The Ticker
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Is The Bull Market Back?
Continue reading… 1 CommentMore brave souls are willing to call an end to this bear market, a notoriously tough moment to catch given the fear and uncertainty that marks the switch from downturn to rally. But with the Dow up more than 25 percent since those March 9 lows, more people are starting to see a bull market in the works. Here's a rundown of the recent optimism:
Anthony Bolton, president of investments at Fidelity International, via Bloomberg:
Low valuations indicate advances that began in March are the start of a bull market, Bolton said. He favors financials, consumer cyclical, technology, and “value stocks,” such as retailers, automakers and construction-related shares.
“All the things are in place for the bear market to have ended,” Bolton said in an interview with Bloomberg Television in Hong Kong. “When there’s a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I’d like to bet against that.”
And his contrarian take:
“Nearly all the broker research I read says ‘bear-market rally,’ that’s one of the other things that makes me think it’s the beginning of a bull market, not a bear-market rally,” Bolton said. “When everyone is extremely negative, I want to bet against that. If you wait for things to get better, you’ll miss the rally.”
CBS head Sumner Redstone sounds bullish too, who told the Milken Institute conference, "I think we're in the beginning of a bull market. When a bull market begins, nine months later the economy turns around." (via Reuters). More:
"It was always tough, but today we are in the throes of something we have never seen in our history. It's clear in recent times the market is looking for a bottom."
"The news was extremely bad on the GDP and the market went up. In a bull market, the market ignores bad news. Today, we ignored extremely bad news," Redstone said in a Q&A session with CNN's Larry King.
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Swine Flu Fallout: Stocks, Trade And The Economy
Continue reading… 1 CommentAs fears of a swine flu pandemic increase (emphasis on fears) market jitters are rising accordingly due to the uncertain scale and cost of the current outbreak. Citigroup strategist Tobias Levkovich today takes a stab at just what sort of sickness swine flu could inspire in stocks, trade and the global economy.
While we do not want to diminish the human cost of such awful developments, the investment community is more likely to focus on the economic price. Health care stocks could benefit, while economically sensitive ones could suffer. In addition, we have worried about protectionist policies coming to the fore and it is plausible that some “America First” types may push for more aggressive action on the Mexican border and on immigration, with a populist flavor behind it. Again, we do not see that kind of legislative effort as being perceived as welcome by markets. US-Mexico trade is significant and the Mexican economy is already being hurt by a drop in tourism, exports to the US and weaker oil prices. Accordingly, the news cannot be seen as good for stocks in that country. We would refer investors to the research put out by Citi’s Latin American strategist, Geoffrey Dennis, who has been cautious on Mexican names and underweight the market since mid-December.
But:
We do not see the swine flu development as the factor that will derail the rally, but we are aware that many investors have not participated in the move and thus want some sort of pullback, so they do not underperform. In that sense, we would expect some in the investment community to seize on swine flu as a reason to argue for selling into the rally. We continue to think that skepticism is the dominant feeling in the marketplace and any pullback should be taken advantage of by investors who have been surprised to the upside by 1Q09 earnings thus far.
The report outlines a few investing themes:
Possible losers: The pork industry. Industries that deal in travel or "confined spaces" (airlines) or highly public places (hotels, restaurants, retailers, etc.).
Possible winners: Drug makers (Gilead, etc.). Less obvious: home entertainment plays including "video distributors, video game producers and even pay-per-view movie distribution (through cable and satellite television providers).
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Bank 'Stress Tests' Expose Cracks
Continue reading… 3 CommentsBanks have until May 4 to appeal the results of the government's "stress tests" designed to determine whether they've hoarded enough capital to continue functioning. Already, the results seem to hint the financial crisis will continue. All of the 19 largest U.S. banks under scrutiny are expected to "pass" but that's not really the point. Some are still expected to be forced to raise new capital no matter their grade.
Which brings us to Bank of America and Citigroup, two banks reportedly being urged by the government to raise capital. That banks are undercapitalized is no big secret. Unfortunately, new concern for two institutions that have already taken a combined $95 billion in bailout money could increase the chances they'll come back for more. The longer their capital structures are questionable, the less chance the pair will be able to convince investors to come creeping back especially as the perception problems plaguing the sector remain firmly entrenched. Officials say they don't want the market to look unfavorably on banks required to up cash reserves, or to consider them insolvent. But that is unlikely.
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Good News From Alex Tabarrok
Continue reading… 0 CommentsMarginal Revolution's Alex Tabarrok takes the long view of our economic history and sees lots of reasons to be encouraged. Ideas and markets save lives.
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Geithner Was The Right Choice, Geithner Should Go
Continue reading… 8 CommentsThe NYT has the lengthy rundown of Treasury Secretary Tim Geithner's cozy relationship with Wall Street. You should read the whole thing. It's less about new revelations (other than Sandy Weill offering Geithner the top job at Citi, which Geithner promptly turned down.) The play-by-play is thorough (and thoroughly exhausting) so let's get to the point:
With his deep connections among senior finance execs and (relatively) well-respected stature as an honest regulator, Tim Geithner was the guy to call during the early days of the financial crisis. He knew the players, could get them in a room, and he understood (at least partly) what was at stake. The choice made a sort of sense, despite the unavoidable fact that the New York Fed under Geithner missed an alarming number of chances to regulate before the crisis exploded. The passage below illustrates his role, and his successes and failures:
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Portfolio Magazine Closes
Continue reading… 0 CommentsConde Nast is closing Portfolio, a two-year-old title that cost somewhere between $100 million and $150 million (per BW's Jon Fine) and launched at almost the exact moment the financial sector, the economy, and the advertising market started to implode.
The price tag raised a lot of eyebrows, and speculation over just how committed the company would be to a new biz mag never let up, but as the end comes there's less surprise and more sadness at the loss of a title that did do some great reporting during its short life and (especially) produced some great blogging from Felix Salmon (who recently decamped to Reuters) and media blogger Jeff Bercovici. Portfolio moved the ball forward online and produced solid stories right up to the end. Its voice will be missed.
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Banks Brace For Stress Tests: Who's Vulnerable?
Continue reading… 24 CommentsThe 19 largest U.S. banks get the results of the government's "stress tests" starting today. The results will be officially released May 4 and banks still have a few days to appeal, but handicapping the results is already underway.
The AP surveys a few analysts for banks that might fare the worst:
Barclay's Capital analyst Jason Goldberg wrote Thursday that three companies could miss the mark: Cleveland-based KeyCorp, Atlanta-based SunTrust Banks Inc. and Birmingham-based Regions Financial Corp.
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Madoff Madness
Continue reading… 0 CommentsThe newsy bit of Fortune's big Madoff story is that Bernie's close cohort, Frank DiPascali, (who is described as a "ninja" for his shadowy presence) is naming names in a plea deal, and claiming none of Madoff's family members were involved. But the story includes a ton of interesting tidbits about Madoff's own weirdness and how he ran his huge Ponzi scheme:
The technology he used to keep the fraud going should've been in a museum:
The IBM server, for instance, an AS/400 that dated from the 1980s, was so old that some data had to be keyed in by hand, yet Madoff refused to replace it. The machine -- which has been autopsied by the government -- was the nerve center of the fraud. The thousands of pages of statements printed out from it showed trades that were never made.
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Lewis Silenced, Threatened Over Merrill By Bernanke And Paulson
Continue reading… 93 CommentsBank of America's Ken Lewis' testimony sheds some light on the gory details of last year's crisis management. From the WSJ (sub. req.):
Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.
The cost of refusing to keep shareholders in the dark might have been his job:
The Wall Street Journal previously reported, in a page-one story on Feb. 5, that Mr. Lewis agreed to proceed with the Merrill merger only after Messrs. Paulson and Bernanke said that he and his board would lose their jobs if Bank of America backed out of the deal. Mr. Lewis's testimony with the New York attorney general's office corroborates that account.
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Solar Cos. Bitten Twice By Economic Crisis
Continue reading… 2 CommentsInteresting tidbit from Jefferies & Co.'s '09 cleantech outlook. Solar companies are getting squeezed by both the credit crunch in Europe and the stimulus in the Chinese economy (home to a big chunk of low-cost solar panel makers). From the report (bold is mine):
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Morning Links
Continue reading… 0 CommentsSteve Case is econ-tweeting!
If you got excited about those surprisingly strong bank earnings, Minyanville reminds you why you're wrong.
And Morgan Stanley bucks that trend (while blaming improvement in credit markets that cost the bank $1.5 billion in revenue as credit spreads tightened).
Freddie Mac CFO found dead in apparent suicide.
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Failed Bank Tour!
Continue reading… 0 CommentsNPR's Planet Money blog links to a photo essay of failed banks in Missouri, just a couple of the 25 U.S. banks that have failed so far this year.
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Why Twitter Advertising Could Be A Huge Success
Continue reading… 9 CommentsI've been using Tweetie's great Twitter app for the iPhone this week (check out the handy bookmarklet for super-easy linking) after moving up from Twitterrific. While I'm scrolling through my recent tweets, I actually notice: There's no advertisement.
And you know what? For the first time ever, in any medium, I sort of missed it. The arguments for and against hosting ads on Twitter are still raging, and the company still hasn't shown its hand when it comes to a real business plan. But I'm betting Twitter will surprise everyone if it can get its act together connecting users with advertisers for a couple of reasons:
It's honest. If you host an ad, mark it as such (Twitterrific does), and no problem. A (small) number of ads don't clutter up my feed and if free services mean a pitch or two, well, I'll suffer through it just like I do on Facebook and The New York Times. I'm not talking about experience-killing ads like Twitter spam or marketers pretending to be users to infiltrate my feeds. Well-defined, unobtrusive ads are a separate animal, and unlike banner ads, I actually notice them when they're mixed in with my tweets.
I can tell advertisers what I want. I'll warily admit it: Serving up advertising based on my hashtags might actually be welcome. If I'm getting excited about #susanboyle, an iTunes link to her (possible) duet with Elaine Paige would actually be a help. Since I'm the one having the conversation and choosing to join a group tweeting the same, why (again) would a single ad nestled amid my latest tweets and addressing something I'm legitimately interested in be a problem? The entire concept of Twitter is so specific and the discussion is so user-controlled that it should almost be a gift for advertisers. I'm telling them what I want. I have to pick the hash, and find out who else is using it. That weeds out inconsistent searches and should eventually wrap up my interests like a gift for anyone who wants to sell me something. So does using multiple hashes per tweet.
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IMF: Global Financial Crisis Cost $4.1 Tril
Continue reading… 0 CommentsThe International Monetary Fund has released its latest Global Financial Stability Report, and guess what it doesn't show much of?
Pick a category, and you find signs of stress. Emerging markets? Check. Their banks face "liquidity and solvency pressures." Credit risk? Check. Lending standards are still tightening even after a global wave of looser money.
Government fixes help, but aren't doing enough. From the report: "Policy actions have prevented an even deeper crisis, but the limited market improvement to date has been insufficient to prevent the onset of the adverse feedback loop with the real economy."
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Oracle Buys Sun After IBM Balks
Continue reading… 0 CommentsAfter merger talks with IBM disintegrated, the price for Sun Microsystems (which started at $10 billion before being reduced by IBM from $10 a share to $9.40) finally ended at $7.4 billion -- with Oracle as the buyer. Under the deal today, Sun shareholders will get $9.50 a share.
Early reactions:
- S&P cuts ORCL to hold and left its price target at $20 saying, "While acquisition of the Java programming language and Solaris operating systems would offer strategic benefits, we are concerned about ORCL's entry into hardware and the impact it could have on operating margins. We think that the company can afford the transaction, but are concerned by operational challenges."
- CNET's Gordon Haff says the industry's structure is changing: "To get the bigger picture here you have to view it in the context of what's going on within the system vendor landscape more broadly. At the risk of overstating things, the system vendor landscape is being reconstituted into big, highly integrated companies that can do it all. This is how essentially all computer companies used to be, but that way of business gave way to the horizontal industry structure epitomized by the likes of Microsoft and Intel."
- Microsoft CEO Steve Ballmer told Reuters he was "very surprised" by the deal.
- Larry Ellison's storied buyout machine is still whirring.
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Amazon Can Go Higher: Citi
Continue reading… 1 CommentAt least somebody is getting a V-shaped recovery.
Back in early November, Citi analyst Mark Mahaney downgraded the online retailer which made some sense at the time since its shares were slumping and the company was slashing guidance. He downgraded at $52, and by Nov. 20 shares had fallen to around $35.
But then a funny thing happened: Amazon shares came roaring back.
Since the start of the year, Amazon shares have already rebounded more than 50 percent to just above $78. After that run (which, compared to the rest of the market, could easily seem overheated) is it time to pare back? No, says Mahaney. Unlike other recent upgrades, he says Amazon isn't "things are getting Less Worse" call. Below we sum up his 3 reasons to keep buying AMZN:
1) Margins could recover faster than expected. Lower retail discounting, more efficient operations and a better return on marketing cash could all help push results above expectations.
2) Who else are you going to buy? Mahaney says Amazon's organic revenue growth is likely to hit 23 percent, about double Google's and a world away from falling revenue at eBay and Yahoo.
3) Top-line growth may be more sustainable. International growth, less competition (eBay again), and, yes, the Kindle, could all surprise on the upside, he says.
The stock is pricey, no doubt. But here's Mahaney's valuation case:
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Theme Park Wars: Disney Edging Out Universal, But Everybody Is Losing
Continue reading… 5 CommentsIt's The Mouse Vs. The Movies in the theme park fight, and right now the rodent seems to have a slight upper hand (paw?).
On its blog (sub. req.), Pali Research analyst Richard Greenfield takes a look at theme parks through the lens of GE's earnings (home to the NBC Universal Studios park franchise), and sees Disney coming out ahead in what looks to be a very difficult 2009.
Pali says GE theme park attendance declined 11 percent year-over-year, while Walt Disney World managed to hold traffic flat with a year ago during the March quarter. Pali says Disney is stealing visitors from NBC Universal and Seaworld, and luring a good chunk of vacationers with aggressive promotions.
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Green Stocks: Are Things Looking Brighter?
Continue reading… 0 CommentsIt has been an undoubtedly tough year for almost all green stocks, but a few recent stories show a more solid foundation for the industry is starting to take root in the U.S.
The broad future of green investing got a bit more secure today after the Environmental Protection Agency solidified its position on the dangers posed by carbon and several other pollutants. It declared greenhouse gasses a threat to public health and welfare. From the NYT:
The Environmental Protection Agency on Friday formally declared carbon dioxide and five other heat-trapping gases to be pollutants that threaten public health and welfare, setting in motion a process that for the first time in the United States will regulate the gases blamed for global warming.
The E.P.A. said the science supporting its so-called endangerment finding was “compelling and overwhelming.” The ruling triggers a 60-day comment period before any proposed regulations governing emissions of greenhouse gases are published.
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Rosetta Stone IPO Soars
Continue reading… 1 CommentShares of Rosetta Stone, the language instruction company, jumped almost 44 percent from an initial price of $18 to $25.55 in late-morning trade. It's the third IPO this month (but only the fourth this year), and the respectable performance by new entrants so far is an positive sign that solid companies can still raise capital in the skittish equity markets. Here's a look at April's IPO have trade on Day 1 so far:
Online education firm Bridgepoint Education (BPI) - IPO on 4/15 - 6 percent gain
Chinese game maker Changyou.com (CYOU) - IPO on 4/2 - 25 percent gain
Rosetta Stone (RST) - IPO on 4/16 - 44 percent gain
Numbers like those are definitely encouraging. Even if the above deals were conservatively priced at the outset (Bridgepoint did cut its IPO price before its debut), they show demand is slowly outpacing fear in another formerly shunned corner of the market.
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Today In Real Estate Mayhem
Continue reading… 2 CommentsA few quick notes from the latest phase of the real estate bust. The commercial sector is still getting worse.
1. Mall operator General Growth Properties files Chapter 11. The basics: $25 billion in mostly short-term debt was too much for the company, which runs 200 malls in 44 states. The filing, while not unexpected, says two things: Debt-strapped companies are still being squeezed thanks to a lack of lending, and the damage happening in the retail sector is not letting up.
2. JP Morgan's results. Dow Jones quotes CEO Jamie Dimon on the call: "In general, the losses [in commercial real estate] are going up and I think if you talk about the whole system...you are going to see rapidly rising charge-offs in real estate loans."
3. The problem is national. From the Fed's latest "beige book" economic conditions update (via FT Alphaville): Commercial real estate investment activity is being hampered by worsening credit availability “that is very close to a complete absence of lenders.”
Bottom line: Commercial real estate is going to be a bank headache for a long time (and will be mixed, or possibly eclipsed, by rising losses on credit cards).
