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Daily Download: Financial and Stock Investing News for 11-6-09

CB — Fri, 06 Nov 2009 10:36:53 +0000

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 at the following email address: .

Besides a flood of company earnings and other company specific data, today was a rather slow investing news day. As many of you know, there was considerable coverage on the additional arrests related to the continuing inside-trading probe. While this is an interesting topic, CB did not feel that it provides a material benefit to investors’ market operations. Nevertheless, CB hopes everyone enjoys Friday and the weekend. The Daily DL will return on Monday morning.

Upcoming Economic Data for the Day (all times EST)

8:30 AM Employment Situation

10:00 AM Wholesale Trade

3:00 PM Consumer Credit

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 11-6-09

News

Productivity Soared in Third Quarter – The Wall Street Journal

Summary: On Thursday, the Labor Department reported that nonfarm productivity has increased at an annual rate of 9.5% in the third-quarter. Combined with the 6.9% annual rate increase in second-quarter, these two quarters have produced the strongest productivity growth rate in a two-quarter span since 1961. This productivity increase is primarily driven by a decreasing workforce that has to produce more as the economy begins to recover. Observers believe that as output increases, unemployment will decline and the productivity rate will decrease. Separately, the Labor Department reported that initial claims for unemployment benefits decreased by 20,000 to 512,000 for the week ended October 31, 2009.

CB: These productivity numbers do not tell the whole story. While CB cannot argue with the data that productivity is currently recovering, CB can argue that the measurement of productivity is deceiving. Currently, productivity does not measure intangibles such as research and development and the loss of intellectual capital. Many companies, in order to make profits in the near term, have reduced their research and development staff and significantly reduced job-training expenditures. At present, investors do not notice these changes because gross domestic product (or output) does not measure intangibles. However, it would be nice to have an idea regarding how much the productivity and output of these intangibles has changed during the last year. If the U.S. were a pure manufacturing economy, then this factor would not matter as much. Yet, our economy’s ability to continue to grow is dependent on an innovative and talented workforce. If innovation is sacrificed for current profits, then future growth may be significantly constrained – especially, since innovations allow the work force to be more productive.

Asian Banks Wary of Property Bubbles – Financial Times

Summary: As a result of rising property prices across much of Asia, some Asian countries are implementing steps to reduce property-related stimulus in order to prevent bubbles. For example, in Singapore, the government has closed lending programs that allow property purchasers to defer mortgage payments on uncompleted projects. Furthermore, South Korea has increased the strength of lending requirements, while in Hong Kong the down payment on homes purchases of greater than HK$20m has been increased to 40%. Yet, Australia is the only country that has raised its benchmark interest rates to reduce demand. Many Asian countries appear to be avoiding this tactic due to (1) uncertainty that bubbles are actually forming or (2) the possibility that higher interest rates will strengthen their currencies against the U.S. dollar and reduce trade. At present, famed investor Jim Rogers believes that some areas have bubbles, but there is not a region-wide bubble forming at this time. Many of the large price increases in property have been limited to luxury real estate, while the rest of the residential real estate increases are much more moderate.

Retailers Report Sales Increases – The New York Times

Summary: On Thursday, Thomson Reuters reported that the overall retail industry reported a 1.8% same-store sales increased, the largest increase since June 2008. In October many of the retail sectors reported sales gains with the exception of teenage-clothing retailers and department stores. The top performing sector consisted of clothing retailers that sell designer names at discounts, which includes retailers like TJ Maxx and Ross Stores. Meanwhile, the general-discount retail sector, which includes Costco and Kohls, showed increases in same-store sales. Furthermore, the luxury retail sector showed its first sales gain since May 2008 driven by the improving stock market and more discounted items. Yet, readers should remember that retail sales levels are still near 2005 levels and these increases in year-on-year comparisons are derived from a dreadful October 2008 performance.

CB: If peoples return to the luxury retail sector results from a wealth effect driven by the stronger stock market, then these increased retail sales may be short lived if the market witnesses a pullback. Retail sales have been a focus throughout the week the following are CB’s general thoughts from previous Daily DLs:

Daily DL 11-4-09

CB: The data tells part of the story. The categories mentioned in the article are only a small sampling of total retail and actually raise more questions. For instance, what drove the department store sales to drop? More important, why is the U.S. witnessing these increases in sales? Given the current economic environment with unemployment and the tightening of consumer credit, one would not expect these increases. Was last year’s spending freeze so bad that it represented a decrease in spending that would occur in much worst times than those currently being experienced? Are consumers not adjusting to the current economic situation? Or are these consumers shifting their spending to retail items by forgoing other larger purchases? Regarding the holiday season, it is hard to tell what will happen without some insight to the questions just listed. The projections that expect increases this year will be constrained by (1) fewer retailers than in previous years as well as (2) the limited inventory the retailers have decided to stock for the holiday season.

Daily DL 11-5-09

CB: With unemployment and underemployment continuing to increase from this time last year, one must wonder what forces account for the increase in retail sales that were reported for last week and are estimated for the month of October. Are the retail sales increases primarily driven from the unemployed individuals continuing to spend or greater spending by the employed? Or was last year’s drop in retail sales more a result of panic and less the result of actual employment and credit fundamentals? Since this topic seems to be recurring, perhaps CB will conduct some additional research on this topic.

Worries as Rush Into Commodities Slows – The Wall Street Journal

Summary: At present, investors have placed a record $50 billion into commodities for the year to date. This flood of cash has helped to increase the prices of oil and gold 79% and 23%, respectively. Yet, according to the quarterly flow numbers, cash flow into the commodity markets has been decreasing as the year progresses. For instance, cash flows for the first quarter were nearly $22 billion, then decreased in the second and third quarter to $17 billion and $11 billion, respectively. This decline in cash flow to the commodity markets may result from the following: (1) a fear that the rally is over; (2) a fear that the weakness in the U.S. dollar will not continue; (3) the commodities have performed in line with the stock market and not outperformed as expected; and (4) many exchange-traded funds (“ETFs”) meant to track commodity performance have failed to reliably do so.

CB: CB recommends that if an ETF appeals to an investor, that investor should take the time to understand the technical aspects of its operations, especially if the ETF claims to leverage returns.

IPOs of Hyatt and Ancestry.com Both Rally – The Wall Street Journal

Summary: On Thursday, the IPOs of Hyatt and Ancestry.com rose 12% and 5%, respectively, demonstrating the first healthy demand for new offerings in a couple of weeks. In regards to Hyatt, many industry analysts believed that it was priced at a value even with the low occupancy rates the hotel industry currently faces. Unlike many of its competitors, Hyatt possess relatively little debt and a significant amount of cash. As a result, Hyatt has options regarding its next course of action and could be in a position to expand. Regarding Ancestry.com, the company has witnessed both its revenue and profits increase during the economic downturn. Furthermore, the company has a chance of increasing its subscriber base in 2010 if a new TV show called “Who Do You Think You Are?” is aired.

More Links of Note

How to Fill the Gaps Left by Dollar Decline – Mohamed El-Erian and Ramin Toloui

The Dollar as a Funding Currency

China Faces a Dollar Shortage – The Money Game

Is the Market Worried about the Wrong Deficit – ZeroHedge

Daily Download: Financial and Stock Investing News for 10-30-09

CB — Fri, 30 Oct 2009 09:21:36 +0000

Upcoming Economic Data for the Day (all times EST)

8:30 AM Personal Income and Outlays

8:30 AM Employment Cost Index

9:45 AM Chicago PMI

9:55 AM Consumer Sentiment

3:00 PM Farm Prices

Initial Public Offerings for the Week of October 26 -30, 2009

10-27-09 Addus HomeCare – Provider of home social and medical services.

10-27-09 Vitamin Shoppe – Health and wellness products.

10-28-09 AEI – Provider of electricity and natural gas.

Source: WSJ Market Data Group.

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

List of Selected Companies with Third-Quarter Earnings Calls for 10-30-09

News

Economy Snaps Long Slump – The Wall Street Journal

Summary: Gross domestic product (“GDP”) increased 3.5% at a seasonally adjusted annual rate in the third quarter driven primarily by spending on automobiles and housing, both of which were propped up by significant government stimulus. The GDP component of motor vehicles and parts accounted for 1.0 percentage point of the 3.5% total GDP growth, while the private residential investment component, which increased 23.4%, accounted for a half of a percentage point of total GDP growth. According to the GDP report, the economy appears to be emerging from its nadir. Yet, according to the president of the White House Council of Economic Advisers, without government support it is unlikely that spending on automobiles and housing would have increased much, if at all. Separately, the Labor Department reported that initial claims for unemployment last week dropped by 1,000 to a seasonally adjusted 530,000. Productivity increases allow companies to continue to layoff employees.

CB: According to another Wall Street Journal article, on Thursday, the Obama administration endorsed the efforts to extend tax credits to home buyers and increase their availability. Nevertheless, if investors were to look at the economy as a company, they would describe its earnings’ quality as terrible. A significant portion of these gains result from the stimulus and are unsustainable, but does it matter? CB is more concerned about the unintended consequences of the current economic supports. The focus ultimately has to be based on the condition of the economy when the stimulus is removed. For every action there has to be a reaction – in most cases. For instance, decreased tax revenue now, will likely lead to decreased future expenditures at the state and local government levels over the next few reporting periods. Consider that reduction in GDP, along with a reduced or decreasing growth rate in automobiles and housing due to the government’s supports being removed. The possibilities are not pretty. Moreover, the U.S. runs the risk of becoming increasingly dependent on these government supports in the future, thus leading to further deficit expansion – which has many other consequences.

FDIC Chief Criticizes Reform Plan – The New York Times

Summary: On Thursday, the details of the legislation meant to regulate the financial industry were discussed before the House Financial Services Committee. Treasury Secretary Timothy Geithner stated that the legislation would give the proposed council of regulators the proper tools to oversee large financial institutions. Yet, Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, believes that the council of regulators would not be able to protect the system from the shock of a large failure due to its lack of authority to confront systemic risks. Ms. Bair particularly believes that : (1) the proposed council of regulators should be headed by an independent chairman, instead of the Treasury secretary; (2) a prefunded Financial Company Resolution Fund has more advantages than an after-the-fact funded system; and (3) the council should be allowed to write rules that would serve as a floor instead of a ceiling for other financial agencies. Meanwhile, some republicans on the House Financial Services Committee are against the legislation because the taxpayer remains the first in line to bailout the failing firms, even though they would be reimbursed. Yet, Barney Frank, an author of the plan, stated that firms that fail under the proposed plan would experience the evaporation of the value of their stock, top executives would be dismissed, and creditors would not be able to recoup their loans.

CB: CB is in favor of Ms. Bair on this argument. CB doesn’t understand how consequences after the fact will prevent failures. Consequences, deter but do not prevent malevolent behaviors. If consequences worked well, then prisons would be empty. Furthermore, the consequences that Barney Frank propose will only add to the financial hardships in the economy. If a large bank were to fail and all the stock would lose its value, then that’s a tremendous hit the shareholders and the creditors have to bear. For the sake of the economy, preventive measures that would reduce systemic risk would be preferable to mainly after-the-fact remedies.

Nintendo Faces Profits Blow as Wii Sales Slow – Financial Times

Summary: On Thursday, Nintendo posted a 52% decrease in first-half profit from a year earlier as the company suffered from: (1) a lack of titles that could drive hardware sales; (2) the rise of the yen; and (3) the price cut on the Wii. Consequently, there are thoughts that Nintendo could release a new version of the Wii in 2010 in order to revitalize sales. Furthermore, sales of Wii games decreased 6% this year from a year earlier, even with a larger customer base to service. Finally, Nintendo revealed a new version of the DS that has a larger screen to make internet browsing more enjoyable. Many see this move as a way to make the DS more competitive against the iPhone.

CB: Nintendo is interesting in the sense that historically they have not hedged their foreign currency risk. CB has always felt that this was a bit irresponsible. It will be interesting to see how the company reacts to the new world of a weakening U.S. dollar and British pound.

Oil Firms’ Profits keep Dropping as Recession Shrinks Demand for Energy – The Washington Post

Summary: Even though a weakening U.S. dollar allowed oil prices to rebound from their lows earlier this year, oil prices remain much lower than the highs reached in 2009. These lower prices along with the lack of consumer demand for energy has resulted in steep profit declines for many oil companies. Refiners, in particular, are feeling the brunt of the current situation as they have to pay more for oil with the rising prices, but do not have sustainable demand for their end products. According to Bloomberg, crude oil has averaged $59 a barrel in New York for 2009, while last year it averaged $99.75 a barrel. According to industry analysts, the oil industry is still a long way from reaching the production and the profit levels witnessed in 2007 and 2008.

Asian Shipping Lines Suffer Further Losses – Financial Times

Summary: Neptune Orient Lines, which operates the fifth-largest container ship fleet in the world, and China Cosco, which is the worlds second-largest dry bulk shipowner, both announced losses during the third quarter. With a large excess supply of ships, the container shipping segment has been the worst hit segment of the industry. Several shipping lines across the world have already been bailed out or are in the process of being restructured. In general, container shipping freight rates remain at uneconomic levels.

Why the Renminbi has to Rise to Address Imbalances – Financial Times

Summary: When global leaders state that global imbalances must be reduced they are referring to both the U.S. current account deficit of $500 billion and China’s surplus of $350 billion. In order to reduce these deficits, the U.S. must increase its national savings and rely less on foreign funds, while China must increase domestic spending without so much dependence on exports. In the U.S., some increased household and business saving has occurred; however, this is not enough, a budget must be created that minimizes future deficits. In China, domestic spending primarily driven by fiscal incentives and credit expansion has managed to increase 15% this year. Yet, in order to significantly reduce global imbalances, the U.S. dollar must continue to weaken in order to increase U.S. exports and decrease imports. Nevertheless, China’s current policy of capping the rise of the renminbi will cause inflation to erupt in China and will result in an increasing trade surplus for China. Until China allows the renminbi to rise, global imbalances will not be resolved.

CB: Can there be a sustainable global recovery while these imbalances continue to exist? There must be a reason China is against relinquishing some of its export demand. China, which is a country considerably concerned with its GDP growth rate, may believe that the recent increases in domestic demand are not enough to make up for the potential decrease in exports. Yet, with asset prices rising all over China, its citizens must be experiencing a wealth-effect, which would likely support additional domestic spending. Nevertheless, CB would be interested in learning of their current credit expansion levels and how sustainable of a driver that is for domestic demand.

IMF Official Warns on Risk of LatAM Bubble – Financial Times

Summary: Nicholas Eyzaguirre, a director of the International Monetary Fund (“IMF”), stated that the Latin American economies that successfully managed the recession could be at risk for bubbles. These bubbles could result from the currency appreciation and the large inflows of foreign capital that these countries are currently facing. A potential problem is that if the current levels of public and private sector spending in these countries continues, then the central banks will have to resort to increasing interest rates to avoid inflation. Consequently, raised interest rates will likely attract more foreign capital. Mr. Eyzaguirre recommends that countries facing increasing foreign capital inflows begin to remove their stimulus supports. At present, Brazil has imposed a 2% tax on capital inflows to the equity and bond markets, while Colombia has begun to buy dollars to dampen the rise of the peso.

More Links of Note

Goldman, J.P. Morgan Economists Debate Shape of Recovery – The WSJ Blogs

Behind the Downfall of Washington Mutual – DealBook

Wall Street’s Sham Profits – Deal Journal

Economy is Getting an Artificial Boost – PragCap

Roubini on CNBC Supports a U-Shape Market Recovery

CB — Tue, 06 Oct 2009 03:13:04 +0000

Nouriel Roubini believes the recovery will be a U shape, meanwhile it appears, given the recent rises in stocks investments, that many believe the recovery will be in the shape of a V. This may not bode well for the stock market. Roubini lists the following as support for the U-shape recovery:

1. Labor market is still awful.

2. U.S. consumer is shopped out. Needs to save more.

3. Corporate sector has a glut of capacity. Investment will not grow rapidly with such a glut of capac ity.

4. Financial system is damaged, credit growth will be limited.

5. Fiscal stimulus will dry up soon, and if another one is issued then the budget deficit will expand and cause more trouble.

6. Globally overspending countries are spending yet, while the over saving countries are not spending more to compensate for the drop off.

Joseph Stiglitz Pessimistic on the Economy and Stock Market Rebound

CB — Tue, 06 Oct 2009 00:46:58 +0000

Bloomberg clip with Joseph Stiglitz reacting to the jobs report on Thursday. He believes that unemployment will continue to get worst. Stiglitz’s view results from the logic that the work force increases approximately 1% a year and productivity increases approximately 2% to 2.5% a year, thus the economy needs to grow 3% to 3.5% in order to avoid increased unemployment. Stiglitz concludes that over the period of 2009 and 2010, there will not be enough growth to stop the flow of unemployment.

Furthermore, Stiglitz, who has been critical of the handling of the crisis by the U.S., likes how the International Monetary Fund (“IMF”) is focused on employment. The IMF wants to be sure that employment is going up before the national governments begin removing the stimulus from the markets. In order to determine the strength of the employment there is much data that needs to be reviewed. For instance, the number of full-time hours worked, last week’s report stated that the number of full-time hours worked was 33 per week, but 33 hours a week does not equate to full-time work.

He thinks that the market has been experiencing “irrational exuberance.” One problem he is concerned about is the fact that prices have started coming down, resulting in increases in real wages, which have been weak. This could continue to hurt the economy.