Monthly Archives: May 2011
PA’s Govenor Tom Corbett Suggests Offsetting School Budget Cuts With Natty Gas Drilling on Campus
RENREN, RENN; China’s FB Opens at $19.50 First Tick in the Secondary Market
CREDIT SUISSE: THE END OF QE2 WILL LEAD TO A SELL-OFF (video)
“There is still a heated debate over QE2′s end and how it will impact the markets. Credit Suisse is making the case that QE2 can only have a negative impact on the market. Doug Cliggott, US Equity Strategist, explains his rationale for an equity market decline:”
Comments »Geithner Suggests China Strengthen Their “Substantially Undervalued”Currency
“U.S. Treasury Secretary Timothy Geithner said it would help global economies if China allows its “substantially undervalued” currency to strengthen.
“It would be better for the world, more fair to us, and we think in China’s interests, to let the exchange rate appreciate more rapidly,” Geithner said at an event held by the U.S.-China Business Council in Washington Tuesday.
China’s yuan retreated from a 17-year high Tuesday after manufacturing growth eased last month. The currency touched 6.4892 versus the dollar on April 29, the strongest level since the country unified official and market exchange rates at the end of 1993.”
Comments »Republicans Hint at Raising the Debt Limit Sooner Rather Than Later
“(Reuters) – Republicans in the Congress on Tuesday signaled a willingness to raise the country’s credit limit “sooner rather than later” and avoid a series of short-term measures that could damage the economy.
In the face of intense pressure from business groups for a prompt and tidy handling of a statutory increase in how much the government can borrow, House of Representatives Speaker John Boehner told reporters, “Why wait” until the last minute for Congress to pass legislation. He added that he would rather address the matter “sooner rather than later.
The United States is on the verge of hitting its credit limit, which is now capped at $14.3 trillion.
But Republicans did not step back from their demand that any increase in U.S. borrowing authority be accompanied by serious spending reductions.”
Comments »Greenback Reverses Early Morning Gains
U.S. Corporations rush to hedge falling dollar
Interestingly, the article questions whether this is the end of the dollar death spiral. I would tend to add that the number of people and organizations throwing hedging against dollar depreciation are ultimately creating kindling, should the dollar ever begin a sustained up move, forcing them to cover and sell.
Comments »Wolfgang Koester is on the front lines of corporate America’s efforts to lessen our collapsing currency’s impact on the bottom line. The CEO of FiREapps helps hedge currency risk for U.S.-domiciled heavyweights such as Nike (NKE) and Accenture (ACN), and he says demand for his services is rocketing as more companies become concerned about a weak greenback.
Why would a company need currency hedging? For one thing, in a multinational world, companies such as Nike and McDonalds (MCD) get a majority of their revenues from countries other than the United States. That means the earnings generated from those foreign revenues, likely the majority of their earnings, need to be calculated and converted into U.S. dollars, both for the sake of financial reporting and in financial reality (at least in theory) if and when the money is brought back to the States. Whether or not these companies hit their plans and estimates is often a function of what happened to the dollar during that period. If you’re doing a fantastic job making shoes or burgers, you’d rather not have your quarterly destiny tied to what Ben Bernanke does.
Compared to just two years ago, the U.S. dollar is down more than 20% vs. the Canadian loonie and over 30% against the Aussie dollar, to name just two of the many countries in which your buying power has collapsed. That said, dollar neglect typically leads to higher corporate earnings, unless it weakens the buying power of U.S.-based companies going to foreign lands to buy raw materials. In this case, an offset needs to be created for a one-time charge statement.
Let’s just say plenty of organizations are looking to get rid of the currency headache by outsourcing it to guys like Koester. The questions for investors are: Which companies are doing their hedging well, does this lead to higher stock prices and what does the hedging say about the direction of the dollar going forward? Not shockingly, Koester says his clients are doing well in terms of hedging, citing Agilent (A) and Google (GOOG) as two examples. On the other hand, he says Alcoa (AA) in particular is an apathetic hedger, leading to unpredictable earnings. Off camera he also mentions Phillip Morris International (PM), which derives all of its earnings from overseas (after a split from Altria) and hedges not at all. Whether or not it matters to investors is generally a function of the current trend.
Does the market simply “look past” currency impact on quarterly earnings when pricing a stock? From market experience, a company worried about hedging is less focused on actual operations. What’s more, just like individual traders, corporations tend to get swept away in frenzied moves from exogenous factors such as dropping dollars and rising input costs. Consider the airline industry’s rush into jet fuel hedging near the heights of crude’s rise. Those who had experience in the game, like Southwest (LUV), prospered. Those who didn’t, like AMR (AMR), took substantial one-time charges. Ultimately, how the stocks performed was more a function of operational execution and the fact that the airline industry is the land that love forgot.
A dollar rally seems wildly implausible in an environment of unprecedented stimulus programs. Of course, the reversal of well-established trends always seems unlikely. If past is prelude, and it generally is, ramping demand for dollar hedging suggests a bottom in the dollar may be at hand. The end of sharp moves always comes when no one expects it. Even if dollar impact is largely not a factor in stock prices, the dollar drop is behind, or at least correlated with, moves higher in gold, crude, silver and nearly any other asset you could buy overseas. Whether we like it or not, most Americans’ portfolios are heavily impacted by the dollar.
You don’t have to believe or, for that matter, understand a rally in the dollar, but it’ll pay off to get in touch with your inner Wolfgang Koester and start thinking of ways to lessen the impact a reversal could have on your portfolio.
Upgrades and Downgrades This Morning
Upgrades
C – UBS initiates coverage of the universal bank and brokerage sector with a favorable long term view
FEIC – FEI upgraded to Buy from Neutral at Merriman
AAPL – Apple resumed with a Outperform at Oppenheimer
MA – MasterCard target raised to $315 from $295 at Oppenheimer following earnings
CBS – CBS upgraded to Overweight from Neutral at Piper Jaffray
RIG – Transocean upgraded to Neutral at Global Hunter Securities
HRS – Harris target raised to $63 from $56 at The Benchmark Company
BYD – Boyd Gaming ticking higher; strength attributed to tier 1 firm upgrade
VCLK – ValueClick upgraded to Buy from Neutral at Merriman
Downgrades
FSLR – First Solar target lowered to $170 from $181 at Brean Murray
MEE – Massey Energy downgraded to Hold at Dahlman Rose – ahead of expected early June deal close
TWX – Time Warner: Q1 mixed: Higher rev, lower profit – Collins Stewart
AMAG – AMAG Pharma downgraded to Market Perform from Outperform at Leerink Swann
SAN – Banco Santander initiated with a Market Perform at Raymond James
TAP – Molson Coors Brewing target lowered to $50 from $52 at Stifel Nicolaus
DGI – DigitalGlobe downgraded to Hold at The Benchmark Company; tgt lowered to $30
CEDC – Central European Dist downgraded to Neutral from Buy at Goldman
CHK – Chesapeake Energy downgraded to Accumulate from Buy at Global Hunter (
FWLT – Foster Wheeler target lowered to $44 from $48 at Stifel Nicolaus
STD – Banco Santander Central downgraded to Reduce from Neutral at WestLB
QSFT – Quest Software target lowered to $27 from $30 at Stifel Nicolaus
Comments »Gapping Up and Down This Morning
Gapping Up
VSEA +50.4%, FEIC +9.9%, NVMI +8.5%, GLUU+8.1%, CMCSA +2.6%, HAIN +2.2%, RIG +2%, HHC +1.4%, NVMI +8.5%, UBS +1.4%, INT +1.3%, QGEN +1.1%, GLUU +8.1%, SGI +6.5%, SPPI +4.8%, ROIC +4.1%,CMCSA +2.6%, HAIN +2.2%, SGI +6.5%, SWS +5.1%, CBS+5%, ROIC+4.1%, NICE +0.8%, ADGF +14%, VCLK +12.3%, AXTI +11.3%, FEIC +10.2%, GMCR +16%, NEOP +14.5%
Gapping Down
JTX -33.6%, WWWW -9.3%, CENX -4.6%, JOE -3.8%, ALSK -2.6%, OPLK -9%, GXP -2.6%, CSIQ -1.9%, ARMH -1.1%, BALT -1.1%, BTUI -19.9%, QSFT -16.8%, PLT -11.7%, KTCC -11.1%, LVS -9.5%,OPEN -9%, MOTR -7.1%, FSLR -6.8%, OCZ -5.4%,
Comments »In Play and On the Wires
ADP Employment Report: Prior 201k, Market Expects 200k, Actual 179k
Moody’s Cuts Bank of America Mortgage Service Ratings
“CHARLOTTE, North Carolina (Reuters) – Bank of America Corp’s (BAC.N) mortgage servicer quality ratings were downgraded by Moody’s (MCO.N) on Tuesday, because of a deterioration in the company’s collections and loss mitigation on home loans.
The credit rating agency said it downgraded both BAC Home Loans Servicing LP and Bank of America, N.A. to SQ2 from SQ1 as a primary and special servicer for both first and second lien mortgages.
Moody’s action moves BofA down one notch from the highest rating on a five-step scale used by the ratings agency for mortgage servicing. Moody’s also said it would maintain a review for possible future ratings cuts, except as a primary servicer of second lien mortgages.
A BofA spokesman Dan Frahm said the downgrade was not a surprise, and the cuts reflected a recent settlement with bank regulators over problems with the industry’s foreclosure practices.”
Comments »AOL’s Profits and Revenues Plunge on Lower Ad Sales
“NEW YORK – AOL says its first-quarter net income dropped sharply as the Internet company continued to see a drop in advertising and subscription revenue.
Even so, the company sought to reassure investors that its turnaround was on its way by pointing to a growth in display advertising sales for the first time since 2007.
AOL Inc. said Wednesday that it earned $4.7 million, or 4 cents per share, in the latest quarter, down from $34.7 million, or 32 cents per share, a year earlier.
Revenue fell 17 percent to $551 million from $664 million.
Analysts polled by FactSet were expecting revenue of $534 million.
AOL says ad revenue would have been flat if not for changes associated with shutting down European businesses and shifting focus away from lower-margin products.”
Comments »Timer Warner Beats the Street as Ad Sales Sky Rocket
NEW YORK (Reuters) – Time Warner Inc (TWX.N) posted better-than-expected quarterly results on Wednesday, with revenue rising 6 percent alongside a surge in advertising sales at its cable TV networks.
“Time Warner, which owns cable networks such as CNN and TBS, as well as magazines and a movie studio, reported net income of $651 million, or 59 cents per diluted common share. This compares to net income in the prior year quarter of $725 million, or 62 cents per diluted common share.
First-quarter adjusted earnings of 58 cents a share came in 2 cents above analyst consensus expectations.
The decline in profit was largely due to higher programing costs, specifically those related to its deal with CBS Corp. (CBS.N) to share coverage of the NCAA basketball tournament, which carries costly rights fees.”
Comments »Applied Materials Offers $4.9 Billion or $63 Per Share for Varian Semiconductor
“(Reuters) – Chip equipment maker Applied Materials will buy rival Varian Semiconductor Equipment Associates Inc for $4.9 billion, as it looks to maintain its edge in new chipmaking technology to meet the rising demand from smartphone and solar equipment makers.
The $63 per share cash deal represents a 55 percent premium to Varian stock’s closing price on Tuesday.”
Comments »ConAgra Offers $86 Per Share or $4.9 Billion for Ralcorp
“Consumer food company ConAgra Foods has proposed a $4.9 billion, all-cash takeover deal for Ralcorp Holdings.”
Comments »Mortgage Applications Rose Last Week
“Applications for U.S. home mortgages rose last week, helped by refinancing demand as interest rates fell for the third week in a row, an industry group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 4 percent in the week ended April 29.
The MBA’s seasonally adjusted index of refinancing applications climbed 6 percent, while the gauge of loan requests for home purchases added 0.3 percent.”
Challenger Job Report Say Job Cuts Fell 12%
“Employers fired 12 percent less staff in April than they did in March and 5 percent less than they did in the same period last year, the latest job cut report released by global outplacement firm Challenger showed on Wednesday.
The report said employers announced plans in April to cut 36,490 jobs, the lowest monthly total of the year and the third lowest over the last 16 months.
Year-to-date, employers announced 167,239 job cuts, 24 percent fewer than the 219,509 layoffs by the same point last year.
The report comes ahead of the closely-watched ADP private sector payrolls report, due at 8:15 am ET, and Friday’s key nonfarm payrolls report which will offer further clues on the health of the economy.
Economists polled by Thomson Reuters expect 186,000 non-farm payrolls were added in April. Hiring is also on the rise, the Challenger report said.
So far this year, employers announced plans to add 172,590 new workers, an increase of 149 percent over same period in 2010 (69,329), according to the report.”
Comments »European Markets and U.S. Futures Fall on Earnings Misses
“European stocks declined as companies from Holcim Ltd. (HOLN) to Vestas Wind Systems A/S reported earnings that missed analysts’ estimates, overshadowing better than forecast profit at BNP Paribas SA and a rally at Actelion Ltd. (ATLN)Asian shares and U.S.-index futures fell.
Holcim slid 4.3 percent after the world’s second-biggest cement maker reported decreased profit as raw-material costs climbed. Vestas Wind Systems tumbled 8.6 percent after the largest wind-turbine maker reported a first-quarter net loss more than twice as big as the average analyst estimate. Actelion rallied 6.7 percent as Barclays Plc said punitive damages awarded against the pharmaceutical company are less than feared.
The Stoxx 600 slid 0.6 percent to 280.64 at 11:46 a.m. in London. The gauge in April had the biggest monthly increase so far this year as companies reported earnings that topped analyst estimates and the Federal Reserve maintained its pledge to keep interest rates low for an “extended period.””
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