18
Jul

Wrap – Week Ended 07/16/10

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Housekeeping Watch: A number of items ...

  1. Did you know there are a number of helpful tabs at the upper left and right hand sides of the site? There are including the ZEB Reports tab where you can find a number of company specific think pieces, the Calendar tab which is helpful during earnings season and the Catalyst tab which contains a list of items that may prove catalytic to many of our most trafficked names. 
  2. The site is fully searchable using the search box at upper left. It helps to use this in conjunction with the find window that can be enabled on your browser to search for the term you are looking for once you've narrowed the hunt down to a handful of posts. Or you can simply ask me to find it for you. 
  3. We do not use "push" technology for the comments section. To update to the latest comment simply refresh your browser. Clicking on the title / logo of the site at the top of the page will take you to the most recent post and refresh for the latest comment as well.
  4. There is a comments section at the bottom of every post. Seems a bit obvious to point out I know but there is a wealth of information contained in comments each day because we have deep, wide pool of experts to draw information from. So if you have question just ask.
  5. By request I'm going to start, in most cases, dropping a bit more detail on the "Why?" and not just the "What?" in the trading blasts. We'll see how that goes.
  6. More later Sunday.

4 Responses to “Wrap – Week Ended 07/16/10”

  1. 1
    choices Says:

    http://www.theenergyreport.com/pub/na/6744

    Analyst from Stifel on NG-shale names

  2. 2
    mimster90 Says:

    thanks Choices

    good read, I hope ATLS starts a dividend again.

  3. 3
    zman Says:

    Seepage near Macondo well. DC demanding procedures.

  4. 4
    BirdsofpreyRcool Says:

    BedTime Market Strategist (basically, “stupid stocks…”)
    ——————————————-

    Ouch! We mentioned a couple of times last week that prior to Thursday’s bullish call, markets were short term overbought but Friday’s market reaction to revenue (not earnings) misses was a surprise. The obvious and consistent culprit were the Bank revenues misses. It is no secret that Q2 was a tough quarter in the Financial markets, the 12% drop in the stock market sums it up. The overwhelming majority of the shortfall in Bank revenues was from the capital markets businesses within the investment bank divisions. Conversely, Q2 last year experienced strong capital markets business. The equity market bottomed near the end of Q1 last year and there was a rally throughout Q2 2009. In mid Q2 2009, the stress test results were released, almost immediately releasing a boom of issuances from within the Financial sector itself. It is another remarkable case of market irony that in Q2 2009, there were still numerous market observers talking about nationalization of the banking system, with some calling for it and others fearing it. Despite the brutal market environment of Q2 2010, we are nowhere near that level of extreme risk. What a difference a year makes, at this point in 2009, markets were at the early stages of believing that the banking system might survive. Now it is disappointed by a weak quarter in volatile businesses that we all should have been aware of, having experienced it firsthand. In addition, Citigroup made a statement on its call, which resonated with us, that the last vestiges of the problem assets that set off the credit crisis have been eliminated. “We sold approximately $8 Billion of assets, primarily through CDO liquidations. Our exposure to the ABCP CDO super-senior positions has been reduced to zero, although SAP retains exposure to a de minimis amount of underlying collateral assets. All of the 17 ABCP CDO deals structured by Citi have now been liquidated, the last six during the second quarter.”

    Even more surprising was the backward looking nature of the reaction. Market participants always want to have the pulse of the forward looking metrics. The obvious improvement in all banks’ reporting was on the credit front. When JPMorgan announced its reduction in loan loss reserves Thursday, the market reacted in doubt and feared they were being used to put a positive spin on a tough earnings quarter. The simple fact was that trend carried through to the other large banks that have not had the reputation of being quite so conservative. Each of the big banks noted that improvements were broad based across different types of lending, and different geographies. North America is the laggard, but here is how Citi described it in its cards business. “In the second quarter, cards accounted for 34% of North America consumer loans but 62% of charge-offs. Nevertheless, we have seen the underlying credit metrics in the cards portfolios improve noticeably.” Citigroup noted credit losses are down 31% from the peak in, you guessed it Q2 of last year. In Citi’s case, despite releasing some reserves, its loan loss reserve ratio is higher than last quarter. Citi’s North American mortgage delinquencies are at their best level since Q3 2008, the important key here is back then the Unemployment Rate was below 7%, today it is 9.5% and in reality is closer to 10%.

    GE was another company reporting big improvements in credit trends. It was a similar story with revenues missing expectations and earnings beating them. The revenue miss was on the Industrial side of the business. Again, it was never the industrial side of the company that threatened to put the whole franchise out of business just over a year ago. Earlier in the week, Alcoa noted that financial market instability was a greater threat than the real economy. GE also provided an example of how the instability and headline risk within the financial markets is unsettling business. GE, as a large multinational industrial corporation, devoted a portion of the presentation to Europe and the sovereign debt crisis. Here was the company’s summary, “A couple of macro questions, could the austerity program slow the growth in Europe? Does the lower Euro help European competitors? I think we’ll have to see. You know, we have 14% of our industrial revenue in Europe, and we have already been basically dealing with a slow-growth Europe, and we’ll have to see what competitors do with the pricing. But you know, as fast as we’re worried about the dollar going to 1-to-1 now, we’re worried about it going the other way. So I think the global nature of the company and the broad manufacturing base we have helps us to kind of weather these short-term volatility periods, and based on what we see today, I don’t think European volatility should have a material impact on our earnings.”

    There is an old saying, “if you manage the business right, the share price will take care of itself.” This week, we had a number of companies report earnings. In most cases, they exceeded expectations but fell short on revenues. Companies also reported improvements in key underlying core metrics, metrics in areas that threatened their very survival a year ago. Regardless, the market did not react well to this news. Would the market have been more impressed simply by improved revenues or by an aggressive push for growth? That seems more like the pattern of rewarding bad behavior that has been so popular over the past 1-2 decades. Market participants often complain about CEOs managing for the short term, and usually get the most vocal after that strategy inevitably blows up. Today we see corporations focusing on the long term, with an eye towards risk and yet there is “disappointment.” Market irony never ceases to amaze us.

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