Friday, July 30th, 2010

Daily Download: Financial and Stock Investing News for 11-3-09

November 3rd, 2009 at 6:54 am by CB | No Comments

Good morning, investors and traders! You are reading the Daily Download (”Daily DL”), which includes summaries and links to the day’s selected economic and stock investing news. The Daily DL is maintained by Chain Bridge Investing, which is a financial blog at www.chainbridgeinvesting.com. Chain Bridge Investing is constantly improving and adding new financial and investing content to the website. Please let us know if you have any suggestions.

Upcoming Economic Data for the Day (all times EST)

7:45 AM ICSC-Goldman Store Sales

8:55 AM Redbook

10:00 AM Factory Orders

1:00 PM 4-Week Bill Auction

Initial Public Offerings for the Week of November 2 -6, 2009

11-03-09 Aviv REIT – REIT for healthcare properties (”AVI”)

11-04-09 Ancestry.com – Online services for genealogy. (”ACOM”)

11-05-09 Plains Capital – Banking services (”PCB”).

11-05-09 Duoyan Printing – Provides printing equipment (”DYP”)

11-05-09 STR Holdings – Solar power module manufacturer (”STRI”)

Source: WSJ Market Data Group.

For Daily Market Performance Data, Please Visit the Daily Market Sheet

List of Selected Companies with Third-Quarter Earnings for 11-3-09

News

Ford Stirs Hope of Car U-Turn – The Wall Street Journal

Summary: On Monday, Ford Motor reported a third-quarter profit of nearly $1 billion, which included a pre-tax profit of $357 million for the North America segment. This profit, which surpassed most of the analysts’ estimated loss for the third quarter, was primarily driven by: (1) Ford’s improved strength in its credit arm; (2) Ford’s improving North

American operations; and (3) the weakness of Chevrolet and General Motors. Ford was the only one of the Detroit based automakers not to take government aid last year. Despite the improvements in profit, revenues dropped from $31.7 billion to $30.9 billion. Ford’s management believes the company will be profitable in 2011. Ford is not the only automaker to issue improved forecasts, Mazada Motor Corp. and Honda Motor Co. have also increased their forecasts due to successful cost cutting measures. Observers believe that Ford’s recent increase in market share has been a result of its improved image with customers. Since the company did require government aid, many customers appear to favor Ford over Chevrolet and General Motors. However, Ford still faces the following major headwinds: (1) automakers expect to sell approximately 10.5 million cars and light trucks this year in the U.S., compared to the 16 million that were being sold a few years ago; (2) Ford possesses a large debt level of approximately $23.8 billion with an additional $7 billion to $8 billion expected to be added on to fund retiree health care; and (3) the company is trying to delay the maturity of a $10.7 billion revolving credit to 2013 from 2011.

CB: Today the new motor-vehicle sales numbers for the month of October will be released, these numbers may provide better insight into whether Ford’s industry estimate of 10.5 million cars and light trucks sales for 2009 will be accurate. Yet, one should note, that the 10.5 million figure is still below replacement levels. Currently, it appears Ford is receiving a push from customers buying at the lower end of the product line, will this behavior continue? While Honda and Mazada report improved forecasts, German automaker BMW reported a 74% decrease in third-quarter profit from a year earlier. If the economy does continue through recovery, then part of Ford’s future may depend on the speed of the recovery in the luxury-car segment. There has been much discussion how Hyundai and other less expensive cars have been selling well during the recession; however, during this time, the average age of the cars on the road are increasing while the total number of auto sales are decreasing – indicating a future period of increased sales due to pent-up demand. It will be interesting to see where the pent-up demand is allocated amongst the automakers if car sales return to the previous levels of 16 million autos a year. CB has a notion that market share will not look the same as it does currently when auto sales significantly increase. Furthermore, do not forget about the increasing offerings of hybrid vehicles. Finally, it is unknown whether these cost savings that Ford has obtained are sustainable. The Company will still have to deal with the unions.

Relevant Reading: Ford Posts an Unexpected Profit of $997 Million – The New York Times, Ford Zooms Back into the Black – The Washington Post, Ford’s No Clunker – Barron’s

When Bad Banks Sink Good Ones – The Wall Street Journal

Summary: On Friday, nine banks were closed, the most in one day since the financial crisis began, and their closure will drain approximately $2.5 billion from the Federal Insurance Deposit Corporation’s (the “FDIC”) deposit-insurance fund. What’s unique about these bank closings is that (1) all nine banks were owned by a bank-holding company called FBOP Corp. and (2) the mechanism the FDIC used to close them has only been used six times, historically. This mechanism called cross-guarantee authority is meant to prevent a bank-holding company from shifting its bad assets to one bank while leaving the other banks to survive. In this situation, two of the nine banks were profitable and well capitalized, but the FDIC decided to close them as well by arguing that it was the least costly option for the tax payers. Citizens National Bank, one of the profitable banks closed, possessed $102 million in assets, compared to the $19.4 billion in total assets for all nine FBOP-owned banks. U.S. Bancorp has purchased the nine FBOP banks, which have reopened. On a final note, FBOP was not seized by regulators, but with most of its assets were in the branches sold to U.S. Bancorp, thus its future seems limited.

CB: We have to take the FDIC’s word that the situation described above was in the best interests of the tax payers; however, if the FDIC did perform an analysis then it should be disclosed to the public. CB finds it interesting that Citizens National Bank had to be closed, especially considering its assets represented .5% of FBOP’s total assets. In most situations, that would be considered immaterial. Yet, the article did note that the FDIC claimed all the loans were linked among the various FBOP entities, thus making it difficult to disentangle them. Again, the public won’t know unless an analysis is released.

Global Oil Yardsticks Shaken by Saudis – Financial Times

Summary: With more than 200 different crudes, there are three that are the main benchmarks for oil prices: (1) Brent, which is the dominant in Europe and Africa, is the yardstick for pricing approximately half of the global crude; (2) West Texas Intermediate (“WTI”), which is dominant in the Americas, is used to price approximately a quarter of the global crude; and (3) Dubai-Oman, which is dominant in Asia, is used to price the rest of the global crude. However, Saudi Arabia has decided to price U.S.-bound exports according to the Argus Sour Crude Index (“ASCI”), which tracks the price of oil from the U.S. Gulf of Mexico. The problems with WTI are the following: (1) WTI represents a sweet and light crude, however, refiners are currently purchasing more sour and darker crudes; (2) WTI is based on oil delivered to Cushing, Oklahoma hundreds of miles from the main oil ports; and (3) the recent oversupply of oil stocks has caused trouble with WTI pricing stability. Furthermore, the U.S. refiners support the move since the crude they purchase crude that averages a sulfur content of 1.5%, compared to WTI’s .24%. Now the Nymex will try to create a sour oil futures contract, but the WTI is likely to stay around in the financial markets due to its current and historical liquidity.

At the Negotiating Table for Next Year’s Airfares and Hotels – The New York Times

Summary: At present, travel management companies and their corporate clients are negotiating next year’s airline and hotel rates. Last year’s set rates were renegotiated several times during 2009, which causes concern regarding the stickiness of this year’s new negotiated rates. Many observers believe that companies have the most leverage over hotel rates primarily due to the low current 55% occupancy rate; however, companies are unlikely to have much negotiating power with the airlines who have removed most of their unnecessary costs and capacity. Yet, according to the National Business Travel Association, 71% of its members are planning to reduce nonessential travel in 2010.

Dean Foods Cautions on Outlook – The New York Times

Summary: Dean Foods Company, a dairy processor, stated that its fourth quarter earnings may be lower than analysts’ estimates due to the rising cost of raw milk. The company posted profit of 34 cents per share beating profit analysts’ estimates of 33 cents per share, while experiencing a 13% decline in revenue.

CB: As commodity prices continue to rise, investors need to watch the profits of those companies that are dependent on commodities for their operations. In the current environment, it is unknown the speed that those price increases can be passed on to the consumer, assuming the consumer will accept the price increases. This also partly depends, in the long-run, whether the economy witnesses deflation or inflation.

Factories Rebound Broadly – The Wall Street Journal

Summary: According to the Institute for Supply Management (“ISM”) the manufacturing index increased 3.1 points to 55.7 in October, representing the third consecutive month growth. Furthermore, the ISM’s employment indexed also increased for the first time in 15 months primarily driven by employers recalling workers or retaining temporary help. Moreover, global surveys of purchasing managers show growth in most of the major producing countries . Yet, the latest upturn mainly reflects an expected rebound from low inventory levels. Meanwhile, businesses continue to be cautious regarding spending and investment.

CB: The article itself indicates that these rebounds in manufacturing may not be sustainable. Some companies, such as Cummins, are banking on a continued weakening of the U.S. dollar to increase exports and thus their manufacturing output. The problem with that plan as with any companies forecast, what happens when the macro assumptions are wrong. In the past six or seven years, companies made forecasts based on macro assumptions all the time; however, the macro environment was relatively stable with little unforeseen consequences. The present time, is somewhat unprecedented, there are no previous models to follow and even the macro experts can’t conclusively figure out how to deal with this situation. Will things eventually recover? Sure. Yet, things can change rapidly with a few variables, which is why it is necessary to discount the data at this point as well as management expectations. When investing in times of great

More Links of Note

A List of Financial Bloggers – The Reformed Broker

The Easy Money’s Been Made – Barron’s

Commercial Real Estate Now vs. Then – The Business Insider

The Backwards Check Mark Recovery in Revenues – PragCap

America’s Natural Gas Revolution – The Wall Street Journal