Financial Idea's Blog

BOE Must Eventually Face Day of Reckoning

Macro Man submits:

Another Monday, another percent in the S&P 500. Like Colt .45, the legend of Magic Monday works every time. Tuesday, however, is a different story; although equities are largely unchanged on the day, news that Greek public sector workers are planning to strike in protest of the government’s austerity measures have sent the euro tumbling lower, scotching its nascent recovery. Macro Man has thus far been unable to verify whether Greek civil servants have demanded that the population of Berlin feed them grapes and fan them as they recline on Roman-style couches.

Down Under, meanwhile, the RBA put rates up to 4%, a level that seems almost (gasp) "normal", or, in the parlance of the RBA, "average." The strip is pricing in another 100 bps of tightening over the next year versus today’s 3m bill yields of 4.25%. That’s only slightly more than is priced into the eurodollar strip, even though many punters don’t expect the Fed to move rates over the next year. A break of the uptrend line in IRH1 could render it a nice short against long positions in other markets.

Complete Story »

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Wall Street Breakfast: Must-Know News

• E.On to offload American ops. E.On (EONGY.PK) is reportedly looking to sell its American operations, and could get as much as $6B from a sale as Duke Energy (DUK), PPL Energy (PPL), American Electric Power (AEP) and Southern Co. (SO) mull competing bids. E.On wants to shift its focus back to its home market in Europe, though the sale may also be influenced by a desire to get out of coal-fired utilities before any expensive laws take effect.
• Lyondell rebuffs Reliance. LyondellBasell reportedly rejected a $14.5B offer from Reliance Industries, which was seeking a controlling stake in the bankrupt chemicals-maker. A deal would have given India’s Reliance access to chemical plants and refineries in the U.S. and Europe, and Reliance is likely to look for acquisitions elsewhere if it fails to move forward with Lyondell.
• GM joins the recall train. GM is the latest automaker to initiate recalls, targeting 1.3M Chevrolet and Pontiac vehicles in North America over power-steering problems. The recall follows an investigation by U.S. regulators who received more than 1,100 consumer complaints about steering failures. Separately, GM is expected to announce a shake-up of its sales and marketing operations today as it works to expand its U.S. sales.
• CIT posts 2009 losses. CIT Group (CIT) reported yesterday that it lost around $900M in Q4 and around $4B in 2009. The company, which filed for bankruptcy in November and emerged in December, said the losses exclude the impact of the reorganization and accounting adjustments, and that the full-year loss should be "essentially offset" by the company’s restructuring.
• Financial reform inches forward. Lawmakers are said to be close to an agreement on financial reform, with plans to house a new consumer-protection agency in the Federal Reserve. Key senators representing both parties have also reached an agreement that would enable the government to break up large, failing financial firms.
• FDIC lines up mortgage-backed debt sale. In a move widely anticipated by investors, the FDIC is reportedly ready to sell $1.8B of guaranteed debt backed by residential mortgage assets from failed banks. The two-part deal is expected to go through this week, and analysts say the timing is no coincidence: With the Federal Reserve wrapping up its $1.25T guaranteed mortgage bond purchase program, "we need somebody who has a large portfolio, and is a willing seller at a clearing price to move consumer assets in securitized form… This is pretty much timed, part of the replacement plan."
• Kohn to retire from Fed board. Donald Kohn will retire as Federal Reserve vice chairman in June. His decision will give Obama a chance to reshape the Fed since it creates the third vacancy on the Fed’s seven-member board. If the White House and Senate move quickly, they could have replacements on the board in time to influence the timing of an eventual interest rate increase. Possible nominees could include Harvard’s Ken Rogoff, White House economic adviser Christina Romer and San Francisco Federal Reserve Bank President Janet Yellen.
• T-Mobile, Orange okayed for merger. As expected, European regulators approved the merger between France Telecom’s (FTE) Orange U.K. and Deutsche Telekom’s (DT) T-Mobile U.K., creating the U.K.’s largest mobile operator with 38% of the market.
• Sovereign debt risk for U.S. banks. As concerns about Greece’s deficit mount and European contagion fears grow, U.S. Comptroller of the Currency John Dugan says regulators are taking a very careful look at the exposure of U.S. banks to sovereign debt risk. He declined to discuss the specific situations of individual banks.
• Aussie rate hike. Australia raised its key interest rate this morning to 4% from 3.75%, betting that faster-than-expected economic growth will outweigh fears related to European deficits. Governor Glenn Stevens said the increase was a "further step" in bringing the interest rate "closer to average," a level he previously signaled could be 75 basis points higher than where it currently stands.
• Merger Monday returns, for now. Six major deals and offers were announced yesterday, involving companies ranging from insurer AIG (AIG) to drugmaker OSI Pharmaceuticals (OSIP) to risk advisory firm RiskMetrics Group (RISK). Among other takeaways from the flurry of deals is that the U.S. is coming back in favor, with some large foreign firms making big bets on U.S. companies.
• Madoff victims can’t recoup fake profits. A judge ruled yesterday that victims of Madoff’s Ponzi scheme are only owed the initial money they invested and not the fictitious profits they believed they had accrued. The ruling is in line with the approach taken by trustee Irving Picard, who said investors who withdrew more from Madoff’s firm than they put in shouldn’t be entitled to recovered funds.
• Treasury to sell BofA warrants. The Treasury will sell 272M warrants for Bank of America (BAC) stock on Wednesday, with the auctions divided into two classes of warrants.
• Google’s growing appetite to buy. Google (GOOG) bought online photo-editing site Picnik, its third acquisition in around as many weeks. Terms of the deal were not disclosed.

Earnings: Tuesday Before Open

• Staples (SPLS): Q4 EPS of $0.38 misses by $0.01. Revenue of $6.4B (+3.8%) vs. $6.3B. (PR)

Earnings: Monday After Close

• MBIA (MBI): Q4 EPS of -$1.16 misses by $0.05. Revenue of $653M. Shares +1.3% AH. (PR)
• McDermott International (MDR): Q4 EPS of $0.43 beats by $0.02. Revenue of $1.46B (-12%) vs. $1.53B. Shares -2.6% AH. (PR)
• Nutrisystem (NTRI): Q4 EPS of $0.18 beats by $0.05. Revenue of $106M (-7%) vs. $102M. Though good trends in revenue, customer growth, margin should continue, "their impact will be offset in the first quarter by higher media rates and one-time costs related to retail." Shares +0.1% AH. (PR, earnings call transcript)

Today’s Markets

• In Asia, Nikkei +0.5% to 10222. Hang Seng -0.7% to 20906. Shanghai -0.5% to 3073. BSE +2.1% to 16773.
• In Europe at midday, London +0.8% to 5450. Paris +0.7% to 3795. Frankfurt +0.6% to 5750.
• Futures: Dow +0.5%. S&P +0.6%. Nasdaq +0.6%. Crude +0.52% to $79.11. Gold -0.26% to $1121.30.

Tuesday’s Economic Calendar

• Feb. Auto Sales
  7:45 ICSC Retail Store Sales
  8:55 Redbook Chain Store Sales
  1:00 PM Fed’s Rosengren: Financial Interdependence in Post-Crisis Capital Markets
  2:00 PM Fed’s Kocherlakota: Economic Outlook
  5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday’s open: BYD, CSR, DPZ, HERO, SPLS
• Notable earnings after Tuesday’s close: EGLE, HOV, PDLI

Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.

Complete Story »

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Cramer’s Stop Trading! Goldman Sachs’s Natural Upgrade (3/1/10)

Miriam Metzinger submits:

Stocks discussed on Jim Cramer’s Stop Trading! TV Segment, Monday March 1.

South West Energy (SWN), Tractor Supply Company (TSCO), NYSE Euronext (NYX), Deckers Outdoor (DECK)

Complete Story »

Technorati Tags: Financial Ideas, Investing strategy, Retirement

February Manufacturing Data: Despite Decline, Report Is Pretty Bullish

Edward Harrison submits:

The February 2010 Manufacturing ISM Report On Business® was released Monday morning. It indicated that the manufacturing sector was slightly less robust in February than January, with the PMI slipping from 58.4% to 56.5%. As 50 is still the demarcation between sector expansion and contraction, the data indicate that recovery continues apace in the manufacturing sector (for a look at manufacturing globally, see Edward Hugh’s comments here).

Complete Story »

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Qualcomm Tries to Woo Investors With Massive Buyback and Dividend Hike

Ockham Research submits:

San Diego-based technology giant Qualcomm (QCOM) has been in a steady downtrend since the beginning of 2010 falling nearly 30% from the high point in January. Much of the decline was in response to a weaker than expected revenue outlook and expected margin pressure for the year ahead, even though the company reiterated their earnings guidance shares fell more than 14% on that day. Monday, the stock continued its now 7 day consecutive slide, with the technology sector leading the market higher, QCOM fell by another 3%. This is not the sort of performance one would expect from a company that is deeply tied to one of the market’s hot sectors, with a market leading position in producing computer chips for mobile devices.

Desperate for some good news, management has taken action to combat the declines; they announced a 12% increase to quarterly dividends as well as authorization of a $3 billion share repurchase. The new quarterly dividend of $.19 will be effective on payments after March 28th, and the $.76 annual payout implies a 2.1% yield. Also in the press release, the company’s trumpeted that it has returned $12.6 billion to shareholders dating back to 2003, which is certainly commendable. However, the share repurchase comes with no expiration, so they get the benefit of the good press with no implied time-table to spend the cash should better uses for capital arise.

Complete Story »

Technorati Tags: Financial Ideas, Investing strategy, Qualcomm, Retirement

Can We Predict a Corporate Bankruptcy?

Audit Integrity submits:

In many cases, credit managers could easily predict corporate bankruptcies. Quite simply, a company declares bankruptcy because it does not have adequate capital to fund operations and remain solvent. Often, bankruptcy is the result of taking on too much risk, and this will be evident in a fundamental analysis of the financial statements. It stands to reason that a corporation’s public disclosure would provide ample warning of a high risk of bankruptcy…except when it doesn’t.

Indeed, amongst the 20 largest public company non-financial bankruptcy filings since 1980, nearly half were accused by regulators of manipulating their earnings to create the impression of a healthier company. And among those in the highly leveraged financial services industry, whether or not they actually declared bankruptcy, the speed at which recent banking institutions fell from grace
and the inability of the marketplace to value their assets gives one pause for concern as to whether the traditional ways of gauging bankruptcy risk has effectively protected stakeholders.

Complete Story »

Technorati Tags: Financial Ideas, Investing strategy, Retirement

2010′s Sovereign Debt Crisis vs. 2008′s I-Banks: It’s Deja Vu All Over Again

John Furlan submits:

“Equities have been range-bound, reflecting the mixed economic news in the US (most recent are elevated weekly claims and disappointing consumer confidence against better home price data and credit trends), coupled with lingering concerns about sovereign debt as well as potential policy actions in Emerging Markets (EM). The market simply has not yet received “tie-breaking” data that firmly establishes the trajectory of the US economic recovery. Hence, while derisking has likely exhausted itself, we do not sense investors are yet adding risk to their portfolios. However, our thesis remains that as global investors add risk, they are likely to favor US equity markets given lower inflationary pressures (vs. EM) and relative visibility (over Europe).”

Read More …

Technorati Tags: Debt Crisis, Financial Ideas, Investing strategy, Retirement

How Badly Do We Need China to Buy Our Debt?

Clemens Kownatzki submits:

The Department of U.S. Treasury announced the revised numbers of major foreign holders of U.S. Debt in their most recent update. Based on the new data, China – not Japan – was indeed the number one holder of U.S. Treasuries holding a total $894.8 billion worth of US. Treasury securities at the end of December 2009. Japan in second place held a total of $765.7 billion, $129 billion less than China. See both data for current and previous data in the charts below.

Updated Chart	Previous Chart

We have previously wondered what, if any, impact a decline in Chinese holdings of U.S. Treasuries would have. We also considered whether the recent hike in the discount rate would be some sort of a token gesture to the Chinese that potentially higher yields may be an incentive to keep buying those Treasuries.

Complete Story »

Technorati Tags: Debt, Financial Ideas, Investing strategy

142 years old and still hot

Dozens of entrepreneurial hot sauce bottles line up on a typical grocery store shelf, but only two or three boast significant market share. Tops among them is Tabasco, which has been made by the McIlhenny Company out of Avery Island, La., since 1868. The company, still family-run and privately held, won’t disclose its financials, but analysts estimate that the iconic brand — which supplies countless bars, first-class airline cabins and the U.S. military with bottles of its red sauce — owns about 20%-25% of the market.

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Financial Ideas About Spending More & Saving Less…Uh-oh

We all supposedly learned our lesson. The credit bubble and Great Recession taught us to be more fiscally fit. Save more and spend within your means. For a while, it looked like a new era of thrift was upon us.

Technorati Tags: Budgeting, Financial Ideas, Investing strategy