Happy Jobs Day…oh never mind: Ed’s Daily Notes for November 8th   Leave a comment

demotivational-posters-demotivational-poster-demotivating-posters-poster-funny-posters-denotivating-demotivational-cat-kitten-dead-bird(hat tip to Demotivating Posters for the pic)

Sure, Twitter had it’s day in the sun yesterday. Unfortunately, it seemed to block out the sun from the rest of the market.

Actually, what was eclipsing the markets was the strong U.S. GDP report. Coming in at +2.8%, when the highest estimate by economists was +2.7%, means the odds went up of the Federal Reserve tapering QE at their December meeting. But the even more important U.S. Employment Report comes out today at 8:30 am EST. This will provide a better “tell” of Fed intentions. According to Bloomberg, the consensus expectation is for an increase of 120,000 in non-farm payrolls. However, that average is in a range of 300,000 jobs lost to 168,000 jobs gained.

On top of this, Fed Chairman Ben Bernanke will be speaking at an IMF panel this afternoon, at 3:30 pm EST. That might be too late to impact markets, but we also have Atlanta Federal Reserve Bank President Dennis Lockhart speaking at noon EST.

By the way, Monday is Veteran’s Day in the U.S., so markets will be closed. Three day weekends during bearish times tend to intensify the bearishness of markets.

In other news…

Bloomberg: France Credit Rating Cut to AA by S&P on Growth Outlook

Bad news for France, but certainly expected:

France’s credit rating was cut by Standard & Poor’s, which said President Francois Hollande’s policies will fail to spur growth and fix public finances.

The nation’s long-term foreign and local-currency grade was lowered one step to AA from AA+, S&P said in a statement today. France lost the top rating at S&P in January 2012. The outlook on the grade, now the third highest, is stable, according to S&P. French bonds fell, sending the 10-year yield up 2 basis points to 2.39 percent at 8:05 a.m.

Going the socialist route in the face of a fiscal crisis is counterproductive. Whether France will learn this remains to be seen, but S&P has sent them a gentle reminder.

Reuters (via Yahoo Finance): Disney beats Street on higher theme park spending, toy sales

Walt Disney Co reported a [12%] gain in profit that beat Wall Street expectations, lifted by higher visitor spending at U.S. theme parks, increased consumer product sales and its summer animated movie hit “Monsters University.”

The media company on Thursday posted diluted earnings per share of 77 cents for the quarter ended in September, edging the 76 cents average estimate of analysts surveyed by Thomson Reuters I/B/E/S. Net income for the quarter rose to $1.4 billion, a 12 percent gain a year earlier.

Shares of Disney, which have gained nearly 35 percent this year, slipped 1.8 percent in after-hours trading to $65.94, down from their earlier $67.15 close on the New York Stock Exchange.

Investors reacted negatively to a prediction from Disney Chief Financial Officer Jay Rasulo, on a post-earnings conference call, that capital expenditures will increase by $1 billion over 2013, said Needham & Co. analyst Laura Martin. Most of those funds will go toward increased investment in the Shanghai Disney Resort scheduled to open in late 2015, Rasulo said.

“The company had been saying that the capital expenditures were going down,” said Martin, who rates Disney stock a “hold.” “Markets look ahead,” he added.

Markets are insane. Disney could easily take that $1 billion off their levered free cash flow or cash and not even blink. For long-term investors, I don’t see this as an issue. Disney is investing money to build another theme park in a city of over 14 million people. This is a no-brainer, especially considering how well Disney’s theme parks did this quarter:

Operating income grew 15 percent to $571 million at Disney’s parks and resorts unit, as visitors increased spending at Walt Disney World in Florida and Disneyland Resort in California.

In their other business units:

For the just-ended quarter, operating income at Disney’s cable network unit, which includes its powerhouse ESPN sports channel, decreased by 7 percent to $1.3 billion in the quarter, the company said, citing the timing of some ESPN affiliate fee revenue.

Despite taking an undisclosed writedown for its summer flop “The Lone Ranger,” Disney’s movie studio reported a 35 percent rise in earnings during the quarter, boosted by Pixar prequel “Monsters University.” The film generated $743 million in worldwide ticket sales, according to the site Box Office Mojo.

…Disney’s Interactive unit turned around in the quarter, earning $16 million after losing $76 million a year ago, partially on sales of its new Disney Infinity console game. The company has sold more than 1 million Infinity starter packs, Chief Executive Bob Iger said.

“All indications suggest the strong demand for Disney Infinity will continue,” Iger said.

At the consumer products unit, operating income rose 30 percent to $347 million. The growth was driven by licensing of products tied to films such as “Monsters University” as well as products included after last year’s acquisition of “Star Wars” producer Lucasfilm.

On top of this:

Disney also announced it will release the next installment in the blockbuster “Star Wars” film franchise on Dec. 18, 2015.

The beauty of Disney is in the diversity of it’s businesses. A bad quarter for ESPN? No problem, they can make it up with the theme parks. A losing movie like Lone Ranger? No problem, they can make it up with another movie like Monsters University. Disney is a money-making machine that just keeps getting better. And they will get your entertainment dollars somewhere, whether it is their theme parks, watching sports on ESPN, playing video games, buying toys for your kids, or seeing a movie. Disney is a “must own” for any investor, and today’s drop presents a great opportunity for investors to get into Disney.

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Posted November 8, 2013 by edmcgon in Economy, Federal Reserve, Market Analysis, News, Stocks

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