Slowing economy? Not in San Francisco!
I just returned from a week in the Bay Area, including a visit to Sonoma in wine country Thursday (where I missed the earthquake by a mere two days). The impact of the weekend earthquake has yet to be fully absorbed; nonetheless, during my visit I noted some interesting trends and observations.
With all the tech startups and the kids coming back into the city, you'd expect formerly desolate areas like the Mission to be hot. The activity I saw, however, went far beyond that.
You'd never know there was a shaky economy in the U.S. by driving around San Francisco, or even driving north into wine country and Sebastapol—or south through Redwood City. Everywhere, whether it was an espresso shop, a clothing store in Hayes Valley, the trendy Village Pub restaurant in Woodside, or a dive bar in the Santa Cruz mountain backwoods of La Honda, there were people drinking, eating, and buying up a storm.
Elsewhere
1) Stocks are higher this morning, adding to gains in Europe. Late Friday, European Central Bank President Mario Draghi said the ECB would "acknowledge" lower inflation expectations, which hinted at further easing. This is pushing European bond prices higher and yields lower (between 5—6 percent in Italy, Germany, France and Spain) as it's expected the ECB will launch broad-based asset purchases, similar to what the U.S. has deployed.
With the S&P 500 setting a new record high, the Financial Times notes that S&P 500 companies had been reducing buybacks due to high stock prices. Companies bought back $120 billion of shares in the quarter ending June 30th, down from $159 billion in the first quarter, which was the second-highest level of purchases ever.
Now here is a topic that generates worry among bulls. They fret over how to determine just how much buybacks have contributed to the post-2009 bull market, which is a difficult exercise. Everyone believes it was a significant factor, but don't get too concerned yet.
First, the $120 billion bought back still represents the seventh largest quarter for buybacks. Second, and most important, the share count reduction continues: over 20 percent of the companies had at least a four percent change in the shares outstanding last quarter, according to S&P. They bought back fewer shares, but they issued even fewer. That means the whole market shrank, which is positive for prices.
The countervailing argument is that less money going into buybacks means corporations might use the excess cash for capital investments. Perhaps, but remember—the S&P is still up 3 percent this month, even if buybacks are lower!
2) The news that Burger King was considering acquiring Tim Hortons as a tax inversion is rich, considering it would be the second time Hortons waved bye-bye to U.S. corporate taxes.
It's important to recall the combination of doughnuts and burgers has been tried before, but for different reasons. Wendy's bought Tim Hortons in 1995. Owner Dave Thomas saw how successful combining dougnuts and burgers had been when the two stores were put side-by-side in Canada. Wendy's owned it until 2006, after which it was spun off.
At that time, they owned it as a U.S.-domiciled company. However, the higher tax rate in the U.S. forced Hortons to return to a Canada-based domicile in 2009.
3) Barron's was full of commentary about an ideal "Goldilocks" scenario for stocks: strong U.S. growth, low bond yields, and highlighting a Stifel Nicolaus call for an S&P 500 at 2,300 by year end.
Home builders are roaring back, up five percent last week on positive home construction and sales data. And even retailers had a decent week, with Lowe's and Home Depot both hitting historic highs.
--By CNBC's Bob Pisani