Friday, July 30th, 2010

Daily Download: Financial and Stock Investing News for 1-19-10

January 19th, 2010 at 12:57 pm 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: .

Upcoming Economic Data for the Day (all times EST)

9:00 AM Treasury International Capital

10:00 AM State Street Investor Confidence Index

11:30 AM 3-Month Bill Auction

11:30 AM 6-Month Bill Auction

1:00 PM Housing Market Index

Initial Public Offerings (”IPOs”) for the Week of January 19- 22, 2010

1/21/10 China Hydroelectric (“CHC”) – Hydroelectric power generator.

1/21/10 Andatee China Marien Fuel Services (“AMFC”) – Fuel oil for cargo & fishing vessels.

1/21/10 Cellu Tissue Holdings (“CLU”) – Tissue paper products.

1/21/10 Symetra Fin (“SYA”) – Annuities and retirement plans.

1/21/10 Terreno Realty (“TRNO”) – Real estate investment trust.

Data from the WSJ Market Data Group

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

News

Dimon Sticks by His Cautious Outlook – Financial Times

Summary: Despite J.P. Morgan’s fourth-quarter profits of $3.3 billion, which exceeded analysts’ expectations, Jamie Dimon, the chief executive of J.P. Morgan, indicated that the bank is still not in the clear and rough times lay ahead. Dimon claims that the bank’s profit over the last twelve months has been boosted by several factors that may not occur again in the future. The primary factor boosting J.P. Morgan’s profitability has been its operations in fixed income trading, which are now beginning to weaken as competition increases and trading volumes decrease. Fourth-quarter revenues from fixed income trading were roughly half of the third-quarter revenues. Meanwhile the bank continues to struggle with both its retail bank and credit card division. At present, the company has total reserves to cover loan losses at a reported $32 billion. Company management expects that retail banking could continue to lose roughly $2.5 billion a quarter for the next several quarters. Furthermore, despite credit card charge-offs dropping to 8.6% in the fourth quarter, management believes that with continued high rates of unemployment and the diminishing holiday effect the charge-off rate could reach 11% again, while the credit card portfolio that J.P. Morgan inherited from Washington Mutual is expecting a charge-off rate near 24%.

Yield Junkies Return to Bond Market – The Wall Street Journal

Summary: According to Thomson Reuters, companies issued a record $11.7 billion in high-yield debt last week, surpassing the previous record of $11.4 billion set in November 2006. The continued strong demand for high-yield debt follows a the 2009 year where the Bank of America Merrill Lynch index for high-yield corporate debt returned 57.5% after experiencing a 31.5% decrease in 2008. At present the current average spread between the yields on high-yield debt and U.S. Treasury bonds is near 600 basis points, where as in December 2008 it was near 2,200 basis points. The common thought in the market is that investors are being driven to invest in high yield bonds due to the ultra-low interest rates being maintained on less risky debt. Investors are taking on more risk than they would normally in order to obtain a material return. Meanwhile, corporations are issuing these high yield bonds in order to: (1) repay current balance sheet liabilities and extend maturities into the future; and (2) pay current investors a dividend on their holdings.

Even More Room at the Inn – The New York Times

Summary: In 2010, nearly 100 new hotels are being prepared to open in major cities across the U.S.. According to Smith Travel Research, New York will lead the other cities with 46 hotels opening, while Houston is second and plans to open 30 hotels. Many of the hotels opening this year have been in the works for the last two to four years, thus explaining, in part, why they are opening during hard economic times. According to one executive, in the hotel industry, once construction begins, the best economic path is usually to finish the project. A finished project can at least bring in some revenue and can begin the payback period. In cities that have a significant number of new hotels opening, like New York where capacity is projected to increase 12% in 2010, the customer is expected to benefit as the additional capacity and low occupancy rates force more price competition amongst the hotels. Yet, the current buyers market may not last long since there is not much additional capacity planned for 2011 to 2013, which means there will be upward pressure on future room rates.

Souring Mortgages, Weak Market Put Loan Agency on a Tightrope – The Wall Street Journal

Summary: The Federal Housing Administration (“FHA”), which currently insures nearly 50% of all new home loans, is planning on announcing revisions sometime in the next week or two that will tighten the agency’s easy money standards. The revisions could include any of the following: (1) increasing the minimum down payment; (2) creating a minimum credit score; (3) raising mortgage insurance premiums; and (4) limiting the amount of money sellers can add back for closing costs. Yet, such revisions, if strong enough, could significantly reduce housing demand and the current recovery. Some of the FHA’s current problems are a result of it not having the proper risk-management tools and processes in the past to evaluate lenders. Despite the new chairman’s efforts to establish more risk monitoring, there are currently 30 FHA-approved lenders with more than 1,000 loan originations, and more than 12% of these loans are in default within two years of being issue, which is double the national average. The agency is still struggling with many defaults, which are declining at a slower rate than expected. Presently, the FHA’s reserve fund may run out of money if housing prices were to suffer another down turn. Yet, increasing the FHA’s criteria for insuring loans may create a self fulfilling prophecy by lowering demand and causing prices to drop, thus leading to increased pressure on the FHA’s reserve fund.

More Links of Note

Guru Outlook: Felix Zulauf & The Secular Bear Market – PragCap

Why Contrarian Investors Have an Edge – Bill Fleckenstein

December Sovereign Gold Reserve Holding Update – ZeroHedge

2010 Investment Strategies: Six Areas to Buy, 11 Areas to Sell – The Big Picture

The Risky Rich – Nouriel Roubini

Why Stock Markets are Still Undervalued – Telegraph

The “Other” Imbalance and the Financial Crisis – Alphaville