Friday, July 30th, 2010

Daily Download: Financial and Stock Investing News for 1-7-10

January 7th, 2010 at 9:41 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 (“CB”), 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 at the following email address: .

General News & Headlines Summary

CB: Almost everyday there is a news release of another manufacturer releasing a new e-book reader. The market appears to becoming saturated, while the actual profitability figures remain largely unknown. The e-book reader has always made sense for Amazon given its large library of non-free and non-public domain books it offers to its customers. While its well documented that first-mover advantage is a overrated, CB still finds it hard to fathom how many of these new e-book readers are going to successfully compete with Sony and Amazon, especially given the high price-tag. At the end of the day, CB believes it is the content that will drive purchases and if these new manufacturers cannot get decent content deals then they will fail. Would it make sense for Amazon to agree to allow other e-reader’s access to its content? Amazon is currently using this model with its application for the iPhone and the iTouch. Such a maneuver could allow Amazon to entice more publishers to enter into a deal with them; however, the publishers may try to make nonexclusive deals for content with other e-readers in order to prevent Amazon from having too much power in negotiations. At this time, anything could happen, but the emergence of so many e-readers in a small market is not a good sign in regards to profitability for any of the manufacturers, but may prove lucrative for the content providers.

News items not covered below are as follows: (1) Nintendo sold more than 3 million Wii consoles for the month of December, which was 40% more than a year earlier, while selling roughly 4 million copies of Super New Mario Bros Wii game during the middle of November to the third week of December; (2) the Federal Communications Commission has asked for a one-month extension on the national broadband plan that it is required to submit to Congress in order to continue to sort through the public’s comments; (3) Samsung has announced that it will be launching two models of e-book readers with 6-inch and 10-inch screens; (4) on Wednesday, the Justice Department announced that it will review Comcast Corp.’s plans to buy a controlling stake in NBC Universal’s broadcast networks, cable TV channels, and movie studios – the deal must also be reviewed by the Federal Communications Commission; (5) Ken Salazar the Interior Secretary announced that there will be stricter environmental standards in oil and gas leasing in the future; and (6) Dell’s new mobile phone will use AT&T’s network and Google’s Android operating system.

Upcoming Economic Data for the Day (all times EST)

Chain Store Sales

6:00 AM Monster Employment Index

8:30 AM Jobless Claims

10:30 AM EIA Natural Gas Report

3:00 PM Treasury STRIPS

4:30 PM Fed Balance Sheet

4:30 PM Money Supply

Initial Public Offerings (”IPOs”) for the Week of January 4- 8, 2010

Data from the WSJ Market Data Group

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

News

Some at Fed See a Need to Do More for Housing – The New York Times

Summary: The Federal Open Market Committee’s minutes reflected concern over the strength of the recovery given the high unemployment and substantial slack that remains in the economy. Furthermore, concerns regarding the housing market were evident in the minutes as some in the Fed believed that more support might have to be provided to keep the housing market stable once government support is withdrawn. There are fears that once the Fed ends its purchases of $1.25 trillion in mortgage-backed assets, interest rates may surge up and thus lead to diminished demand for housing. Furthermore, new data released on Wednesday revealed that long-term interest rates are quickly rising from their lows, while mortgage applications for new houses are at their lowest level in 12 years.

CB: The concerns regarding the removal of government support from the housing market have been well documented over the last several months on this website. Basically, the thought is that there is not enough demand in the mortgage market to keep interest rates low for mortgages. The possible rising interest rates will then further decrease buyer demand and force housing prices to come down. As a result, more home owners may be tempted to strategically default on their mortgages realizing that the value of their mortgages is greater than the value of their houses. Such a reaction, along with the many foreclosed homes still not included in the housing supply could force prices even lower. Furthermore, this possible scenario that occurs with reduced government support does not consider the continuing unemployment situation. The housing market’s sensitivity to government support was best seen yesterday (Daily DL 1-6-10) when pending home sales unexpectedly dropped 16% in the month of November.

FDIC Weighs Tying Fees to Banks’ Pay – The Wall Street Journal

Summary: The Federal Deposit Insurance Corp. (“FDIC”) is considering a measure that would tie the fees that lenders pay for deposit insurance to the risk profiles of the lenders’ compensation packages for their executives. As a result, compensation packages that promote less risky behavior like claw backs could result in lower fees, while compensation packages that promote more risky behavior will result in higher fees. These discussions are currently in the early stages.

CB: Regulation costs tied to the risk of compensation packages may not be enough to prevent financial recklessness, but it is a start in the right direction. It will be interesting to see how these discussions turn out in the next few weeks.

Netflix to Delay Delivery of Warner’s Latest DVDs – Associated Press

Summary: Netflix and Warner Bros. have agreed to a 28-day rental moratorium on newly released DVDs and Blu-ray discs, which is the first agreement of its kind for Netflix. The sales figures show that roughly 75% of DVD sales occur during the first four weeks the discs are released. As a result of the agreement, Warner Bros. and other potential studios may be able to increase sales of DVDs, which accounts for the movie industry’s largest source of profits. Although newly released DVDs account for nearly 30% of Netflix shipments, the company is confident that its library of more than 100,000 DVDs will continue to keep customers content; however, Blockbuster will continue to rent the DVDs as they are released. In return for the rental moratorium, Netflix will receive a large discount on Warner Bros.’ discs, thus allowing the company more savings that can be deployed to expand its online services. Separately, Warner Bros. has tried to come to a similar agreement with Coinstar Inc.’s Redbox, but Coinstar has decided to buy its DVDs through other channels, thus resulting in a legal battle.

Gold Buying Frenzy Grips China – CommodityOnline

Summary: As the price of gold continues to rise, the gold buying frenzy in China continues to grow. Gold sales have increased 10% in 2009 and show signs of continued growth. The China Gold Association states that estimated demand for gold was 450 tons in 2009, an increase of 13.8% from 395.6 tons in 2008. Gold investors continue to be optimistic given the recent bullion purchases by the central banks. In December, China purchased 454 tons of gold, which is more than India and Russia, thus making it the leading buyer of gold. Furthermore, China now ranks as the sixth largest holder of gold in the world.

Indian Export Tax Hits Iron Ore – Financial Times

Summary: After rising roughly 30% during the past month, iron ore prices have reached a price level near a one-and-a-half year high. Market participants think the recent surge in iron ore prices is a result of: (1) India’s 5% export duty on the commodity during Christmas; (2) strong global demand; and (3) low Chinese domestic production. India’s implementation of the tariff on iron ore, results from the country’s desire to discourage iron ore exports and maintain supplies for its own steel industry. Furthermore, at present, China is the world’s largest importer of steel with India supplying nearly a fifth of China’s purchases. With many of the developing nations increasing their urbanization efforts, the iron ore market may be set to experience a new level of demand not experienced in the past. Meanwhile, the iron ore miners (Vale, Rio Tinto and BHP Billiton) are in price negotiations with steelmakers for 2010-11 contract pricing. Currently, the spot prices without freight are 80% higher than the $61 a tonne price for the 2009-10 contracts, which implies the miners have an edge in negotiations.

Funds Get More Cash– The Wall Street Journal

Summary: The following figures are reported weekly by the Investment Company Institute regarding the flow of money amongst various funds for the week ended December 29 (”this week”):

(1) Mutual funds witnessed net inflows for the 42nd consecutive week, with total inflows estimated at $3.5 billion during this week and $416 billion for the entire streak.

(2) The stock funds experienced outflows of $1.2 billion this week, compared to inflows of $970 million in the prior week. U.S. stock funds had $1.42 billion of outflows this week, while foreign funds had $225 million of inflows.

(3) Bond funds had estimated inflows of $4.24 billion this week, a decrease from the $7.3 billion inflows from the prior week.

(4) Money-market funds saw their assets increase by $9.5 billion for this week leaving a total of $3.27 trillion of total assets in money funds.

More Links of Note

Stifel Nicolaus on the BLS Non-Farm Payroll Methodologies – ZeroHedge

David Rosenberg Comparing Current Situation to August 1982 – ZeroHedge

Top Market Timers Give Their 2010 Outlooks – Barron’s

Bill Gross’s Investment Outlook for January 2010 – PIMCO

New Research on Mortgage Modifications and Principal Reduction – CalculatedRisk

BlackRock’s Bob Doll: Ten 2010 Predictions – Gurufocus

U.S. Now a Renters’ Market – The Wall Street Journal