Earnings Calendar – some early misses today on the earnings release calendar as we’re set to get earnings news from 26 of the S&P 500 companies…of the early reporters, 4 out of 5 have missed analysts projections..only Time Warner Inc. has beaten so far this morning…most of today’s earnings news will come out after the close of trading.
Equities – markets in Asia were lower after the overnight trading session (Japan remains closed on holiday)…European indices are lower in the morning session as earnings misses and concerns about additional rate hikes from the ECB have curbed some of the enthusiasm resulting from the deal on Portugal’s bailout…domestic futures are indicating a lower open here.
Oil Market – oil is mixed in early trading with WTI lower but Brent higher…Turkey is set to unveil their plan for a cease-fire and path to a transition of power from Qaddafi and ministers from 22 countries meet in Rome to try and come up with a solution to the conflict (good luck). Meanwhile, Qaddafi forces continue to shell cities in the west of the country…in other MENA news, Hamas and Fattah have signed an accord in Cairo calling for a united Palestinian Government and elections to be held in a years time…this event combined with “cairo spring” will likely put the West Bank and Gaza back on the front page amid calls for a Palestinian state.
• Portugal gets a €78 billion bailout package from the IMF and the EU and so becomes the 1st 2011 EU bailout (last one?)…recent buyers of Portuguese short term debt get handsomely rewarded as the package assures that they will get paid back. Longer term visibility remains poor as 1 year after Greece appears headed for a restructuring and Ireland is still trying to come up with a way to get out from under the crushing debt resulting from their banking system bailout via debt assumption. For the moment, the market can breathe a sigh of relief that the bailout of Portugal was done.
• The global economy continues to improve at least in terms of demand for capital equipment as well as the availability of liquidity…this much is obvious from the continuing stream of strategic M&A business…this morning Applied Materials (AMAT) announced that it would acquire Varian Semiconductor and the stock is up 50% in the pre-market to $61 ½ after closing yesterday at $40.55…strategic acquisitions can benefit from synergies that sponsor led deals often can’t take advantage of and thus they can pay more as the pricing in better future margins and increased productivity. For the time being, this remains a productivity led recovery and that doesn’t bode well for the unemployment rate for less skilled workers…at least in the short term. Conagra is offering $4.6bb in cash from Ralcorp (RAH)…maker of Post cereals and the largest manufacturer of “private label” cold and hot cereals as well as various other branded and private label food items...the stock is up about 20% in the last week..the deal is for $86/share in cash plus assumption of $2.5 billion in debt.
• The Basel committee on banking supervision is considering allowing the use of contingently convertible bonds referred to as “CoCo” bonds (some might think them Koo-Koo) in the event of a capital crisis. These bonds allow the banks to force holders to take equity in exchange for their bonds at the point where the bank is going in the ditch…nice option. This idea comes out of regulatory authorities trying to come up with a way to put a buffer between banks that are “too big to fail” and the tax payers.
• The US DoJ sued Deutsche Bank yesterday under the False Claims Act (allows for treble damages) for $1 billion claiming that the bank and its mortgage generation unit (MortgageIT) misled the FHA and HUD as to the credit quality of loans that it got federal insurance for. This opens the door for more cases in which the banks and their origination units will be dragged through the mud…
• You want to know why Greece in ultimately in the trouble that they’re currently in financially? The economic advisor to the Greek Prime Minister yesterday said that Greece doesn’t need to restructure their loans, they just need to “reschedule” them…he means push the maturity out…Hey genius, that is restructuring.
• Goldman Sachs – here we go with the CDO derivative mess again…after the findings from the Senate committee tasked with investigating the whole Goldman/Paulson structured mortgage derivative trade were made public the senators have formally referred this investigation to the DoJ and the SEC…good political advertising.
Phillip Pennell, CFA
Turnberry Capital Management
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