Earnings from Seattle companies including Microsoft, Starbucks and Amazon powered the Nasdaq to a new closing high. Jeff Bezos had a very good day with his net worth rising +$4.8 billion thanks to a $55 spike in his 83.9 million Amazon shares. Bill Gates and Steve Ballmer had gains of more than +$1.2 billion each with a $4.50 rally in Microsoft. Howard Schultz saw a gain of $40 million thanks to the +$2.40 rise in Starbucks shares.

Market Statistics

Apparently the strong dollar excuse has worked like a charm and while the dollar may be kryptonite to earnings and revenue it is no longer a problem for investors. Nearly every big cap report has mentioned the impact of the dollar and revenue misses as a result are common. Investors have now discounted that impact and big cap stocks ended the week in rally mode.

The small caps were not so lucky. There is a clear rotation out of the small caps with the Russell 2000 finishing the day in the red with a -4 point decline. Once it became evident that the big caps were still posting earnings growth despite revenue misses the rotation began. Fund managers are always hesitant to hold small caps over the summer doldrums and the earnings relief gives them an excuse to move back into the safety of large caps.

The big gains came from the big caps in the Nasdaq 100 ($NDX) with a +4.25% gain for the week. With stocks like Amazon, Google, Priceline, and others posting double digit point gains for the week the Nasdaq 100 broke out, way out, to a new closing high at 4,538 with a gain of +185 points for the week. Prior resistance at 4,475 was broken on Friday.

The only material economic report on Friday was the March Durable Goods and the headline number came in with a whopping +4.0% gain compared to a -1.4% drop in February. Estimates were for a gain of only +0.6%. The fly in the soup here is that all of that came from a +30.6% increase in civilian aircraft orders. Ex transportation the new orders fell -0.2% and nondefense capital goods ex aircraft fell -0.5%. Shipments excluding transportation declined -0.3% and unfilled orders were flat at zero.

Core capital goods, which are a key component in the GDP calculation, declined -0.4%. This number has declined every month since August and are now -4.6% below year ago levels. Capital goods orders for defense rose +17% after a +7.7% gain in February.

The weakness in durable goods order other than aircraft caused another drop in the Atlanta Fed's GDPnow forecasts for Q1 to only +0.1% growth. The first estimate by the Bureau of Economic Analysis (BEA) is next Wednesday and the consensus of analyst estimates is for only +1.20% growth. It will be interesting to see how the Fed's forecast and the analyst forecasts square up to the government forecast next week.

The calendar for next week is headlined by the Fed meeting and announcement on Wednesday at 2:PM. While there is no change expected in policy the statement is going to be a real stumbling block for the market if there is any mention of June being a possibility for a rate hike. The analyst community and the market has now moved their forecasts out to September as the most likely start of the rate hike cycle. If a hike did occur in September it would probably be the only one this year with the next one in March of 2016 based on current projections. The market can live with that. If the Fed did the unexpected and hiked in June it would open the possibility for another hike late in the year and the market would react negatively. This makes the mention of June as a possible date in the statement as a major event for the market to overcome.

The GDP on Wednesday is second in importance but there has been so much talk about a zero growth or even a negative print for Q1 that it would have to be severely negative to impact the market. Any growth at all in the initial BEA estimate would be market positive. Just remember it will be revised twice more over the next two months.

The Richmond Fed reports on Tuesday are important but the ISM on Friday supersedes all the regional reports because it is a national number. Analysts are expecting a small gain but after the durable goods number on Friday they may revise that estimate lower.

Exponent (EXPO) announced a 2:1 split but it has to be approved by shareholders on May 28th and then they will announce the actual split date. They need to split because their daily volume is only about 125,000 shares with only 13 million shares outstanding. Shares spiked +$7 on the earnings and split announcement.

G-III splits in a week but it is not showing a split run yet although it had a nice gain on Friday.

The earnings calendar is very busy next week with more than 500 companies reporting. While a lot of the blue chips have already reported there are still a few coming out next week. The biggest will be Apple on Monday. If Apple has the same kind of post earnings move as Amazon, Netflix, etc, then the Dow and Nasdaq could be off to the races on Monday. While I would not bet against it I seriously doubt Apple shares are going to soar. The number of shares outstanding at 5.8 billion after their recent split makes it difficult to post big gains unless something truly extraordinary is announced. As a reference Amazon only has 464 million shares outstanding.

Amazon (AMZN) reported earnings after the bell on Thursday and disclosed for the first time the revenue from its cloud business, Amazon Web Services (AWS). The cloud business generated a 49% increase in revenue to $1.57 billion with an operating profit margin of 17%. Compared to Amazon's normal 2.5% retail margin that is a home run. Jeff Bezos said the cloud business is accelerating as more people take advantage of owning a cloud server for pennies a day. The underlying cost of providing these services is also falling so it is a win-win for Amazon. Amazon has cut cloud prices 48 times since 2006.

Microsoft said its cloud revenue for Q1 spiked +111%. The company does not give out current revenue/profit figures on cloud services but Microsoft is on a run rate for $6.3 billion for the full year on cloud offerings. AWS is four times bigger than Amazon on a pure cloud basis. Microsoft counts some of its software as cloud like the Office 365 product. Microsoft is more of a "software as a service" cloud while Amazon is a "hardware as a service" provider.

Amazon received upgrades from JP Morgan, Raymond James and Janney Montgomery Scott and at least five other analysts boosted their price targets. Cantor Fitzgerald hiked to $460 from $385 and RBC Capital to $500 from $400. The highest estimate I heard was $550 but I missed the name. Amazon reported a 15% increase in revenue to $22.72 billion with a loss of -12 cents per share. Amazon is still spending huge amounts of money building out its infrastructure and as long as it can continue adding $3 billion in revenue per quarter investors are going to let Bezos spend as much as he wants. For the current quarter Amazon forecasts revenue between $20.6-$22.8 billion, up 7% to 18%. Analysts expect $22.1 billion but they always over estimate. Amazon just announced a hotel room reservation system for three major cities in the U.S. with more to follow. I expect them to add to their streaming video offerings in 2015 as well to better compete with NetFlix.

Amazon shares are up more than $150 since January. They posted their best weekly gain (+$70) since 1999.

Microsoft (MSFT) shares surged +10.4% to $48 after they reported earnings of 61 cents compared to estimates of 51 cents. Revenue rose +6% to $21.7 billion and above the estimates for $21.1 billion. Revenue in their Windows franchise declined significantly but their cloud software business lifted their earnings. They also inflated earnings by about 4% as a result of their share buybacks reducing the number of outstanding shares.

The company has hedged about $15 billion in revenue against currency risk. That is a huge amount of money but shows how much the strong dollar has impacted overseas revenues.

Thank you Howard Schultz. The CEO of Starbucks retired and then came back to take charge again when Starbucks was languishing several years ago. Since he came back and cured some of the problems, implemented numerous changes and added products the stock has been on the right path.

The company has gone from a morning only coffee shop to an all day restaurant with baked goods, sandwiches, many varieties of iced teas and cold brewed coffees as well as alcoholic beverages in the evenings. In the first quarter same store sales in the U.S. rose +2.7% thanks to a 2% increase in traffic, which translated into an additional 10 million customer visits. Globally same store sales rose +7% with a 12% increase in Asia. Many of those were coming in to redeem the $1.6 billion that was loaded on gift cards in December.

Overall food sales were up +16% while breakfast sandwiches were up +35%. That was bad news for McDonalds and the Egg McMuffin. Starbucks said that about a third of orders now include a food item and that figure is rising.

Earnings rose +16% to 33 cents, which was in line with estimates and revenue rose +18% to $4.56 billion to beat estimates of $4.53 billion. Shares rallied 5% on the news.

It was not all rainbows and buttercups in the earnings cycle. Biogen (BIIB) reported earnings of $3.82 that missed estimates for $3.92 per share. Revenue of $2.55 billion also missed estimates of $2.66 billion. Shares were up +27% in 2015 but they gave back -7% or -$28 after the earnings miss. BIIB traded 6.1 million shares and more than three times the daily average of 1.76 million.

The company said slowing sales of its oral MS drug Tecfidera and a delay in data for its coming Alzheimer's drug were to blame for the low earnings. The company said it sales of Tecfidera do not improve the revenue growth for the coming quarters may come in at the lower end of company projections. Sales of Tecfidera rose from $506 million to $824.9 million in Q1 but well below projections for $931 million.

Tyco International (TYC) reported earnings of 55 cents that beat estimates for 50 cents. However, revenue declined -2% to $2.43 billion and missed estimates slightly for $2.44 billion. The company blamed the stronger dollar since the majority of its business is done outside the U.S. and they were hit with currency issues. They expect the impact to last throughout 2015. They lowered full year guidance from $2.30-$2.40 to $2.23-$2.27 per share. They also blamed low oil prices since they do a lot of business with energy companies. Shares declined -6% on the news.

Xerox (XRX) reported earnings of 21 cents that declined -20% but still matched estimates but revenue fell -6.3% to $4.47 billion and that missed estimates for $4.56 billion. Currency issues accounted for 5% of that decline. Xerox gets about a third of its revenue from outside the USA. Xerox cut full year guidance from $1.00-$1.06 to $0.95-$101 per share. They also cut margin guidance from a midpoint of 9.5% to 8.75%. Shares declined -9% on the news.

Aaron's Inc (AAN), the rent to own company, posted adjusted earnings of 73 cents that rose +37% and beat estimates of 54 cents. Revenue of $821.8 million blew away estimates for $792.8 million. The company raised guidance from $1.90-$2.10 to $2.01-$2.15 for the full year. They also raised revenue guidance from $3.05-$3.25 billion to $3.1-$3.3 billion. Aaron's rents Hewlett Packard computers, Whirlpool refrigerators and GE washing machines as well as numerous other brands. Business must be good with no dollar risk. Shares rallied +12%.

Comcast (CMCSA) and Time Warner (TWC) cancelled their $45 billion merger because of too many concerns from the FCC. The regulator said "the proposed merger would have proposed an unacceptable risk to competition and innovation, including the ability of online video providers to reach and serve consumers." The merger of the top two cable companies in the U.S. would have put 30% of TV viewers and 55% of broadband subscribers into one company. The FCC said this would have given the company unprecedented power over what Americans watch and download.

I thought it was important that the FCC said it was trying to protect "streaming services" (read NetFlix) from onerous payments for the privilege of connecting to the network. Dish, parent of Sling TV, and NetFlix strenuously opposed the deal. Because the companies new in advance it would be a struggle to get the deal approved there was no breakup fee. Many analysts now believe Charter Communications (CHTR) will quickly resurrect its efforts to acquire Time Warner Cable. That combination would have 15 million video customers and 16.5 million broadband Internet customers. Comcast alone has 22.4 million video customers and 22 million broadband customers.

Time Warner rallied $6.50 on the news and Comcast was fractionally positive. Charter gained +$2.

Mylan (MYL) raised its bid for Perrigo (PRGO) but the company immediately declined it saying the $30 billion offer still undervalued all the Perrigo assets. Some believe Mylan raised the bid for Perrigo in order to either scare away the $40.1 billion Teva (TEVA) bid for Mylan or at least force them to raise it significantly. Teva is the world's largest generic drug company by revenue and wants to become even bigger by acquiring Mylan. A combined Teva/Mylan would be able to raise prices for many generic drugs. Regulators would probably require Teva to sell off significant assets in order to get the deal done.

Teva's offer required Mylan to cancel its bid for Perrigo. Teva is bidding $82 for Mylan. The Mylan bid for Perrigo includes $60 in cash and 2.2 shares of Mylan for each Perrigo share or $222.12 per share. Perrigo says the real value of the offer is $205 because the Teva bid for Mylan drove those shares higher. Analysts believe a Mylan/Perrigo deal could get done but a Teva/Mylan deal would face significant regulatory issues.

Crude oil was flat for the week at $57.22 after an intraday high of $58.41 on Thursday. CEOs at the IHS Cera conference in Houston were pretty much in agreement that prices are going to rise through the summer but there were still some negative opinions suggesting we could drift back down to the $40s. The CEO of Core Labs (CLB) said in constant currency numbers WTI could be $70 by year end and Brent in the $80s. That means if the dollar continues its decline from last week we could see even higher prices. The CEO said he expects better than a 200,000 bpd decline in U.S. production by the end of the year to less than 9.0 million bpd.

Note the opposite chart patterns between the dollar and oil. They react the exact opposite of each other.

Active rigs declined by -22 to 932 for last week but that number is distorted. Oil rigs declined -31 to 703 while active gas rigs rose +8 to 225. That brings the total oil rigs lost to -906 or -56.4% from the high of 1,609. The total active rigs fell to 932 and only 66 above the 2009 low at 866. There is no doubt that oil production is going to decline over the next 12 months. This has been the fastest rig decline in history.


The Nasdaq 100 was the big winner with a new high but the S&P actually got in on the act as well. The S&P closed at 2117.69 and the old high was 2117.39 made back on March 2nd. Unfortunately the Dow is still lagging behind because of the impact of a couple earnings reports every day or two. The Dow transports are still lagging as well.

The Volatility Index ($VIX) closed at 12.29 and a five month low. Average volume for the week of 5.76 billion shares per day is the lowest of the year for a non holiday week. The weak economic data and weak earnings are keeping people on the sidelines.

Art Cashin was right when he said on Friday, "The fear of losing money has lost more money in the last several years than anything else." You may remember the AAII sentiment chart I showed on Tuesday with the number of investors neutral on the market over 45% for the last two weeks. That has not changed. The AAII numbers for Friday show the neutral investors still in the majority. This lack of interest in the market may seem strange with several of the indexes breaking out to new highs.

Mark Hulbert penned an article last week showing that available cash is shrinking. Funds are invested because they have to be invested. They can't afford for the market to run away from them and let their peers post much higher results.

Despite the apparent lack of interest by the individual investor the new highs are the best way to lure investors back into the market. Some individual investors are not sitting out the rally because margin debt at the NYSE is at record highs at $476 billion. That is up +2.5% month over month. That brings up a question of how can margin debt be at records while market participation is so weak?

There are a large number of baby boomers leaving the market every day. After the financial crisis in 2008-2009 cut their accounts in half and the flash crash in 2010 shocked them again they are pulling their retirement funds out to move to safer investments.

At the same time the number of younger investors entering the market is shrinking. People in their 30s and 40s don't have as much money as they did in the late 1990s. Everything costs significantly more but wages have not gone up at the same pace. Thank goodness we didn't have a real inflation problem over the last six years or it would be even worse.

A large number of the younger generation believes the market is rigged and they are not investing individually. They have a 401k or an IRA and they just make contributions and sit on it.

When you think about it there is a lot of gloom and doom being preached in the financial press and this is having a long term impact on the number of investors entering the market and investing once they get there.

Back to the margin debt. So how can margin debt be at record highs if volume is at the lows for the year and sentiment is so neutral? Apparently those investors actually in the market are leveraged to the maximum. The problem is that leverage works both ways. If we ever have another correction the downdraft could be vicious as margin selling eliminates those over leveraged investors.

I know I got off the track there with my explanation of the current factors but it will be relative in the months ahead. Do you remember the taper tantrum when the Fed was "talking" about tapering QE. Well you can bet there will be a super tantrum when the Fed finally begins to hike rates. Investors that have been around the block before understand this and realize it will be a buying opportunity. Historically once the Fed begins a tightening cycle and the initial market reaction is over the market typically rises for the next 12-18 months. The theory is that the Fed would not hike if the economy was not stable and growing to it is a good time to invest.

Deutsche Bank's Joe LaVorgna counted five episodes since 1994 when the yield on the ten-year moved substantially higher because of a change in expectations on the likely path of Fed policy. "If history is a guide, a backup in Treasury yields could be both swift and violent, with most of the move occurring over a short period of time, generally within two months." He cited five examples where the ten-year yield rose from 140-250 basis points in a very short period. That would be a major upheaval in the current treasury market.

I hesitated to discuss this topic this week but we may be nearing the Great Rotation from bonds back into stocks. The ten-year yield has quit going down but that could change if the Fed kicks the can farther down the road next week. Eventually the Fed will hike rates and yields will begin to rise. There are trillions of dollars in the bond/treasury market that will either be faced with a loss of capital or they will rotate out of bonds and back into equities. In order for this to happen the U.S. economy must find its footing and give the Fed a reason to hike rates. That first rate hike could be the starters gun on the Great Rotation and therefore a significant benefit to equities.

The S&P closed at 2117.69 and a new high but for all practical purposes it stopped at the old high levels. Unlike the Nasdaq where the index spiked significantly higher the S&P barely managed to move higher with only a +4 point gain. While this is not specifically bullish or bearish it does pose the potential for a double top at this level. The stocks that exploded the Nasdaq 100 higher are all in the S&P but the S&P only gained +4 points. That means a lot of other stocks were declining. I think everyone would say that Friday was a bullish day in the markets BUT declining volume was actually higher than advancing volume. The indexes were up because of the major gains by a few individual stocks.

This causes me some worries over next week when there is a Fed meeting on Wednesday. Those big gainers from last week should fade now that the shorts have covered. As an example does anyone actually believe that a $55 gain in Amazon on Friday won't result in some profit taking next week?

I don't want us to fall into Art Cashin's comment where the fear of losing money causes us to miss out on making money but we need to be cautious given the weak internals. If the S&P charges higher next week then disregard everything I said above. The market does a good job of making fools out of the most people possible. We do have one really big plus in our favor. New highs are the greatest investor motivator known to man. Investors on the sidelines can't stand to sit in cash while the market makes new highs day after day. When they market is choppy they can convince themselves that it is better to wait than buy something. When the market is making new highs that rational thinking goes out the window.

Support on the S&P is now 2100-2110 after two weeks of fighting to get through that level. Any dip to 2100 is a buying opportunity. Any material dip below 2100 is a game changer.

The Dow is our caution flag. The index failed to even close over near-term resistance at 18,100 and is well below prior highs at 18,200 and 18,288. Obviously this is because the individual stocks in the Dow are much more of an influence on a thin 30 stock index. Microsoft gained +$4.53 on Friday and that added about 35 points to the Dow. Without Microsoft the Dow would have closed negative. There were only 12 gainers and 18 losers in the Dow on Friday.

The downtrend resistance of lower highs is still intact and a warning that the Nasdaq rally may not last. Beware any decline below 18,000 as a potential signal of growing weakness.

The Nasdaq 100 ($NDX) gained +59 points. Amazon was responsible for 22 points, Microsoft added +32, Google +4.5 and Starbucks +1.6. That should be all I need to say about the potential for the Nasdaq to move higher next week. When ONLY 4 stocks were responsible for +60 Nasdaq 100 points the potential for further gains next week are slim because you know traders are going to take profits in those stocks.

The Nasdaq Composite gained +36 points to close at 5092. Overhead resistance is now 5125 and that dates back to September. Like the NDX I would expect the Composite Index to decline next week.

On Friday there were 1,185 advancers and 1,410 decliners on the Nasdaq Composite. It was only because of the giant gains in a few stocks that the Nasdaq remained in the green.

Support is now 5000 followed by 4950 and resistance is 5125.

The Russell 2000 small caps are struggling. After a month of being favored because of their lack of exposure to the dollar that worry is now off the table. With the summer doldrums ahead the urge to own small caps is fading because of the potential risk. If the market volume declines even further this summer it could fall under 5 billion shares per day. Small cap volume would be even worse and that scares fund managers. If a market event occurs and they want to exit they can get killed trying to exit large positions in a low volume small cap stock.

While I am not ready to write off the Russell just yet a decline below 1250 would be the sell signal. Despite the new high in the prior week the Russell was struggling last week. I expect that to continue.

I would continue to be cautious on long positions. Despite the new highs the market is not healthy. Bank of America posted this chart last week showing the enormous outflows of funds from U.S. equities since February. More than $79 billion has flowed out of U.S. equity funds in the last ten weeks. It is a miracle the market is at new highs and it will be another miracle if it stays there. Note the divergence in fund flows compared to the S&P. This is another reason why trading volume is so low and 45% of investors are neutral.

Citi Private Bank and S&P Capital IQ Investment Policy Committee are both recommending that investors cut their exposure to large-cap U.S. equities. Citi global chief investment strategist, Steven Weiting said the market can no longer bet on a combination of ultra-loose monetary policy coming from the Fed or accelerating economic growth this year. Weiting cited the "consequences of the boom and bust in U.S. energy investment as a factor that is contributing to weakening of U.S. equity outperformance." BlackRock's Russ Koesterich also recommended reducing U.S. equities in favor of less expensive international stocks. "Diversification at this point is critical" Koesterich said in an interview.

S&P Capital IQ said, "Reasons for our reduced optimism toward U.S. equities include a traditionally soft seasonal stretch for stocks, the rich forward 12-month valuation, time since the last correction, and the expectation that interest rates and inflation will creep higher in the coming year."

Random Thoughts

Greece negotiators continue to use the "rope a dope" on the EU finance ministers. Meetings are held and talks last for hours but there is no substance. At the meeting last week many of the finance ministers said they were tired of showing up because nothing was ever going to happen. Greece refuses to enact the required economic changes but they are still asking for more money. The finance ministers continue to say no more money until you enact the changes we require. Greece refuses, the finance ministers refuse and everyone goes home frustrated. Greece is playing out the clock. They know they are in trouble but they feel like it will be worse for Europe than for Greece if they default. Meanwhile the clock is counting down to an eventual Greece default. The finance ministers are now talking about a plan B on what they should do if Greece does default.

In the last week the chance of a default has risen to 40% while the chance of an exit from the eurozone is 30%. Much talk has occurred on the potential for Greece to default and NOT leave the eurozone. Analysts now question why they would leave the eurozone because the ECB is still supporting Greek banks. If they leave the zone they will definitely not get any more money. If they default and remain in the eurozone there is still the possibility of some kind of future deal.

Meanwhile everyone in the rest of the world has lost interest and life goes on.

The Bloomberg Economic Surprise Index, which measures whether economic data is missing or beating forecasts, hit a new low last week. This is the lowest level since the financial crisis and suggests the Fed has a lot more to worry about before raising rates. Bloomberg Link

Over the course of this week we have heard Larry Fink of Blackrock talking about the severe risks of investing in Europe; Bill Gross of Janus saying German bonds are the short trader’s dream; Pimco warning that markets have not addressed the potential of a Fed tightening; the incoming CEO of Allianz, that TWO trillion dollar asset manager, saying, "We see generally meager growth prospects, political dangers and risks of a stock market crash." Even Abby Cohen thinks it is a stock pickers world, not a buy anything and kick back world. And yet, the market didn’t even blink.

Central banks are driving all investment decisions, and what this implies is that they are in this trade so deeply that there is no obvious or practical exit. Maybe they think they can just hold all those QE assets to maturity and never be forced to raise rates. Unfortunately that is not an option. Zerohedge: I am not crazy, I am scared

So far this earnings season 67% of the S&P companies that have reported actually beat on earnings. This is far better than analysts expected going into the earnings cycle. However, only 52% have beaten on revenue numbers. Even the energy sector surprised with a 69% beat rate on earnings but only 35% beat on revenue. The best performing sector has been consumer staples with an 81% beat rate on earnings and 69% beat rate on revenue. The worst performing sector has been the telecom sector with a 50% beat rate on earnings and only 33% on revenue.

Are you a rate hike newbie? The Fed has not hiked rates since June 2004 and quite a few of today's investors have never been through a rate hike cycle. This almost guarantees an overreaction of some sort when the Fed eventually announces a rate hike. This is one reason why Janet Yellen is trying so hard to telegraph the rate hike potential and thoroughly explain that it could take a long time before rates return to any kind of normalcy. She is trying to prevent a market meltdown by telegraphing in advance that the 2nd and 3rd rate hikes could be many months away. I wish her luck with that.

While there will be some volatility around the first rate hike the long term performance suggests it is a buying opportunity. Since WWII the S&P has averaged a +2.4% gain in the six months following the first rate hike. Unfortunately the average gain in the six months prior to a rate hike is 9.5%. So there is volatility but it is not the end of the world.

The problem is that the Fed has never tried to come back from a period this long where rates have been this low and the Fed's balance sheet has been this high at $4.5 trillion. It is up 500% from 2008 levels. Yellen does not plan to start dumping treasuries anytime in the near future but most people forget the Fed is still reinvesting its matured treasuries. When they mature the Fed buys more in order to keep its balance sheet flat. It is a stealth QE that most people have forgotten. Once the Fed quits buying those replacement treasuries the interest rates should tick up quickly.

Apple metrics for their earnings on Monday. This is what analysts are expecting.

Earnings per share $2.15 and net profit of $12.5 billion.

Revenue of $55.9 billion, up +22.5%.

iPhone sales of 55 million, up +25%. Down from 74 million in Q4.

iPhone revenue $36.6 billion, up +40%.

iPad sales of 15 million, down -10%. Revenue $6.1 billion, down -20%.

Mac sales of 5 million, up +11%, revenue of $5.8 billion, up +5%.

Apple Watch sales of 5 million. That is a very optimistic estimate.

Revenue guidance for Q2 of $46.9 billion, up +25%.

Cash on hand of close to $200 billion, up from $178 billion in Q4.

The Nasdaq may have closed at a new high but it is not the same Nasdaq as in 2000. There are 2,578 stocks today compared to 4,715 in 2000. The total value of the Nasdaq stocks today is $8.2 trillion, up +24% from 2000.

Pandemic ahead?

The price of chicken and eggs is going up. More than 8 million birds have been killed as a result of the H5N2 strain of bird flu. Minnesota declared a state of emergency and said 2.6 million birds had died from the flu, been exterminated by regulators or slated to be killed.

While this version of the bird flu is not normally transmitted to humans there is always the possibility of another mutation that could be transmitted and that would be a disaster of pandemic proportions. Minnesota has instructed 87 workers to take antiviral medications as a precaution because of direct contact with infected birds.

With modern poultry farming methods in the U.S. the risk of a pandemic is low. However, in China where they have a more hands on method of farming there is an extreme risk of an eventual pandemic in humans. One scientist explained it this way. Every time the virus comes in contact with another species be it monkey, pig, human, etc, the evolutionary dice are rolled and while the odds of a mutation are in the billions there are billions of birds being raised around the world. It only takes ONE successful roll of the dice to see the virus mutate into pandemic status. This is a really scary thought.

Here is another scary thought. According to the WSJ Chinese experts now believe North Korea has 20 nuclear warheads and enough enriched uranium to double that within a year. Prior U.S. estimates were for 10-16 bombs. Experts also believe North Korea is now able to put a nuclear weapon on their improved KN-08 ICBM, which has a range of 5,600-7,000 miles. That is far enough to put a nuclear bomb over our West Coast but not far enough to reach Chicago, New York or Washington DC.

This is a cautionary tale for the Obama administration as it negotiates with Iran. North Korea is the most sanctioned country on the planet and they negotiated for more than ten years as the world tried to keep them from going nuclear. Obviously that did not work. You can't negotiate with a regime that has no morals and lies about everything. Western nations expect other nations to do what they say they will do. That is not the case with North Korea or Iran. We also learned a couple weeks ago that Iran's new missile can reach almost all of Europe and Northern Africa. Put a bomb on that one and the balance of power just changed dramatically.


Enter passively and exit aggressively!

Jim Brown

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"The average man desires to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work."

William LeFevre