Wednesday, July 25, 2012

Morning Update ... QE3, AAPL, BA, CAT, NFLX, & XHB

Equity futures are up nicely as CAT and BA reported better than expected results.  We note that CAT lowered the high end of its revenue guidance range.  NFLX and AAPL remain down big before the open; -19.9% and -4.7%, respectively.  The market will open higher this morning due to more rumors and reports about the Fed possibly seeing just how bad the state of the economy is and therefore reacting by injecting more liquidity, which as we have seen the past few years has only short-term benefits but could bring with itself huge long-term costs.

By the way, some data that may reduce hopes of a QE3 was released by the USDA this morning.  The USDA expects food inflation to be between 2.5% and 3.5% this year.  Next year's food inflation, to which we think the Fed is paying more attention, is projected to be between 3% and 4%.  With these figures, and oil futures rising again due to QE3 hopes and a possible war with Iran, core inflation may have to be negative in order for the Fed to not only launch a QE3 but also make sure inflation remains within its target range!

As a follow up to some information we provided regarding companies within the XHB ETF, USG Corp. (USG) and Lumber Liquidators Holdings (LL) reported earnings this morning.  Results were mixed, with USG, the largest weighted company in the XHB fund, missing big on top and bottom-line.  USG is down more than 4% before the open.  However, LL's results were impressive as the Company not only beat EPS and revenue estimates, it also raised its FY guidance significantly.  The stock is up more than 14% before the open.  Other XHB components such as The Ryland Group (RYL) and Ethan Allen (ETH) are reporting today after the close. 

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