Morning Call

0 CommentsWednesday • June 30, 2010 • by avickery

“It is the mark of an educated mind to be able to entertain a thought without accepting it.”
Aristotle

Morning call

June 30, 2010

Market Update

The Conference Board’s Consumer Confidence Index fell to 52.9 from a revised 62.7 in May, marking the steepest drop since February. This put a big dent in investor sentiment as the Dow tumbled 268 points by the end of trading yesterday. The S&P and NASDAQ fell by a larger percentage of more than 3%. Almost all sectors retreated in step, with the exception of healthcare stocks which were off by a more modest 1.35%. This morning, futures indicate a modest uptick at the opening bell.
The US selloff yesterday spilled into the Asian markets as well. The Nikkei declined by about 2% as compared to the Shanghai Composite, which fell more than 4% to a 14-month low on concerns that China’s economy could slow down in coming months. Industrial and mining stocks were the hardest hit in China, while in Japan it was the banks and technology stocks that fared worst.
After a sharp drop at the opening in Europe this morning, stocks have rebounded nicely. Less than two hours into trading and the major indexes across Europe have turned positive. Investors are waiting for data from the ECB later this morning, to see how much money banks have asked from an offer from the ECB today. Demand for the three-month ECB loans will give an indication of the general health of the banks. Lenders are scheduled to repay €442 Billion ($540 Billion) tomorrow. The ECB will announce at about 11:15 a.m. in Frankfurt.

Commodities

Commodities have leveled off and are mostly mixed this morning. Crude oil had pulled back on concerns over demand from China and disappointing consumer confidence in the US. Prices have ticked slightly higher this morning and remain slightly above the $76 mark. Analysts expect to see a decline in US crude inventories when the EIA numbers are released later today.
Gold is running flat this morning, just slightly higher at $1241. Volatility was expected for a few weeks and prices have held up respectably thus far. Gold is headed for its best quarterly advance since the end of 2007 as concern over the economic recovery has increased investment demand for safe assets.
The Dollar is slightly lower on the Euro today, but has gained on the Yen and Pound.

Economy and Earnings

Mortgage Applications and the Purchasing Managers Index are alone on the economic calendar today.
Earnings reports will be coming from Apollo Group, Christopher and Banks, Monsanto, Smith & Wesson, UniFirst, and a few others.

Venture Capital and Private Equity

Electric carmaker Tesla Motors entered the market with an initial offering price of $17 yesterday. Shares finished up more than 40% in its first day of trading.
Tesla’s shares closed at $23.89, up $6.89 from the opening price, giving it a market value of $2.22 billion. This, despite a down day in the broader market and the fact that the company Is not expected to turn a profit for at least two years.
Tesla is the first initial public offering by an American automaker since Ford’s debut in 1956.

Washington and Public Finance

For the first time since 2008, state and local government tax receipts rose modestly in the first quarter as economic growth picked up slightly. According to the U.S. Census Bureau, State government tax revenue increased during the first quarter of the year on higher income tax collections. Even with widespread reduction in spending on schools, health care and other programs, U.S. states are still expected to have a $127 Billion shortfall in order to pay their bills through 2012, according to the National Governors Association.

In Summary

The shipping industry has long been considered a leading indicator of the broader economy. The shipment of goods is an observable part of the process if the economy is ticking along as it should. With this in mind, a report from Fitch suggests that “most shipping segments will take several years to return to a well-balanced market, even though the shipping cycle is bottoming out.”
The shipping companies themselves have experienced a very difficult run over the past two years. Lowered activity and a dry credit market put some carriers into default on obligations, which makes this a somewhat precarious sector for investment in the near term.
The fact that activity is picking up, however, is good news for the shipping sector and even better news for the broader 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 CommentsTuesday • June 29, 2010 • by avickery

“Everything that happens happens as it should.”
Marcus Aurelius

Morning call

June 29, 2010

Market Update

The Dow fluctuated in positive territory throughout most of the day yesterday, but some selling in the afternoon left the index 5 points to the downside. During the night and early morning, however, the global equities have been in decline on concern that the economic growth machine in China is beginning to slow.
Investor sentiment began to sour after the New York-based Conference Board said its China leading economic index rose 0.3% in April, much less than the 1.7% gain in June. Other data showed Japan’s industrial production fell in May while its jobless rate rose. Today, a majority of economists expect The Conference Board to report that its index of U.S. consumer confidence fell to 62.5 this month from 63.3 in May.
In Asia, most indexes fell by 1% or more. In China, it was much worse where the Hang Seng lost more than 2% and the Shanghai Composite suffered a decline of more than 4%. The selling was spread rather evenly among technology industrial, and bank stocks.
In Europe, stocks fell sharply at the opening and the major indexes are now lower by an average of about 2%. Here, too, the selling is spread evenly among sectors. Besides concerns over growth in China, investors also wonder if G-20 plans to reduce deficits, and government stimulus, will restrain global growth.
Meanwhile, in Greece, unions are holding their fifth general strike of the year, effecting public transport and other state services. The union is protesting cuts in pension benefits and possible changes in labor laws.

Commodities

In another indication of sentiment toward economic recovery, commodities are also sharply lower this morning. Crude oil has given up about 2% in the early hours; currently trading in the mid-$76 range.
Gold plummeted during the night; giving back more than $25 after peaking above $1260. This morning, prices have stabilized somewhat, showing a loss of $3 on the morning session at $1235.
The Dollar is higher on all but the Yen this morning.

Economy and Earnings

Besides Consumer Confidence, we will also have the latest numbers from the Case-Shiller Home Price Index today. Analysts expect to see a flattening of the index.
On the earnings calendar today, we will hear from General Mills, Sealy Corporation, Worthington Industries, and just a few others.

Venture Capital and Private Equity

Elevation Partners, a private equity firm, has reportedly purchased $120 Million in Facebook stock from private shareholders, valuing the company at $23 Billion.
New York University is getting into the Venture Capital arena, as the university plans to create a $20 Million venture fund to provide seed funding for technologies developed at NYU.
Linden Capital Partners, a Chicago-based healthcare focused private equity firm, has completed a $375 Million fundraising round.

Washington and Public Finance

Even as the financial overhaul bill gets closer to signing, industry lobbyists see another round of opportunity to influence new regulations. For the most part, the bill will leave a lot of discretion to the regulating bodies to determine its impact.
In the public finance arena, experts think it will take federal regulators months, if not years, to implement the sweeping changes to the municipal market.

In Summary

Right now we are seeing a general flight from risk in the global marketplace. Stocks, commodities, and even gold, have pulled back. Treasuries advanced, pushing two-year yields to a record low 0.586% and 10-year yields below 3% for the first time in more than a year, as a decline in stocks boosted demand for the safest assets.
In fact, government securities are having their best quarter since the height of the 2008 financial crisis.
It is worth noting, however, that market sentiment has been fickle and that there will be continued volatility with stocks moving in either direction over the next few weeks. Investors have been reactionary to daily economic data, which has reflected a weaker recovery than many had hoped for. Until the market adjusts itself to the latest reality check, caution prevails.

Please Continue to the following page to read an interview of Arnie Waters in the July Issue of Black Enterprise Magazine!

News You Can Use

“Boston investment banker Arnett Waters sifts through recent events to locate out-of-favor stock gems.”
July 2010
Article written by John Simons.

Arnett Waters
Arnett Lanse Waters is a bit of a news junkie. His best investment ideas, he admits, come from paying constant attention to world events. During the week Black Enterprise caught up with him this spring, workers in the Gulf of Mexico were scrambling to clean up a massive oil spill, the U.S. economy was showing further signs of turnaround, and the European Union was preparing a financial bailout package for Greece. Waters was naturally brimming with thoughts about how investors might make long-term bets related to these occurrences.
Like his investment strategy, Waters’ career has been multifaceted. The native Bostonian, who attended Harvard, began working in public service in 1971, running several state and local employment training programs. Later, he honed his economic chops as an aide to the former chief economist of the Bank of Boston. Waters then shifted his focus to finance, cutting his teeth as a stockbroker at Merrill Lynch, and then working in various executive positions at Merrill; Donaldson, Lufkin and Jenrette; and Shearson Lehman. Waters founded A.L. Waters Capital L.L.C., an investment banking and corporate finance firm, in 2004. Whenever he can, he urges his clients to think globally. “Technical analysis and economic indicators are great tools,” says Waters. “But to be ahead of the curve you have to look at the big picture.” We talked to Waters about his view of the world and of financial markets, and asked him to share a few investment ideas.

How do you see the U.S. economy and the financial markets performing in the second half of this year?
We see the U.S. economy slowly getting back into shape—the gradual effect of President Obama stabilizing the banking system. The Dow should trade in the range of 9,000 to 13,000 with a lot of volatility. But I’m optimistic about the U.S. economy. There’s no better place in the world to trade.

What are some of the global themes you’re acting on now as an investor?
There’s what I call the European problem. It’s naive to think that the sovereign debt crisis will remain a Greek problem. Portugal, Italy, Ireland, Greece, and Spain all face overwhelming deficits. Ireland’s deficit is already larger than Greece’s. The European Commission recently forecast that the United Kingdom and Spain will also surpass the deficit in Greece. The U.K. will be the highest and will also be facing a hung parliament by the looks of things. Individually, this is concerning enough. Collectively, this is bad news for the euro. Already, investors are running away from the euro and into U.S. Treasuries.

How might investors take advantage?
An ETF [exchange-traded fund] such as the ProShares UltraShort Euro (EUO) is a great way to profit from this decline and has been paying off quite well recently. The decline of state socialism is a really good thing for the U.S. The fund looks to correspond its shares to twice (200%) the inverse of the daily performance of the United States dollar against the price of the euro. Shares are trading at just under their 52-week high of $23. This would reflect a move for the euro-dollar to $1.15. The fund, managed by ProShare Advisors L.L.C., has $285 million in net assets and invests in financial instruments to achieve its objective. Shares have returned 11.23% year-to-date. Our 12-month forecast is for shares to reach $29, which is an upside of 26%.

What’s another theme that’s holding your interest right now?
Shipping. We watch the shipping industry closely because it reflects real economic activity. Shipping companies have been known to make exponential gains when the economy begins picking up. Things look grim for the industry in the near term. The explosion at the oil rig off the Louisiana coast has implications far beyond the human tragedy and financial stress on British Petroleum and Transocean. The attention will spread to the shipping industry as well. There is already talk of a ban on single-hull ships in the Gulf. This will involve an expense to upgrade to double hulls and be an advantage to some and a setback for others. The race is on to see which one will be able to step in. Diana Shipping should be the best performer in the shipping group.

What do you like about Diana Shipping?
Diana Shipping Inc. (DSX) is a global provider of shipping transportation services. It specializes in transporting dry bulk cargoes, including iron ore, coal, grain, and other materials along worldwide shipping routes. Each of its vessels is owned through a separate wholly owned subsidiary. Here’s a company that has an excellent record and good management, and they are going to make money. The reason they’re lagging is external; some people feel there’s a danger that shipping will be restricted. But countries that have a lot of natural resources will continue to make shipments to countries that don’t. With the recession, shipping has declined, and Diana has been unfairly affected. But the shipping world has not ceased. With growth in world population, shipping is going to increase. DSX’s share performance began lagging behind movement in the Dow back in July of 2009. Most of its peers have also lagged the Dow, and that, to us, has been an indication that valuations are a little optimistic for Dow components. At just under $15 a share, prices have been hovering in the middle of their 52-week range after trending higher in April. Our 12-month target price is $21.

Are there any companies currently in the news that you like?
I happen to like Transocean Ltd. (RIG) [which owned the rig destroyed in the April 20 explosion preceding the oil spill in the Gulf of Mexico]. Regardless of what anyone says, we’re going to need fossil fuel for a long time. Transocean is an international offshore contract driller in the oil and gas industry. The company owns or operates 138 mobile offshore drilling units. It is a leader in deep-sea drilling and has five ultra-deepwater drill ships under construction. Oil has been relatively stable, considering the level of instability in the global economy, in the range of $70 to $80 per barrel. We will see an expansion of exploration and drilling, which means revenue for the drilling companies. Even though Transocean is under some pressure right now because of the accident in the Gulf, shares are holding up rather well. Shares have been downgraded from “buy” to “hold” with some analysts, and revenues were lower in the last report but better than most expected. Despite all this, shares didn’t fall off drastically. If anything a little selling will create a buying opportunity. I believe the stock will trade at its 52-week high again in the next six months. Our 12-month target: $94.50.

John Simons is the personal finance editor for Black Enterprise.

Morning Call

0 CommentsMonday • June 28, 2010 • by avickery

“Character is simply habit long continued.”

Plutarch

Morning call

June 28, 2010

Market Update

After a few wide swings into positive and negative territory, the Dow finished just 9 points to the downside on Friday. The S&P and NASDAQ managed to stay positive by an equally small margin. Futures indicate a slightly upward bias in US equities to start the new trading week and it appears banks and energy shares may lead the way higher.
The consensus at this weekend’s G20 meeting in Toronto was to maintain low rates and stimulus until the global economy is on more sure footing, which is being grated with some enthusiasm among investors. Others feel that the public statements are generally inconclusive and each leaders from each member nation will go home, claim victory, and continue to do what they see as best for their own situation. Europe is already on a path of strong budget cutting measures, while US officials are calling for a longer period of government spending to keep a fragile recovery on track.
Investors in Asia were apparently unimpressed by developments at the G20, as stocks there were little changed and the major indexes finished relatively flat. The financial sector suffered through some strong selling, while industrial shares, for the most part, moved higher.
In Europe, equities started the day with a swing in either direction before buying picked up and led the indexes to an average gain approaching 1%. Technology shares are strong in Europe this morning, while bank stocks are somewhat mixed. European bonds declined as member states, including Italy and France, entered the market with about $28 Billion of new debt.

Commodities

Commodities are somewhat mixed this morning, although a bias toward the upside appears to be growing. Crude oil has given back a small part of its recent gains, but remains above the $78 mark.
Gold continues to rise. Having seen some volatility, prices have moved higher by about $3 to $1258 in early trading.
The Dollar as strengthened against its peers this morning as well. Many foreign exchange analysts believe that we may see some consolidation in the coming weeks and less price movement.

Economy and Earnings

Personal Income data stands alone on the economic calendar today. Economists expect to see little change in this figure and slight variations are unlikely to result in much market movement.
On the earnings side, we will hear from Barnes & Noble, Micron Technology, SMSC, Zep Inc., and very few others.

Venture Capital and Private Equity

Staff at France’s Le Monde, a 65-year-old daily newspaper, has overwhelmingly backed an ownership bid from a trio of left-leaning tycoons led by Lazard banker Mathieu Pigasse as the paper fights for survival.
French President Nicolas Sarkozy had threatened to withhold state subsidies from the newspaper if the Pigasse bid beats a rival consortium that includes partly state-owned company France Telecom.
Journalists at struggling French daily Le Monde voted Friday in favor of a takeover by a trio of French businessmen that pledged not to cut jobs.

Washington and Public Finance

In the final version of financial overhaul, agreed to by House and Senate negotiators, big bank holding companies will get 5 years to abide by a measure disqualifying riskier securities from meeting stiffer capital standards.
The Senate unanimously voted for the new standards requiring that Tier 1 capital at bank holding companies comprise only equity and not hybrid instruments such as trust-preferred securities. The House version would have grandfathered, or exempted, all firms that had counted the securities as assets.
Under the compromise, firms with assets of $15 billion and less could count their current holdings of trust-preferred securities as part of Tier 1, but not any new investments.
Private lenders will be required to keep at least a 5% stake in loans they package and sell under an agreement reached by House and Senate lawmakers who are negotiating the financial-regulatory bill.

In Summary

The two-day G20 summit concluded yesterday in Toronto, Canada. Although some had anticipated heated debate over the touchy issues of delivering growth while also reducing government spending, the general tone stayed constructive and world leaders appear to have reached some consensus. The leaders collectively pledged to “follow through on delivering existing stimulus plans,” while acknowledging “the need…to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability.” Advanced economies subscribed to fiscal plans that will halve deficits by 2013 and “stabilize or reduce government debt-to-GDP ratios by 2016.”
Some observers have complained that the only real conclusion was an obvious but vague statement that leaves room for G20 members to essential go back to the same routine. Officials agreed that it should be “tailored to national circumstances,” which leaves a plenty of wiggle room.

Please Continue to the following page to read an interview of Arnie Waters in the July Issue of Black Enterprise Magazine!

News You Can Use

“Boston investment banker Arnett Waters sifts through recent events to locate out-of-favor stock gems.”
July 2010
Article written by John Simons.

Arnett Waters
Arnett Lanse Waters is a bit of a news junkie. His best investment ideas, he admits, come from paying constant attention to world events. During the week Black Enterprise caught up with him this spring, workers in the Gulf of Mexico were scrambling to clean up a massive oil spill, the U.S. economy was showing further signs of turnaround, and the European Union was preparing a financial bailout package for Greece. Waters was naturally brimming with thoughts about how investors might make long-term bets related to these occurrences.
Like his investment strategy, Waters’ career has been multifaceted. The native Bostonian, who attended Harvard, began working in public service in 1971, running several state and local employment training programs. Later, he honed his economic chops as an aide to the former chief economist of the Bank of Boston. Waters then shifted his focus to finance, cutting his teeth as a stockbroker at Merrill Lynch, and then working in various executive positions at Merrill; Donaldson, Lufkin and Jenrette; and Shearson Lehman. Waters founded A.L. Waters Capital L.L.C., an investment banking and corporate finance firm, in 2004. Whenever he can, he urges his clients to think globally. “Technical analysis and economic indicators are great tools,” says Waters. “But to be ahead of the curve you have to look at the big picture.” We talked to Waters about his view of the world and of financial markets, and asked him to share a few investment ideas.

How do you see the U.S. economy and the financial markets performing in the second half of this year?
We see the U.S. economy slowly getting back into shape—the gradual effect of President Obama stabilizing the banking system. The Dow should trade in the range of 9,000 to 13,000 with a lot of volatility. But I’m optimistic about the U.S. economy. There’s no better place in the world to trade.

What are some of the global themes you’re acting on now as an investor?
There’s what I call the European problem. It’s naive to think that the sovereign debt crisis will remain a Greek problem. Portugal, Italy, Ireland, Greece, and Spain all face overwhelming deficits. Ireland’s deficit is already larger than Greece’s. The European Commission recently forecast that the United Kingdom and Spain will also surpass the deficit in Greece. The U.K. will be the highest and will also be facing a hung parliament by the looks of things. Individually, this is concerning enough. Collectively, this is bad news for the euro. Already, investors are running away from the euro and into U.S. Treasuries.

How might investors take advantage?
An ETF [exchange-traded fund] such as the ProShares UltraShort Euro (EUO) is a great way to profit from this decline and has been paying off quite well recently. The decline of state socialism is a really good thing for the U.S. The fund looks to correspond its shares to twice (200%) the inverse of the daily performance of the United States dollar against the price of the euro. Shares are trading at just under their 52-week high of $23. This would reflect a move for the euro-dollar to $1.15. The fund, managed by ProShare Advisors L.L.C., has $285 million in net assets and invests in financial instruments to achieve its objective. Shares have returned 11.23% year-to-date. Our 12-month forecast is for shares to reach $29, which is an upside of 26%.

What’s another theme that’s holding your interest right now?
Shipping. We watch the shipping industry closely because it reflects real economic activity. Shipping companies have been known to make exponential gains when the economy begins picking up. Things look grim for the industry in the near term. The explosion at the oil rig off the Louisiana coast has implications far beyond the human tragedy and financial stress on British Petroleum and Transocean. The attention will spread to the shipping industry as well. There is already talk of a ban on single-hull ships in the Gulf. This will involve an expense to upgrade to double hulls and be an advantage to some and a setback for others. The race is on to see which one will be able to step in. Diana Shipping should be the best performer in the shipping group.

What do you like about Diana Shipping?
Diana Shipping Inc. (DSX) is a global provider of shipping transportation services. It specializes in transporting dry bulk cargoes, including iron ore, coal, grain, and other materials along worldwide shipping routes. Each of its vessels is owned through a separate wholly owned subsidiary. Here’s a company that has an excellent record and good management, and they are going to make money. The reason they’re lagging is external; some people feel there’s a danger that shipping will be restricted. But countries that have a lot of natural resources will continue to make shipments to countries that don’t. With the recession, shipping has declined, and Diana has been unfairly affected. But the shipping world has not ceased. With growth in world population, shipping is going to increase. DSX’s share performance began lagging behind movement in the Dow back in July of 2009. Most of its peers have also lagged the Dow, and that, to us, has been an indication that valuations are a little optimistic for Dow components. At just under $15 a share, prices have been hovering in the middle of their 52-week range after trending higher in April. Our 12-month target price is $21.

Are there any companies currently in the news that you like?
I happen to like Transocean Ltd. (RIG) [which owned the rig destroyed in the April 20 explosion preceding the oil spill in the Gulf of Mexico]. Regardless of what anyone says, we’re going to need fossil fuel for a long time. Transocean is an international offshore contract driller in the oil and gas industry. The company owns or operates 138 mobile offshore drilling units. It is a leader in deep-sea drilling and has five ultra-deepwater drill ships under construction. Oil has been relatively stable, considering the level of instability in the global economy, in the range of $70 to $80 per barrel. We will see an expansion of exploration and drilling, which means revenue for the drilling companies. Even though Transocean is under some pressure right now because of the accident in the Gulf, shares are holding up rather well. Shares have been downgraded from “buy” to “hold” with some analysts, and revenues were lower in the last report but better than most expected. Despite all this, shares didn’t fall off drastically. If anything a little selling will create a buying opportunity. I believe the stock will trade at its 52-week high again in the next six months. Our 12-month target: $94.50.

John Simons is the personal finance editor for Black Enterprise.