Apple’s June 2010 quarter: another (ho-hum) stellar performance

AAPL reported June quarter 2010 results after the close on Tuesday.  Per share earnings were $3.51, way above the Wall Street consensus, suggesting the company is on track to post eps of about $14+ for the current calendar year.

The company’s press release and conference call, as usual, contained a laundry list of all-time highests and significant milestones passed.  For example, in the June quarter AAPL posted its highest three-month revenue ever (even better than last holiday season) at $15.7 billion.  That was up 61% year over year, by the way.  Mac sales were also a quarterly record at 3.47 million units, up 33% year over year.  As my brother in law, a long-time Apple devotee, put it the only thing the AAPL report seemed short on was superlatives to describe the operating performance.

the details

–AAPL sold 9.4 million iPods during the quarter, down from 10.2 million in the corresponding period of fiscal 2009 (ends September).  But higher-priced iTouch units were up 48%, raising the average selling price for all iPods by 12%.  This meant iPod revenues were up 4% despite the sharp decline in unit volume.

–AAPL sold 8.4 million iPhones, including 1.7 million+ iPhone4s.  This was 61% year over year growth, substantially above the estimated 38% expansion rate of the global smartphone market.  AAPL could have sold more phones, except that: a) it deliberately ran down inventories of older phone models in preparation for the launch of new ones, and b) it ran out of iPhone4s to sell.

At $5.33 billion, iPhone revenues were up 74% year on year, and implied an average selling price during the three months of $595.

–Mac sales, as noted above, were a record 3.47 million units.

–iPad sales were 3.47 million units in the June quarter, totaling a bit under $2.1 billion, with maybe $80 million in accessories to boot.  ASP was about $640.

–the Apple Stores booked $2,58 billion in sales during the period.  That was 73% higher than in the June period of last year.  Average revenue per store was $9 million vs. $5.9 million a year ago.  Half the Mac buyers in the stores were new to AAPL computers.

–iTunes generated over $1 billion in revenue.  The app store now has over 225,000 selections, including 11,000 for the iPad.  there have been over 5 billion downloads to date.

–AAPL’s margins were 3.1 percentage points higher than it had expected.  The biggest single reasons were surprisingly brisk sales of iPhone accessories  and higher iPhone sales than expected (this must mean that older models sold unusually well, since iPhone 4 has lower margins).  Yes, the iPad did depress overall margins by the expected 150 basis points.

AAPL is also lowering its full year tax rate slightly, implying higher than expected sales in low tax rate areas (read: non-US sales).

what caught my eye

–Apple Store sales.  No sign of recession here.

–AAPL is selling iPhone4s and iPads as fast as it can make them.  This means the company doesn’t have a firm idea of what true demand for either is–just that it’s a lot bigger than AAPL planned for.  Also, both devices carry lower than company average margins.  I think this is a tale of two different devices, namely:


iPhone4s are selling as fast as AAPL can make them. So all the company really knows about demand is that it’s greater than AAPL can fill.  Therefore, AAPL doesn’t know whether it is losing market share to Android-based phones or not.

Returns of the iPhone 4 so far have been lower than for previous versions of the iPhone.  Virtually none of the returns are being identified by the user as being due to antenna problems.  (These problems apparently arise from the fact that antennas of different lengths for different frequencies are embedded in a bezel around the edges of the phone.  Poorly placed fingers can connect two antenna segments, thereby lengthening the antenna and losing the signal.)  Despite this, AAPL is offering all iPhone4 buyers a free case that fixes the issue.  AAPL will defer what it thinks will be $175 million in revenue that would otherwise be recognized in the September quarter from iPhone4 sales where the owner hasn’t responded to the offer of a case.  Not a big deal, but might slow AAPL’s growth rate this quarter by a percent.

Why the lower margins for iPhone4?  After all, it’s the best iPhone yet?  I think it’s competition–actual or anticipated–from Android.  If so, it signals a maturing of the cellphone business, the source of the largest part of AAPL’s profits.


The iPad is also selling as fast as AAPL can make the units.  So, just as is the case for the iPhone4, the company knows only that demand is higher than AAPL is able to fill.  AAPL management thought is was being very aggressive in assuming it could find buyers for a million units a month.  But that turns out to have been too conservative.  In its first three months, iPad is already well over 10% of AAPL’s business by revenue.

So far–admittedly a short time–there’s no apparent cannibalization of other AAPL products by iPad.   Mac had a record sales quarter and iPod Touch was up 48% year over year.  AAPL seems to be almost hoping that iPad begins to cannibalize PC sales, however.

The arithmetic is pretty straightforward.  If, say, 10% of current PC users would prefer a tablet like an iPad, then AAPL would lose sales of 3 million-4 million yearly Mac units, which would be offset to some extent by an equivalent number of iPad purchases.  Consider, however, what happens in the 90% of the PC market that AAPL doesn’t have.  A 10% shift toward tablets gives an addition sales potential for iPads of about 30 million a year. So cannibalization could well translate into a loss of $3-5 billion in Mac revenue, but a gain of $20 billion in iPad sales.  Not a bad tradeoff.

Why the low margins?  Unlike the situation with the iPhone, there’s no formidable competitor to the iPad in sight.  But AAPL wants to penetrate the market a deeply as possible, in the hope the iPad can become the de facto industry standard before a competitor emerges.

investment conclusions

I’ll elaborate in a later post, but I think the stock still looks to be reasonable value.  Growth stocks rarely have more than five years or so in the limelight.  Wall Street analysts seem to me to be clearly worried about this–about the possibility of competition in AAPL’s main business lines and about what AAPL can possibly do to replicate the fabulous earnings growth of the past half-decade.  On the other hand, growth stocks typically peak at outrageously high price earnings multiple.  The deadly combination, then, is earnings shortfall + elevated multiple.  In AAPL’s case, the former seems unlikely for now.  At 17-18x calendar 2010 earnings, the latter doesn’t appear to me to be the case, either.

Harley Davidson (HOG) as economic barometer–positive signs

Harley Davidson (HOG) is an iconic American company. Harley Davidson motorcycles have typically been an aspirational purchase for men over 35 (maybe 50+ and having gray hair might be a more accurate characterization). They carry echoes of Easy Rider, The Grateful Dead, and the Sixties Generation, as well as a hint of the power/danger of the biker gangs whose staple ride they are.

HOG is a particularly interesting company operationally, in my opinion. It is trying, with some success, to broaden its image to appeal to younger riders, women and minority group members. The company is also rationalizing its manufacturing operations and gaining better control over the workings of HDFS, its credit arm. All these moving parts present opportunities for a careful researcher to find evidence of potential positive earnings surprise.

And, of course, Warren Buffett, himself an icon, has recently become a significant shareholder.

In this post, however, I’m more interested in HOG as an economic indicator than as a stock to buy. Motorcycles are perhaps the ultimate discretionary (read: frivolous or unnecessary) durable purchase. A Harley may cost $20,000 and, though it may be a joy to ride, it’s not particularly useful. Boats probably top the list for frivolity, but they don’t appeal to as wide a demographic as bikes. (I own a small runabout and a couple of Harley t-shirts, but no bike—so far.)

HOG reported its June quarter results yesterday morning. They contain two positive signs for the US economy.

The first positive is in domestic motorcycle sales. Although they remain at only about 60% of the pre-financial crisis level, they are up slightly year on year.


2008           -13.0%     +7.9%            -2.0%

2009          -25.8%      -3.4%            -12.8%

2010          -15.7%      11.2%            +1.3%

On the one hand, the growth in sales comes from purchases of used motorcycles. But they are sales nonetheless. And they are coming after HOG significantly tightened up the credit-granting standards of its finance subsidiary, HDFS, which makes bike purchase loans to about half of domestic Harley buyers.

Shipments of new bikes from HOG to its dealers are also up slightly in the first half.  Overall dealer inventories are down by over a third vs. this time last year, with only supplies of used bikes higher than normal.

All this is good news for HOG. For the economy, the interesting thing is that men are becoming comfortable enough about their personal financial circumstances to be starting to buy Harleys again (without fearing divorce or severe bodily harm from their wives).

The second piece of good news comes from HDFS. It concerns loss experience and loan delinquencies.

At 4.5% of outstanding loans, those with payments more than 30 days overdue is somewhat higher than Harley’s pre-recession experience (3.6% in 2Q06 and 4.4% in 2Q07), But its not that far above- and it’s lower than at this time last yea ror the year before.

Loss experience is better, as well.  The current annualized rate of 2.04% is better than in either of the past two years.  It’s also within striking distance of the 1.63% posted in the first half of 2007 and the 1.20% of the first six months of 2006.   This good performance is partly because 85% of HDFS’s loans are now prime (5%-10% higher than pre-2009), partly because used bike prices, which plunged during the worst of the financial crisis, have begun to rise again.  But it must also be in part due to the fact that money isn’t so tight as it was during the worst of the recession.

I’m of two minds about the stock.  I don’t regard the Warren Buffett endorsement as a plus.  Mr. Buffett, one of our profession’s true geniuses, saw much earlier than anyone else that brand names and established distribution networks–in other words, intangible assets–had an immense value that was neither listed on the corporate balance sheet nor a factor in the thinking of his contemporaries.  So you could in effect buy them for free.  –and that’s what Mr. Buffett did.

But the insight came almost a half-century ago.  Everybody knows it now, just as well as everyone knows about Benjamin Graham.  So the Buffett touch isn’t enough any more, in my opinion.

In the case of HOG, however, a genuine corporate turnaround appears to be underway.  More in a later post.

retraining workers–but for what?

When I was in college in Boston in the Sixties, my school had a long-tenured and widely known hockey coach–and, despite a cast of excellent players, a thoroughly mediocre team.  According to my friends on the team, whenever they went to this coach for advice on any technical aspect of the game–skating, puck handling, shooting–his standard reply was, “Practice!”  Not very helpful, but that exhortation exhausted his knowledge base.

A lot of the recent commentary on the unemployment situation in the United States–and, by extension, anywhere else in the developed world–reminds me of that college hockey coach (thankfully, long since retired and succeeded by a line of much more skilled coaches).

The current situation is well-known.  Actually, I’m not sure it is.  The facts have been around for a long time.  And most people probably can dredge up the information if pressed.  But I’m not sure enough people in the developed world have passed from purely intellectual awareness to emotional commitment to act on the challenges they represent.

The working populations of China and India are gradually entering the labor force available to international firms, swelling its ranks by about 50%.  These workers are happy to work for a year for the wages their counterparts in the developed world demand for a month’s labor.  So, the latter are priced out of the market, and are being replaced by the former as quickly as possible.

The “insight” of the typical commentator on the “decline of the West” is limited to the suggestion that displaced workers be given temporary government support and retrained for new jobs.  I believe that’s right.  It’s also the orthodox prescription that can be found in any first-year economics text. But it’s also a “solution” as unhelpful and as devoid of content as “Practice!”  Retrain for what?  The commentators, many of them insulated by ivory-tower tenure that insulates them from the reality of the situation, offer (…have?) no clue.

There is some justification for stopping at framing the problem without offering any solutions.  Generally speaking, high-level industrial policy of the kind Japan’s MITI was once famous for hasn’t worked there, or anywhere else.  When the Cold War ended and the defense industry in the US collapsed, many scientists working in exotic metals used for weapons systems ended up designing golf clubs.  Who’d have guessed?–no one.

But I think there are some conclusions that can be drawn.  For instance:

1.  The tendency of Washington to prevent, say, Chinese industrial companies from making investments in the United States means that these firms continue to service US customers from abroad.  The associated job creation remains in China instead of migrating to the US.

2.  As Fiat’s Italian auto workers are now showing, and as west coast port workers in the US demonstrated several years ago, beneficiaries of an older order can be highly resistant to change.  In the developed world, it seems to me the most urgent need is to reform an education system that creates newly-minted graduates prepared to succeed in the world of 1960 (which no longer exists), but which is controlled by professionals who have been granted jobs for life.  Charter schools, anyone?

3.  I’m worried that the long-term unemployed are going to prove a particularly intractable problem.  Take a hypothetical  fifty-five year old high school graduate with no computer skills,  who has bounced from job to job during the housing boom but has been laid off from an assembly line or some other physical labor job eighteen months ago.  He will likely live another thirty-five or forty years.   What are his chances of getting another job?

Over a million young workers enter the labor force each year.  If the Fed projections are right, it will be at least a couple of years before the economy is healthy enough to absorb this flow.  By that time, our hypothetical worker will be approaching sixty–and a prime target of age discrimination.

Yes, retrain this worker.  But have computer skills eluded him for all this time because he didn’t need them, or because he’s been unsuccessful at past learning attempts?  I don’t know.

I suspect, though, that the US is going to experience a period of European-style chronic high unemployment–with the potential creation of a new underclass–for a long time.

investment implications

On the one hand, unemployment and education are political and social issues.  But they have a direct investment significance in that they influence the trend growth rate of GDP.  In extreme cases–not likely in the US, I think–economic stagnation has led to a “brain drain,” where the best and the brightest leave their home countries in search of better economic prospects elsewhere.

As far as Wall Street is concerned, I think the implications are clear–shade strongly away from the 25% or so of the stock market where earnings are closely linked to the fortunes of the overall domestic economy.  Until investors are clear that 75% of the market’s earnings are not, however, I suspect that stocks will continue to react en masse–though (I hope) with decreasing amplitude–to bumps along the road to economic recovery.

“search neutrality” –Google’s newest challenge? the ITA acquisition

Everybody is by now familiar with the topic of net neutrality.  This is the question of whether the owners of high-speed transmission networks for internet traffic have the right to regulate the flow of data, assigning some information to what is in effect the slow lane while allowing other content to barrel ahead in express.

This issue still hasn’t been fully dealt with.  As I posted in April, the FCC ordered Comcast to stop interfering with traffic through BitTorrent, a peer-to-peer file-sharing service that the ISP claimed was using up too much bandwidth.  Comcast sued, on grounds that the FCC didn’t have the authority to issue it such an order–and won.

The FCC responded by moving to reclassify Comcast as a public utility, like phone companies ATT or Verizon, so that it would have the regulatory authority it needed.  This opens a whole political can of worms, however, so it’s still not clear where matters stand.

GOOG’s ITA purchase

The wheel of competition has recently taken a turn in a different, but related, direction with Google’s agreement to buy ITA Software, founded by MIT scientists and now held by private equity, for $700 million.  ITA makes the airline database search software that powers the air part of travel sites for online agencies like Kayak and Orbitz, as well as for the online sales sites of Continental Air.

GOOG’s isn’t the first purchase of this type.  Two years ago, MSFT paid $115 million for the smaller private company Farecast, which is at the heart of MSFT’s Bing Travel service.  But ITA is bigger and already services significant third-party customers.

unhappy campers

Not everyone is happy with this development–especially not Barry Diller, CEO of online travel agent (and former MSFT subsidiary) Expedia.  He’s worried that if/when it acquires ITA, GOOG will promote its own services over those of EXPE.

This assumes, of course, that GOOG will follow MSFT’s lead and create a travel site similar to Bing Travel.  That may well happen.  In paid search, a prospective GOOG Travel could outbid everyone else for keywords, since this would just be transferring revenue from one GOOG pocket (travel) to another (search).  It’s not so clear that would happen in any unfair manner in unpaid search.  The reputational, and legal, risk to GOOG is too high, I think, for that to occur.

EXPE isn’t out of the woods by any means, however–in my opinion.  It’s possible that the combination of GOOG and ITA professionals will produce new travel software that’s significantly better than anything on the market today.  Maybe ITA can do this alone, with GOOG financial support.

Suppose that instead of using ITA software itself  GOOG offers it for free to any travel site that is willing to allow GOOG advertising on it. This is basically what it did with cellphone operating system software.   That would give any takers a 10%-15% cost advantage over sites which either develop their own travel software or buy it from third parties.  It would also make it easier for new firms to enter the market.  Any way you look at is, GOOG offering ITA for free would  lower the value of any database technology that a company like EXPE holds.

That’s Mr. Diller’s real problem, I think.  If so, he can’t just say this–that there’s something wrong with a new market entrant turning up with better, lower-cost technology.  Search neutrality may be the best weapon he has to fight with.

Where/how active management counts: a BNP Paribas study

The FundQuest study

FundQuest, an investment consulting arm of the European bank, BNP-Paribas, recently issued a report on a study it performed analyzing thirty years of Morningstar mutual fund data.  The study tries to determine when active portfolio management has been successful.

the results

general portfolio characteristics

According to FundQuest, there are three general characteristics of overall actively managed portfolios that are highly correlated with investment success.  they are:

–manager tenure.  The best portfolios are those with the longest-serving managers.  Having managed a number of portfolios for fifteen years or more, I’m tempted to blindly agree with this conclusion.  But even after a pause for consideration I still think it’s true.  Occasionally, a weak manager may survive for an extended period, based on great marketing or office-political skills.  But they’re the exception.  Poor performance leads quickly to clients withdrawing their money from a manager, which, in turn, leads to his dismissal.

–low expenses.  I guess this one makes sense, too.  On the one hand, a ind group can hope to distinguish itself by having excellent performance, which may or may not happen.  But so long as it sets reasonable risk parameters for its managers–in other words, as long as it has some reason to think its investment performance won’t be truly terrible–it has a good chance of delivering superior returns to clients if it has low expenses.

This may also be just a statement about economies of scale.  Successful managers draw in more assets, which tends to lower their administrative expenses, if not management fees.

–low volatility.  The study doesn’t give an adequate explanation, in my mind.  This is a complex issue that I have strong view on (I don’t like volatility as a risk measure at all!). I’ll just leave it at that.

More interestingly, the study enumerates several factors that, contrary to conventional wisdom, it says have no bearing on performance:

–turnover ratio.  That is, a calculation of the dollar amount of securities bought (or sold) during a year, as a percentage of average assets.  Conventional wisdom in the consulting community is that the lower the turnover the better.  The conventional arguments are two:  trading makes the manager feel good but runs up costs and adds no value;  lots of trading means the manager has no strategy.

–fund size.  Conventional wisdom says that smaller funds have a wider array of stocks they can buy in significant size, and that they’re more niumble.

–number of holdings/concentration of fund in its top ten stocks.  This ends up being a closet way of separating growth managers from their value compatriots.  Growth managers typically run highly-concentrated, fifty-stock portfolios; value managers will typically have over a hundred (maybe two hundred–how they follow them all is a mystery to me), and as a result run a less concentrated top ten.

What I find interesting is that pension consultants thrive on collecting and analyzing such data, even though Paribas suggests it has no value.

overall manager trends

Hang onto your hat for this one. I’m really surprised by the finding.

FundQuest says that the typical manager underperforms his index during bull markets and outperforms in bear markets.  Whether he’s a value manager or a growth manager makes no difference.

But–and this is the signal to grab hold of your hat–this results from the fact that managers run portfolios with a beta of about .8.  In other words, managers as a group are risk-averse.  In the aggregate, they take considerably less risk than the market. If we use an (unspecified in the report) correction for risk, the performance situation reverses itself.  On this basis, managers outperform in bull markets and underperform in bear markets.

It makes some sense as a business decision that mutual fund managers should have as a high-level objective to minimize possible losses, even at the possible cost of performance during up markets.  One of my first bosses used to frequently say the pain of underperformance lasts long after the glow of outperformance has gone.

I’m just not sure that it’s right to factor that decision out of the evaluation of manager performance, as Paribas does.

The conventional wisdom, by the way, is that growth managers outperform in up markets and underperform when stock prices are going down.  Value managers are thought to do the opposite.

manager specifics

FundQuest lists five types of funds where active managers outperform in upcycles and down.  They are, with the most successful first:

Emerging Markets Bonds


Consumer Staples

World Allocation

Foreign Large Growth.

In addition to these groups, winners in up markets include:

Mid-cap Value

Small Growth

High Yield


Commodity-related and many foreign categories.

Winners in down markets also include:


Large Value

Small Value

World Stock.

Two things strike me about these lists.  The first is the prevalence of foreign-oriented or world funds. I don’t think this is particularly surprising, although others may.  To my mind, US-trained managers have a considerable technological edge as securities analysts vs. their counterparts in foreign market.  Yes, there may be as many foreign-generated reports.  But read the latter, ask yourself how much content there is in them and you’ll see what I mean.

The second is the nearly complete absence of domestic growth funds on the outperformance charts.  I have no explanation.  Growth investing is generally thought of as being more difficult to do than value investing.  As a result, there are supposedly only a few truly excellent growth managers, in a field made up of  less-talented wannabes.  Still, that’s really stretching for an explanation.  (If I hadn’t been a growth investor for most of my career, I’d have no trouble finding an answer.  I’d say growth investing is all smoke and mirrors.)

What to do with this information? The FundQuest recommendation, which seems good to me, is to try to use actively managed funds in areas where managers have a demonstrated ability to beat their markets, and buy index funds in the rest.

Minutes of the June 22/23, 2010 Federal Open Market Committee

the June OMC meeting

The minutes of the Federal Reserve Open Market Committee meeting of June 22-23 were released on July 14th.

To my mind, the truly striking development in this report is not the economic numbers themselves.  It’s the fact that for the first time since world stock markets bottomed in March of last year, the forecasts of the country’s near-term economic prospects by the 17 members of the OMC (5 governors + the 12 presidents of the regional Federal Reserve banks) have stopped going up.  In fact, they’ve gone–at least temporarily–into reverse.

The Fed now thinks real GDP growth in 2010, at 3.3%, will be .25% less than it thought in April.  The unemployment rate is expected to remain about .2% higher than previously estimated, at 9.4% this year and 8.5% next.

What’s changed?

To be clear, the Fed believes that the US economy is in the process of a moderate, but self-sustaining economic recovery, where “inventory adjustments and fiscal stimulus were no longer the main factors supporting economic expansion.”  But it also thinks that several factors, most of them external, have recently emerged that put a firm upper limit on how fast the economy can advance.

They are:

–financial troubles in Europe

–the rise in the dollar, and

–weakness in stock prices (even with the recent rally from just about 1000 on the S&P 500, Wall Street remains 10% below the high water mark achieved earlier in the year).

They add to business and consumer uncertainties, real estate weakness and reluctance of banks to lend, as sources of the headwinds the domestic economy is facing.

The good news, then, is that the US is on an upward course.  The bad news is that what we see now is as good as it gets.

the US economy:  plusses and minuses

–industrial production gains are “strong and widespread,” with IT investment growing rapidly,

but capacity utilization remains low enough that companies aren’t going to invest in plant and equipment for expansion (vs. replacement or upgrade) for some time to come.

–labor demand continues to firm,

but the proportion of workers jobless for more than half a year, already unusually high, continues to rise.

–bank credit, “which had been contracting for some time, was showing some tentative signs of stabilizing,”

but commercial real estate is weak, with no bottom in sight,

and consumer credit keeps on contracting.

–inflation remains unusually low, with deflation a risk,

but the current lack of inflation has not yet caused Americans to adjust their inflation expectations down, thus raising the deflation risk.

the bottom line

Economic growth will remain muted, and unemployment will therefore  remain unusually high for an extended period of time, with most OMC members expecting “the convergence process (to normal unemployment levels) to take no more than five to six years (emphasis added).”

In consequence, inflation will remain unusually low for a similar extended period, gradually rising to around 2%.

long-run projections

change in real GDP      2.4%-3.0%

unemployment rate     5.0%-6.3%

CPE inflation     1.5%-2.0%

investment implications

Wall Street has always been able to draw a clear distinction between sectors it thinks will perform well and those it thinks will perform badly.  And it has usually been able to separate that judgment from one about whether the overall market will go up or down.

Foreign stock markets have routinely been able to draw a similar kind of high-level distinction between the prospects for the home-country economy and those for international regions.  They have usually been able to vary their holdings between domestic- and foreign-oriented companies, and to disconnect that decision from one about whether the market will go up or down.

Right now, the US economy overall, and consumer-oriented sectors in particular, seem to me to be relegated to the laggard column for some time to come. It also seems to me that the overall market is cheap.  Or, as the Fed put it in its minutes, “The spread between the staff’s estimate of the expected real return on equities…and…the expected return on a 10-year Treasury note…increased from its already elevated level.”

American investors have clearly been able to make the inter-sector judgment without difficulty.  If the market can do the same for the foreign-domestic judgment–and that remains to be seen–IT and international-trade related firms should have smooth sailing in the year ahead.

two other thoughts

The notion that the economy won’t be back to normal for the next half-decade is shocking, but given the enormous amount of damage done by the financial crisis (the Washington-Wall Street complex) it’s not that surprising.  The realization of this fact is probably the cause of the large amount of public outrage directed at politicians and investment/commercial bankers.

Although the negative news about GDP growth and extended high unemployment have been widely reported, the Fed projections have barely made a ripple in the stock market.  Presumably, this means that investors have already discounted most of this n stock prices already.

add trains (cargo, anyway) to boats and planes: they’re all making good money again

In an earlier post, I pointed out that world trade was beginning to boom again.  Evidence of this was coming from comments from the shipping industry trade association and from FedEx.  Several more bullish pieces of evidence have come in since.


European container shipping giant Maersk announced last week that its container business was doing much better than expected, and that as a result it was raising its full-year earnings guidance from “a modest profit” to a profit of more than $3.5 billion.  Ironically, the restructuring of French container shipper CMA CGM has reportedly been complicated by the fact that the company has recently swung from big losses to substantial profits.  In both cases, the key element in the turnaround is improvement in the Asia-Europe route.

Expeditors International (EXPD) chimed in with similar sentiments two days ago.


The most stunning of the June quarter earnings reports I have seen has been INTC’s.  But the most interesting, to my mind, has been been the one from CSX.  Why?  The railroad is an east-of the -Mississippi shipper of intermediate industrial materials, autos and coal.  Its revenues were up 22% year over year, based on increased volume.  Operating earnings were up by a third, despite flat unit volumes in the agricultural and housing-related (forest products) businesses.  Chemicals, Metals, Phosphates and Autos were the stars.

I have no opinion on CSX as a stock.  And railroads are a mystery to me.  But the good results seem to show that we’re starting to see a pulse again in general industrial activities in the US–not just the areas where the US is a world leader, but also ones that serve the daily needs of the domestic economy.

How does all this square with the just-released June minutes of the Fed’s Open Market Committee, in which it shaved a bit off its economic growth forecast, and slowed the rate at which it thinks unemployment will fall?  That’s tomorrow’s post.