Daily Download: Stock Investing News & Analysis for 2-5-10
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: 
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General News & Headlines Summary
CB: For the time being, the additional headlines section has been removed as CB contemplates ways to maintain the quality of future Daily DLs, while making its production more efficient. Today the Daily DL will be missing analysis, this will return next week. CB has recently received some additional feedback from readers and is in the process of revisiting some ways of doing things, which unfortunately cuts into the Daily DL.
Briefly, on Thursday, the Volatility Index increased nearly 20% from 21.6. This index tracks the prices market participants are willing to pay for options on the S&P 500 index. Usually these options are to protect the participant from a decline, thus the index tends to increase as the S&P 500 drops.
Daily Links to Interesting Articles
Upcoming Economic Data for the Day (all times EST)
8:30 AM Employment Situation
3:00 AM Consumer Credit
Initial Public Offerings (”IPOs”) for the Week of February 1- 5, 2010
2/2/10 Film Department Hldgs LLC (“TFDI”) – Motion picture finishing and production company.
2/2/10 FriendFinder Networks (“FFN”) – Internet based social networking company.
2/2/10 Patriot Risk Management (“PMG”) – Insurance management company.
2/2/10 Imperial Capital Group (“ICG”) – Independent, full-service investment bank.
2/2/10 Ironwood BioPharm (“IRWD”) – Pharmaceutical company.
Data from the WSJ Market Data Group
For Daily Market Performance Data, Please Visit the Daily Market Sheet
News
Unexpected Rise in U.S. Jobless Claims – The New York Times
Summary: According to the Labor Department, initial claims for unemployment insurance increased to a seasonally adjusted 480,000, an increase of 8,000 claims from the previous week, while the consensus expected claims to drop to 460,000 claims. This is the highest weekly number in the last two months. Meanwhile, continuing claims remain at 4.6 million people, which does not include those who have utilized the full 26-weeks of unemployment and are now receiving extended benefits, which -at last tally – more than 5.8 million people were receiving extended benefits. Separately, productivity increased to a seasonally adjusted 6.2% during the fourth quarter.
Summary from the Related Wall Street Journal Article (non-jobs related though): There is a fear that stocks dipped on Thursday due to the debt fears regarding Greece. Market participants appear to be worried about investing in companies that may have significant exposure to Greece and Europe. Currently, Europe accounts for nearly a fifth of U.S. exports. If stocks continue to drop, then people’s wealth decreases and may continue to constrain and decrease consumer spending, creating pressure against a recovery. Yet, Europe’s and Greece’s troubles could strengthen the U.S. dollar as investors play the flight-to-safety trade. Appreciation of the U.S. dollar would then further decrease exports, while increasing imports and helping to offset inflation. Furthermore, the troubles across the Atlantic could result in a general aversion to government debt, which would likely hurt the future U.S. Treasury sales and lead to a general rise in rates. Nevertheless, investor demand for Treasurys appears strong currently.
Related Reading: Rising U.S. Job Worries Add to Upheaval – The Wall Street Journal
Bank of America and Ex-Chiefs Face Fraud Lawsuits – Financial Times
Summary: The New York attorney-general, Andrew Cuomo, has filed a civil fraud complaint against Bank of America and former chief executive Ken Lewis and former chief financial officer Joe Price. The complaint alleges that these two executives ignored auditor advice, deceived Bank of America’s in-house counsel, and failed to accurately disclose the magnitude of Merrill Lynch’s losses prior to the shareholder vote for the merger. Furthermore, the two executives have allegedly overstated their ability to terminate the merger agreement in order to obtain $20 billion from the government. These accusations are the first attempt to place blame regarding the Merrill Lynch merger on individuals. Bank of America and legal representation for Ken Lewis both denounced any wrong doing during the merger. Meanwhile, it should be noted that through he Securities and Exchange Commission’s investigation it has not assigned blame on any individuals. One of the reasons that New York can sue the two executives may be due to the Martin Act, which removes the federal need to prove intention for fraud.
Related Reading: Cuomo Sues Bank of America, Even as It Settles with SEC – The New York Times; Ex-Bank of America Chief Sued for Fraud – The Wall Street Journal
Retailers Report Modest Sales Gains in January – The New York Times
Summary: According to Thomson Reuters, the retail sector has collectively experienced a 3.3% increase in comparable store sales for January, the fifth consecutive month of such increases. Historically, January tends not to be a significant month for retail data and most of the items purchased were on sale. Furthermore, many people used gift cards to make their purchases. Some of the improvements in sales at high-end retailers have resulted from these retailers selling merchandise at wider price ranges and offering lower priced merchandise. Meanwhile, general discounters, clothing discounters, and stores that sell to teenagers and children, in general, posted increases in comparable sales for January. Nevertheless, drugstores and department stores were the worst performing sectors, although Kohl’s, Bon-Ton, and Macy’s all reported increases in same-store sales.
Related Reading: Cuomo Sues Bank of America, Even as It Settles with SEC – The New York Times; Ex-Bank of America Chief Sued for Fraud – The Wall Street Journal
The Race is on for Greece Before the ECB Exits – Financial Times
Summary: One of the suspected reasons for the increased spreads for Greek debt revolves around a program the European Central Bank (“ECB”) implemented in the fall of 2008, which allowed banks to trade government bonds that were rated at least BBB for central bank funds. The program was initially supposed to terminate in 2009 but was extended to 2010. During 2009, many of the banks traded the Greek bonds they held for other assets, thus providing support for the Greek bond prices and yields. At present, the ECB states that it plans to normalize the above program this year, which could lead to Greek bonds being excluded from the program. Meanwhile, there is a very likely chance that Greek bonds receive another downgrade, which would then remove them from the ECB program’s current allowed ratings. Another significant wild card in the Greek debt situation is the European Union’s reaction to Greece.
Plastics Explosion for Petrochemical Prices – Financial Times
Summary: The Platts Global Petrochemical Index, which tracks the cost of popular petrochemicals (ethylene, propylene and benzene), has increased over 150% from last year. These petrochemicals will then be used for everyday items that depend on plastics and synthetic textiles. This increased petrochemical demand is primarily fueled by the manufacturing recovery occurring in Asia. According to the International Energy Agency, the consumption of naphtha increased 100,000 barrels a day in 2009. Furthermore, capacity utilization within the chemical industry has increased from a low of 68.1% to 76%,, while chemical loadings via the railroads has increased 11% year on year. Nevertheless, fuels, such as diesel, which are closely associated with industrial activity continue to be week.
Shell to Cut Jobs and Refining as Profits Fall – Financial Times
Summary: Shell announced that it was going to reduce its refining capacity by 15%, or 560,000 barrels a day, and eliminate 1,000 jobs to save roughly $1 billion. The company has recently experienced setbacks in natural gas and the downstream areas of the industry. Shell has positioned itself to be much more gas heavy than its peers and thus was unable to take advantage of the rising oil prices.
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