Chain Bridge Investing: Financial and Stock Investing News for 11-19-09
November 19, 2009 by cb · Leave a Comment
Good morning, investors and traders! You are reading the Daily Download (”Daily DL”), which includes summaries and links to the day’s selected economic and stock investing news. The Daily DL is maintained by Chain Bridge Investing, which is a financial blog at www.chainbridgeinvesting.com. Chain Bridge Investing is constantly improving and adding new financial and investing content to the website. Please let us know if you have any suggestions at the following email address: 
.
Today’s news tended to be either (1) very political in nature or (2) shallow in the depth of the topic. Thus resulting in a generally uninteresting day regarding market news. The main news of this morning and yesterday was the decline in housing starts, which raised more data fueled questions regarding the strength of the recovery. Some of the topics mentioned in the news not covered below are the following: (1) there is speculation that online broker TD Ameritrade Holding Corp. could be making a bid for E-Trade Financial Corp.; (2) Aetna stated that it will cut more than 1,000 jobs through this year and into the first quarter of 2010; (3) Wells Fargo has agreed to buy back $1.4 billion in auction-rate securities to settle a lawsuit; (4) Campbell Soup has decided to increase its dividend 10% to 27.5 cents per share for the second quarter; (5) the Carrier Corp. has acquired three building management control businesses from i2S Group; (6) Kenneth Griffin, founder of Citadel Investment Corp., is having trouble regaining investors trust and raising money critical to the growth and operations of Citadel; (7) hedge fund manager John Paulson has decided to start a gold themed investment fund that will invest in gold related securities with the goal of outperforming the gold commodity; (8) companies, in general, are taking advantage of the generous market climate and issuing more debt, which indicates that they believe the debt markets might become weaker in the near future; and (9) the lumber market has surged recently as (a) market participants were expecting continued growth in housing and (b) people that were shorting lumber had to cover their shorts, thus helping to further increase the price.
Upcoming Economic Data for the Day (all times EST)
8:30 AM Jobless Claims
10:00 AM Leading Indicators
10:00 AM Philadelphia Fed Survey
10:30 AM EIA Natural Gas Report
4:30 AM Fed Balance Sheet
4:30 AM Money Supply
Initial Public Offerings (”IPOs”) for the Week of November 16-20, 2009
11-17-09 Fortinet – Network security and IT security (“FTNT”)
11-18-09 HealthPort – Healthcare technology (“HPRT”)
11-19-09 7 Days Group Holdings – Company of hotel chains in China. (“SVN”)
11-19-09 Archipelago Learning – Online eduction company (“ARCL”)
11-19-09 Cloud Peak Energy – coal mining (“CLD”)
11-20-09 Global Defense Technology Sys. – Engineering service provider (“GTEC”)
Source: WSJ Market Data Group.
For Daily Market Performance Data, Please Visit the Daily Market Sheet
List of Selected Companies with Third-Quarter Earnings for 11-19-09
News
Fear of Double Dip in Housing – The Wall Street Journal
Summary: According to the Commerce Department, new-home starts dropped 10.6% in October from September, while starts of single-family houses dropped 6.8%. Some analysts believe this drop in housing starts results from uncertainty regarding the extension of the home-buyer tax credit. Home builders such as Pulte Homes believe that difficulties will continue through 2010. Separately, nearly 3.4% of U.S. households are 120 days or more overdue on their payments, which is an increase from the 1.5% of last year. This data indicates that more foreclosures will be occurring in the future, thus increasing the already large supply of homes on the market. Although the number of homes listed for sale in September was 3.63 million, or nearly 8 months of inventory, some analysts expect another 7 million houses to be foreclosed and added to the market during the next couple years. Such additional supply would likely keep pressure on home prices. As a result of the decline in housing data mentioned above, some firms like Macroeconomic Advisers have reduced their GDP estimates for the fourth quarter. Finally, in October approximately 12.4% of American households with mortgages were 30 days or more delinquent or in the foreclosure process, an increase from 12.3% in September and 8.6% in October 2008.
CB:Other economic news for the Wednesday included the Labor Department reporting that the Consumer Price Index rose .3% , driven primarily by higher fuel and vehicle costs. When the cost of food and energy were excluded from the Consumer Price Index it rose .2%.
Related Reading: U.S. Home Building Unexpectedly Slumps in October – The New York Times
Hershey, Ferrero Face Obstacles – The Wall Street Journal
Summary: The details behind the potential Hershey and Ferrero offer for Cadbury are in yesterday’s Daily DL. The potential offer faces the following headwinds: (1) a number of large hedge funds have taken positions in Cadbury and pushed its price beyond the offer by Kraft Foods, thus indicating the expectation of a bidding war and a higher price per share payout; (2) Hershey would have to issue another £4.7 billion of equity to raise £2.4 billion in debt and maintain its investment-grade rating; (3) Cadbury owners will probably not accept the non-voting Hershey shares, thus forcing the Hershey Trust to create a single share class and cede control rights over Hershey; and (4) it is unknown which company would gain access to Cadbury’s high margin chewing-gum business, which is valued at nearly £5.3 billion
CB: As discussed yesterday, leverage was always going to be an issue in this potential offer. Hershey doesn’t have the cash and the operations to support the leverage required by the deal, while maintaining its investment grade rating. The issue of the large-hedge funds taking positions is important primarily due to the fact that if the next offer is not higher than the share price, then the hedge funds could use their newly acquired shares to urge the board to reject the offer.
Japanese Bank Plans $11.2 Billion Share Sale – The New York Times
Summary: Despite improving earnings, Japan’s largest bank, the Mitsubishi UFJ Financial Group, stated that in order to meet potentially stricter capital regulations, it plans to raise as much as $11.2 billion in a jumbo share sale. Earlier in the year the company raised $4.5 billion. Other Japanese banks have been raising money in the markets throughout the year. While the Japanese banks did not have the large write-downs experienced in the U.S. and Europe, they were exposed to an anemic economy with ultra low interest rates, thus making them less profitable and financially stable than the banks in other countries.
Luxury Stores Trim Inventory and Discounts – The New York Times
Summary: Luxury retail stores like Saks and Neiman Marcus are intentionally keeping inventory levels low to create a scarcity of supply for their goods. The goal of the strategy is to shift consumer expectations from buying luxury goods at a discount to buying luxury goods at full price. With low inventory levels and the inability to frequently restock, these stores are forcing consumers to buy the product they want on the spot, instead of risk waiting for it to go on sale when it might no longer be available. This is one of the reasons the stores are advertising to consumers to do their holiday shopping early this year. Consequently, these luxury stores are noticing that the total quantity of items sold has decreased compared to last year, but sales look to be increasing due to customers paying full price than last year.
CB: This strategy is an interesting one, but these luxury retailers may simply be shifting their increased sales numbers to October and November, while December suffers. With the focus on advertising early, these retailers run the risk of depleting supply early, then their competitors are bound to benefit. Also, one does not know if consumer sentiment takes a turn for the worst come December. The retailers have also capped their potential gains by limiting their inventory. If there is a surge in demand, they will not be able to capture it. Yet, the strategy is compelling because it keeps prices high, thus when a recovery occurs these stores will not have to worry about increasing prices to where they normally would have been.
Mutual Funds’ ‘Buy’ Streak Hits 35 Consecutive Weeks – The Wall Street Journal
Summary: The following figures are reported weekly by the Investment Company Institute regarding the flow of money amongst various funds for the week ended November 11 (”this week”):
(1) Mutual funds witnessed net inflows for the 35th consecutive week, with total inflows estimated at $8.42 billion during this week and $357 billion for the entire streak.
(2) The stock funds experienced outflows of $1.24 billion this week, compared to outflows of $4.78 billion in the prior week. However, U.S. stock funds had $2.7 billion of outflows this week, while foreign funds had $1.46 billion of inflows.
(3) Bond funds had estimated inflows of $8.88 billion this week, an increase from the $7.5 billion inflows from the prior week.
(4) Hybrid funds, funds that invest in both equity and fixed income, had estimated inflows of $782 million this week, an increase from the $358 million inflows from the prior week.
(5) Money-market funds saw their assets decrease by $8.01 billion for the week ended Tuesday, for a total of $3.292 trillion in assets.
More Links of Note
Societe Generale tells Clients how to Prepare for ‘Global Collaspse’ – Telegraph
Goldman on the Dollar Carry Trade – ZeroHedge
Forget $100 Oil. $80 Oil is a Problem – Fortune
SocGen on Gold Mania, and Why Gold is Very, Very Cheap – ZeroHedge
Sphere: Related Content
