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.

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.

Rep. Barney Frank took on Wall Street as one of the writers of the sweeping Dodd-Frank financial reform bill last year. Now he is taking on the Federal Reserve.

The Massachusetts Democrat announced Tuesday morning that he’s introducing a bill that would dramatically downsize the Federal Reserve’s policymaking committee, eliminating five regional Fed presidents from having a say in the central bank’s decisions.

The Federal Open Market Committee, or FOMC, is structured to include 12 voting members, made up of seven Fed governors and five presidents from regional Fed banks.

The committee meets eight times a year to vote on interest rates and other monetary policy decisions that affect the entire U.S. economy by influencing credit conditions, inflation and unemployment.

Frank’s main complaint is with the selection process. Unlike Fed governors, the regional bank presidents are not selected by elected officials, but by a board comprised of business leaders in their communities.

“These men and women are chosen by a self-perpetuating group of private citizens who disproportionately represent the private financial services industry,” Frank said in a statement.

Frank believes his bill, if passed, would make the Fed’s decision-making process more transparent and democratic.

But Frank’s proposal would also decrease the number of voices included in the Fed’s decision-making process — a matter that some Fed watchers say could have the opposite of its intended effects.

“I’m very surprised he would be introducing this bill,” said Catherine Mann, a finance professor at Brandeis University and former Fed economist. “It doesn’t seem consistent with his thrust to make public policy more reactive to the overall economy.”

Under the leadership of Chairman Ben Bernanke, Fed officials have talked to the media and the public more than ever before, even revealing disagreement within the Fed.

And lately, the regional presidents have been more likely to express dissent with Bernanke’s policies than the other Fed governors.

Mann points out that stripping the FOMC of the regional presidents would leave the Fed’s decisions solely up to the governors based in Washington, D.C. and limit the board’s diversity.

“Leaving it as only the Washington people, if anything narrows the range of perspective on the state of the economy — as opposed to widening it,” she said.

There are 12 different Fed districts, but only five of their presidents serve on the Federal Open Market Committee at any given time. The New York Fed has a permanent voting spot, as the others rotate each year.

See the chart here.

Ratings On Bahrain-Based BMI Bank Lowered To ‘BB+/B’ On Weak Earnings Generation; Outlook Negative 03-May-2011
09:43 EST

China Resources Land Ltd. And Its Proposed Notes Assigned ‘BBB’ Rating; Outlook Stable 03-May-2011
03:33 EST

The release on their front page had this to say:

Market optimism about leading US banks’ rapid return to full financial health appears premature, according to a report from Moody’s Analytics. First-quarter earnings showed that bottom line results were bolstered by unsustainable releases of loan loss allowances. Top line revenue generation did not meet expectations. Balance sheet metrics were somewhat more encouraging.

New York, May 02, 2011 — After two years of no issuance, the credit quality of commercial-mortgage backed securities issued post recession has been strong, says Moody’s Investors Service in a new report. As the credit cycle continues, Moody’s expects the leverage of the loans in transactions to increase, however.

Since issuance resumed in 2010 after the break, Moody’s has rated eight “new generation” or CMBS 2.0 conduit deals. In its latest US CMBS review, Moody’s presents detailed metric analysis of this new issuance.

“Current underwriting is vastly improved compared with CMBS issuance from 2007 contrary to some reports in the market,” says Tad Philipp, Moody’s Director of commercial real estate research. “It is roughly consistent with that of 2004, one of the last ‘normal’ years before frothy underwriting kicked in.”

“In late CMBS 1.0 pro forma underwriting meant stretching for additional income from properties already operating at the zenith of their existence,” says Philipp. “In today’s market, underwriting properties beaten up by the recession may involve trying to get closer to normalized income.”

Moody’s notes that the post-recession deals are “chunky”, that is five or more single loans may each make up more than 5% of a transaction. The lumpiness adds an element of volatility to performance, says Moody’s.

Moody’s also expects loan leverage to increase as credit conditions loosen. Specifically, Moody’s expects a competitive lending market to drive up conduit loan to values (LTVs) to mid-70s percentages, from in the 60s they range in currently.

Favorable commercial real estate conditions should mitigate the credit risk this greater leverage might pose at this time.

“As the cycle advances and the effects of additional leverage become more pronounced, however, it may become necessary to increase subordination,” says Moody’s Philipp.

As U.S. Cruises Toward the Debt Ceiling, Telling Auctions Are Due This Week

provided by The Wall Street Journal

Gathering concerns about slowing U.S. growth have investors seeking safety in Treasurys, masking fears in that market about the U.S. fiscal morass—and leaving investors at loggerheads over how to position themselves.

Investors are well aware of the burgeoning U.S. debt load and the impending Treasury refunding auctions that will be announced next week. Those auctions in May will bring the nation near its current legal debt limit. But most are hesitant to act on those fears.

Bond-fund manager Michael Mata said the struggle over how to trim the U.S. debt and raise the debt ceiling has become a “game of chicken” between Democrats and Republicans, but with repercussions that are hard for any investor to imagine, let alone position for.

“It’s almost inconceivable that they won’t raise the debt ceiling,” said Mr. Mata, who manages the ING Global Bond Fund, with more than $500 million in assets. “It would be a bizarre situation, and the market would implode.”

Some say all the political posturing could take the debate down to the wire, which likely will cause spurts of selloffs along the way. Others believe the recent debt focus will only help Treasurys down the line, since reduced fiscal spending hurts growth in general, and that takes a toll on riskier assets such as stocks.

Turning up the heat, the U.S. Treasury’s May refunding announcement is due Wednesday. Issuance sizes are expected to be $32 billion in three-year notes, but, more important, $24 billion in 10-year notes and $16 billion in 30-year bonds.

That bout of supply, scheduled for auction in the second week of May, would push the government perilously close to the $14.3 trillion debt limit. The Treasury Department has said the U.S. will reach its debt threshold by May 16, with potential for a technical default in early June if Congress fails to act.

Eyes will be on the latter two sales of longer-date bonds, whose investors stand to lose the most if U.S. credit deteriorates. Longer-dated Treasurys are expected to endure the heaviest selloff the longer Congress waits to act.

Already, the seven-year note sale last Thursday attracted surprisingly tepid demand. For the first time in two years, dealers were forced to take down more than half the offering. Still, U.S. debt is regarded as the safest of all safe-investment harbors, even after Standard & Poor’s slapped the nation’s credit with a “negative” outlook April 18.

The startling news sent yields soaring, but only for a moment. Treasurys have since more than recovered, with benchmark 10-year notes Friday yielding 3.298%, from as high as 3.451% on the day the negative outlook was announced. With bonds, yields move inversely to price. Soft U.S. economic data also has helped drive yields on 30-year notes to their lowest levels since mid-March.

Jim Sarni, managing principal at Payden & Rygel, says U.S. government debt remains the main beneficiary when investors seek a secure place—even when U.S. debt is part of the problem.

“Despite all the fiscal dilemma we’re facing, you’re trying to reconcile that with fundamentals” of lackluster economic data, Mr. Sarni said. “When you put all that into a sifter, what comes out is uncertainty. And uncertainty translates into a flight to quality.”

DETROIT (AP) — Chrysler has turned its first profit since leaving bankruptcy two years ago.

The company reported first-quarter net income of $116 million and revenue of $13.1 billion on Monday. The profit is a milestone in Chrysler’s long road back to health after its 2009 bankruptcy. It last reported a profit in 2007.

Several trends put Chrysler Group LLC back in the black. Its sales rose 18 percent worldwide in the first three months of the year as the economy improved and buyers responded to a fresh lineup of new cars and trucks.

“Chrysler Group’s improved sales and financial performance in the first quarter show that our rejuvenated product lineup is gaining momentum in the marketplace and resonating with customers,” Chrysler CEO Sergio Marchionne said in a statement.

Results: Funds from operations (FFO) rose to $22.3 million or 27 cents per share from $20.6 million or 28 cents per share a year earlier.

Revenue: Rose to $94.4 million YoY.

Actual vs. Wall St. Expectations: Estimates ranged from 26 cents per share to 30 cents per share with a mean of 28 cents/share for CLP .

Quoting Management: “Strong new and renewal leasing, combined with solid occupancy and lower operating expenses, led to a 5.7 percent increase in same-property net operating income in the first quarter,” stated Thomas H. Lowder, Chairman and Chief Executive Officer. “In addition to the improved core multifamily operating results, the renewal phase of our business is gaining momentum as we acquired three apartment communities for a total of $93 million in the quarter, began construction on another new apartment community and completed our latest $100 million at-the-market equity offering program.”

$0.22 payable June 1, 2011 to holders of AWK stock as of March 18.

Full disclosure here.

BEIRUT – Security forces opened fire Friday on demonstrators trying to break an army blockade on the southern city of Daraa, while thousands of others across Syria defied a protest ban and denounced President Bashar Assad’s harsh crackdown on a six-week uprising. At least 42 people were killed, including 15 in the march on Daraa, according to witnesses and a human rights group.

The protesters in cities across Syria — including the capital of Damascus — called for Assad’s ouster, with some chanting “We are not afraid!”

Human rights activist Mustafa Osso said 42 people were killed, but the death toll could rise. His human rights group, based in Syria, compiles casualty tolls from the crackdown.

Rumors are circling that Ahmadinejad has stopped showing up for work, possibly highlighting rifts growing in the Iranian power system.

The kernel of this event could be a falling out between Ahmadinejad and Supreme Leader Ayatollah Ali Khamenei.

This fellow is trying to set up a buy of the utra-short silver ETF. I wish him well and will kindly pick up his pieces and bury them after the train passes over.

The average for gasoline looks like it could hit $4 this summer. Not that you needed a reporter for that.

The violence is Syria and Libya is still fueling the fire.

Bunge Alimentos SA, the Brazilian arm of Bunge, received permit to construct the facility.

The plant in Mato Grosso state will be able to produce 414,800 liters (109,400 gallons) of biodiesel a day when complete, fuel regulator Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis said today in Brazil’s official Gazette.

There are 60 biodiesel refineries with permits to sell fuel in Brazil with total production capacity of 16.3 million liters a year, according to the fuel regulator, known as ANP. That’s up from 47 at the start of 2010 when Brazil started enforcing a law requiring diesel distributors to mix in 5 percent biodiesel with their fuel, ANP said.

In typical fashion, shareholders sold stock to celebrate, sending BG prices lower.

An increasing number of Americans are opting to buy smaller homes or even rent, experts say, as uncertainty about the struggling housing market, energy prices, and a lackluster domestic economy persists.

“Despite home prices that have really rolled back about 10 years and historically low interest rates, buyers are cautious for a variety of reasons,” says Stephen Melman, director of economic services at the National Association of Home Builders (NAHB). Beyond general anxiety about the strength of the economic recovery and foundering home prices, concerns about rising energy prices and limitations on mortgage interest deductions have would-be home buyers reevaluating their priorities in potential homes.

“Home buyers are thinking, ‘Maybe we don’t need that 7,000 square foot home like we thought we did in 2004 or 2005 when the market was approaching its top,'” says Paul Bishop, vice president of research at the National Association of Realtors (TSXV: NAR.V).

Only 9 percent of consumers surveyed said they wanted a home 3,200 square feet or larger, according to a recent study by the NAR, while the majority of house hunters–about 55 percent–preferred homes in the 1,400 to 2,600 square-foot range. Builders also plan to scale back new home sizes as well, with 9 out of 10 builders expecting to build smaller, lower-priced homes in the coming years, according to a study by the NAHB.

Despite the drop in desired median home square footage, Melman says it’s not so much a matter of downsizing as “right-sizing”–forgoing larger homes with unused space for smaller, more efficient and well-laid-out homes. Americans are reconsidering the notion of financially stretching themselves to the limit to purchase a large home. “The trend here is shelter value,” he says. “Affordability is driving the decisions. If you buy a home that’s a little bit smaller, that’s one way to get some control over energy costs and the overall costs of the home.”

Kicking yourself for missing the boat on silver, but still hungry for something to sink your teeth into? Well, at least one adviser has entered the hallowed halls of Breakout to make the case for corn.

That’s right. The Reformed Broker Josh Brown says if the planets align correctly and a few other variables kick in, then the amazing beast that is corn could deliver another 60% upside. Now you’re all ears, aren’t you?

He says to forget the fact that corn has already doubled in the past year and is currently trading at record highs north of $7.60 per bushel. Instead, he suggests you look at a weather map showing a soggy middle America that’s home to a lean inventories and a small, wet and delayed crop.

Then spin the globe around, find China, and jot down the words “net importer” — and therein lies your formula for Brown’s prediction that corn could rally to $12.

As most of you could have surmised yourselves, the volume of silver and silver contracts traded over the past few days has been some of the highest levels witnessed.

Over the past 48-72 hours, trading in SLV has overcome trading in SPDR.

Day traders “are going crazy,” says Joseph Saluzzi, co-head of trading at brokerage firm Themis Trading. “It’s typical of the bubbly speculation that’s been going on in silver.”

On Monday, trading in the silver ETF was especially heavy, as silver prices soared to new 31-year highs and approached $50 an ounce. Silver is up 46% this year, part of a nine-month rally. The heavy ETF trading continued on Tuesday, as silver prices retreated.

The volume traded of SLV on monday was around 189 million shares, a record to date. On Tuesday, 125 million shares traded hands.

Silver has been in a slide over the last few trading days, off from its 52 week high.

FelCor Lodging L.P.’s $500 Mil. Senior Secured Notes Rated ‘B-‘; All Other Ratings Affirmed 26-Apr-2011
09:13 EST

Ratings On Sunshine Trust’s Class A1 To Class E Beneficial Interests Affirmed 26-Apr-2011
00:44 EST

Interesting thought, to say the least. Here’s what the article has written.

Oppenheimer Asset Management’s Brian Belski says that, when it comes to ending QE2, he thinks it won’t be such a clear cut, black or white, buy or sell decision, but rather something more nuanced and gradual.

“Bernanke is a data hound,” he says in the accompanying video, adding that he sees the Fed entering a period of market assessment followed by an orderly liquidation of its Treasury holdings to yield-hungry buyers.

If you like investing in big picture themes that will work for years rather than tips and hunches that might work for half a day, then Belski has a few ideas for you.

“The next great secular move is going to be a stronger dollar,” he says, adding that the notion that stocks and the U.S. currency can’t move higher together is outdated and wrong.

He says the same thing is true for interest rates after 20-plus years of decline. “It’ll be a slow grind higher, not a sudden surge to 7 percent,” he says, pointing out that, once investors get over the initial transitional shock, stocks should get over it too and do well on the backs of an improving economy.

And finally, if you’ve been thinking of a way to tap into the limitless largesse of high-end consumers, Belski says you’d be better off tapping the new-found frugality of the low end, where credit cards are vanishing, savings rates are up and legions of smart shoppers are spending in whole new ways.