A.L. Waters Capital, LLC

Morning Call

0 CommentsTuesday • June 30, 2009 • by alwaters

“Victory belongs to the most persevering.”

Napoleon Bonaparte

The Dow managed to pull off a respectable gain of nearly 1% yesterday and futures this morning are slightly positive. Oil made an early run this morning but has fallen off slightly as the morning progressed. The major integrated oil stocks had a strong day yesterday and we expect that the drilling companies may follow suit today. Stable prices for crude will lead to Exploration and Development activity and thus benefit the drillers. Watch for the best in breed drillers such as Diamond Offshore (DO) and TransOcean (RIG) to move higher this week. Two other names to watch will be Noble Energy (NE) and Atwood Oceanics (ATW). The energy sector was the leading performer yesterday and we do believe that oil prices will hold up today.

Asian stocks followed sentiment in the US with about a 1.5% upside. One exception was China’s Hang Seng which failed to stay positive; finishing the day down by nearly 1%. European equities are having a little more trouble staying positive with most indexes slightly lower at mid-day. One similarity between Europe and Asia has been positive movement for the financial sector.

Commodities are mostly higher this morning although oil and some metals are to the downside. Despite oil’s pullback, prices appear to be stabilizing near the $71 mark. Oil traders are mostly awaiting today’s Petroleum Status Report which should fall close to expectations in terms of supply. Gold is essentially unchanged this morning at $940. The Dollar is lower against the major currencies this morning which should add support to gold process today, but it appears, for now, that a lot of cash is simply waiting on the sidelines.

In addition to the EIA Petroleum Status Report, other economic news includes some Retail Sales figures, the Purchasing Managers Index, and the Consumer Confidence Index. The earnings calendar includes FSI International, Sealy Corporation, Synnex, and a few others.

We are beginning to see an increase in M&A activity in a broad range of sectors; which is actually a positive sign. Although the deal making process remains arduous many deals simply haven’t come to fruition yet, we still see the large number of talks in the works as an indication that some executives see this as a good time to make a move. Most of us expected to see a lot of industry consolidation but few actual deals were happening because so many feared that the economy was too bleak to make a bet on the future. Now the business environment appears to have stabilized enough at least to get the corporate dealmakers to the table. There are, at this point pending talks in energy, mining, technology and several other sectors. This doesn’t necessarily mean that we are on the verge of an economic recovery. It more simply suggests that the corporate “shoppers” may finally believe that bargains and opportunities exist today, rather than wondering if tomorrow’s sale will be even bigger.

Morning Call

0 CommentsMonday • June 29, 2009 • by alwaters

“Failure lies not in falling down. Failure lies in not getting up.”
(Traditional Chinese proverb)

Despite a steady stream of dramatic events around the world, the stock market has been barely able to garner any real momentum lately. At one time, political unrest in Iran, saber rattling in North Korea, or a military coup in Honduras might have caused a noticeable ripple in the stock markets. Add to this, a threat from Venezuelan leader Hugo Chavez to take military action in Honduras or Russia’s holding of major “War Games” in the Caucasus region and you might expect a reaction in equities, gold, or oil. Instead, we have had minimal movement in the indexes and this morning’s futures activity has seen only a modest upside. Commodities have all fluctuated in a tight range as well. It is as if traders have become so numbed from recent events, and so confused by conflicting predictions of recovery or collapse, that few are willing to commit.

In Asia, stocks moved lower by an average of 1%, but most banks fared worse as did the technology sector. In Europe, however, the indexes are higher by nearly 1% and most of the financial sector has stayed in positive territory. In the US, futures remain slightly higher, but it appears that the banks stocks will not be among the winners today. Although it has no bearing on the stock market, many will be watching for details from the court scene today as Bernie Madoff is scheduled for sentencing and Allen Stanford faces a bail hearing.

Commodities are generally mixed this morning, although both gold and oil have moved higher. Crude has jumped higher by over 1% at just under the $70 mark. Gold has gained a Dollar to reach $942. Despite the fact that China added some relief to the Dollar by issuing a statement ruling out any “sudden changes” in its foreign reserves policy, the Dollar remains lower against the Euro and Pound.

There are no scheduled economic reports today. For earnings, we will hear from Apollo Group, H&R Block, and several smaller companies.

Somewhat overshadowed by celebrity and political news stories over the weekend, there were also five more bank failures; bringing the year total to 45. Together, the banks represented over $1 Billion in assets. This can’t be played off as an insignificant occurrence, particularly because we do not believe the worst is over for the small to regional banks. Even though the total numbers appear nowhere near that of the Great Depression, it is all a matter of what numbers you look at. In terms of total branches closed, total assets involved, or the total number of banking jobs lost as a result, we have already exceeded the scenario from the 1930s. The large institutions will not remain immune if the bleeding is not controlled at this level.

Morning Call

0 CommentsThursday • June 25, 2009 • by alwaters

“It’s not the bulls and bears you need to avoid — it’s the bum steers.”

Chuck Hillis

Sometimes those that stand by and watch a witch hunt unfold later find themselves accused. During the virtual unraveling of the financial system, many a finger has been waved in the faces of corporate executives, regulators, and the like. Now the accusing eye has turned toward the very top of the food chain. Fed Chairman Ben Bernanke will be up for reappointment or replacement in January and has received only lukewarm support from the President and his administration. Whether Bernanke did too much, too little, or in any case the right things during the unfolding crisis are now being questioned. Further jeopardizing his job security is the investigation into whether the Federal Reserve engaged in a cover up of pertinent details and coercively pushed Merrill Lynch into the hands of Bank of America. The more conspiracy oriented thinkers believe that Larry Summers may be waiting in the shadows for a shot at the Fed Chairman’s seat.

Market View

The Dow finished slightly lower yesterday, but the NASDAQ and S&P actually managed decent gains. A breakdown of industry sectors showed that most finished higher on the day. Basic Materials, Technology, and Transportation were among the leaders. Our solar picks yesterday saw positive results, with LDK Solar up by 2.5% and JA Solar Holdings up nearly 8%. Our third pick, Rene Solar gained a notable 11% during the day. All three have moved even higher during aftermarket trading, so we expect another positive day in this sector. We may also see some momentum gather later in the day for the major integrated oil stocks and some of the drillers. Afterhours trading has been mixed in this sector, but with oil heading higher this morning, these stocks should start to benefit.

Overseas, it has been two opposing stories in Europe and Asia. Starting in Asia, the indexes moved higher by an average of about 2% with financials and some industrials leading the way higher. Today in Europe, however, the indexes moved downward at the opening and are presently down by an average of 1.5%. Price performance on the most actively traded stocks in Europe has also been inconclusive within sectors. For the US markets, it is important to note that short selling on the S&P has risen for the first time since March in an indication of growing negative sentiment among traders. Interestingly, some healthcare stocks are seeing the highest short selling, while banks are seeing a decline in their short ratios.

In a bit of a red flag regarding economic sentiment, commodities are somewhat weak this morning. Both gold and oil, however, are higher. Crude prices have crept steadily higher throughout the morning; up by 1% to just over $69. Gold has floated on either side of even most of the morning and is presently up by $3 at $937. Industrial metals are also slightly higher. The Dollar is higher against the Yen and Pound this morning, but is down on the Euro.

In another important day for economic news, it will be GDP numbers and Initial Jobless Claims grabbing the spotlight. For earnings, ConAgra, Lennar Corporation, McCormick and Company, and Micron Technology will report today.

This morning’s economic reports will have a lot do with market movement today. Initial Jobless Claims will certainly fluctuate in the coming months, but rising continuing claims may be the most concerning factor. We are essentially between rounds in what will certainly be a long economic fight. We tend to disagree with those that dismiss jobless claims as a lagging indicator while proudly holding up the latest green shoot. We pointed out recently that, while unemployment may in fact be a lagging indicator, but that doesn’t mean it is irrelevant. The numbers are in fact catching up with the first leg down in the economy, but there is still plenty of concern that the head could lead the tail down even further.