Archive for the ‘US Markets’ Category
Goldman As Humpty Dumpty
Goldman Sachs’ disastrously unfortunate year is halfway over, and questions about its conduct during the credit crisis linger on Wall Street and in Washington. The firm has made plenty of money, of course, amid the political criticisms and federal investigations questioning its ethics and business practices. But Goldman has lost something money can’t buy, something vital that must be reclaimed. And it isn’t just a big chunk of its reputation that’s at stake. Goldman has lost that special something that has always made its long-term greediness, to use a late chairman’s phrase, seem special, and that made the firm appear smarter than other banks. Indeed, that quality helped Goldman command top dollar, euro and yen for its services. Now, Goldman seems to be in danger of being viewed like any other bank, except somehow suspect for performing too well during the credit crisis. Wall Street knows any investment professional who is any good at what he does encounters potential conflicts, and the expectation is that those conflicts should be handled appropriately. If Goldman proves to have failed in this regard, its stock (ticker: GS), recently at $132, could be taken down a few more notches.
The shares already have been bashed, having fallen 23% during the past two years. They are wilting ahead of the second-quarter earnings release, scheduled for July 20. Analysts are lowering earnings estimates, and expectations suggest even Goldman’s stable of star traders had difficulty, like everyone else, making money in the second quarter.
As this harsh year for Goldman began, the bank seemed unable to extricate itself from a leading role in a polarizing post-credit-crisis news cycle. At the time, Goldman was preparing to pay $16 billion in staff bonuses, which indicated political tone-deafness and an arrogance that seemed to bode poorly as the financial crisis entered the recrimination phase that always occurs after Main Street has lost a lot of money on Wall Street.
There are always rumors that Goldman — which might have done absolutely nothing wrong, remember — will settle some sort of case with federal investigators, which could boost its stock price.
Goldman could say something on its earnings call that makes its troubles seem manageable, or it could even reveal massive profits and an optimistic view of the future that overshadows everything. In the markets, making lots of money always does that.
But, most likely, Goldman will end the call with a reputation that still isn’t commensurate with its distinguished past. Fixing Goldman’s public image is a huge challenge for the company’s chief executive, Lloyd Blankfein. For now, Goldman seems destined to remain Wall Street’s version of Humpty Dumpty, who, as everyone knows, suffered a big fall.
Should all the king’s horses and all the king’s men fail to put Goldman’s reputation together again, Blankfein will preside over a company that has become like any other bank, and that could be quite bad as Wall Street seems more and more like an assembly line.
Share and Enjoy
The Dow Jones Industrial Average Starts a Recovery
Last week’s volatility in global stock markets appears to have resolved positively, and the Dow Jones Industrial Average is very close to confirming key reversal signals that could prompt a recovery of up to 7% from current levels to the 10,920.3 level. Last week’s bullish engulfing candle (see the weekly chart below) provides the catalyst for the optimistic outlook. This weekly candle was preceded by a sharp 68.2% Fibonacci Correction bouncing off the April high, and can be seen as a three-pronged minor correction phase. Check out the Weekly Chart below.
This is the way the Weekly Chart looks:
A mere 87 points stand between 10,211.1 and the 10,298.2 level needed to be broken in order to leave the 9757.5 low behind and written to history. It is this event that would create the opportunity for a recovery to 10,920.3. Please check the Daily Chart below.
This is the way the Daily Chart looks:
Share and Enjoy
U.S. Firms Build Up Record Cash Piles
U.S. companies are holding more cash in the bank than at any point on record, underscoring persistent worries about financial markets and about the sustainability of the economic recovery. The Federal Reserve reported Thursday that nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets, including factories and financial investments, the highest level since 1963.
While renewed confidence in corporate-bond markets has allowed big companies to raise a record amount of money, many are still hesitant to spend the cash on hiring or expansion amid doubts about the strength of the recovery. They are also anxious to keep cash on hand in case Europe’s debt troubles lead to a new market freeze. ”Cash is still king,” said Jeff Hand, chief operating officer at Ross Controls, a Troy, Mich., maker of pneumatic valves and other products that is holding more cash as it struggles to recover from a sharp drop in business last year. “We’re coming out of that, but the uncertainty is still there.”
The rising corporate cash balances could represent a longer-term behavioral shift in the wake of the deepest financial crisis in decades. In the darkest days of late 2008, even large companies faced the threat that they wouldn’t be able to do the everyday, short-term borrowing needed to make payrolls and purchase inventory. ”We just went through this liquidity crunch that’s made them realize the value of a dollar in hand,” said John Graham, an economist at the Duke Fuqua School of Business.
Even now, banks continue to pull back on lending. The Fed reported Thursday that net lending by the financial sector–including banks, credit unions and other lenders–was down 5.4% in March from a year earlier. The comfort of having cash on hand, though, comes at a high price companies may not be willing to pay for much longer. They are earning almost no interest on their holdings of cash, making it more difficult for them to achieve the returns shareholders typically expect from them. That will put pressure on companies to pare down the cash holdings eventually. “Stockholders don’t want them to keep sitting on cash at a zero return,” said Paul Kasriel, an economist at Northern Trust. ”They’re going to use it either to increase hiring and investment or to make payouts to shareholders in the form of dividends or share buybacks”, he said.
Earlier this week, retailer Target Corp. raised its quarterly dividend to 25 cents a share from 17 cents, saying that the company’s cash holdings were “well above the amount needed for optimal reinvestment in our core business.” When it reported results for its fiscal quarter ended May 1 on Monday, Philadelphia auto-parts and service retailer Pep Boys–Manny, Moe & Jack said it had $87.8 million in cash on its balance sheet, versus $21.3 million a year earlier.
But in a call with analysts Tuesday, Chief Financial Officer Ray Arthur suggested the company would soon be putting the money into capital investments. “I just wouldn’t plan on seeing $80 million or $90 million at the end of every quarter on our balance sheet,” he said. In a recent survey of company chief financial officers that Duke’s Mr. Graham conducted with CFO Magazine, he found that companies expect capital spending to increase by 9% over the next year, compared with 1.5% when he asked the question in December. They expect employment to grow by 0.7%, compared with the 1.4% drop they expected six months ago.
Cash has piled up at Hooker Furniture Corp., based in Martinsville, Va. The company has seen increasing demand for the upholstered furniture it makes in the U.S., which it has found usually leads demand for the other furniture it imports from China. Hooker is being cautious nonetheless. When it reported results Monday, the company said it had $38.7 million in cash and other highly liquid assets on its balance sheet in its fiscal quarter ended May 2, up from $26.2 million a year earlier. “We’re a fairly conservative company, and keeping our powder dry makes sense to use,” said Hooker Chief Financial Officer E. Larry Ryder. Mr. Ryder says he sees the cash as a sort of insurance fund to make sure he can buy the raw materials and other inventory he will need to meet demand if business picks up. The company has cut its inventories to $38.5 million from $47.1 million over the past year. “We don’t want to tie our cash up to the point that we don’t have the liquidity we need to accumulate inventory when we need it,” said Mr. Ryder.
Companies’ willingness to use their cash will play a major role in the strength of the recovery at a time when consumers need jobs to support their spending and many people are still trying to repair their finances. The Federal Reserve data showed households making some progress in paring down their debt, which fell at a 2.5% annual rate in the first quarter as credit remained tight and more homeowners defaulted on their mortgages. Household net worth– the value of houses, stocks and other investments, minus debts– rose for a fourth straight quarter as markets continued to rebound. At $54.6 trillion, though, it was still $11.3 trillion below its 2007 peak of $65.9 trillion.
Share and Enjoy
S&P 500 Snaps 2-Day Losing Streak
A wide range of U.S. stocks, including DuPont, Bank of America and Exxon Mobil, climbed Tuesday, indicating increased confidence in the U.S. economy, although continued worries about the European economy kept the gains in check.
The Standard & Poor’s 500 index rose 11.53, or 1.10%, to 1062.00, its first gain in three days. All of the measure’s sectors rose, with materials in the lead while the technology sector lagged.
DuPont led the Dow Jones’ gains with a jump of 1.40, or 4.1%, to 35.49, after the company’s finance chief reiterated DuPont’s earnings forecast for the next few years. Among the Dow’s other top performers, Bank of America climbed 50 cents, or 3.4%, to 15.33. Exxon Mobil advanced 1.94%, or 3.3%, to 61.24, lifted by an increase in crude-oil futures to nearly $72 a barrel.
McDonald’s climbed 1.63, or 2.4%, to 68.38. The fast-food giant’s global same-store sales rose 4.8% in May, exceeding some analysts’ views, although the company said it anticipates foreign-exchange rates, especially a weakening euro, to hurt earnings for the year.
Intel was among the Dow’s few decliners with a drop of 13 cents, or 0.6%, to 20.18, on Nasdaq. Susquehanna Financial Group cut its investment rating on the chip maker’s stock to neutral from positive, citing signs of weakness in the personal-computer market.
The Nasdaq Composite slipped 3.33, or 0.15%, to 2170.57, its lowest close since Feb. 10. Weighing on the measure, Amazon.com slid 3.18, or 2.6%, to 118.83, eBay declined 14 cents, or 0.7%, to 21.69, and Google was off 74 cents, or 0.2%, to 484.78, all on Nasdaq. Bank of America Merrill Lynch cut its 2011 estimates on those stocks and several others in the technology sector, citing the U.S. dollar’s climb, among other factors.
Amazon was also hurt by competitive concerns after Apple Chief Executive Steve Jobs said Monday that iBooks, the e-reading application on its iPad tablet computer and soon coming to the iPhone and iPod Touch, has helped it capture a 22% share of e-book sales–an area previously dominated by Amazon’s Kindle e-reader. Still, Apple (Nasdaq) gave back 1.61, or 0.6%, to 249.33.
The action followed reassuring comments from Federal Reserve Chairman Ben Bernanke that the U.S. economy will continue to recover, although not at a pace strong enough to bring unemployment down quickly. The Fed chief said the U.S. recovery probably began sometime late last summer and that consumer spending and business investments appear to be taking over from the fading government stimulus in lifting the economy.
However, investors remained concerned about Europe’s sovereign-debt issues, especially after Fitch Ratings cautioned that the U.K.’s fiscal challenge is “formidable” and warrants a faster pace of deficit reduction than was outlined in the April 2010 budget issued by the previous Labour government.
Uncertainty over the oil spill in the Gulf of Mexico also continued to weigh on the market.
“Our view has been that we’re going to probably have to suffer the whole summer before the market participants will look at it and say things have settled down over there” in Europe as well as with the oil spill, said Linda Duessel, equity-market strategist at Federated Investors. “All this uncertainty has to be suffered as we make our way though the summer months.”
Goldman Sachs cut its investment ratings on offshore drillers Transocean, Diamond Offshore and Noble with a prediction the six-month deep-water drilling moratorium becomes 12 months. The moratorium affects an estimated 20% of global capacity, the firm wrote, which is likely to keep pricing under pressure. Meanwhile, reports that Diamond was dealing with another oil leak in the Gulf of Mexico only created more uncertainty. Transocean tumbled 2.84, or 5.8%, to 46.33, while Diamond Offshore declined 2.27, or 3.8%, to 56.94, and Noble dropped 39 cents, or 1.4%, to 27.34.
Dollar General rose 60 cents, or 2.1%, to 29.83. The discount retailer’s fiscal first-quarter earnings jumped 64% as shoppers responded positively to new brands of merchandise, such as Hanes underwear, and while the company also improved global sourcing to reduce product costs. Dollar General also boosted its earnings target for the year.
ConAgra Foods rose 44 cents, or 1.8%, to 24.44, after the packaged-foods company said it would sell its operations that make dehydrated and fresh vegetable products to Olam International, a Singapore-based company, for $250 million.
Corning climbed 1.05, or 6.6%, to 17.05. Bernstein upgraded its investment rating on the stock to outperform from market perform, saying Corning’s scratch and shatter-resistant panels for laptops and phones could become Corning’s second-biggest business after LCD panels.
Tellabs (Nasdaq) declined 44 cents, or 6.5%, to 6.37. Morgan Stanley cut its investment rating on the shares of the company, which designs and markets equipment for communications-services providers, to equal weight from overweight. In making the downgrade, the firm said it believes AT&T is planning a “relatively quick transition away” from Tellab’s 8860 multi-service router.
American depositary shares of ABB edged up 46 cents, or 2.8%, to 16.73. Standard & Poor’s Ratings Services upgraded its credit rating on the Swiss engineering giant by one notch, saying the company’s performance is proving to be more resilient to the challenging market conditions than the ratings agency previously expected.
Motorola eked out a gain of 9 cents, or 1.4%, to 6.66. The telecommunications-equipment company raised the maximum debt it will repurchase by $100 million, to $500 million, as it has seen solid response to a pair of tender offers.
Tenet Healthcare fell 31 cents, or 6.1%, to 4.80. CRT Capital Group noted the company’s consideration of a deal with Australian hospital operator Healthscope “has pushed investor trust in management to new lows,” even though Tenet already dropped pursuit of the company. “Our concern at this juncture is that investors now have no clear understanding of management’s future strategy,” and are uncertain about Tenet’s hospitals’ ability to generate meaningful cash flows, the firm added.
Share and Enjoy
S&P 500-End of Month Update For World’s Leading Indicator
The new trend for the world is pointed in the right direction. The world’s barometer shows us the way the markets are headed and, for a fresh change of pace, we are now headed up again. Check out the 5 minute Chart of the SPX (S&P 500 Index) below and how the Index fell at least 0.7% at the last 5 minutes of trading from profit-taking. This usually happens near s/r lines and so was the case here. The well-known 1100 line is here playing the resistance role in a dominant fashion. After it come the 1106-1108 resistance areas and all are strong, weekly support/resistance lines.
Also check out the S and P 500 Large Cap. Futures If you will note the 60 minute time-frame shown on the Chart below you will see the “hugging the line” syndrome that shows the end of a trend. But relax, this is an intra-day trend that can easily be wiped away by the opening move of the true SPX Index trading (not Futures trading) at the end of this long weekend.
All this points to a very positive conclusion, our Evening Star top has come to the Hammer bottom and the correction I long spoke about has ended.
Share and Enjoy
SPX—Correction At Its’ End
As these lines are written, the S & P 500 Index, the one I call The World’s Barometer, as it gives a relatively sure indication of the world markets’ direction, seems to have ended the correction I spoke about in previous articles in this Category. It has, as shown in the Chart below, made a significant Japanese Candlestick pattern called a Hammer and it does indeed look like one. This hammer gives the final blow to the downwards descending pattern and the verification, or Trust, we see tonight is the beginning of a new upwards trend.
The blue lines that surround the price candles are Donchian Channels. When the prices hug these channels at the high end or at the low end for some bars, the prices tend to go up to the signal line (red–in between) and many times past it and correct to the other extreme. Here we see that the Donchian Channels were tested most of the week, and now seems the price’s chance to correct is coming. And it comes just in time.
The Retail Market in the U.S., as represented by their respective equities, is starting to recover from the blows of this harsh Correction. The SPX correction was at the 61.8% Fibonacci Correction Level and those tend to be particularly harsh most of the time. Please check out the Daily Chart below, of a trend-reversal day at 1:33 p.m. EDT of the United States. It speaks for itself.
This is the way the Daily Chart looks:
