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Monthly Archives: May 2011

Sam Zell: Dollar is Trash, Latin America is Gold

“The dollar is in a heap of trouble, says real estate billionaire Sam Zell. And with the United States economy in such disarray, he sees Latin America as very attractive, particularly Colombia, Peru and Chile.

“We’re printing money at a staggering rate. It all comes down to how much longer everybody is going to be willing to take a depreciating currency,” Zell tells CNBC. The dollar hit a 33-month low in late April.

“We have to address the debt issues. The falling dollar is a vote of no confidence of the government of the United States.”….”

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Bill Gross: “We’re going to have a slow-growth economy and probably one in which inflation goes higher, which is not a conducive recipe for financial markets.”

“The United States is headed for a period of slow growth mixed with high inflation rates, a nasty cocktail for U.S. bonds, says Bill Gross, co-head of Pimco, the world’s largest bond fund.

“Debt tends to slow economic growth,” Gross tells CNBC.

“We’re going to have a slow-growth economy and probably one in which inflation goes higher, which is not a conducive recipe for financial markets.”

Investors should look to countries like Canada, Brazil, Germany or other countries with “pristine balance sheets” for more attractive sovereign debt….”

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Momo Player Ken Fisher:”I think expectations for the stock market are a bit on the high side”

“Is falling oil a good sign or a harbinger of disaster? If you are a typical American pumping unleaded, a sharp drop in gasoline prices would be welcome right about now. If you are a stock market bull, not so much.

Even “momentum” players like Ken Fisher, founder of the $38 billion fund Fisher Investments, see a slowdown in equities around the bend.

“I think expectations for the stock market are a bit on the high side,” he told Reuters. That sounds like a tempered statement, but consider that Fisher’s normal investment strategy is to buy as shares rise in order to ride market enthusiasm even higher….”

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A Closer Look Into LinkedIn; Expected To Trade Tomorrow

“(Reuters) – An initial public offering by social networking firm LinkedIn Corp to raise about $341 million seems poised to be a stunning success, but it carries a number of risks that may shake up investors in the future.

The IPO is expected to price after the close of U.S. markets on Wednesday and start trading on Thursday.

In the fervor surrounding the rush to the first major U.S. social networking company to become public, investors may overlook some risks that could sour LinkedIn in the future, analysts say.

One of the biggest risks may be LinkedIn’s gutsy bet on its future growth — combined with an admission that it does not expect to be profitable in 2011 on a U.S. generally accepted accounting principles (GAAP) basis…..”

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Super Rich Change Pole Position

“Forty years ago, wealthy Americans financed the U.S. government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money. While foreigners own most of our national debt, over 40 percent is owned by Americans – mostly the very wealthy.

This great switch by the super rich – from paying the government taxes to lending the government money — has gone almost unnoticed. But it’s critical for understanding the budget predicament we’re now in. And for getting out of it.

Over that four decades, tax rates on the very rich have plummeted. Between the end of World War II and 1980, the top tax bracket remained over 70 percent — and even after deductions and credits was well over 50 percent. As recently as the late 1980s, the capital gains rate was 35 percent.

Not only are rates lower now, but loopholes are bigger. 18,000 households earning more than a half-million dollars last year paid no income taxes at all. In recent years, according to the IRS, the richest 400 Americans have paid only 18 percent of their total incomes in federal income taxes. Billionaire hedge-fund and private-equity managers are allowed to treat much of their incomes as capital gains, now taxed at just 15 percent.

Meanwhile, more and more of the nation’s income and wealth have gone to the top. In the late 1970s, the top 1 percent took home 9 percent of total national income. Now the top 1 percent’s take is more than 20 percent. Over the same period, the top one-tenth of one percent has tripled its share. Wealth is even more concentrated at the top — more concentrated than at any time since the Gilded Age of the late 19th century……”

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Berstein on RIM: Cover Your Shorts Today

“Bernstein’s Pierre Ferragu, the Axe in Research in Motion (NASDAQ:RIMM) is backing off from his uber bearish thesis this morning.

– Ferragu is upgrading RIMM to Market Perform from Underperform (tgt unch. $40) telling his clients to cover their shorts today.

RIM’s stock has lost 39% since its high of February and is now clearly implying a medium term evolution of the company far worse than management guidance or even sell-side consensus implies. With EPS 10% below consensus for this year and 21% for next year, they believe they currently model the bleakest possible outlook for the company and show in this piece of research that a significantly worse scenario is very unlikely to materialise in the next 2 years. As a consequence, Bernstein recommends covering short positions in RIM today.

They also recognise the stock is particularly cheap on any metric, were the company to stabilise its current position and make the right strategic moves to stay in the smartphone race. But they believe management remains in denial of challenges facing the company and therefore do not recommend buying the stock yet, or at least not beyond a short term play on a likely rebound.

They recommend covering short positions in RIM.

RIM’s stock has lost 39% since its high of February, while sell-side earnings expectations only marginally adjusted and management maintained full year guidance. The stock is now trading at 4.7x management guidance and 5.5x sell side consensus for FY12 EPS (ex-net cash). In other words, investors give no credit to these numbers.

Even on their numbers, RIM appears cheap on all metrics. The firm forecasts EPS 10% below consensus (22% below guidance) for this year, 21% for next year. On these numbers RIM recently traded at 5.6x 2012 ex-cash Earnings and 0.9x 2012 sales, at the bottom end of the tech universe.”

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Moody’s Cuts Ratings For 4 Australian Banks

“(Updates with banks’ comment from fifth paragraph.)

May 18 (Bloomberg) — Australia’s four largest banks’ credit ratings were cut one level to Aa2 by Moody’s Investors Service on concern their reliance on wholesale debt markets makes them vulnerable to swings in investor confidence.

Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., and National Australia Bank Ltd. were cut from Aa1 to Moody’s third-highest grade, the New York-based ratings company said. The banks’ shares and the Australian dollar fell, while the cost of protecting against default on their debt was little changed.

The so-called four pillar banks have “relatively high levels of wholesale funding, at about 40 percent of liabilities on average,” Patrick Winsbury, a senior vice president at Moody’s in Sydney, wrote in an e-mailed statement. “The global financial crisis has underlined the speed with which shifts in investor confidence can impact bank funding.”

Australia’s biggest banks — four of the 14 lenders in the world with a AA rating or better from Standard & Poor’s — largely remained profitable through the financial crisis as the economy avoided recession and the government introduced guarantees to support debt sales. Moody’s move brings its rating on the lenders in line with S&P’s assessment.

Commonwealth Bank Treasurer Lyn Cobley said in a statement that “we do not expect this to have any material impact on our funding plans or expected price of our new issuance.” National Australia remains committed to maintaining “strong capital, funding and liquidity positions,” the Melbourne-based bank said in an e-mailed statement.

Funding Risk”

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Del Monte Grabs Hershey Co.’s CEO Dave West

Hershey Co. Chief Executive David J. West is giving up his post to take the top job at Del Monte Foods Co., the maker of pantry staples and pet food that went private in a $5.3 billion March buyout, people familiar with the matter said Wednesday.

Mr. West, 48 years old, had led Hershey since late 2007, and his departure comes as a surprise. The chocolate producer is about 50% bigger than Del Monte by revenue, and its stock has risen by more than half since it failed to break up Kraft Foods Inc’s $19.5 billion takeover of British icon Cadbury PLC in January 2010.”

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Companies Increase Debt Holdings While Rates Remain Low

“U.S. companies are racing to fill up on borrowed money, amid worries that interest rates are set to rise once the Federal Reserve ends its support for financial markets next month.If debt is increasing on the ledger; can we negate cash on hand ?

Johnson & Johnson staged its biggest bond deal on record Tuesday. Texas Instruments Inc. raised debt for the first time in more than a decade Monday, and Google Inc. sold its first bond ever. Smaller companies like Great Plains Energy Inc. are also loading up on debt at some of the lowest interest rates ever.

All told, investment-grade companies sold $19 billion of bonds in the U.S. in the past two days, according to data provider Dealogic, setting the week up to be among the busiest so far this year. Bond sales in May have reached $56.7 billion—with two weeks left to go in the month—almost as much as the $59.6 billion sold in all of April.

Companies have already loaded up on debt over the past two years amid continued low interest rates. But in recent weeks, rates have moved down again, reaching their lowest level of the year. Making borrowing even more attractive right now: Many corporate treasurers expect interest rates may rise quickly once the Fed ends its $600 billion Treasury-bond buying program in June.

“Rates are so low it’s hard to see them going much lower, but it’s easy to imagine them going higher,” said Kevin March, chief financial officer of Texas Instruments, which sold $3.5 billion of debt in its first offering since 1999. The money will help pay for its purchase of National Semiconductor Corp. Texas Instruments paid less than 1% for some two-year debt. At current rates, “You just shake your head and say, ‘This is pretty amazing,'” he said.”


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Commentary From a America’s Most Significant Port


“Obviously, port data is a great way to get a read on global trade, and because of its natural connection to China, the Port of LA is always watched closely.

Citi’s Christian Wetherbee recently held a conference call with Port of LA Business Development Manager Chris Chase on what the port was seeing trade and economy-wise.

Here are a few bullet points:

  • For the year, total growth is still expected to be 3%.
  • May has been solid, but June and July have already looked to be negative.
  • On the other hand, a rebound is anticipated in August.
  • Higher fuel prices are causing shippers to get nervous.
  • Vessel utilization rates continue to be below target estimates, in part due to disruptions from the Chinese new year.
  • Furniture imports have been strong
  • The impact from Japan has been pretty minimal.

Here’s a look at the top US exports out of the port:”

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BlackBerry PlayBook Sales are Healthy With 250k Units Sold

BlackBerry PlayBook tablet — not loved by reviewers, but potentially interesting to BlackBerry fanatics — is seeing “steady” sales, RBC analyst Mike Abramsky writes in a research note.

He estimates that RIM has sold 250,000 PlayBooks since launching in mid-April, and may sell 500,000 in its first quarter, including 100,000 units of channel inventory.

This would be better than early sales of Motorola’s Google Android-powered Xoom tablet, he notes. And PlayBook returns are “nominal to date,” he says.

“Checks at 180 Best Buys show 14% of the 16GB sold out, 71% of the 32GB sold out, and 84% of the 64GB sold out; however, 32GB/64B stockouts appear allocation-related.”

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Richard Koo on QE2

“There’s probably no better person to assess the state of this economy than Richard Koo, the Nomura economist whose book The Holy Grail Of Macroeconomics is all about the unique nature of a post-crisis, deleveraging, balance sheet recession.

So when he speaks out on QE2, it’s a must read.

The first key points from his new report are encapsulated in this chart, which confirms that QE2 has had no positive impact on the money supply. There’s simply no connection. The world is NOT awash in cash….”

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Libya’s oil minister flees the country

TRIPOLI, Libya (AP) — Another high-ranking Libyan official has defected and fled the country amid a widening NATO campaign of bombings as well as leafletting and other psychological warfare to persuade Moammar Gadhafi’s troops to stop fighting.
Shukri Ghanem, the Libyan oil minister and head of the National Oil Co., crossed into neighboring Tunisia by road on Monday, according to a Tunisian security official and Abdel Moneim al-Houni, a former Libyan Arab League representative who was among the first wave of Libyan diplomats to defect.

The defections suggest Gadhafi’s political structure is fraying, but it’s unclear whether there is enough internal strife to seriously undermine his ability to fight rebel forces as NATO airstrike pound Libyan military targets. Gadhafi appears to retain the backing of his core of military commanders.

Still, support for Gadhafi seems to be waning in the capital, Tripoli. Pro-regime demonstrations are sparsely attended, even when heavily advertised in advance.

And rebel forces have reported some gains in recent days. In Misrata, the main battleground in western Libya, opposition fighters claim they have driven back government troops from key access points and tried to push pro-Gadhafi gunners out of rocket range for the city.

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Upgrades and Downgrades This Morning


WMT – Wal-Mart tgt raised to $70 from $63 at Citigroup

GG – Goldcorp upgraded to Overweight from Neutral at HSBC

DELL – Dell target raised to $19 from $17 at Brean Murray

CDR – Cedar Shopping Centers upgraded to Oupterform from Market Perform at BMO Capital

VOCS – Vocus upgraded to Outperform from Neutral at Robert W. Baird

LNN – Lindsay Corp upgraded to Neutral at Wedbush

VRSN – VeriSign initiated with an Outperform at Cowen

BXP – Boston Properties target raised to $113 at RBC Capital Mkts

GMLP – Golar LNG Partners initiated with a Outperform at RBC Capital Mkts

THOR – Thoratec initiated with a Outperform at Oppenheimer

PLAB – Photronics target raised to $13 from $11 at Needham


SPLS – Staples downgraded to Hold from Buy at Citigroup

DKS – Dick’s Sporting Goods downgraded to Sell from Neutral at Sterne Agee

TSL – Trina Solar target lowered to $32 from $35 at Brean Murray

UAN – CVR Partners initiated with a Neutral at Goldman

HPQ – Hewlett-Packard downgraded to Neutral from Overweight at JP Morgan

CNQ – Canadian Natrl Res upgraded to Action List Buy at TD Newcrest

VZ – Senators push for public safety build, wireless broadband spectrum bill – Stifel Nicolaus

AFL – AFLAC 2012E EPS guidance a setback, but sales and derisking on track – FBR Capital Markets

KRC – Kilroy Realty downgraded to Outperform from Top Pick at RBC Capital Markets

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Gapping Up and Down This Morning

Gapping Up

DE +1%, KGC +1.1%, ABX +0.9%, ANF +3.3%, GG +1.2%SAP +1.2%, IRE +8.5%, NBG +8%, ABMD +2.3%, AEZS +1.9%,DELL +5.3%, ADI +4.1%,  TGT +1.8%, SODA +7.0%, BJ +1.4%, AG +3.8%, SLW +1.7%, SVM +1.7%,

Gapping Down

RBS -2.1%, FRO -1.4%, HPQ -0.8%, NLSN -3.3%, TA -6.9%, BCS -1.8%, GSK -1.0%, SNY -0.9%, CWTR -23.6%, OMX -3.9%, ODP -3.4%, SPLS -14.2%, AFL -4.1%, CHS -3.0%, ING -1.8%, LYG -1.7%

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Target Beats by Nickel; EPS Boosted by Credit Card Division

Target earnings topped Wall Street’s estimates, helped by strength in its credit card business, which offset weak sales at its retail operations.

Target’s [TGT  50.78   0.44  (+0.87%)   ] net income for the quarter ended April 30 rose 9.8 percent to $689 million, or 99 cents a share, from $671 million, or 90 cents a share in the year ago period.

Analysts surveyed by Thomson Financial expected the company to earn 94 cents a share in the latest period.

Total revenue rose 2.2 percent to $15.94 billion from $15.59 billion in the year ago period.

Same-store sales, which measures sales at all stores open at least 12 months, rose 2.0 percent

Target CEO Gregg Steinhafel said Target’s PFresh remodel program, which puts a focus on selling fresh grocery items, and a 5 percent REDcard Rewards loyalty program are helping to drive traffic and sales. However, he said consumers remain “cautious in their spending.””

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Chanos Still Bearish On China

“China’s economy is showing real signs of weakening, particularly in real estate, and even could tip into a recession, hedge fund manager Jim Chanos told CNBC.

Though the nation has been looked on as a key driver of global economic growth, Chanos for months has been sounding warning signals about China and the precarious nature of its economic surge. He said a recent visit by members of his investment team found a slowdown in housing sales as well as a decline in prices.

“The cracks are spreading in the facade,” he said. “You’re seeing real estate firms shutter, sales offices closed down. Some of the engine behind the boom is at least beginning to sputter.”

At least on the surface, the biggest perceived problem with China has been inflation.

The Chinese central bank has responded to overheating in its economy by raising interest rates four times since October 2010. Inflation has subsequently cooled, slowing to 5.3 percent in April, but the economy is still roaring with a 9.7 percent increase in gross domestic product for the first quarter.”

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Deere & Co. Raises Forecasts Due to Crop Rally

Deere & Co. (DE), the world’s largest farm-equipment maker, raised its fiscal 2011 earnings forecast and posted second-quarter profit that beat analysts’ estimates amid increasing demand for agriculture and construction equipment.

Earnings will be $2.65 billion in the year through October, more than the $2.5 billion forecast in February, Moline, Illinois-based Deere said today in a statement. The average analysts’ estimate in a Bloomberg survey was for profit of $2.67 billion, or $6.26 a share.”

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