Debt. Debt. Debt. It is all about debt these days, whether it is of the European sovereign varietal or the now seemingly endless debate on Capitol Hill regarding raising the U.S. debt ceiling, an event that if it does not take place before the Aug. 2 deadline could throw global equity markets into turmoil. Some of that turmoil was seen today as all three of the major U.S. indexes flirted with loss of almost 1% and decliners outpaced advancers on the NYSE by a margin of nearly five-to-one.
All of these debt concerns are great for gold bugs. The yellow metal advanced to a new record high in nominal terms above $1600 an ounce today. When adjusting for inflation, gold traded around $2400 an ounce in early 1980. Whether or not that lofty level appears again remains to be seen, but one analyst quoted by the Associated Press says gold is headed to $1800 by the end of next year, a price target that almost seems too conservative at this point.
Gold has been a reliable buy on the dip candidate for more than a year now as every pullback to the 50-day moving average would have represented a decent entry point. With the dollar and euro looking shaky at best and investor demand for gold soaring, the path of least resistance here is easily higher. And hey, miners are finally getting in on the act as well. In the past month, the Market Vectors Junior Gold Miners ETF (GDXJ) and Market Vectors Gold Miners ETF (GDX) are up 16% and 14%, respectively, while the SPDR Gold Shares (GLD) is up about 4%.
Speaking of things that can be mined, shares of coal miner Walter Energy (WLT) surged $7.61, or 6.9% to $118.55 today on volume that was well above double the daily average. Citigroup initiating coverage of Walter with a ''buy'' rating and a $140 price target certainly helped, but that was not the real catalyst behind Walter's pop.
No, that honor belongs to Audley Capital Advisors, one of Walter's largest shareholders, said it has contacted the Alabama-based company's board, urging it to retain an investment bank and evaluate a sale of the company. Using the $5.1 billion offered for Australia's Macarthur Coal by Peabody Energy (BTU) and ArcelorMittal (MT), Audley Capital thinks Walter is worth a whopping $240 a share, more than doubled where the shares closed today.
Walter Energy Chart
In earnings news, shares of Halliburton (HAL), the world's second-largest oilfield services provider, closed fractionally higher on strong volume, as the Texas-based company kicked off what is a busy week of earnings reports for the oil services sector by saying its second-quarter profit jumped 54% to $739 million, or 80 cents per share, from $480 million, or 53 cents per share, a year earlier as revenue soared 35% to $5.9 billion. Excluding one-time items, Halliburton earned 81 cents a share. Analysts were expecting a profit of 74 cents on revenue of $5.71 billion.
Once again, the North American market (Read: Shale) buoyed Halliburton's quarterly results as sales there soared 63% to $3.45 billion. The company is forecasting a small slowdown in North American revenue in the back half of this year, but expects international sales to pickup incrementally. Either way, Halliburton is in a sweet spot right now. Dahlman Rose is forecasting oil and natural gas producers will spend $122 billion on exploration and production this year in the U.S. alone, 22% above last year's level, Bloomberg reported. We will have plenty of commentary and earnings updates on the energy sector at OilSlick.com. Signup for a free trial (HERE).
The after-hours session was chock full of headlines today. Starting with Dow component IBM, Big Blue does what it usually does and that is deliver a set of quarterly results that beat Wall Street estimates. For the second quarter, New York-based IBM said it earned $3.66 billion, or $3 a share, compared with $3.39 billion, or $2.61 a s share, a year earlier. Excluding one-time items, IBM earned $3.09 a share. Analysts were expecting a profit of $3.02. Revenue came in at $26.7 billion, topping the $25.4 billion analysts were forecasting.
IBM slightly raised its 2011 profit outlook, saying it expects to earn at least $13.25 a share, up from previous guidance of $13.15. That is good news, but how much of an impact it will have on the stock is debatable because IBM has set the ambitious goal of producing operating earnings of $20 per share by 2015. In other words, investors expect increased guidance and that is what it is going to take to get to $20 per share in profits.
Still, IBM is something of a tech bellwether and as the highest priced stock in the Dow, any positive sentiment regarding IBM's results and outlook could jolt the Dow higher tomorrow. The shares were up almost 2% in the after-hours session.
Staying with tech, a fallen and long ago at that, tech star was making news after the market closed. Cisco Systems (CSCO), the largest maker of networking gear, said it is planning to trim 6500 , or 9% of its full-time staff, to save $1 billion in annual costs. Earlier this month, press reports said Cisco was planning job cuts of up to 10,000.
The cuts announced this evening will sting those highest up in Cisco the hardest. According to one estimate, 15% of those with vice president designation or higher will be shown the door at the California-based company.
In connection with this plan, Cisco estimates that it will recognize total pre-tax restructuring charges to its GAAP financial results in an amount not expected to exceed $1.3 billion over several quarters, consisting of severance and other one-time termination benefits, the company said in a statement. The company said $750 million in charges will be recognized in its fiscal fourth quarter.
I am not a Cisco expert, but I doubt this news will do much to galvanize the stock. Pick a time frame, six months, one year, two years or five years, and Cisco shares are down by double digits in each. Dead money is an appropriate descriptor here.
Wynn Resorts (WYNN) was also on the move in the after-hours session, jumping more than 2.3% after saying its second-quarter profit more than doubled to $122 million, or 97 cents per share, from $52.4 million, or 42 cents per share, a year earlier. On an adjusted basis, Las Vegas-based Wynn said it earned $1.60 a share compared with 52 cents a year earlier as revenue climbed to $1.37 billion from $1.03 billion. Analysts were expecting a profit of $1.02 on revenue of $1.26 billion.
Vegas revenue rose 23%, but the real story with Wynn, as it probably will be with rival Las Vegas Sands (LVS), is Macau. Wynn's revenue on the Chinese island, the world's largest gambling mecca, surged 37%. Wynn already has two casinos in Macau, the only Chinese territory where gambling is legal, and is planning to open a third there in 2015.
Looking at the charts, the S&P 500 closed just below some support at 1307, but did find support in the 1295 area. There is some resistance looming in the 1318-1320 area. The earnings calendar is jam-packed this week, so the catalysts are there, both good and bad. Plenty of financials are reporting this week and I would not expect much out of that group. On the other hand, Apple (AAPL) reports Tuesday after the close and expectations are in place for Apple to do what Apple always does: Crush estimates.
S&P 500 Chart
The Dow violated support around 12,415 and from here, next support is 12,310. There is still some stiff resistance in the 12,750 area. IBM's earnings should help a little bit and there are 13 more Dow constituents left to report earnings this week. The INTC report after the bell Wednesday and CAT before the market opens Friday are the marquee reports from that group.
The Nasdaq looked vulnerable today, falling through support at 2772. Next support is 2740 with resistance around 2825. We saw the impact GOOG had on the Nasdaq last week, now it is Apple's turn to do the same. The Nasdaq could be in for an up day tomorrow as traders buy Apple ahead of earnings and do not forget that WYNN is a Nasdaq-100 stock.
On a percentage basis, the Russell 2000 was by far the worst performer of the major indexes today and the close around 816 has the small-cap index within earshot of support at 810. From there, next support is further back around 790. Resistance is 825-830 and then 840.
Russell 2000 Chart
Aside from earnings, the headlines this week will be dominated by the debt ceiling talks in Washington and whatever toxic dish Europe decides to send the world's way. Good news on either front should be taken with a grain of salt because all it will be is trading near-term gain for more pain down the road. Moody's actually suggested eliminating the debt ceiling altogether and that is not a terrible idea when you think about it.
Polls show Americans favor raising the debt ceiling by a slim majority and my guess is they favor this because they see what all the rancor on this issue is doing to their investment portfolios. Raising the debt ceiling in the U.S. is like giving a gold AmEx card to a 21-year-old and telling that kid he or she does not have to pay the bill. The bad behavior that will ensue will not be surprising, but it will still stink.
As for Europe, it is painfully clear the EU and Euro we're ill-fated concepts and that Greece is now bossing Germany around when the scenario should be reversed. The lessons on both sides of the Atlantic are easy to see, but hard to implement: Governments are terrible fiscal stewards, but that is the world today. Here's to hoping that at least the debt ceiling stalemate is broken this week. I would put my money on that happening before any more good news emerges from Europe.