They are placing Banc of America, Citi and Wells Fargo on downgrade review.
Comments »Monthly Archives: June 2011
Jubak: Greece deal delays inevitable
Jim has some excellent opinions of the Greek tragedy.
Comments »The much-hoped-for June deal between Greece and its “saviors” — the European Union, the International Monetary Fund (IMF), and the European Central Bank (ECB) — looks more and more like an effort to kick the can down the road as far as possible — and pray that things get better.
The European Central Bank is taking the lead in putting together this deal — and it’s only logical, therefore, that its concerns are driving its structure.
The bank’s big worry is the extreme vulnerability of the European banking system to a Greek default. Too many banks in France and Germany hold too much Greek debt, and any restructuring would require government rescues of the most troubled of these institutions.
A Greek default, the bank worries, would also destabilize the rescues of Ireland and Portugal, requiring the bank to open new fronts in its fight to keep the euro from imploding.
The outline of the deal looks like this: New loans from the International Monetary Fund, the European Union, and the European Central Bank in the vicinity of $40 to $50 billion would provide half of what Greece needs to fund its debts through the end of 2013.
The Greek government would have to come up with the other half by selling off government assets.
The worry is that no Greek government would be either willing or able to deliver on that level of asset sales. (Assets on the “for-sale” list include a stake in the port at Piraeus, the Post Savings Bank, and the state lottery.) It’s not clear that there’s much of a market for these assets, either.
The Greek government hasn’t taken the tough steps — including large-scale firing of employees — that would be needed to turn these assets profitable. Any investor with a minority stake would be hard pressed to force that move.The thinking now among European politicians is that some kind of external agency, independent of the Greek government and under the control of, say, the European Central Bank, may be necessary for a successful program of asset sales. While you’re at it, these same politicians argue, why not set up an external agency to collect taxes in Greece since the government there is so bad at it?
You can imagine how popular the idea of turning so much of the Greek government over to an outside agency is in Greece. One reason European stock markets are down today — the German DAX index and the French CAC 40 were both down 1.05% as of 12:30 in New York — is worry over the very real possibility that Greek politicians will balk at paying this price.
Let’s be very clear on what this deal would accomplish — if it gets done: Greece would still be a deeply uncompetitive economy with a massive debt load that it has no way to repay.
I still don’t see any way out of this crisis except a default or a restructuring of Greek debt. But a new package would push that event into 2013, the European Central Bank hopes, and that would give the Eurozone’s financial institutions enough time to prepare so that a restructuring wouldn’t produce a disaster outside of Greece.
OPEC considers production increase
Comments »GENEVA (Reuters) – OPEC could next week agree its first formal increase in supply targets since 2007 when it meets to hammer out its response to Arab world turmoil, extreme market volatility and pressure from the West for action.
One OPEC delegate told Reuters Thursday the producer group might raise its collective target by as much as 1.5 million barrels per day (bpd) at talks in Vienna on June 8, its first official meeting this year.
In the context of higher than usual tension between some OPEC members, the easiest outcome would still be to maintain existing supply policy and for leading producer Saudi Arabia to carry on making unilateral changes to its output.
But some analysts say the Organization of the Petroleum Exporting Countries risks being irrelevant unless it moves on from a record cut agreed in December 2008 when oil fell below $40, the world was in deep financial crisis and demand had collapsed.
“Production is so out of kilter now with the original agreement (that) if they want to achieve any credibility, they need to do something,” said Bill Farren-Price of Petroleum Policy Intelligence.
The 11 members of the group bound by OPEC production targets pumped 26.23 million bpd in May, nearly 1.4 million bpd above their 24.84 million bpd target.
Some History to Consider: Oil & Recessions
“Over the past 50 years, when oil prices moved up sharply, causing inflation, or remained high with annual average price around $100, recession has followed in many OECD countries (see example for UK below the fold). As of 24th May 2011 the annual running average for Brent was $91.33.
The key questions are: 1) Has the world economy adapted to higher energy prices that may enable oil prices to go higher than the 2008 spike? or 2) Is the weakened world economy more vulnerable to higher energy prices?
With USA debt at its legal ceiling, QEII (US quantitative easing) due to expire at the end of June, the PIGS sovereign debt crisis deepening in Europe, consumer goods inflation taking root in the UK and other countries and deep public spending cuts impacting OECD economies, a period of great uncertainty lies ahead.
Figure 1 Daily Brent oil prices in red and the annual running average in blue. On current trajectory, the annual average will reach $100 / bbl this Fall. Is the recent spike the new top of the oil price cycle? Or has the World economy adapted to high energy prices? Daily oil price data from the EIA.
Global events have moved extremely fast during the first half of 2011. It has been hard to keep up. Amidst the turmoil of earthquake, tsunami, and nuclear meltdown in Japan, “The Arab Spring”, war with Libya and the assassination of Osama bin Laden, oil prices have also shot up from around $80 to >$120.”
Comments »Long Term Home Run Call: CMG $600- $1350
“Janney is making Glory Hound call on Chipotle Mexican Grill (NYSE:CMG) calling it a $1,000+ stock in the long-run.
(Got your attention, didn’t I?)
Well, their actual 12-month target is a mere Street high of $375 (prev. $330) as their estimates for 2011/12 move above consensus.
The details:
Based on favorable feedback from multiple industry sources, we raise our 2011 and 2012 EPS estimates for Chipotle Mexican Grill (CMG $289.54; Buy) by nine cents and 35 cents, respectively, to $6.85 and $8.45. Each of these figures lies four cents above First Call consensus.
Looking specifically at Q2 2011, we take up our same-store sales forecast to 8.5% from 6.5%, above the Consensus Metrix figure of 7.8%. This drives our Q2 EPS estimate upwards by two cents, to $1.72 (four cents above First Call consensus).
Over time, we view the long-term potential of the Chipotle concept as 3,000-4,000 in the U.S., at least 2,400 in Europe, and at least several hundred in the Asia/Pacific region. This is at least 6,000 worldwide outlets for the Chipotle concept. But we do not believe Chipotle views itself as “just” a burrito company. Indeed, the first of the company’s ShopHouse Southeast Asian Kitchen restaurants is scheduled to open this summer in Washington D.C. Over the long run, it’s entirely possible that the company could host 3-5 concepts under its belt — each focused on high-quality ingredients, fine-dining cooking techniques, and speedy customer service (albeit through different cuisines).”
Comments »Retailers Face a Daunting Consumer
“(Reuters) – A handful of retailers beat analysts’ sales expectations for May, winning with strong selections of goods or drawing in shoppers looking for deals as high gasoline prices and a sluggish economy tempered demand.
Warehouse club operator Costco Wholesale Corp (COST.O) on Thursday joined department store operator Macy’s Inc (M.N) in reporting sales at stores open at least a year that beat Wall Street estimates.
“Consumers are consolidating trips to the destinations perceived to offer the most overall value, such as Macy’s and Costco,” Wall Street Strategies analyst Brian Sozzi said in a research note.
But a rare sales miss by Victoria’s Secret owner Limited Brands Inc (LTD.N) showed that consumers, still facing high unemployment and gasoline prices near $4 a gallon, are choosy about where they spend and what they buy.
“There’s not really a rising tide,” said Walter Stackow, senior research analyst for Manning & Napier Advisors, which invests in the retail sector. “For every winner, there’s going to be a loser.”
Comments »U.S. Homeland Security Warns of Heavy Hurricane Season
Crack Spreads Continue to Push Higher
Spreads are up 3.3% to $26 this morning.
Comments »Paul Krugman: Euro Zone is Collapsing
“While a new bailout package is in the works for Greece, Nobel laureate economist Paul Krugman doesn’t think that offers much salvation for the euro zone.
Indeed, that association, which includes the common currency, is heading for destruction, he writes in The New York Times.
“If you ask me, the water level has now dropped so far that the fuel rods are exposed. We really are in meltdown territory.”
Read more: Paul Krugman: Euro Zone is Collapsing
Comments »Microsoft Unveils Windows 8
“TAIPEI/PALOS VERDES, Calif., June 2 (Reuters) – Microsoft Corp showed off a version of its next operating system at technology conferences in the United States and Taipei, as some PC makers grumbled over restrictions on their involvement in the development of the system. The world’s largest software company is expected to launch the new system, code-named Windows 8 and highlighting touchscreen features optimized for tablet computers, in the next 18 months, as it races to catch up with Apple Inc.”
Comments »Upgrades and Downgrades This Morning
Upgrades
MTL – Mechel Steel initiated with Buy at UBS
AAPL – Apple added to Key Calls list at UBS
MSFT – Microsoft upgraded to Buy at Standpoint Research on valuation
HNZ – HJ Heinz upgraded to Buy from Neutral at UBS
AINV – Apollo Investment upgraded to Buy at Ladenburg Thalmann following earnings
IPHS – Innophos Holdings target raised to $59 at Oppenheimer; case for multiple expansion
HGG – HHGregg upgraded to Buy at Caris & Company
TZOO – Travelzoo: Wedbush believes mkt opportunity for Local Deals is large despite competition
TXCC – TranSwitch initiated with a Buy at Needham; tgt $4; focus on HD video interconnect products offers significant new revenue opportunity
FSI – FSI Intl upgraded to Buy at Needham; tgt $5.50; believe the single-wafer ramp has finally arrived
REGN – Regeneron Pharms initiated with Outperform at Leerink Swann
INFA – Informatica target raised to $63 at Oppenheimer after meetings with mgmt
DNDN – Dendreon initiated with Buy at Goldman
Downgrades
INCY – Incyte initiated with Neutral at Goldman
AZN – AstraZeneca downgraded to Underperform from Hold at Jefferies
TVLT – Telvent downgraded to Neutral and tgt rasied to $40 at Wedbush following acquisition by Schneider Electric
ASCA – Ameristar Casinos downgraded to Sell from Neutral at Goldman
ZUMZ – Zumiez downgraded to Neutral at Janney Mntgmy Scott due to macro concerns following May comps
PRGN – Paragon Shipping downgraded to Neutral from Buy at UBS
CBRL – Cracker Barrel downgraded to Hold at Argus on high commodity costs, soft comps
TXN – Texas Instruments: Kaufman is raising ests, expecting positive Mid-Quarter update next week
ES – EnergySolutions downgraded to Neutral at Wedbush; tgt lowered to $5.50
Comments »Gapping Up and Down This Morning
Gapping Up
OWW +49.3%, OWW +49.3%, EDMC +9.4%, APOL +8.8%, BPI +7.7%, LINC+6.3%, ESI +6%, STRA +5%, JOYG +2.8%, MOV +2.8%, MAGS +8.1%, HRZ +20.6%,ASTM +5.6%, CCL +1.7%, RCL +1.2%, COCO +7.8%, ATAI +7%, ASTM +5.6%, APOL +5.5%, BPI +3.9%, NQ +3.8%, ESL +3.4%, CCL +1.7%, SI +1.5%,DOV +1.1%, NOK +1%, BBVA +2.3%, DB +1.1%, BCS +1.0%,
Gapping Down
YOKU -1.1%, APC -1.2%, XIDE -12.4%, VRA -11.5%
Comments »In Play and On the Wires
For Profit Education Stocks Rip to the Upside
Initial Claims: Prior 424k, Market Expects 413k, Actual 422k
Copper and Aluminum Fall on Slower Global Growth
“Copper declined in London for a second day to a one-week low on concerns that the global economic recovery may be faltering as manufacturing slows from China to the U.S.
Manufacturing in the U.S. grew at the slowest pace in more than a year last month, according to a report yesterday, while industrial production cooled in India. A manufacturing index in China showed the slowest pace of expansion in nine months, official data showed this week. Copper for immediate delivery also fell before a U.S. factory orders report that economists say will show the biggest drop since October.
“The market is starting to take more seriously the prospect of a meaningful slowdown in growth in the western world, and potentially in China,” said Daniel Brebner, an analyst at Deutsche Bank AG in London.
Three-month delivery copper on the London Metal Exchange fell $52, or 0.6 percent, to $9,050 a metric ton by 9:31 a.m. The metal fell as much as 0.9 percent to $9,016, the lowest level in a week. Copper for July-delivery declined 0.2 percent to $4.10 a pound on the Comex in New Yotk.
The U.S. Institute for Supply Management’s factory index fell more than projected to 53.5 last month, the lowest level since September 2009, from 60.4 in April, yesterday’s report showed. Companies added 38,000 workers to payrolls, the fewest since September, ADP Employer Services said.”
Comments »Trichet Calls for a Single Bank Finance Minister
“European Central Bank President Jean- Claude Trichet said governments should consider setting up a finance ministry for the 17-nation currency region as the bloc struggles to contain a region-wide sovereign debt crisis.
“Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?” Trichet said in a speech today in Aachen,Germany. He also favors giving the European Union powers to veto the budget measures of countries that go “harmfully astray,” though that would require a change to EU Treaties.
Trichet, one of the architects of the Maastricht Treaty that founded the euro, is setting out his vision for how the currency can be better managed just months before he retires and as European officials rush to put together a second bailout plan for Greece. Last year’s 110 billion-euro ($159 billion) rescue failed to prevent an investor Exodus from Greece, which has been saddled with Europe’s highest debt load amid a three-year economic slump.
Ireland and Portugal also had to ask for European aid as borrowing costs soared on concern the countries wouldn’t be able to tame their budget deficits.”
Comments »Blackstone’s Wien: 30% of 2% Declines Since 1962 Led to a 10% Correction and a Buying Opportunity
“The biggest retreat in the Standard & Poor’s 500 Index since August is creating a buying opportunity for investors willing to withstand declines that may reach 10 percent, according to Blackstone Group LP’s Byron Wien.
The benchmark gauge of U.S. stocks tumbled 2.3 percent to 1,314.55 yesterday after manufacturing expanded at the slowest pace in more than a year and employers hired fewer workers than forecast. The decrease was the 126th decline of 2 percent or more during bull markets since 1962, according to Kevin Pleines, an analyst at Birinyi Associates Inc. in Westport, Connecticut. Of those, 30 percent occurred within a month of the start of a so-called correction, or 10 percent drop, he said.
More than $578 billion has been erased from American equity markets since the S&P 500 peaked at 1,363.61 on April 29, pushing the index’s valuation to 13.3 times estimated profit for 2011 from 13.8 times. Wien, who estimates earnings for companies in the gauge will climb about 12 percent in 2011, says shares will prove a bargain and the index will rally.
“Investors should be looking for buying opportunities,” said Wien, the vice chairman of Blackstone Advisory Partners, whose parent, New York-based Blackstone Group LP, is the world’s largest private-equity firm. “The economy is not as bad as it looks right now. Corporate profits will be good, very good. People are asking me, ‘Do you still think the market can get to 1,500 by the end of the year?’ I do.””
Comments »Oil Recovers Over Night on a Weak Dollar
“Oil recovered from its lowest price in a week in New York as a weakening dollar made commodities more attractive, offsetting signs of faltering fuel demand.
Crude stockpiles climbed the most in more than a month, according to the American Petroleum Institute. The Energy Department will release its own data later today. The euro gained versus the dollar and yen as German Chancellor Angela Merkel said the European Union remains committed to its shared currency. The Organization of Petroleum Exporting Countries is likely to keep production levels steady when it meets next week, according to a Bloomberg survey.
“The dollar is propping up oil today,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “But global risk sentiment is dominating trading, with fears for weakening energy demand overwhelming concerns about long-term supply tightness.”
Crude for July delivery was at $100.51 a barrel at 11:28 a.m. London time in electronic trading on the New York Mercantile Exchange, having lost as much as $1.04 to $99.25. The contract yesterday declined $2.41, or 2.4 percent, to $100.29, the biggest drop since May 11. Prices are up 38 percent in the past year.
Brent crude for July delivery was at $115.18 a barrel, up 65 cents, on the London-based ICE Futures Europe exchange. The contract yesterday fell $2.20, or 1.9 percent, to $114.53, the lowest settlement since May 24.”
Comments »Sucks to be a Thai Rice Eater
“Thai rice prices, a benchmark for Asia, may jump 50 percent by the end of the year under a plan by the party favored to win the July 3 election to buy the grain directly from farmers, according to millers and traders.
Yingluck Shinawatra’s Pheu Thai party plans to reinstate a policy introduced by her brother, fugitive former leader Thaksin Shinawatra, to buy unmilled rice at 15,000 baht ($496) per metric ton, twice the current level. That would raise costs for exporters and boost the price of shipments to about $750 per ton from $500, according to a survey of eight millers and traders.”
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