RayJay's Saut: 'It is too late to panic'

Trader on the floor of the New York Stock Exchange.
Jin Lee | Bloomberg | Getty Images
Trader on the floor of the New York Stock Exchange.
Now is not the time to panic. The time for that, in fact, was about a month ago.
That's the view from Jeffrey Saut, the widely followed chief investment strategist at Raymond James, who believes investors missed a selling opportunity in December and now need to ride out the current volatile wave.
Saut warned clients in late December that his timing models suggested a tumultuous period ahead for markets. He repeated that call during 2015's first week of trading when he noted that he was looking for "increased volatility in the first couple months of the year" after a 15 percent rally from the October lows.
During that period, he said, investors should have been raising cash as they waited for signs that a bout of selling was over.
"It is too late to panic," Saut wrote in a note to clients Thursday morning. "The time to raise cash was a month ago, not now. Now it is time to make your 'shopping list,' looking for the opportunity to selectively redeploy that cash into preferred equities."
Investors, in fact, have shown little inclination toward panic.
In the latest Investors Intelligence survey, which polls professional investor newsletter authors, bulls remained slightly above 50 percent. Though the most recent American Association of Individual Investors survey saw bullishness hit a three-week low of 41 percent, the bears were still well in the minority at 27.7 percent.
Broadly speaking, Saut is positive on stocks. He believes the U.S. is in a secular bull market that has years to run.
However, he is not constantly bullish and has warned clients that a market on such a long run higher can have fairly pronounced selling periods—a condition he sees in effect now.
"Granted various stocks will make their lows at different times, so pick your spots carefully," Saut advised. "Tactically, at least on a very short-term trading basis, many of my indicators are becoming oversold and it would not surprise me to see another bounce attempt off of some kind of low on Thursday. Unfortunately, I do not think any rally attempt 'sticks' and we will subsequently go lower."
Stocks were mixed Thursday morning as investors weighed the impact of lower oil and the Swiss National Bank's move overnight to remove the franc's peg against the euro. 
"As I write this Wednesday night, the Swiss National Bank scraps its ceiling for the franc sending the euro crashing, and Chinese loan data is weak, which likely pressures our equity markets again on Thursday," Saut said. "Look for some kind of trading low, but I do not trust it."

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Surprise Swiss move plays havoc with Swiss stocks

Traders work on the floor of the New York Stock Exchange, October 15, 2014.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange, October 15, 2014.
The Swiss National Bank scrapped its cap on the franc against the euro. The immediate result is the Swiss franc rallied against the euro and thedollar, which will make imports cheaper, but exports more expensive for Switzerland. The Swiss bank also cut rates.
The Swiss stock market is down about 10 percent, including bank stocks like Credit Suisse and UBS. However, Swiss stocks that trade in the United States, which are quoted in dollars, are trading up because the Swiss franc has rallied against the dollar.
Elsewhere:
1) Best Buy had great holiday sales, but gave lousy guidance. Holiday sales growth of 2.6 percent was well above expectations of roughly 1 percent. Online comparable store sales were up 13.4 percent. These are good numbers! Best Buy should have stopped there.
Guidance for the first half of 2015 is for flat to down comparable sales and lower margins. That's disappointing, considering how strong mobile phone and home theater sales appear to have been. Maybe Best Buy is just being ultra-conservative.
2) Target is exiting Canada, but the retailer did guide higher for fourth quarter comparable store sales, up 3 percent versus prior guidance of a 2-percent increase. Traffic has been stronger, driven by digital sales.
3) Homebuilder Lennar reported earnings per share of $1.07, much better than the expected 96 cents. The good news: orders are up 22 percent, better than expected.
The bad news: selling prices are only up 7 percent, a little weaker than expected. Like KB Home, Lennar noted that 2015 would see slightly lower gross margins. The issues are the same: an increase in material, labor, and land costs, as well as higher incentives to home buyers.
4) It's been a volatile start to the year, but the one trend that is very clear is defensives are outperforming cyclicals.
Sector leaders 2015:
  • Healthcare: up 2.0 percent
  • Utilities: up 1.4 percent
  • Consumer Staples: up 0.8 percent
Sector Laggards 2015:
  • Energy: down 6.5 percent
  • Financials: down 4.9 percent
  • Industrials: down 3.6 percent

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Lennar profit beats on strong home sales, higher prices

Lennar, the second largest U.S. homebuilder, reported a better-than-expected 50 percent jump in quarterly profit as it sold more homes at higher prices.
Chief Executive Stuart Miller said he remained optimistic about the housing recovery given falling gasoline prices and the Federal Housing Administration's decision to cut premiums.
Lennar's shares rose 1.6 percent to $46.49 in premarket trading on Thursday.
The company said new orders, a key indicator of future revenue for homebuilders, rose 22 percent in the fourth quarter ended Nov. 30.
Applications for U.S. home mortgages surged by the most in more than six years last week as 30-year mortgage rates dropped below 4 percent for the first time since May 2013, the Mortgage Bankers Association said on Wednesday.
However, Lennar joined smaller rival KB Home in forecasting a drop in margins in fiscal 2015, citing labor and land costs and increased sales incentives.
Lennar said its gross margin fell to 25.6 percent in the fourth quarter from 26.8 percent a year earlier. The company did not give a precise forecast for 2015.
Net income attributable to Lennar rose to $245.3 million, or $1.07 per share, from $164.1 million, or 73 cents per share, a year earlier.
Total revenue rose about 35 percent to $2.58 billion.
Analysts on average had expected earnings of 96 cents per share on revenue $2.59 billion, according to Thomson Reuters I/B/E/S.
Up to Wednesday's close, the company's stock had risen about 20 percent in the past 12 months, compared with a 12 percent rise in the Dow Jones Home Construction Index.

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BlackRock's earnings beat Wall Street estimates

BlackRock, the world's largest money manager, reported a higher-than-expected fourth-quarter profit as assets under management increased.
Net income fell to $813 million, or $4.77 per share, from $841 million, or $4.86 per share, a year earlier.
Excluding a compensation program associated with shareholder PNC Financial Services Group Inc, earnings were $4.82 a share, beating the analysts' average estimate of $4.68, according to Thomson Reuters I/B/E/S.
The New York-based company ended the fourth quarter with $4.65 trillion in assets under management, up 8 percent from a year earlier.
The firm had $87.8 billion in net inflows for the quarter. Long-term net inflows for the year came to $181.3 billion for an organic growth rate of 4.5 percent, up from 3.5 percent in 2013.
Of the $87.8 billion that investors poured into BlackRock's long-term funds during the quarter, half went into the iShares exchange-traded fund business, which ended the quarter with $1 trillion.
BlackRock's active retail business posted inflows of $23 billion, ending the quarter with $534.3 billion. The institutional business posted inflows of $20.7 billion, ending the quarter with $2.8 trillion.

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BofA strikes deal to avoid activist resolution on chairman role

CNBC
An activist investor group said it is withdrawing a shareholder resolution that called for Bank of America to have an independent board chair, easing some of the pressure the bank faced after giving its Chief Executive Brian Moynihan the additional title of chairman last year.
In return for avoiding a vote on the resolution at its springtime annual meeting, Bank of America agreed to produce a report on its corporate culture and business practices, said Seamus Finn, chair of the Interfaith Center on Corporate Responsibility.
It had sponsored the resolution and recently forced JPMorgan Chase to complete a similar review.
Bank of America spokesman James Mahoney confirmed the deal with the activist group.
Finn said getting such a report completed was a higher priority than forcing a leadership change at the bank, based in Charlotte, N.C. His group has pushed financial institutions to do more to acknowledge their role in the 2008 global financial crisis.
But Moynihan took over the bank after the worst of the crisis, Finn said, making it easier to argue he can hold both titles. "He has delivered for the bank and he's the leader they want to run with," he said.
Finn also credited the bank with naming Jack Bovender as its lead independent director in October as it gave Moynihan the additional title.
While various critics have urged banks to maintain independent board chairman to improve oversight, Bank of America gave Bovender new duties it said were in line with best corporate governance practices.
Bank of America spokesman Mahoney declined to comment on another request from two big pension funds for a vote on Moynihan's new dual role as chair and CEO. They have asked the bank to hold a binding vote on the change at the company's springtime shareholder meeting.

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Deutsche Bank considers retail bank spin-off

Deutsche Bank signage in Vienna, Austria.
Patti Domm | CNBC
Deutsche Bank signage in Vienna, Austria.
Deutsche Bank is considering spinning off its retail banking operations as regulators push Germany's biggest lender to lower its debt levels and stop it using deposits collected from consumers to fund its investment bank.
The politically sensitive move could be announced by Anshu Jain and Jürgen Fitschen, its co-chief executives, as part of a new strategic plan they are preparing to present in the second quarter.
One option, according to a person familiar with the situation, is to sell a stake in Postbank, the German post office bank that Deutsche bought in 2008. Another is to spin off its entire retail banking unit. But no decision has been taken, the person said.
Such a move would be an admission from the duo that they can no longer achieve their previously stated ambition of remaining Europe's last global, universal bank after retreats by rivals, such as Barclays andRoyal Bank of Scotland.
Deutsche said: "The bank will review and update its strategy over the course of the coming year. It is irresponsible to speculate on the sale of any business."
A spin-off of Deutsche's retail business, which has 2,700 branches mostly in Germany, would also underline how big European banks are being forced to consider dismantling themselves to comply with new structural reforms.
Germany is considering moves to bring its law on structural reform of banks more closely into line with European Union proposals to force lenders to separate their trading activities from their other operations.
Deutsche has been prevented by BaFin, its domestic regulator, from using the deposits of its retail customers to finance operations in its corporate and investment bank, the person said. BaFin declined to comment.
More from the Financial Times
    The bank also faces pressure from regulators to boost its leverage ratio, a gauge of indebtedness that measures equity against total assets, which rose to 3.2 per cent after an €8bn share sale last year, but still lags behind many of its main rivals.
    Selling the retail bank would boost its leverage ratio by removing a big mortgage portfolio from Deutsche's balance sheet.
    Mr Jain and Mr Fitschen face growing pressure from investors to take radical action to reverse several years of disappointing performance.
    Deutsche's shares, which have fallen more than 36 per cent in the past 12 months, dropped another 2 per cent on Wednesday. They have fallen more than a quarter since the duo outlined their first three-year strategic plan in September 2012 — against a 14 per cent rise in the MSCI world banks index.
    Postbank is 94 per cent owned by Deutsche, but it still has a small free float that could make a share sale easier. Shares in the postal bank, which has a market capitalisation of €7.9bn, rose slightly after reports about a potential spin-off.
    Analysts are predicting that Deutsche will be forced to abandon its return on equity and cost-income targets by the time they present their new strategic plan.
    With a return on equity of 2.8 per cent in the third quarter, analysts say the bank's target of 12 per cent by 2016 seems out of reach, unless it is bailed out by a dramatic revival in the fixed income trading market.
    Its private and business client division, which caters to 23m retail and small business customers, had an after-tax return on equity of only 6 per cent in the third quarter. The unit made €7bn of revenues and €1.1bn of pre-tax profit in the first nine months of 2014.
    Deutsche's next strategic plan is likely to also feature further cutbacks in its investment bank and an expansion of its wealth and asset management unit, which is close to having €1tn under management for the first time.

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