Morning Call

0 CommentsFriday • May 28, 2010 • by avickery

“The ladder of success is best climbed by stepping on the rungs of opportunity.”

Ayn Rand

Morning Call

May 28, 2010

Energy stocks and bank shares recovered strongly yesterday, leading the Dow to a gain of 284 points; comfortably retaking the 10,000 level. Economic data here in the US was not as good as analysts had expected, but was close enough for investors to buy into equities. Initial Jobless Claims fell by 14,000 to 460,000 after rising by 28,000 last week. Many economists have established the 425,000 level as the tipping point where they will be more confident in sustainable job growth. Q1 GDP was revised slightly lower to 3.0%.
Futures indicate a slower start this morning, but the momentum is still to the upside. It does appear that the banks and resource stocks will continue to climb.
Asian equities also saw further upside last night. The major indexes rose by an average of about 1%; slightly higher in China. China’s rebuttal of reports that it was reviewing its European debt holdings calmed investors in Asia and elsewhere. The financial sector in Asia was mostly mixed during the session, but energy and industrial shares more than made up for it. A strong move on the Hang Seng index left it within sight of the 20,000 point milestone.
In Europe this morning, stocks have been somewhat volatile but have managed modest gains in early trading. Bank shares are among the most active and the strongest gainers throughout Europe. This could mark the third day of upward momentum for stocks in Europe and the Euro has recovered considerably from its recent lows.
A real bright spot for investors has been the steady rise in corporate profits, which are up considerably and means there is still value in stocks at this level.

Commodities have also maintained their upward momentum this morning. Crude oil has added yet another Dollar to move comfortably above the $75 level. This right about where we should be on oil prices; all facts considered. It is not unlikely, however, that prices will overshoot by a few Dollars and then settle back to the present level.
Volatility in the currency markets continues to make gold an attractive safe haven for investors. Gold has added about $3 this morning to $1214. For now, it is likely that gold will fluctuate at its present level; awaiting further direction from equities and the debt market.
The Dollar is higher on the Pound and Yen this morning, but has given up some ground on the Euro.

Investors reacted positively to less than perfect economic data yesterday, which speaks well of their general sentiment. Today’s economic calendar will include some Personal Income data, the Purchasing Manager Index, and Consumer Sentiment. Analysts expect that the PMI will have pulled back somewhat from its 5-year high last month, and also expect Consumer Sentiment to be higher.
Earnings news will be coming from a wide range of lesser known companies, but none of consequence to investor sentiment.

(In this new section, we will discuss news and data from the Venture Capital and Private Equity world.)
A plan to increase taxes on venture capitalists’ earnings has stalled due to a larger political battle over the federal jobs bill.
It is all about carried interest, which has been taxed at the 15% capital gains rate in the past, but would be reclassified as regular income in the legislative proposal. The National Venture Capital Association, an industry lobbying group, has vehemently opposed the measure. It looks like lawmakers will be forced to make several modifications in order to pass the jobs bill, which at the very least, will soften the terms of the carried interest measures.
Meanwhile, several new VC/PE funds have successfully come to market and general activity has been picking up considerably. Media and technology, as well as the medical industry, appear to be among those attracting private investment.

Among the scores of provisions and amendments woven into the financial reform bill presently being fine-tuned in Washington, there is one part of it receiving little publicity. In the bill are measures designed to curb abusive lending practices that led to the so-called subprime meltdown. In order to accomplish this goal, there are provisions that will change how loan officers are compensated, hold lenders responsible for the loans they make, require that lenders extend mortgages only to borrowers who can demonstrate an ability to repay them. (what a novel idea).

Today’s Consumer Sentiment data will be watched closely. This has been an important indicator all along, as sentiment leads to spending, which supports real economic growth. It does appear that conditions are improving all around for US consumers, as reports show that delinquency rates have been dropping for retailers and banks. This not only a good sign for the financial well being of the consumer, but also for the banks. With less effort spent on recovering loans currently outstanding, banks may be more likely to expand lending and further stimulate the economy.

The assembled information disseminated in the Morning Call is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. All assembled information within the Morning Call is subject to change without notice. The assembled information within the Morning Call is based on information believed to be reliable as of the date of the report but no representation, expressed or implied, is made as to its accuracy, completeness or correctness.
Forward Looking Statements:
Information in the Morning Call will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. All readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance or portfolio performance is no guarantee of future price appreciation or performance.

Morning Call

0 CommentsThursday • May 27, 2010 • by avickery

“Action is the foundational key to all success.”

Pablo Picasso
Morning Call
May 27, 2010

Chinese officials are falling short of assigning blame to North Korea for the recent sinking of a South Korean naval ship. Washington has lobbied for China to join in on an international condemnation of the North, but China says the matter is “highly complicated.”
At the request of South Korea, Russian President Dmitry Medvedev is sending a team to investigate evidence surrounding the mysterious sinking of the Cheonan naval vessel on May 26, 2010.
In the Gulf of Mexico, BP is pumping heavy mud into the leaking well hoping to stem the flow in what is called a “top kill.” The method has worked above ground but has never been attempted at 5,000 feet beneath the sea.

Things were going according to plan until the last two hours of trading yesterday. The Dow had been rolling along in positive territory until that time, but selling began and the Dow ended up finishing 69 points lower and finished below 10,000 for the first time since early February. It appears that the primary factor draining on investor sentiment was rumor that China was evaluating its European debt holdings. Word was that the State Administration of Foreign Exchange had met with foreign bankers to discuss the issue in Beijing in recent days. The news had been reported by the Financial Times, but Chinese officials have quickly denied the rumor. Gao Xiqing president of China Investment Corporation (CIC) said “The CIC will keep its investment level in Europe — no more, no less.”
Again, stocks are demonstrating just how reactionary investors have been lately. After the rumor was put to rest, sentiment has quickly improved. This morning US stock futures are strong; suggesting a triple point upside at the opening bell today. In pre-market trading, it appears that bank shares will be among the biggest gainers today and the energy should also rebound sharply after losing ground yesterday.
The positive momentum began to build in Asia last night as the equity indexes climbed more than 1% higher. Strong gains were seen in a wide range of sectors, including industrial and technology shares, as well as bank stocks. The latest economic data out of Asia has been a little mixed, but corporate earnings have been climbing and sentiment is generally positive.
European stocks are also higher this morning for a second day. The major indexes are higher by an average of well over 1%, led by a mix of banks and technology shares. Analysts are suggesting that there is some indication of acceleration in gross domestic product growth in the second quarter of 2010 for the euro-zone region. The hope is that growth can out-pace, and soften the effects of, sovereign debt concerns.

Commodities, as a whole, are modestly higher this morning. Gold and oil have been particularly strong, for different reasons. Crude oil rose 2% in early trading to approach the $73 mark as investors expect to see a turning point in the supply and demand curve. Gold jumped above $1218 in the early hours before settling back to $1211; showing a slight gain on the morning session. The Dollar is up again on the Yen but has pulled back on the Euro and Pound this morning.

It is a big day on the economic calendar today, as we will have the latest Initial Jobless Claims numbers as well as the latest GDP figures. For earnings news, we turn to Big Lots, Borders, Costco, Genesco, HJ Heinz, Novell, Tiffany & Company, the Royal Bank of Canada, and a few others.

House Financial Services Committee Chairman Barney Frank has suggested that the requirement that banks spin off their derivatives operations, part of the Senate version of the financial reform bill, “goes too far.” Frank indicates that the controversial derivatives provision could be stripped out during negotiations as the House and Senate try to iron out compromise legislation that could be signed into law by July 4th.
The Financial Accounting Standards Board is prepared to issue new rules that could have profound effects on banking balance sheets and on how financial services companies do business. The FASB wants to expand the use of mark-to-market accounting, which the American Bankers Association has strongly opposed.
The bank lobby has argued that the new rule will steer banks away from products with greater potential for volatility in their market price. As an example, banks may scale back issuance of 30-year, fixed-rate mortgages in favor of products with shorter maturities or variable rates, which theoretically would have less price volatility. Bankers have strongly opposed being forced to mark their assets to fluctuating market values.

In the afternoon yesterday, Apple surpassed Microsoft in terms of total market capitalization. With both companies well above the $200 Billion level they are, and will, compete for the top spot for some time.
That aside, it brings to your attention that during times of economic recovery, technology and innovation typically leads the way. It happened in the 1930s and it is occurring again today. New technology in computers, mobile devices and the like has accelerated recently and will do so exponentially in the next few years.
All technology and innovation does not come with wires and batteries, however. Industrial technology will grow as will medical technology. Use of the web will also play a role in changing the way we do business. Broadly speaking, “innovation” could be considered a sector of its own and will be the investment of choice in the near term.

The assembled information disseminated in the Morning Call is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. All assembled information within the Morning Call is subject to change without notice. The assembled information within the Morning Call is based on information believed to be reliable as of the date of the report but no representation, expressed or implied, is made as to its accuracy, completeness or correctness.
Forward Looking Statements:
Information in the Morning Call will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. All readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance or portfolio performance is no guarantee of future price appreciation or performance.

Morning Call

0 CommentsWednesday • May 26, 2010 • by avickery

“History will be kind to me for I intend to write it.”

Winston Churchill

Morning Call
May 26, 2010

As the high level talks continue in Beijing, the topic of Chinese exchange rate reform has been essentially put on the back burner, for now.
Meanwhile, a larger portion of time is being devoted to the Korean peninsula. US officials are pushing for a coordinated response toward North Korea for allegedly sinking a South Korean naval ship. After meeting with South Korean leaders, Secretary of State Clinton said, “This was an unacceptable provocation by North Korea and the international community has a responsibility and a duty to respond.”

Stocks did, in fact, bounce back yesterday from their early losses. Economic data continues to be mostly positive in the US and outweighs concerns over sovereign debt in Europe. The Dow finished lower by only 22 points after a double digit drop to start the Dow and the S&P actually finished to the upside. Most importantly, from a psychological perspective, the Dow regained the 10,000 mark, having fallen below it twice recently. Consumer Discretionary stocks were the strongest and energy shares gained momentum during the day. Futures this morning indicate a positive start to the trading day.
The upward momentum began to build in the Asian markets last night. The major indexes finished higher by an average of about 1%, led by a recovery in banking shares. Bargain hunting outweighed geopolitical tensions and lingering concern over the European debt crisis, but traders remain cautious.
The Dow’s rebound and positive economic data from the US helped boost Asian equities during the day. Consumer Confidence came in higher than expected which means that consumers are beginning to buy in to the economic recovery. The Conference Board had the index at 63.3 points, up from a revised 57.7 last month. The Case Shiller Home Price Index showed a slight drop in home prices, but many analysts are content to at least see some stability in the marketplace.
The upward momentum has rubbed off in Europe as well this morning. The major indexes are all higher by 1-2% in early trading as the banks and several technology stocks have rebounded considerably. Italy has announced a 24 billion Euro ($30 Billion) round of budget cuts as part of a larger European effort to trim deficits and calm investors. The measures include a three-year wage freeze for civil servants and a crackdown on tax evasion.

Commodities are also benefitting from improving economic sentiment. Crude oil has gained more than 2% in early trading to top the $70 mark once again. Oil could rise close to the $80 mark in the near term as the latest report has US gasoline stockpiles falling while we enter the summer driving season. Gold is up by more than $8 at $1209 and may settle in at this level during the day. The Dollar, meanwhile, has moved higher again on the other major currencies.

Another round of economic data today includes Mortgage Applications, Housing Starts and Durable Goods Orders, as well as some further data on Petroleum Inventories. Earnings reports will be coming from NetApp, Rosetta Genomics, Synovis, VeriFone, Zale, and a few others.

Representative Barney Frank reportedly will head a House-Senate committee to iron out a final bill on financial regulation reform. One major difference between the House and Senate bills is the proposal that banks spin-off their proprietary trading desks. The Senate version includes it, the House bill did not.
A group of the world’s largest banks suggested that the G-20 nations should work towards international system for handling failing cross-border banks. The proposal is part of an attempt by banks to offer an alternative to breaking up banks so that riskier activities don’t spill over to consumers.

A lot happened during the trading day yesterday. We saw yet another buying rally after deep intraday lows. The Dow, at one point down nearly 3%, ended the day flat on heavy volume of 1.8 billion shares. The VIX, or Volatility Index, peaked at 44 during the day and then fell to just over 34. As we mentioned yesterday, the facts usually come around to outweigh fear of the unknown, which has been a primary factor in market movement, lately. With some important new economic data coming out between today and tomorrow, most of which should be positive, we may gain some momentum to the upside for stocks.

The assembled information disseminated in the Morning Call is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. All assembled information within the Morning Call is subject to change without notice. The assembled information within the Morning Call is based on information believed to be reliable as of the date of the report but no representation, expressed or implied, is made as to its accuracy, completeness or correctness.
Forward Looking Statements:
Information in the Morning Call will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. All readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance or portfolio performance is no guarantee of future price appreciation or performance.