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Morning Call: Jobless Claims, Social Enterprise, and Financial Reform

0 CommentsThursday • July 22, 2010 • by avickery

“You cannot conceive the many without the one.”

Plato

Morning Call

July 22, 2010

Market Update

Ahead of earnings season, investors appeared willing to look to corporate profits as a leading indicator of just how healthy the economic recovery was. Now, despite the fact that said earnings have been mostly positive, investors can’t ignore the dismal macro-economic data and are regarding corporate profits as a lagging indicator.

Two words from Federal Reserve Chairman Ben Bernanke have had a sobering effect on investor sentiment as well: “unusually uncertain.” This is how Bernanke described the outlook for economic growth in his report to the Senate yesterday. Bernanke did say that the Fed was committed to take further action if the recovery were to show signs of faltering, but he spent a larger portion of his time discussing how the Fed will exit from its massive stimulus measures.

After hovering near the flat-line for most of the session yesterday, the Dow sold off late in the day to finish 109 points lower. Once again, the percentage losses on the S&P and NASDAQ were slightly greater. Bank shares slid yesterday but pre-market trading today suggests the financial sector will recover those losses. A wide variety of technology stocks also look poised for a strong trading day. Among them, Nokia shares are rising ahead of earnings news today. Some fear the numbers may be disappointing from the world’s largest cell phone manufacturer, but rumors have been circulating that the Finnish company may be in the market for a new CEO. The company’s technology is strong, but it continues to struggle for smart-phone market share with Blackberry and the iPhone.

The Yen is higher, and stocks moved slightly lower in Asia, as sentiment was affected by yesterday’s slide on Wall Street, Bernanke’s comments, and nervousness over stress tests for the European banks. The report is due on Friday and most expect it show positive results for Greece, Italy and Ireland and some red flags in Portugal and Spain. The credibility of the results will be the most important factor, however.

Stocks have recovered from a slow start in Europe this morning. Most bank shares are higher, while trading has been more selective in other sectors. While investors await information about the health of the region’s banks, the Euro currency has survived its own test recently. The Euro fell recently to a four year low as sovereign debt concerns stirred doubts over the strength of the Union and its currency. Since then, the Euro has seen an 8% rally off of its lows.

Commodity Update

Commodities are a little more mixed today, after faltering late yesterday. Crude oil has come back by a half-percent to come within a few cents of $77.

Gold made an evening run toward $1200 late yesterday, pulled back during the night, and is now showing a $2 upside at $1188. With so much ambiguity in equities and the currency market, we can expect to see continued volatility in gold for several weeks.

Offering some support to the gold trade is the fact that the Dollar is lower against its peers this morning.

Economy and Earnings

The ever important Initial Jobless Claims is on the calendar today. Along with Existing Home Sales, the Leading Economic Indicators, and Fed Chairman Bernanke will be before the House Financial Services Committee.

Today’s earnings news will be coming from 3M, Akeena Solar, Amazon, American Express, AT&T, Baxter International, Bristol-Myers Squib, Cabot Oil & Gas, Caterpillar, Diamond Offshore Drilling, Eli Lilly, Microsoft, Nucor, Philip Morris, the New York Times, and a long list of others.

Private Equity and Venture Capital

Social Enterprise has seen about $100 Million in venture capital investment in the past week. The most recent comes from a $30 Million investment in Jive Software made by Kleiner Perkins Caufield & Byers. Based on investment activity in social enterprise and cloud computing recently, this area should see strong growth in the next few years.

Another company creating a sudden buzz is Flipboard. The Colorado-based startup announced it has raised $10.5 Million in first round financing. The list of investors included Kleiner Perkins Caufield & Byers, as well as Twitter co-founder Jack Dorsey, Facebook co-founder Dustin Moskovitz, and media executive Peter Chernin. Focused primarily on the iPad, the company’s free application helps users browse their social feeds on Twitter, Facebook, and other social networking sites.

Washington and Public Finance

The Municipal Securities Rulemaking Board says it may temporarily expand its 15-member board, by two to four members, as it moves toward majority-public membership by October 1^st to comply with the new financial regulatory reform law.

Under new regulations, the board may increase in size beyond 15 members beginning October 1^st, as long as it maintains a public official majority. Dealers and advisers are to represent a minority of the board, and the new law also requires the board to hire at least one adviser.

In Summary

Yesterday, President Obama signed the Dodd-Frank financial reform bill into law, pledging that financial reform will “help foster innovation, not hamper it.” The President also vowed that the bill would be the end of taxpayer-funded bailouts.

The new reforms are clearly the biggest overhaul of the financial system since the 1930s and will alter the landscape considerably. As then, however, the industry often adapts to the landscape and develops innovations of its own, which should make the next few years interesting in the world of finance.

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 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: Bernanke Speaks, Apple’s Earnings, China’s Energy Consumption

0 CommentsWednesday • July 21, 2010 • by avickery

“As a twig is bent the tree inclines.”

Virgil

Morning Call

July 21, 2010

Market Update

The Dow managed to recover from early lows to finish the day 75 points higher yesterday. This despite news from the US Department of Commerce that construction of new homes fell 5% in June to a seasonally adjusted annual rate of 549,000; the lowest level since October. Positive earnings results and signs of increasing M&A activity helped boost confidence in stocks and financial shares saw gains later in the day. Futures this morning also point slightly higher.

Fed Chairman Ben Bernanke will be visible today and tomorrow. Today Bernanke will deliver his semi-annual report on monetary policy to the Senate Banking Committee and will testify at the House Financial Services Committee tomorrow.

Stocks ran flat in Asia in mixed trading that saw financials weighing on the broader indexes. The Hang Seng outperformed other regional benchmarks with a gain of more than 1%, while the Nikkei and Topix finished slightly lower. For investors in China, Apple’s strong earnings point to earnings growth for domestic memory chip makers. Steel shares around the region also rallied on news China is consolidate the local industry and reduce the number of steel makers in the country by about 75%.

In Europe, stocks soared at the open and the major indexes are all higher by an average of about 1.5%. A diverse blend of banks, technology, and industrial stocks are sharing in the gains this morning. Shares in Fiat are 7% higher after the Italian automaker reported it returned to profit in the second quarter.

There remains some hesitation among European investors ahead of Friday’s release of stress test results for the region’s banks. Regulators will reportedly give three scenarios when results are published, but critics have already complained that none of the scenarios include the possibility a sovereign default in the European Union. In all, 91 banks will be put under the spotlight.

Commodity Update

Commodities are also moving higher this morning. Crude oil continues to trend slowly higher; now trading a few cents short of $78. Traders expect to see another drawdown in inventories when the US Department of Energy releases its report today, and are also keeping an eye on a possible tropical storm brewing in the Caribbean.

Gold is running flat in the morning session after a strong rally last night. As we expected, gold bounced off of the support line at $1175 and has worked its way back to $1191.

The Dollar has gained on the Euro, but retreated slightly on the Yen and Pound.

Economy and Earnings

Economic news today will include Mortgage Applications and Ben Bernanke’s monetary report to the Senate Banking Committee.

Another big day for earnings news includes reports by Abbott, Altria Group, Eaton, eBay, Freeport McMoRan, Genzyme, Host Hotels & Resorts, Morgan Stanley, Northern Trust, Starbucks, Coca-Cola, Wells Fargo, and a slew of others.

Private Equity and Venture Capital

Founders Fund, the venture capital firm started Peter Thiel, co-founder of PayPal, has reportedly raised $250 Million to invest in companies focused on the internet, science and engineering.

Elsewhere, VC firm Greylock Partners, has invested $15 Million in application builder Shopkick Inc. The one year old Shopkick builds mobile shopping applications for the iPhone and Google-powered devices that provide product details or coupons.

Lastly, Goldman Sachs says it will remain in the private equity business despite new financial regulations that would restrict the bank holding company in allocating money to alternative investments.

Washington and Public Finance

The Securities and Exchange Commission is said to be preparing a nationwide inquiry in the municipal market that is expected to lead to recommendations for statutory and regulatory changes.

The SEC is presently seeking public comment, through August 9^th, on an MSRB proposal to change its EMMA site to reflect new standards for continuing disclosures as well as changes to a list of event-based voluntary disclosures that borrowers may submit.

In Summary

The International Energy Agency announced that China has now surpassed the United States as the world’s biggest energy consumer. Officials there are rejecting the claim and defending China’s efforts in boosting cleaner energy sources. Just 10 years ago the U.S. consumed twice as much as China.

Among the many products used to fuel China’s growth, the nation’s coal demand continues to grow at a record pace. In the month of June, China’s net coal imports totaled 11 million tons.

While we have repeatedly expressed concern over the overheated bubble economy in China, it also makes sense to monitor the present facts. Even if the Chinese economy were to slow to half the pace it has grown in recent years, it will remain a major consumer of goods and user of energy. In the near term, coal could be on the biggest beneficiaries of insatiable demand from the east.

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 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: Tech Stocks Lower, Britain’s Better Budget, and Economic Recovery

0 CommentsTuesday • July 20, 2010 • by avickery

“Nothing is stronger than habit.”

Ovid

Morning Call

July 20, 2010

Market Update

It is still very much a data driven market and the numbers have been a little disappointing lately. Futures have turned slightly negative this morning as revenue at IBM and Texas Instruments missed analysts’ projections. The Dow did manage an upside of 56 points despite word that U.S. homebuilder sentiment fell more than the market had expected and now stands at its lowest level in more than a year. In pre-market trading this morning, it appears the banks will be in retreat today.

Stocks were considerably mixed in Asia, with a loss of about 1% on the Nikkei and the Korean Topix, but an upside on the Hang Seng of nearly the same percentage. Technology stocks hurt the major indexes across the region, but both Shanghai and Hong Kong rose on hopes that Beijing will ease up on tightening measures aimed at slowing China’s double-digit growth. There is also some optimism that China’s Yuan will rise under the policy of more flexibility announced last month, which would boost sectors like real estate and airlines.

Stocks in Europe are running flat ahead of important economic data out of the US later this morning. Bank shares are mostly higher but, here too, technology stocks are being punished. The technology sector has been very strong in recent months and we can expect to see a rebound in this area once the dust settles.

Britain’s budget deficit showed slight improvement, but less than economists had expected. The numbers showed a £14.5 Billion ($22 Billion) shortfall compared with £14.7 Billion pounds a year earlier. The median forecast, however, was for a deficit of about £13 Billion.

Elsewhere, Spain sold the maximum targeted amount of €6 Billion in 12 and 18-month bills at auction, according to the Bank of Spain.

Commodity Update

Commodities are relatively mixed this morning. Crude oil continues to climb slowly; adding a half-percent to just under the $77 mark. Volatility is still likely as trading has been thin. Prices at the pump are down from a month ago. In its weekly report yesterday, the Energy Department said pump prices around the country averaged $2.722 per gallon.

As we expected, gold continues to trend lower; giving up another $6 this morning to $1177. With equities drifting along, the demand for gold as a safe haven has been decreasing. This, too, will change.

The Dollar is higher against all of the major currencies this morning.

Economy and Earnings

Housing Starts and Permits data is the only economic news investors will have to think through today. Economists say housing starts fell in June to the lowest level of the year. The expiration of the government tax incentive is expected to weigh on the housing market in the coming months.

Earnings news will be coming from Altera, Apple, Bank of New York Mellon, Biogen Idec, Boston Scientific, Fidelity, Forest Laboratories, Goldman Sachs, Harley Davidson, Johnson & Johnson, Peabody Energy, PepsiCo, State Street, Yahoo, and quite a few others.

Private Equity and Venture Capital

It seems that the health of the PE/VC industry depends on reports from varying sources, but according to Dow Jones VentureSource, venture investors put $7.7 Billion into 744 deals for US-based companies during the second quarter of 2010.

This would be the highest quarterly total the third quarter of 2008.

According to another report, private equity investors plan to increase their exposure to funds focused on renewable energy, clean technology, and other green investments.

Washington and Public Finance

Once the financial reform bill is signed into law, Treasury Secretary Geithner will reportedly gain unprecedented influence over the financial markets. New found powers will give the Treasury Department influence to shape bank regulations, oversee financial markets and create a consumer protection agency.

Specific provisions in the bill also leave the door open for FINRA to increase its oversight of investment advisors and possibly imposing “a uniform fiduciary standard” on brokers and advisers when giving financial advice.

The Treasury Department will auction $25 Billion in 56-day cash management bills today.

In Summary

Some economists had predicted a “Year of Two Halves” where the beginning of 2010 would see some signs of stabilization and growth, followed by a second half that could be markedly different. We are already in the second half and, of course, some signals of a global macroeconomic slowdown have become more evident.

Debate has centered on whether the global economy will face a long and sluggish U-Shaped recovery or the dreaded Double-Dip. Those who predicted a vibrant V-Shaped recovery have not been available for comment lately.

With the demonstrated determination of central bankers and other policymakers to do whatever it takes to keep the economic wheels turning, it would appear likely that we could see several retracements in the data, followed by a policy reaction, some improvement, and then several other bumps in the road. Perhaps we should coin the phrase: “wash-board recovery.”