaining the best possible return for the lowest amount of risk. PepsiCo has raised dividends 39 years in a row and its stock yields 3.4 percent.

The combination of international growth and dividend income could make Pepsi a solid play in this environment.

Good investing,

Jason Jenkins

Article by Investment U

The past week in monetary policy featured monetary policy decisions from 12 central banks around the world.  Those that increased interest rates were: Nigeria +275bps to 12.00% and Belarus +500bps to 35.00%.  Meanwhile those that reduced interest rates were: Pakistan -150bps to 12.00%, and Indonesia -25bps to 6.50%.  Those that held interest rates unchanged included: Sri Lanka 7.00%, Kazakhstan 7.50%, South Korea 3.25%, Mozambique 16.00%, Egypt 8.25%, Chile 5.25%, and Mexico 4.50%.  The Monetary Authority of Singapore also eased monetary policy settings, noting that it would continue with a policy of modest and gradual appreciation of its currency.

Following are some of the key quotes from the central banks that meet over the past week:

• Central Bank of Nigeria (increased rate +275bps to 12.00%): “The global economic horizon remains highly uncertain, with the signs getting more ominous as policy makers find it increasingly difficult to take the necessary economic decisions that may avert a new wave of  recession.”
• Bank Indonesia (cut interest rate -25bps o 6.50%): “We are bringing the policy rate to a level that is more reasonable,” further noting “we saw the 6.75 percent rate as too high, unless we estimated inflation next year to be very high.”
• Bank of Korea (held rate at 3.25%): “Based on currently available information, the Committee considers that, while emerging market economies have shown favorable performances, major advanced economies have exhibited signs of sluggishness. Going forward the Committee forecasts that the global economy will show a recovery, albeit a moderate one; nevertheless, the Committee judges that downside risks to growth have expanded.”
• Monetary Authority of Singapore (eased policy): “Given the stresses and fragility in the advanced economies, the prospects for growth in Singapore’s major trading partners have deteriorated.  With the slowdown in demand, growth in the Singapore economy could fall below its potential rate of 3-5%.  Thus, core inflation should ease next year, although headline inflation could stay elevated in the near term reflecting the higher imputed rental cost of owner-occupied housing.
• National Bank of Belarus (increased rate +500bps to 35%): “The move is next step in the consistent implementation of the general economic policy of the National Bank and the Government aimed at macroeconomic stabilization, reducing the pressure on the Belarusian ruble exchange rate and reducing inflation.  The National Bank jointly with the Government of the Republic of Belarus will continue the adoption of stabilization measures in the light of internal and external economic developments.”
• State Bank of Pakistan (cut rate -150bps to 12.00%): “There is a decline in CPI inflation and government borrowing from SBP is lower than its end-June level. Led by consistent inflow of workers’ remittances the external current account position is comfortable though there has been some decline in SBP’s foreign exchange reserves. Importantly, concerns regarding  weak private sector credit growth and  falling real private investment expenditures remain along with a likelihood of rise in real interest rates.”

Looking at the central bank calendar, next week will see more emerging market central bank action, with the main event looking to be Brazil – last month Brazil unexpectedly cut interest rates, so the market will be watching that decision closely.  Other than policy meetings there’s also the Reserve Bank of Australia’s October meeting minutes, Ben Bernanke speaks in Boston, the US Fed puts its Beige Book Economic Survey report out, and the Bank of England publishes the minutes from its most recent meeting.

The National Bank of the Republic of Belarus raised its refinancing rate by 500 basis points to 35.00% from 30.00%.  The Bank said [translated]: “The move is next step in the consistent implementation of the general economic policy of the National Bank and the Government aimed at macroeconomic stabilization, reducing the pressure on the Belarusian ruble exchange rate and reducing inflation.  The National Bank jointly with the Government of the Republic of Belarus will continue the adoption of stabilization measures in the light of internal and external economic developments.”

The latest move marks a continued string of aggressive rate increases, with the Bank previously raising the refinancing rate by 300bps to 30%, 500 basis points to 27% and 200 basis points to 22%.  The total amount of increases since the start of the year is now 2450 basis points.  Belarus reported consumer price inflation of 36.2% in the year to June, according to the National Statistic Committee, meanwhile the government is forecasting 2011 inflation of as much as 39%.  

The Banco de Mexico held its overnight interest rate target steady at 4.50%.  In its monetary policy statement the Bank noted: “the current monetary policy posture is conducive to achieve the 3.0% inflation objective.”  Further commenting: “However, we will remain alert to the prospects for world economic growth and its possible implications for the Mexican economy, which, in the context of great monetary slack in the principal advanced economies could as a result make it appropriate to relax monetary policy.”

The Mexican central bank also kept the overnight interest rate target steady at 4.50% at its August meeting.  Mexico reported annual inflation of 3.14% in September, compared to 3.42% in August, while inflation was 3.28% at the end of June, 3.4% April and 3% in March, and within the Bank’s inflation target range of 3% +/- 1%. 

The Mexican economy grew 3.3% (4.6% in Q1) year on year in Q2 this year, up 1.1% (0.5% in Q1) from the previous quarter, compared to GDP growth of 5.4% in 2010.  The Mexican peso (MXN) is down almost 10% against the US dollar so far this year, and the USDMXN exchange rate last traded around 13.26.

The Banco Central de Chile kept its monetary policy interest rate steady at 5.25%.  The Bank noted: “Domestically, output and demand show signs of moderation. In the case of output, the slowdown is more pronounced than was assumed in the Monetary Policy Report’s baseline scenario; the opposite occurs with demand. Labor market conditions remain tight. CPI inflation rates have hovered around 3% y-o-y, while core inflation measures remain contained. Inflation expectations are close to the target. “

Chile’s central bank previously also kept the monetary policy interest rate unchanged at 5.25% at its September meeting.  The Bank last raised its monetary policy interest rate by 25 basis points to 5.25% at its June meeting this year.  Chile reported annual consumer price inflation of 3.3% in September, compared to 3.2% in August, 2.9% in July, 3.4% in June, 3.3% in May and 3.2% in April this year; within the Bank’s inflation target of 2-4%.  

By MoneyMorning.com.au

Is Murray right?

Could be. A leading bearish indicator – we’ll show you in a minute – has reached a five year peak. When bearish indicators peak it suggests stocks could be heading for a fall.

This shouldn’t come as a surprise.

Since the April highs of this year, the Dow Jones Industrial Average has lost more than 6%. The S&P 500 is 8% worse off. And the S&P/ASX 200 is down more than 11%.

Data compiled for Bloomberg News showed ‘borrowed shares’ rose to 11.6% in September, almost 2% higher than July.

This is important because in order for short sellers to short sell, they must first borrow the shares. So knowing the amount of borrowed shares gives a good guide to how much stock is being short sold.

That should be enough to alarm the bulls. Because the larger the amount of short selling, the more ‘bearish’ the market outlook.

To put it in perspective, the 2% increase in short selling is the biggest increase since 2006. Bloomberg’s report found ‘US short sales are rising at the second-fastest pace on record after the 2008 financial crisis.’

And according to the New York Stock Exchange, short selling has jumped from 3.5% in July to 4.1%.

So, which way is the market headed?

Filippo Garbarino, a managing director at Frontwave Capital says, ‘The market is so undervalued right now, it’s kind of hard to take a short position. But at the same time given the economy, it is hard to be long’.

And then there’s this from Eden Chen, at Lightmark Capital, ‘It’s very difficult to say with certainty whether being long or short right now is a good idea because things can quickly change.’

In other words, they don’t know!

Anyone can see the market is trending down. But what you want to know is what you should do about it?

Technical analyst, Murray Dawes, has been wary of the lack of market direction.

When discussing the technical aspects of the S&P 500, in his free weekly market update, Murray warned that if ‘…there’s a quick sell off from back under the 10-day moving average… we can get bearish again. But right now the market is holding well up above that 10-day moving average, it’s in a short-term uptrend.’

He added, ‘A move back under… 1230, that would be the area that I’m looking to enter with my short [trades]. That would be the perfect trading opportunity. Where we are right now is a bit of no man’s land.’

As for the ASX200, he says it could move higher. But don’t expect it to last long.

Murray says:

‘Last week I was saying that there was a chance that if the market did take off to the upside we could see even a move back up to the 200 moving average which is up around 4450…

‘[But] we have to be a little wary that the shift in momentum in the last week or two has been quite dramatic. This could carry on for a bit longer before falling over.’

In other words, this is a traders’ market… and a volatile market.

And that means there are plenty of opportunities to trade the market long or short.

Shae.
Editor, Money Weekend

P.S. To check out Murray’s latest free weekly market update on YouTube, click here…

Have the Bears Taken Over?

By Warren Seah

Trading can be a bit precarious. For so many, it’s an incessant accumulation of frustrations– the trade may not always go in your favor, you foolishly bought into some “expert’s” advice, you’re unsure whether you should close a losing trade or sustain it. It’s a business where your success will be nebulous. If you follow these five tips that I prescribe, however, you will have the upper hand.

Have Sufficient Capital

A general rule: You can never have too much capital to start with; you can, however, have too little. Think of trading as building muscle. You can’t effectively build muscle (wealth) without the right amount of body mass (capital.) Your efforts will be scrawny, weak. To start with, it’s best to have about $100,000. If you don’t have that, try for $50,000-75,000. Why this much? The more money you put in your trades, the more money you will get in return.

Manage your Risk

This is a biggie. Through the management of your risk, you will sink or swim. It’s here that you either grow the capital that you have or deplete it entirely. Unfortunately, many traders commit the latter. It’s Money Management 101. As a rule, you do not invest too much on one trade (too much would be as little as .) When you put all of your eggs into one basket, you’re bound to lose. Also, you might want to put a stop loss on your trades. This protects from massive loss that can literally render your account barren. This is a common tool of risk managements; if used, you will be grateful for its practicality.

Know What you’re Using

If you look on most traders’ charts, you will see a byzantine network of indicators and patterns, often packaged together as a convoluted, distorted mess. If asked how this helps them in their trading, many will struggle to find the answer. Do not overpopulate your chart with useless appendages and accessories. You won’t need them. For instance, a good indicator is a triangle chart pattern. It, as its name infers, finds patterns in trades (ie trends, the direction of the trade, the overall interest of other traders.) Triangle chart patterns will track the journey of a trend with the ascending, descending, and symmetrical triangles.

If used sparingly, indicators such as these will benefit the trader who seeks more clarity in his chart.

In closing, it always helps to have a trading plan or strategy. Adopt or create a trading style or method, test it out, make adjustments and alterations. If it can produce the results you want, don’t stray away from it. Deter human emotion from the trading process (fear, excitement.) This is a business, a precarious one. But, if treaded carefully, it can yield awesome results.

About the Author

Warren Seah

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At the 2011 Take Lead Conference in Copenhagen, Philipp Rode talks about why Urbanization can actually be good for the environment.

Rode is the Executive Director of the London School of Economics Cities programme and a Senior Research Fellow of Economics and Political Science at the school. The focus of his current work is on Green Cities Strategies which includes writing part of the Green Economy Report for the United Nation’s Rio+20 Summit on Sustainable Development.

Legal information

Video courtesy of en.jyskebank.tv

By Mike Conlon, ForexNews.com on Oct 14, 2011 01:07:20 GMT

It looks as though the European rescue plan is starting to take shape as a meeting of G-20 leaders is likely to produce a framework for the resolution.  It is then likely that whatever emerges will be discussed at a meeting next week of European leaders and if that is agreed to, then we could have the final resolution by early November as promised by Merkel and Sarkozy.

Some of the points of emphasis will be: what is the haircut in Greek bonds, that is, what percentage of private sector losses will be required.   This is important because this may lead to further bank losses that have high exposure to sovereign debt.  This leads to the second point, that the ECB needs to help re-capitalize the banks so that they can weather the potential losses.  There is also talk that the IMF will step in to provide capital, and the IMF in turn will receive capital infusion from emerging markets countries like China and Brazil.

So in reality, this is really more of a global collaborative effort as it doesn’t look like Europe has the juice to go it alone, and world leaders understand the threat that this poses to global economic health.

This comes as the ratings agency S&P looks to hasten the process by downgrading Spain’s debt for the third time in three years.  In addition, there was a no-confidence vote that took place in Italy, which PM Berlusconi survived.

Despite all of this uncertainty and hopefulness, the markets are in risk-taking mode to start the morning, lead by last night’s better than expected earnings report from Google.  This has driven stocks higher, and the correlative effects of Dollar weakness have been taking place.

However, the market has turned around a bit on the release of the US advance retail sales figures which were actually a lot better than expected, so this could be a case of markets not looking to be long risk ahead of the weekend.  The figure reported showed a gain of 1.1% vs. an expected .7%, which is definitely a plus for the economy.

So why have the markets sold off on that report?  Perhaps because it dampens the possibility of further Fed easing as the economic picture improves, or maybe it’s a case of “buy the rumor, sell the news”.

Other news from earlier today was that China’s CPI data came in as expected by slightly lower than last month, posting a reading of 6.1%.  If inflation begins to cool in China, then it could be a sign that the economy is slowing.  Or it cold also mean that they are ready to ramp up lending again.  The potential impact of the currency bill passed in the Senate here in the US to try to force China to re-value their Yuan is unknown at this time, as is the Chinese response to it.

CPI data in Europe also came in as expected at 3%, though the ECB doesn’t have room to move even if they wanted to go higher.  The obvious focus there is on the debt crisis.

The only thing else to watch this morning is the U of Michigan Confidence figure which comes out later, though I don’t think it will be a game-changer.  With the “Occupy Wall St.” movement and gridlock in government, it is hard to imagine anyone is confident right now.

However, it is times like these when it is usually best to dip your toe in the water.  Being a contrarian in the marketplace is a difficult but often times rewarding position to take.  If everyone is selling, someone has to be buying, right?

Just some food for thought.

Regards,

Mike Conlon,

Senior Forex Mentor

www.forexnews.com