+ve Script & Sector : Advanta, CMC, GEShip
BUY CenturyTex-504 for 513-519+ with sl 500
BUY Adlabs-362 for 377+ with sl 357
BUY ICSA-217 for 227-235+ with sl 213
BUY RECLtd-212 for 219-224+ with sl 207 [positional]
Strong & Weak futures
This is list of 10 strong futures:
Sesa Goa, DCHL, Yes Bank, Bank Of India, Jindal Steel, PTC, Canara
Bank, Dena Bank, Nagarjuna Const & Sun TV. And this is list of 10 Weak
stocks: RCom, BhartiAirtel, Idea, MTNL, Grasim, TV-18, IndiaCement,
AmbujaCement, HindPetro & HCLTech.
Nifty is in Up trend
NIFTY FUTURES (F & O):
Above 5135 level, expect short covering up to 5164-5166 zone and
thereafter expect a jump up to 5193-5195 zone by non-stop.
Support at 5096 & 5100 levels. Below these levels, selling may
continue up to 5084-5086 zone and thereafter slide may continue up to
5065-5067 zone by non-stop.
Buy if touches 5056-5058 zone. Stop Loss at 5036-5038 zone.
On Positive Side, cross above 5203-5205 zone can take it up to
5232-5234 zone by non-stop. If crosses & sustains this zone then
uptrend may continue.
Short-Term Investors:
Bullish Trend. 3 closes above 4790.00 level, it can zoom up to 5155.00
level by non-stop.
3 closes above 5155.00 level, it can zoom up to 5520.00 level by non-stop.
BSE SENSEX:
Higher opening expected. Recovery should happen.
Short-Term Investors:
Short-Term trend is Bullish and target at around 17671.82 level on upper side.
Maintain a Stop Loss at 16613.22 level for your long positions too.
SL Triggered.
POSTIONAL BUY:
Buy OK PLAY (I) (BSE Cash)
Rally is surprising, but bulls may lose control today.
1 Week: Surprisingly going up, opposite to bearishness.
1 Month: Surprisingly going down, opposite to bullishness.
3 Months: Bearish, as per current indications.
1 Year: Bullish, as per current indications.
Buy FRONTIER SPRING (BSE Cash)
Rally is surprising, but bulls may lose control today.
1 Week: Surprisingly going up, opposite to sideways pattern.
1 Month: Surprisingly going up, opposite to sideways pattern.
3 Months: Surprisingly going up, opposite to bearishness.
1 Year: Bullish, as per current indications.
Global Cues & Rupee
The Dow Jones Industrial Average closed at 10,062.94. Up by 47.08 points.
The Broader S&P 500 closed at 1,096.56. Up by 4.54 points.
The Nasdaq Composite Index closed at 2,173.29. Up by 1.06 points.
The partially convertible rupee INR=IN ended at 46.225/235 per dollar
on yesterday, weaker than Wednesday's close of 46.13/14.
Interesting findings on web:
The Dow carved out another one-year high Thursday as rising oil prices
and a late-session rally overshadowed bank sector caused by
Citigroup's and Goldman Sachs' profit reports.
Stocks stage late-session advance due to run up in energy shares,
despite bank stock selloff after Goldman Sachs and Citigroup results.
After-hours, Google beats.
Weakness in financial shares dragged on stocks through the early
afternoon. But a 3% spike in oil prices caused energy stocks to rise
late in the session, with Dow stocks Chevron (CVX, Fortune 500) and
Exxon Mobil (XOM, Fortune 500) among the big gainers.
The Dow Jones Industrial Average climbed 47.08 points (0.47 percent)
to end at 10,062.94.
The Nasdaq composite edged up 1.06 points (0.05 percent) to 2,173.29
and the broad-market Standard & Poor's 500 index added 4.54 points
(0.42 percent) to 1,096.56.
RUSSELL623.34-0.60-0.1%
TRAN4033.2-11.86-0.29%
UTIL381.173.37+0.89%
S&P 100507.072.19+0.43%
S&P 400714.652.07+0.29%
NYSE7204.0521.67+0.3%
NAS 1001753.36-0.90
S&P 500 - Risers
CIT Group Inc. (CIT) $1.17 +10.38%
Sunoco Inc. (SUN) $32.81 +10.14%
Tesoro Corp. (TSO) $15.80 +8.37%
Valero Energy Corp. (VLO) $20.14 +7.07%
Safeway Stores Inc. (SWY) $22.83 +6.53%
S&P 500 - Fallers
Citigroup Inc. (C) $4.71 -5.80%
Southwest Airlines (LUV) $9.47 -5.68%
Anadarko Petroleum (APC) $65.84 -5.07%
Charles Schwab Corp. (SCHW) $18.32 -5.00%
Eastman Kodak Co (EK) $4.29 -4.88%
Dow Jones I.A - Risers
Microsoft Corp. (MSFT) $26.55 +2.27%
Pfizer Inc. (PFE) $17.67 +1.73%
Chevron Corp. (CVX) $76.65 +1.58%
Wal-Mart Stores Inc. (WMT) $50.95 +1.51%
Exxon Mobil Corp. (XOM) $72.92 +1.50%
Dow Jones I.A - Fallers
International Business Machines Corp. (IBM) $124.47 -3.02%
Bank Of America Corp. (BAC) $18.03 -3.01%
Boeing Co. (BA) $51.76 -1.43%
Intel Corp. (INTC) $20.60 -1.11%
Hewlett-Packard Co. (HPQ) $47.50 -0.81%
Friday brings the October consumer sentiment index from the University
of Michigan and government readings on September industrial production
and capacity utilization. Dow stocks Bank of America (BAC, Fortune
500) and General Electric (GE, Fortune 500) are both expected to
report results before the start of trading.
The 10,000 number is more psychological than anything else, as it's a
round number and also puts the Dow back to where it stood just after
the collapse of Lehman Brothers last year. But analysts say that the
just-getting-started third-quarter reporting period is what's really
going to determine whether stocks keep moving higher.
The early results have been good -- with roughly 75% of companies
beating earnings estimates. Also, revenues have shown some
stabilization. Should that trend continue, it would help assuage fears
that cost-cutting is the only thing helping earnings stabilize and
that little topline growth exists.
"The first real week or so is not necessarily indicative of what the
rest of the earnings are going to look like," said Burt White, chief
investment officer at LPL Financial. "That said, the trend of earnings
beating expectations is going to continue. Conditions are improving
faster than people have been expecting."
Scott Marcouiller at Wells Fargo Advisors said investors must face a
decision on whether to cash in profits or push the rally further.
"The crossing of the 10,000 level sets up a potential near-term
turning point for stocks," he said.
"Our belief is after a potential very near-term further bounce, it
will then lead to some normal modest profit taking. We don't expect
the selling will get very far because the market has remained
resilient into any setbacks."
Goldman Sachs [GS 188.63 -3.65 (-1.9%) ] reported earnings of
$5.25 a share — a full dollar above expectations — beating on both
earnings and revenue.
But shares fell 1.9 percent as Wall Street's whisper numbers got a
little out of control following JPMorgan's beat yesterday.
Adding to the disappointment, Citigroup [C 4.75 -0.25 (-5%) ]
beat on earnings but didn't beat on revenue, which was weighed down by
billions in failed loans. Citi shraes fell 5 percent.
Disappointment in both Goldman and Citi earnings rippled through the
financial sector.
Banking analyst Dick Bove said this morning on CNBC that investors
shouldn't be selling Goldman or Citigroup stock.
"I would argue that (Goldman's earnings are) stronger than JPMorgan's
if you look at the whole company," with JPMorgan doing badly on the
traditional bank side of the business, Bove said. "There is no reason
not to be buying (Goldman) at this time," he said.
Bove said Goldman is the best-manged firm in the sector, but Citi's
stock has the most growth potential — it could go up to $20, he said.
The stock is currently just under $5.
"The current earnings season is unfolding better than expected," said
Fred Dickson at DA Davidson & Co.
"This morning's reports from Goldman Sachs and Citigroup add to the
list of companies delivering positive surprises."
But trading was muted as many investors locked in gains from the
market's strong performance.
Jon Ogg at 24/7 Wall Street said financial shares were mainly lower
despite the strong results from Goldman, Citi and others.
"All came in above or in-line with estimates and there is not really
anything wrong with the numbers when you compare them to expectations,
yet there is some disappointment here from the trading floors," said
Ogg.
"We noted yesterday how JPMorgan Chase set the bar extremely high for
the rest of the financial leaders. As a result, the common theme here
is profit taking in all of the majors."
After the close, Google (GOOG, Fortune 500) reported a third-quarter
profit that topped estimates, sending shares 2% higher. Google CEO
Eric Schmidt said in a statement that "we believe the worst of the
recession is behind us and we now feel comfortable investing heavily
in our future."
Also after the close, Dow component IBM (IBM, Fortune 500) reported
higher quarterly earnings that topped estimates and lower quarterly
revenue that topped estimates. Looking forward, the company said it
expects full-year 2009 earnings of at least $9.85 per share versus its
previous forecast of $9.70 per share.
The morning brought a mix of economic news, with readings on consumer
inflation, jobs and manufacturing all in the mix.
The Consumer Price index (CPI) rose 0.2% in September, after rising
0.4% in August. The rise was in line with a consensus of economists
surveyed by Briefing.com.
The so-called core CPI, which strips out volatile food and energy,
rose 0.2% after rising 0.1% in August. Economists thought it would
rise 0.1%.
Around 514,000 people filed new claims for unemployment last week,
down from a revised 524,000 in the previous week. Economists expected
520,000 new claims.
Continuing claims, a measure of those who have been receiving benefits
for a week or more, fell to 5.992 million from 6.067 million in the
previous week, versus forecasts for a smaller drop to 6 million.
Two regional manufacturing reports were also released. The
Philadelphia Fed index dipped to 11.5 in October from 14.1 in the
previous month, versus forecasts for a smaller slide to 12.
The Empire State Manufacturing Index, which measures activity in the
New York region, rose to 34.57 in October from 18.88 in September.
Economists thought it would fall to 17.25.
The bad news isn't over yet for housing: The latest report from
RealtyTrac showed that foreclosures rose more than 5 percent in the
third quarter.
On a positive note for housing, the average on the 30-year fixed
mortgage rate was 4.92 percent last week, it's third straight week
below 5 percent, Freddie Mac reported.
Homeowners have taken advantage of the low rates: In the past five
weeks, 3 out of 5 mortgages were for refinancing, according to the
Mortgage Bankers Association.
Among stocks in focus, Goldman Sachs slipped 1.9 percent to 188.63
dollars and Citigroup shed 5.0 percent to 4.75 dollars after gains
earlier this week.
"There were some people looking for even $6, which was really
unrealistic," said William Dwyer, chief investment officer at
Baltimore-based MTB Investment Advisors, which oversees $13 billion.
"A lot of momentum had already been built into the stock."
Citigroup fell 5 percent to $4.75. The lender that's 34 percent owned
by the U.S. government posted a $101 million profit, defying
expectations for a loss as the company added the smallest amount to
loan-loss reserves in two years.
"They are being overly optimistic on the outlook for loan losses," Jon
Fisher, a fund manager at Fifth Third Asset Management in Minneapolis,
which oversees more than $19 billion, said in a Bloomberg Television
interview. "We are going to find out in a couple of quarters that they
are way under-reserved."
Financial shares in the S&P 500 fell the most of 10 industries, losing
0.7 percent as a group. The industry had the biggest advance
yesterday, rising 3.4 percent to the highest level since November.
"If stocks ramp up surprisingly nicely on a given day, there's a
tendency for people to want to reduce their positions to take
advantage of that strength," said Robert Schaeffer, who helps oversee
$2 billion at Becker Capital Management Inc. in Portland, Oregon.
Credit-card issuers also helped send financial shares lower. JPMorgan
and Bank of America Corp., the biggest U.S. card companies, said more
customers fell behind on payments in September and Credit Suisse AG
forecast losses will mount for at least another year.
Bank of America slumped 2.6 percent to $18.10. Capital One Financial
Corp. fell 3.1 percent to $38.12. The third-biggest issuer of Visa
Inc. credit cards said delinquent loans rose to 5.38 percent from 5.09
percent.
A group of 12 commercial and professional services companies gained
2.3 percent, the biggest advance among 24 industries. Waste Management
Inc., the largest U.S. trash hauler, rose 5.6 percent to $31.63, its
highest close since January. Stericycle Inc., which disposes of used
hypodermic needles and other medical treatment byproducts, rose 5
percent to $52.12.
Google fell 1.01 percent to 529.91 dollars. The Internet giant rose in
after-hours trade as it reported profits grew to 1.64 billion dollars
and its top executive said the worst of the recession is over.
IBM, which also reported results after the bell rang, fell 0.29
percent to 127.98. The computer giant said profits were up 14 percent
to 3.2 billion dollars.
Pfizer rose 1.67 percent to 17.66 dollars after completing its
acquisition of rival pharmaceutical group Wyeth and cementing its
position as the world's biggest drug manufacturer.
Microsoft [MSFT 26.71 0.75 (+2.89%) ] rallied 2.9 percent after
RBC raised its price target on the stock to $30 from $27. Microsoft's
Windows 7 comes out next week but the company has said it doesn't
expect the launch to juice PC sales.
Pfizer [PFE 17.69 0.32 (+1.84%) ] was the second biggest
percentage gainer on the Dow, up 1.7 percent, as the world's biggest
drug maker completed its acquisition of rival Wyeth — making it even
bigger.
Energy components ExxonMobil [XOM 72.94 1.10 (+1.53%) ] and
Chevron [CVX 76.69 1.23 (+1.63%) ] also helped carry the Dow to
a positive finish — both gained more than 1.5 percent — as oil
continued to rise.
"As the economy improves, the demand for oil improves, so oil prices
have been coming up and the oil companies themselves have been doing
really well," said Larry Seibert, who helps manage $550 million at
Avatar Associates in New York. "We would expect the price of oil to
fluctuate around this level and trend up over the next few years."
Oil refiners accounted for the three biggest gains in the S&P 500.
Morgan Stanley analysts initiated coverage of the refining industry,
saying they expect stocks to trade higher through the end of this
year. Refiners will increase in value as diesel demand strengthens and
production cuts reduce supplies, the analysts said today in a report.
They named Sunoco the top pick in the refining industry.
All nine publicly traded independent refiners in the U.S. rose. Sunoco
Inc. surged 10 percent to $32.80. Tesoro Corp., the refiner with
plants in six Western states, rose 8.6 percent to $15.83. Valero
Energy rose 7.1 percent to $20.15.
Bob Browne, chief investment officer at Northern Trust in Chicago,
said rising oil could trip up a recovery in the economy if it
continues.
"Whenever oil goes up two-and-a-half bucks we can't have too many days
like that before start to worry," he said.
Southwest Airlines [LUV 9.49 -0.55 (-5.48%) ] reported a loss,
attributing it to fuel hedges and an early retirement program, but
revenue also declined. Its shares fell 5.7 percent.
US-traded shares of Nokia [NOK 13.68 -1.71 (-11.11%) ] tumbled
more than 11 percent after the handset maker unexpectedly swung to a
loss. The company said it was hurt by sagging smartphone sales and
writedowns at its networks unit.
Times are tough in hog town, too: Harley-Davidson [HOG 27.68 1.42
(+5.41%) ] reported its earnings plunged 84 percent, much more than
expected, as sales continued to slide amid the slow recovery. But
shares rose 5.5 percent as the company announced it would exit the
sport-bike market, discontinuing its Buell motorcycle line, in its
latest restructuring move.
Chipmaker Xilinx [XLNX 23.70 -0.30 (-1.25%) ] beat on both
earnings and revenue and it raised its dividend. But the firm's CFO
said there may not be as much of a rebound in sales going forward as
there has been in the past two quarters, stirring concerns about
growth in the sector. Xilinx makes chips used for driver assistance,
medical imaging and other applications. Shares fell 1.3 percent.
After the bell today, we'll get reports from Google [GOOG 529.91
-5.41 (-1.01%) ] , IBM [IBM 127.98 -0.37 (-0.29%) ] and
Advanced Micro Devices [AMD 6.21 -0.04 (-0.64%) ]. All three
companies beat expectations.
In M&A news, Cisco's [CSCO 24.37 -0.01 (-0.04%) ] bid for
videoconferencing firm Tandberg was snubbed by a large shareholder.
Safeway Inc., the third-largest U.S. grocery chain, gained 6.5 percent
to $22.83 after third-quarter profit topped analysts' estimates.
Technology shares in the S&P 500 had the second-biggest loss of 10
industry groups after financials.
Nokia Oyj's U.S. shares fell 11 percent to $13.68, the biggest drop
since July. The world's biggest maker of mobile phones had its first
net loss since the company began reporting quarterly in 1996, hurt by
costs related to a joint venture with Siemens AG and on weaker demand.
Motorola, the largest mobile-phone maker in the U.S., fell 3.3 percent
to $8.13.
Viacom Inc. fell 1.4 percent to $28.52 and CBS Corp. rose 5.7 percent
to $13.23. Sumner Redstone's National Amusements Inc. will sell $945
million of CBS and Viacom shares to repay loans that threatened his
control of the two media companies.
VIX21.72-1.14-4..
Oil, Gold & Currencies:
U.S. light crude oil for November delivery rose $2.41 to $77.59 a
barrel on the New York Mercantile Exchange.
COMEX gold for December delivery fell $14.90 to $1,049.00 an ounce.
The dollar fell versus the euro and gained against the yen, turning
mixed after its recent across-the-board weakness versus a basket of
currencies.
The yen headed for a second weekly loss versus the euro before a
report forecast to show U.S. industrial output rose for a third month,
boosting demand for higher-yielding assets.
The pound was set for its first weekly gain in a month versus the
greenback on expectations the Bank of England will suspend asset
purchases, easing concern it's flooding the market with sterling. The
dollar traded near a 14-month low against the euro amid speculation
European Central Bank officials will today signal a withdrawal of
unconventional policy measures intended to combat the recession.
"U.S. data are reinforcing the path for an economic recovery," said
Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex
& Ueda Harlow Ltd., Japan's largest currency broker. "Risk-taking
appetite is improving, so the bias is for the yen and the dollar to be
sold."
The yen touched 136.03 per euro, its lowest level since Aug. 24, and
traded at 135.68 per euro as of 11:21 a.m. in Tokyo from 135.35 in New
York yesterday. The currency slid to as low as 90.99 per dollar, the
weakest since Sept. 25, and was at 90.68 from 90.55.
The dollar fetched $1.4961 per euro from $1.4947 in New York
yesterday, when it declined to $1.4968, the lowest since Aug. 13,
2008. The U.S. currency fell to $1.6344 versus the pound from $1.6268.
It earlier touched $1.6350, the weakest since Sept. 24.
Asian Equities Gain
The Nikkei 225 Stock Average rose 0.2 percent after the Standard &
Poor's 500 Index gained 0.4 percent yesterday. The euro-yen had a
correlation of 0.79 with the Nikkei 225 in the past year, according to
data compiled by Bloomberg. A reading of 1 would mean the two moved in
lockstep.
Benchmark interest rates are 0.1 percent in Japan and as low as zero
in the U.S., compared with 3.25 percent in Australia, 2.5 percent in
New Zealand and 1 percent in the 16-nation euro area, attracting
investors seeking higher returns.
The Dollar Index was poised for a second weekly decline as economists
surveyed by Bloomberg News said the Federal Reserve will report today
that U.S. industrial output rose 0.2 percent in September after
gaining 0.8 percent in August.
Manufacturing in the New York region expanded in October for a
third-straight month, the Federal Reserve Bank of New York said
yesterday. Its general economic index rose to 34.6 from 18.9 in
September, according to the bank. Readings above zero for the Empire
State index signal manufacturing is growing.
The Dollar Index, which tracks the greenback against the currencies of
six major U.S. trading partners such as the euro and the yen, declined
0.2 percent to 75.345.
Bank of England
The pound gained for a fourth day against the dollar after the
Financial Times reported that Bank of England Markets Director Paul
Fisher said policy makers would be more likely to suspend quantitative
easing.
Policy makers would be more likely to pause asset purchases, giving
themselves the option of "doing more later," rather than stopping
them, Fisher said according to the Financial Times. Rising asset
prices and improved confidence may be signs the program is working,
Deputy Governor Charles Bean said this week.
"The Fisher remarks surprised the markets when everyone was extremely
short the pound, causing massive covering of those positions," said
Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd.
in Tokyo. "BOE policy makers may be hinting they'll interrupt their
bond-buying program. The U.K. currency could be bought further." A
short position is a bet an asset will decline.
Asset Purchases
The yen gained 7 percent versus the pound since the end of July on
speculation the U.K. would extend asset purchases. The Bank of England
pledged last week to stick to its plan to buy 175 billion pounds ($286
billion) of bonds to cement Britain's recovery from the worst
recession in a generation.
The pound rose to 148.24 yen from 147.32 yen yesterday, when it
climbed 3.1 percent, the most since Nov. 24 2008.
The euro headed for a second weekly gain against the dollar after
European Central Bank council member Axel Weber said it's time
consider raising interest rates and ending emergency liquidity
programs.
"Given the stabilization of the economic situation and financial
markets, the time has come to consider how to further manage the
crisis," Weber said in a speech yesterday in Muenster, Germany.
Weber is also set to speak today about "Financial Crisis - Challenges
for Economics" in Muenster.
"ECB officials are starting to signal exit strategies as stocks gain
and corporate earnings improve," said Takeshi Tokita, vice president
of foreign exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. "The
market is taking that as a positive sign, benefiting higher-yielding
currencies such as the euro."
Bonds:
Treasury prices fell, boosting the yield on the 10-year note to 3.46%
from 3.42% late Wednesday. Treasury prices and yields move in opposite
directions.
What to expect:
FRIDAY: Industrial production; consumer sentiment; Fed's Fisher
speaks; Earnings from Bank of America, GE, Halliburton and Mattel
Dow 10,000, Goldman $3 Billion: Welcome to the 'Bush Recovery'
The Dow crossed 10,000 yesterday (and held that level today, closing
at 10,062). This morning, Goldman Sachs announced a quarterly profit
of $3.19 billion. Neither number would have seemed believable a year
ago, but now that these results are in, what do they say about the
state of the economy? Also, who should get the credit, and what
on-going academic feuds can Dow 10,000 be a datapoint for?
Let's address the last two first. Michael Tomasky was watching Fox
yesterday when he heard Neil Cavuto note Dow 10,000 and ask a guest
whether this was the "Bush recovery."
Cavuto, to be fair, asked whether that wasn't "a bit of a stretch,"
but his guest, a man named Jim LaCamp[sic], said (I'm sure purely
coincidentally!) that it wasn't really a stretch at all.
News Hounds has the transcript of Lacamp's remarks:
Jim Lacamp, a financial advisor, said, "It defies logic that you can
blame Bush for the banking problems, the banking system, and criticize
the bailouts, and not give him a little bit of credit right now…
Between TARP and his appointment of Ben Bernancke, and he has dropped
interest rates to zero which has really helped these banks heal, he
has helped on the recovery side of the banks."
Steve Benen says he's heard this kind of thing before:
This reminds me a bit of Dana Perino's Fox News analysis in March,
when the major Wall Street indexes started recovering. As she saw it,
at least some credit for the turnaround should go to the
administration that left office two months prior. "Can all the credit
go specifically to President Obama? Well, I would say no," Perino
said. "We are just going to have to take a while to let all of this
settle down and let the policies that our administration and the new
administration are trying to put in place have a chance to work."
At Commentary, John Podhoretz put the 10,000 mark to different use, in
the fight over the value of the "efficient markets hypothesis" — which
also enabled him to get in a swipe at Paul Krugman.
According to Paul Krugman and a great many liberal economists, the
salient intellectual point of the financial meltdown is that it
exposed the hollowness of the "efficient markets hypothesis." This
theory, devised by Robert Lucas of the University of Chicago, suggests
that efforts to use the levers of government to move markets in
certain ways and certain directions are bound to fail because the
markets, in their collective wisdom, will always manage to "price in"
future changes and thereby blunt their impact. Since the market failed
to see the September 2008 crisis coming, and thereby failed to price
it in, the meltdown was terrifying and reveals the flaws in the theory
— and, by extension, its line of attack against government
intervention.
Well, here we are on October 14, 2009, and the Dow Jones Industrial
Average is once again above 10,000. This will surely be grounds for
rejoicing among people who are supportive of the president's claims to
have stabilized the economy and put it on a favorable path. (To be
fair to Krugman, though, he is unlikely to be among them — he's very
disappointed in Obama from the Left.) It will certainly be a good
talking point. And yet what is on display in this seemingly
nonsensical rise of 10 percent in the value of the Dow over the past
few weeks? Nothing more than speculation that certain numbers look
promising going forward. In other words, what we have here is a case
of the "efficient markets hypothesis" working for the benefit of a
Democratic politician, in that the collective wisdom of the market has
it that the economy is going to grow at some point relatively soon and
that the time to buy is now, so that stocks don't get more expensive
later.
So will those who claim that the post-Friedman Chicago School of
Economics has been discredited still revel in the Dow's potentially
catastrophically premature climb, or will they find themselves
explaining that the markets know best?
Robert Reich doesn't think there's much wisdom, collective or
otherwise, behind the Dow: "This is all temporary fluff, folks. Anyone
who hasn't learned by now that there's almost no relationship between
the Dow and the real economy deserves to lose his or her shirt in the
Wall Street casino."
If Dow10K is underwhelming, what about Goldman's $3.19 billions?
Sorry, no fun there either. Kevin Drum says Goldman's rising profits
speak more to the casino economy, not so much the real one.
Here's how Goldman Sachs' soaring third-quarter revenue breaks down:
"Goldman's business from fixed income, currency and commodities
trading again bolstered its bottom line, with revenue more than
tripling. Revenue from its principal investments soared 55% from
second quarter after losing money a year earlier.
"Investment-banking revenue fell 31% and financial advisory revenue
dropped 47%."
In other words, even more than usual, Goldman is a hedge fund with a
smallish investment bank tacked onto the side. They made better bets
than the other guys, but the kind of business that would indicate a
recovering economy is still very much in the tank.
At Clusterstock, John Carney took a couple of pokes at Goldman's
earnings. First he pointed out that though FICC, the unit that
accounted for the firm's growing profits — fixed income, currency and
commodities, "supposed to be the smartest shop on the street" —
produced 55 percent growth in the quarter, most the of the indexes did
better.
The the small-cap Russell 2000 index is up an eye-popping 75% since
March. The S&P 500 has climbed 58%. The Nasdaq composite index has
advanced 66%.
In short, Goldman would have done better if it just abandoned FICC in
favor of buying an index fund.
On second consideration, Carney said the real problem with Goldman's
earnings, as well as those JP Morgan Chase, is that they were just
plain underwhelming. "Yesterday JP Morgan announced earnings that blew
away the official analyst estimates. Today Goldman Sachs did the same
thing. But the reaction to both earnings announcements is similar: is
that it?"
It was hoped that JP Morgan would reveal that its loan loss provisions
had declined. Instead they kept climbing. And we wanted Goldman to
totally blow away the 'estimates.' Instead it plugged in a solid
"beat." A lot of Goldman's gains were made on bets that ordinary
mortals might have made, such as trading in further declines in
subprime.
What was missing in both reports was the idea of market genius or
financial expertise. Where was the "fire?"
Everyone knows you can make money if your borrowing costs are held
artificially low by government backstops. So just being profitable
isn't enough these days. We need heroic profitability. And neither
Goldman nor JP Morgan delivered on the prospect of heroism.
Michael Roston finds another figure to add to the mix: 169,000. That's
the number of recruits who signed up with one of the armed services in
the year ending Sept. 30. The Pentagon said it exceeded it's goal for
the year by 5,000, and that the total was "highest figure since 1973,
the first year of the modern all-volunteer force."
Roston thinks he understands why: "Americans are going so broke in
this jobless recovery that instead of finding work in our
not-so-happy-fun-time economy, they'd rather get shot up and shoot at
other people in Iraq, Afghanistan, and other places."
Americans are going so broke in this jobless recovery that instead of
finding work in our not-so-happy-fun-time economy, they'd rather get
shot up and shoot at other people in Iraq, Afghanistan, and other
places. . . .
I salute the service of our men and women in uniform, and respect the
bravery of all who would choose to join at a time when it looks like
we are headed for years of peril in Afghanistan, the graveyard of
empires. But I'd rather salute Americans by finding them jobs that
don't involve armored vehicles and improvised explosive devices.
If there is anything that shows the divide between Wall Street and
Main Street, it's the contrast between a day when the stock market
gleefully returns to five-digit territory, and the military beats its
recruitment goals.
Blogger redbedhead at Lenin's Tomb says "It shouldn't come as a
surprise that the biggest of the big banks in America that sucked up
tens of billions in government aid are now rolling in profits. That's
how this game works."
Thus, JPMorgan has just reported a 580% profit increase over last year
to a whopping $3.6 billion third-quarter profit. The reason is, purely
and simply, that the money that the US government pumped into the
banking and financial sector has created a new Wall St. bubble with
stock prices rising by nearly 50% to top the psychological benchmark
of 10,000.
The actual meaning of that number is a mystery to most of us not
initiated into the occult world of the stock market. But the basic
gist is that there's a lot of cash floating around and people are
doing to the stock market what they did to the housing market bidding
it up, out of relation to the value of the assets that they represent.
The trouble is, in the real world, the [house] is still burning.
Community banks in the US, which make their profit by loaning money to
people to buy houses, finance small businesses, other consumer loans,
etc. are tanking badly. These 7,000 banks have collectively lost about
$2.7 billion. And many are outright failing: "Ninety-eight banks,
mostly small, have failed so far this year, and regulators predict the
harvest from the current recession is less than halfway complete."
The reasons why are straightforward, with loan delinquencies sitting
at a record 4.35 percent and climbing and real estate development
loans have rocketed to 16 percent. Amongst homeowners, 7.35 percent
were delinquent - another record. In previously frothy markets like
south Florida the freefall is continuing. According to one real estate
agent foreclosures have risen by 25 percent compared to last year and
the trend is higher. It is certainly possible that the present round
of profit reporting including a positive report from Intel Corp.
boosting share earnings and projecting an extra $1 billion in revenue
for the fourth quarter could in fact herald a recovery. But it's also
the case that, like previous recessions going back to the Reagan arms
boom this one will have been ended by laying the basis for the next
one.
At the Huffington Post, Les Leopold said "It's time to recognize what
it means to be part of the billionaire-bailout nation. Citizenship
comes in three distinct flavors."
If you are wealthy, it's fantastic to take part in the resurgent Wall
Street boom. You are thrilled to see the trillions in taxpayer dollars
successfully prop up the financial sector. After all it's not really
your money — your tax shelters take care of that. You love the rise in
the markets. You are now reaping the rewards of investing in a sector
that rests firmly upon government welfare, and in which the largest
institutions are guaranteed from failure. It feels good to see
double-digit returns again, which you feel you truly deserve. The gap
between your wealth and the average American's is utterly fantastic.
Life is good.
If you have a job, you are feeling better than a year ago. Your 401k
is coming back from the dead. The stimulus program seems to be helping
with your employment. You may even get some relief from health care
reform. But you are not seeing your wages increase. (Overall the
average production workers real wages are down more than 18 percent
since the mid-1970s.) It's not easy to maintain a middle-class
existence or get anywhere near one if you're not already there.
Layoffs might be slowing down but you are still petrified that your
job will soon disappear. You are unsure you can provide for your
children's education and your own retirement. The future seems much
less secure than it did for your parents' and grandparents'
generations.
If you don't have a job you're in deep trouble. You are a "lagging
indicator." You are one of the 29 million who are without work or
forced into part-time jobs (the BLS U6 Jobless rate stands at 17
percent). You are gobbling up what savings you have or already digging
a deep hole of debt. You are hoping other family members can keep the
ship afloat until you find employment. You've worked hard all your
life only to watch your industry pack up and leave or shut down all
together. You've drawn the short straw.
US Economy Will be a Drag on World Growth: Soros
Billionaire investor and philanthropist George Soros said on Thursday
that the U.S. economy is going to act as a drag on world growth.
Speaking at conference sponsored by the Economist magazine, Soros, who
runs Soros Fund Management, said "The world economy is going to have
some growth, but we are bound to be flat."
He also said the U.S. is going to be a drag.
Investors around the world listen closely to Soros' comments as his
hedge fund makes big bets on currencies, interest rates and stocks.
Looking to China, Soros said he believes there is a bit of an asset bubble.
China's currency is tied to the U.S. dollar and Soros said that
relationship will ensure that the renminbi is undervalued. "And that
will be unsustainable," Soros said.
Google Beats on Earnings, Revenue; Shares Higher
Google handily beat analysts' expectations for both profit and revenue
on Thursday, sending its shares up in after-hours trading.
It was the company's strongest sequential revenue growth in more than
a year, as the advertising business showed signs of recovery from the
global recession.
The Internet search giant said it earned $5.89 a share in its fiscal
third quarter, versus a profit of $4.92 a share in the same period
last year.
Revenue, which excludes $1.56 billion in traffic acquisitions costs,
reached $4.38 billion compared with $4.041 billion last year.
Google [GOOG Loading... () ] was expected to turn a profit of
$5.42 with $4.241 in revenue, according to a consensus estimate from
Thomson Reuters.
The world's No. 1 search engine said sales in the third quarter
totaled $5.94 billion, up from $5.52 billion in the second quarter and
$5.54 billion in the year-earlier period.
Google has faced increased competition from Microsoft's [MSFT
Loading... () ] Bing but continued to increase its market share
in September, holding nearly 65 percent.
"Google has no competition. Yahoo [YHOO Loading... () ] is
withering on the vine and (Microsoft's) Bing is too tiny now," said
Colin Gillis, senior analyst at Brigantine Advisors. "They did great
on every single metric. We think this is sustainable."
Google's CEO Eric Schmidt has drawn attention to the ad-spending
recovery the company has been tracking, and the company recently
announced a partnership with Verizon [VZ Loading... () ] for
an Android mobile operating system.
"While there is a lot of uncertainty about the pace of economic
recovery, we believe the worst of the recession is behind us and now
feel confident about investing heavily in our future," Chief Executive
Eric Schmidt said in a statement.
He told analysts on a conference call that Google was stepping up
hiring and open to acquisitions.
"We're open for business in making strategic acquisitions, both large
and small," Schmidt said.
Google's shares touched another 52-week high at $535.58 on Wednsday
but closed 1 percent lower at $529.91 on Thursday. Its shares have
risen nearly 15 percent in recent weeks.
IBM Beats Earnings Forecasts, Raises Outlook, But Stock Falls
IBM Thursday raised its full-year outlook and reported
higher-than-expected quarterly profit as its growing focus on
higher-margin software and services businesses helped it cope with
weak technology spending.
But investors dumped IBM shares [IBM Loading... () ] after the
results, sending the stock lower in after-hours trading. Click here to
get after-hours quote
International Business Machines said it expects full-year earnings of
at least $9.85 per share, up from its previous outlook of at least
$9.70 a share. It had also raised its outlook last quarter as well
from a previous forecast of $9.20.
"We are optimistic about 2009 as we again raise our full-year
expectations and we remain well ahead of pace for our 2010 roadmap of
$10 to $11 per share," said Chief Executive Samuel Palmisano.
IBM has managed to escape the worst of the tech downturn of the past
year as it shifts more of its sales from servers to software and
services in outsourcing, automation and technology support — areas
that have remained relatively strong as companies seek ways to cut
costs.
The company reported its third-quarter net profit rose to $3.2
billion, or $2.40 a share, from $2.8 billion, or $2.04 a share, a year
earlier. Analysts on average expected a profit of $2.38 per share,
according to Thomson Reuters.
Revenue fell 7 percent from a year earlier to $23.6 billion, although
it rose 1 percent from the previous quarter and was better than Wall
Street's forecast of $23.4 billion.
The company also forecast a return to revenue growth in the fourth quarter.
IBM shares, which had risen about 24 percent in the past three months
on hopes of a recovery in technology spending, fell 3.3 percent to
$123.80 after closing at $127.98 on the New York Stock Exchange.
"We expected them to exceed expectations on both numbers. I also think
you can interpret that the dynamics within the technology category are
vastly improving. I think IT spending appears to be on the mend," said
Keith Wirtz, president and chief investment officer at Fifth Third
Asset Management.
Friday Look Ahead: Earnings Could be driver for Stocks, Bonds and Dollar
Earnings reports from General Electric [GE Loading... () ]and
Bank of America[BAC Loading... () ] are the big numbers for
markets Friday, and they matter nearly as much in the foreign exchange
and Treasury markets as they do in the stock market.
Currency strategist David Gilmore said he's watching earnings news
because of the impact on stocks, including after the bell results from
Google [GOOG Loading... () ]and IBM[IBM Loading... ()
].
"That's what happens when the cost of money is next to zero," said
Gilmore, market strategist at Foreign Exchange Analytics. Both tech
heavy weights released better-than-expected profits after Thursday's
bell.
Both GE and Bank of America report ahead of Friday's open. "That's the
only game in town," Gilmore said. There's not much data Friday
morning. Industrial production is released at 9:15 a.m., consumer
sentiment is reported at 9:55 a.m. and the Treasury's TIC data on
international capital flows is issued at 9 a.m.
Treasury traders too are focused on corporate earnings because they
are driving the stock market higher, and that market is moving in
tandem with risk assets, like commodities. It is also heading in the
opposite direction of the wilting U.S. dollar. In fact, one Treasury
desk's afternoon note Thursday looked like a run down from a stock
desk, with a list assessing Thursday's major earnings reports.
The Dow finished above 10,000 for a second day, rising 47 to 10062
Thursday. The S&P 500 was up 4 at 1096, just shy of the psychological
1100 mark.
The floundering dollar continues to feed inflation fears. Those
worries cropped up in the widening gap between the yields on 2-year
and 10-year notes, which reached 2.51 percent, the widest level in a
month.
Obama Administration officials spoke in support of the dollar, in
interviews with CNBC. Larry Summers, National Economic Council
Director, repeated the U.S. official line that the strong dollar is in
the national interest.
Treasury Secretary Timothy Geithner, in an interview with Maria
Bartiromo, went a bit further when she asked him about criticism about
the U.S. dollar's reserve status.
"I say this all the time.. that the dollar's role in the system
confers special obligations and responsibilities on us as a country,
and it is very important that Americans understand that we need to do
everything possible to sustain confidence in our ability to keep
inflation low and stable over time and to make sure we're getting our
fiscal house in order. That's a really important thing to confidence
generally. We take that very seriously, nobody more than me" he said.
When asked what he was doing to keep the dollar strong, Geithner
answered by saying he doesn't comment on foreign exchange markets, but
he pointed to the fact that investors fled to the dollar and dollar
assets during the height of the financial crisis.
"You saw the dollar rise when people were most concerned about he
future of the world," he said. "And that is a very important thing.
It's not something we can count on. It's something we can make sure we
understand and we continue to foster, and again, we are going to to do
that."
Yet, many in the markets believe the U.S. government is not now
concerned about the dollar's fall and that it instead sees an
advantage from the weak dollar's positive impact on exports. Another
idea circulating among some traders is the view that the Fed could
help the dollar even before it raises rates by continuing to unwind
some of its programs.
Kevin Ferry of Cronus Futures Management said the Fed is showing signs
that it could pull back on some liquidity in the marketplace through
repo agreements with primary dealers and others. Traders have said
this type of activity could result in a rise in rates even without the
Fed raising its target fed funds rate.
Ferry added that if that's the case, there could be a positive impact
on the dollar, which has been falling to new lows daily.
Earnings Central
So far this earnings season, the early going shows most S&P 500
companies beating estimates. As of Thursday morning, 80 percent of the
33 companies reporting had better than expected earnings.
GE could be the biggest factor for stocks Friday morning, said Todd
Leone of the Cowen equities desk.
"GE is big because as GE goes, the economy goes. We also have
(options) expirations tomorrow, which we saw a little of today," said
Leone.
General Electric, often seen as a barometer for the broader economy,
is expected to earn $0.20 per share on revenues of $39.36 billion. GE
holds a conference call ahead of the open, and investors are looking
to see what GE will say about its finance arm. There is also interest
in whether GE has anything to say about its discussions with Comcast
about a deal for a majority stake in NBC Universal, parent of CNBC.
Bank of America is expected to report a loss of $0.03 per share, on
revenues of $27.70 billion.
Bank of America Thursday said CEO Ken Lewis will give up his $1.5
million salary and other compensation for 2009. Lewis is also expected
to repay the more than $1 million he was paid so far this year. Pay
Czar Ken Feinberg is the one who suggested Lewis, under fire for his
handling of the Merrill Lynch acquisition, give up his pay.
Stocks could get some help Friday from Google, which saw its shares
rise after it reported profits of $1.64 billion or $5.13 per share.
IBM stock though fell after it reported lighter than expected revenues
of $23.6 billion. IBM's third quarter profit of $2.40 per share was
better than the $2.38 per share expected. The company also raised its
full year forecast.
BofA's Lewis Will Take No Salary or Bonuses in 2009
Embattled Bank of America CEO Ken Lewis agreed to give up his $1.5
million salary and other compensation for 2009. Lewis will repay the
bank the more than $1 million that's been paid to him so far this
year.
AMD Sales Better Than Expected, CPU Demand Rises
Advanced Micro lost money in the third quarter, but its
stronger-than-expected sales are adding to evidence that consumer
spending is fueling a turnaround in the personal computer market.
Greenspan worries about U.S. debt, not dollar slide
Former Federal Reserve Chairman Alan Greenspan said he is more worried
about the increasing U.S. debt than the weakening dollar during a
meeting here on Thursday.
Speaking at the Council on Foreign Relations in New York,
Greenspan said he is "not overly concerned" about the most recent
decline in the dollar, which has hit a 14-month low against the euro
and other major currencies.
"Remember, the dollar surged when the crisis began as we still
conceive dollar as safe heaven. We are now back to the levels just
prior to the crisis," he said.
Meanwhile, Greenspan expressed grave concern about the long-term
costs to the United States from the increasing national debt, which
according to him is the "most worrisome aspect of the economic agenda
in the United States."
In long term, government budget deficits would likely be even
bigger than current record estimates, and the deficits would continue
to put downward pressure on the currency and upward pressure on
borrowing costs, Greenspan said.
"It will begin to affect the yield on long-term interest rates," he said.
Greenspan said it is difficult to determine whether what happened in
the past few years is a once-in-a-century type of event or just a
repeat of periodical breakdown in the system.
"Remember that when you are dealing with a market-based system,
you have innovations occurring all the time. And indeed few people
realized that Edison had more failures than successes," he said. "And
the issue of our system, which is centrally created instruction
system, has many failures, and one of the purposes of our market
system is to clean them out."
Greenspan said the system needs to be repaired, rather than to be
replaced. And the critical problem is the "too-big-to-fail" issue. "If
they are too big to fail, they're too big," Greenspan told the
audience.
"That is to me the major issue. If we do not get it right, we are
going to be in terrible shape," he said. "We no longer have the
capability of having a credible government response, which says hence
forth, no institutions will be supported because it is too big to
fail."
Greenspan said too-big-to-fail is a bad policy anywhere, because
it is whole contrary to the very structure of what markets work.
"Failure is an integral part and necessary part of a market system,"
he said.
U.S. President Barack Obama unveiled in mid-June this year his
plan to reshape financial regulation. Under the new plan, the
government will make the Fed a systemic risk regulator to oversee
large institutions whose failure could threaten the stability of the
entire system.
The Obama administration has urged many times the U.S. Congress to
pass the regulatory reform as soon as possible. But up to now, only
the part on executive compensation regulation got approved in the
House. Congress is expected to decide on the whole series of
regulatory reforms next month.
Greenspan served as chairman of the board of governors of the
Federal Reserve System for more than 18 years. He also served as
chairman of the federal open market committee, the system's principal
monetary policymaking body.
Fed's Assets Rise 2.6% on Purchases of Mortgage Debt
The Federal Reserve's balance sheet grew to the biggest since May as
the central bank purchased mortgage-backed securities aimed at
lowering interest rates.
The Fed's assets increased $54.7 billion, or 2.6 percent, to $2.196
trillion in the week ended yesterday, the central bank said today in
Washington. Mortgage securities increased by $70.7 billion to $763
billion, approaching the amount of Treasury-bond holdings, which rose
by $4.28 billion to $773.5 billion.
Demand for some of the Fed's emergency liquidity programs has waned as
the central bank is completing the scheduled purchases of housing debt
and Treasuries. The balance sheet may expand to $2.5 trillion next
year, New York Fed President William Dudley said Oct. 5. Some
officials said last month buying additional mortgage debt may help
boost the economy, according to minutes of the Fed's policy meeting.
The balance sheet is now at the largest level since reaching $2.198
trillion on May 13. Federal agency debt purchased by the Fed gained
$2.57 billion to $136.4 billion.
The Fed's loans to a program providing liquidity to the asset-backed
commercial paper market and money-market funds fell to zero from $79
million last week. That makes it the fourth Fed emergency program to
show a zero balance, joining two facilities that lend cash and
securities to bond dealers and another that was designed to aid
money-market funds.
Two Goals
Fed Chairman Ben S. Bernanke and his colleagues are trying to balance
two goals: securing an economic recovery after the deepest contraction
and financial crisis since the Great Depression while withdrawing
fiscal and monetary stimulus in time to avoid driving inflation and
borrowing costs higher.
Policy makers said Sept. 23 they will complete the Fed's planned $1.25
trillion in purchases of mortgage securities and extended the end-date
of the program to March from December. They kept the benchmark
interest rate in a range of zero to 0.25 percent and repeated that
rates will stay low for an "extended period."
Credit extended through the Term Auction Facility, which sells cash
loans to commercial banks, fell $22.9 billion to $155.4 billion.
Currency swaps with other central banks dropped $6.2 billion to $88
billion.
The Fed is reducing the TAF's capacity to $75 billion in January from
$375 billion in September.
Discount-window lending to commercial banks fell to $27.2 billion from
$28.6 billion the previous week. The face value of commercial paper
held by the Fed under an emergency program begun in October 2008
declined to $35.8 billion from $36.8 billion on Oct. 7.
Money Supply
M2 money supply fell by $23.3 billion in the week ended Oct. 5, the
Fed said. That left M2 growing at an annual rate of 7.4 percent for
the past 52 weeks, above the target of 5 percent the Fed once set for
maximum growth. The Fed no longer has a formal target.
The Fed reports two measures of the money supply each week. M1
includes all currency held by consumers and companies for spending,
money held in checking accounts and travelers checks. M2, the more
widely followed, adds savings and private holdings in money market
mutual funds.
For the latest reporting week, M1 rose by $16.9 billion, and over the
past 52 weeks, M1 rose 16.6 percent. The Fed no longer publishes
figures for M3.
Geithner says U.S. should avoid lengthy slump
The United States should avoid a prolonged slump thanks to its
stimulus efforts, but policy-makers must refrain from applying the
brakes too soon, Treasury Secretary Timothy Geithner said late
Thursday.
Actions taken by the Federal Reserve and Obama administration have
"improved prospects we won't be consigned to a prolonged period of
below-trend growth," Geithner said at a conference held by the
Economist magazine in New York.
Policy-makers need to avoid withdrawing support for the economy and
financial system too early, he added. "Risks on the growth front are
still the dominant risks."
The Federal Reserve's unprecedented efforts to revitalize the economy
and thaw credit markets -- including a near 0% federal funds rate and
trillions of dollars in bond buybacks and discount loans -- have put
policy-makers in a tricky spot.
They need to withdraw this extra money quickly enough to avoid a
debilitating bout of inflation. But if they tighten too quickly, they
could cut off the country's still-fragile growth.
Economists and investors are increasingly at odds over whether the Fed
and Congress will smoothly navigate the economy out of recovery. The
country will need a long period of adjustment as individuals save
more, according to Geithner.
Other nations are "going to have to be less reliant on the U.S.
lifting the rest of the world out of recession," he said. "We're
already saving more as a country, and that's a necessary and desirable
thing."
The Treasury secretary also weighed in on the controversial topic of
bank pay. "We have to change the structure of compensation so we don't
have people paid to take too much risk."
But he commented: "I don't think it makes sense for the government to
set compensation levels."
World at risk from China forex policy: Treasury
But no finding of manipulation
China's foreign-exchange policy risks "unwinding" some of the progress
made in reducing global trade imbalances during the financial crisis,
the U.S. Treasury said Thursday in its latest report on
foreign-exchange trading.
Asia:
Asian stocks fluctuated, with the MSCI Asia Pacific Index heading for
a second week of gains, as a decline among financial shares was offset
by a weakening yen that boosted the outlook for Japan's exporters.
Mitsubishi UFJ Financial Group Inc., Japan's biggest bank by market
value, slumped 4.1 percent after earnings from Goldman Sachs Group
Inc. and Citigroup Inc. disappointed some investors. Sony Corp., the
maker of PlayStation game consoles, climbed 1.5 percent on optimism
the drop in the yen will boost the value of U.S. sales and as
Citigroup advised buying the shares. Woodside Petroleum Ltd. gained
1.2 percent after oil climbed.
The MSCI Asia Pacific Index fell 0.1 percent to 120.6 as of 11:11 a.m.
in Tokyo, paring this week's gain to 1.3 percent. The measure changed
directions at least six times today. The gauge has climbed 71 percent
from a more than five-year low on March 9 as stimulus measures helped
revive the global economy and company profits topped analyst
estimates.
"Investors are at a threshold due to valuation concerns though they
are becoming convinced that profit growth is sustainable," said Daphne
Roth, Singapore-based head of Asian equity research at ABN Amro
Private Banking, which oversees about $14 billion. "The outlook has
become much more optimistic. Global growth is picking up."
Japan's Nikkei 225 Stock Average gained 0.2 percent in Tokyo, while
Australia's S&P/ASX 200 Index lost 0.1 percent. South Korea's Kospi
Index dropped 0.5 percent.
Outpacing Gains
Futures on the Standard & Poor's 500 Index rose 0.1 percent. Oil
producers and refiners helped lift the gauge by 0.4 percent to the
highest level since October 2008 yesterday. Gains were limited as
Goldman Sachs reported earnings that fell short of a record posted the
previous quarter, while Citigroup added the smallest amount to
loan-loss reserves in two years.
A measure of financial shares on the MSCI Asia Pacific Index was the
biggest drag on the broader gauge today after closing at a 13-month
high yesterday following better-than-estimated profit from JPMorgan
Chase & Co.
Mitsubishi UFJ dropped 4.1 percent to 465 yen. Sumitomo Mitsui
Financial Group Inc., Japan's second-largest bank by market value,
fell 3.4 percent to 3,140 yen. Nomura Holdings Inc., Japan's largest
brokerage, sank 1.4 percent to 631 yen.
Sony, which got 24 percent of its sales in the U.S. last year, gained
1.5 percent to 2,640 yen on speculation the falling yen will boost the
value of sales generated by Japanese companies overseas when
translated into their home currency.
Improving Profitability
The yen depreciated to as low as 90.99 versus the dollar, a level not
seen since Sept. 25. Against the euro, Japan's currency weakened to
the lowest since Aug. 24.
Shares of Sony were raised to "buy" from "hold" at Citigroup, which
said the stock is "undervalued" and that profitability of the
PlayStation business is set to recover.
The seven-month rally has driven valuations of stocks in the MSCI Asia
Pacific Index to 23 times estimated earnings, compared with an average
of 18 times during the last three years.
"The earnings have been very supportive," said Philip Schwartz, who
manages $1.3 billion as head of international investing in New York at
ING Investment Management. "The liquidity is kicking in, and in such a
forceful way that you really have to ratchet up your economic
expectations."
Lehman Collapse
The MSCI Asia Pacific Index advanced 35 percent in 2009 through
yesterday, outpacing the S&P 500's 21 percent gain and a 25 percent
climb by Europe's Dow Jones Stoxx 600 Index. JPMorgan's earnings, a
slowing in the decline of China's exports and a rise in Australian
consumer confidence has pushed the gauge this week to levels not seen
since before Lehman Brothers Holdings Inc. collapsed in September
2008.
Woodside, Australia's No. 2 oil producer, gained 1.2 percent to
A$53.82 after crude oil rallied 3.2 percent to $77.58 a barrel
yesterday in New York, the highest since Oct. 14, 2008. The London
Metals Index, a measure of six metals, added 1.2 percent yesterday.
"Export and commodities stocks are going to be the focus of buying as
the yen passed a major milestone against the dollar and the
performance of U.S. stocks and commodities points to an improving
external environment," said Juichi Wako, a senior strategist at
Tokyo-based Nomura Holdings Inc.
In Seoul, LG Display Co., the world's second-largest maker of liquid-
crystal displays, declined 4.4 percent to 31,800 won after the company
reported third-quarter profit that missed analysts' estimates and
forecast panel prices will fall.
Nikkei 225 10,257.62 +18.97 ( +0.19%). (08.26 AM IST)
Japan's Nikkei stock average edged up 0.2 percent on Friday, with
exporters such as Sony Corp (6758.T) gaining on a weaker yen and
robust results from U.S. tech firms, while higher oil prices boosted
energy shares. But Mitsubishi UFJ Financial Group (8306.T) and other
banks slipped as investors moved to lock in profits after results from
Goldman Sachs Group (GS.N) and Citigroup Inc's (C.N) failed to match
the high standards set by JPMorgan Chase & Co (JPM.N).
"There's a growing risk of profit-taking on a sense that U.S. shares
may be overpriced, with additional financial company results likely to
prompt profit-taking even if they're better than expected, as happened
yesterday," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ
Securities.
"Even so, the pace of economic recovery seems to be better than
expected, as shown by strong U.S. tech earnings, and global stock
markets are trending upwards."
Google Inc (GOOG.O) and IBM (IBM.N) results bested Wall Street
estimates and along with a robust performance by Intel Corp earlier
this week, helped to underscore that demand from both consumers and
businesses is returning.
The benchmark Nikkei .N225 rose 21.73 points to 10,260.38, a day after
hitting a three-week closing high. But the broader Topix , which is
less tech-heavy, slipped 0.3 percent to 901.74.
Exporters rose, buoyed by the yen's retreat against the dollar. The
greenback had gained 0.2 percent to 90.70 yen by mid-morning JPY=.
Sony Corp gained 2.3 percent to 2,660 yen and Canon Inc (7751.T) rose
0.3 percent to 3,530 yen. Industrial robot maker Fanuc (6954.T) rose
0.5 percent to 7,780 yen.
Goldman's earnings nearly quadrupled and Citigroup's third-quarter
loss narrower than expected but Citigroup also booked $8 billion in
credit losses and the results set off a wave of profit-taking.
Mitsubishi UFJ Financial Group (8306.T), Japan's biggest banking
group, fell 3.1 percent to 470 yen and No. 3 bank Sumitomo Mitsui
Financial Group (8316.T) lost 2.8 percent to 3,170 yen. Mizuho
Financial Group (8411.T) shed 0.6 percent to 172 yen.
U.S. crude oil futures CLc1 rose more than 3 percent to a one-year
high after data showed gasoline and distillate inventories fell
sharply in the latest week. That helped U.S. energy shares eclipse a
retreat in banking stocks.
Oil and gas field developer Inpex rose 2.7 percent to 280,000 yen.
HSI 22088.29 +89.21 +0.41%. (08.27 AM IST)
Shares in Hong Kong and China headed higher in early trading Friday,
with oil-related shares adding support to the market as crude prices
climbed past $78 per barrel on Globex. Hong Kong's Hang Seng Index was
up 0.3% at 22,063.16. Shares of Cnooc Ltd. /quotes/comstock/22h!e:883
(HK:883 12.20, +0.18, +1.50%) /quotes/comstock/13*!ceo/quotes/nls/ceo
(CEO 157.92, +1.79, +1.15%) tacked on 1.8%. PetroChina Co.
/quotes/comstock/22h!e:857 (HK:857 10.10, +0.10, +1.00%)
/quotes/comstock/13*!ptr/quotes/nls/ptr (PTR 132.09, +1.35, +1.03%)
shares were up 1.6% in Hong Kong, and 1.5% higher in Shanghai. The
Hang Seng China Enterprises Index in Hong Kong and the Shanghai
Composite on the mainland each rose 0.4%.
Chinese stocks open 0.43% higher on Fri
Chinese stocks opened higher on Friday morning, tracking gains from
the previous closing.
The benchmark Shanghai Composite Index, which covers both A shares and
B shares on the Shanghai Stock Exchange, opened at 2,992.75 points, up
0.43% or 12.96 points from the previous closing.
The Shenzhen Component Index on the smaller Shenzhen Stock Exchange
opened 0.3% or 36.62 points higher at 12,046.8 points.
GE Asset raises stake in China South Locomotive to 8% (16 Oct)
China National Aviation to issue bills next Tue (16 Oct)
Hang Seng Index opens 138 points higher on Fri (16 Oct)
TPV, Inventec plan to set up JV (16 Oct)
Hon Hai to invest in real estate project in Chengdu: report (16 Oct)
Li Ka-shing raises stake in Hutchison Whampoa to 51.39% (16 Oct)
LG Display to set up US$4-bln JV in Guangzhou (16 Oct)
Chinese stocks open 0.43% higher on Fri (16 Oct)
VODone buys 70% stake in Dragon Joyce (16 Oct)
China's FDI up 18.9% in Sep (16 Oct)
BYD posts 88% growth in sales for Sep (16 Oct)
China's XAIC to produce Boeing 747 aircraft for Vought Aircraft (16 Oct)
Dongfeng Motor recalls 51,812 vehicles over steering problem (16 Oct)
Northeast Securities' net profit surges 81% in Jan-Sep (16 Oct)
China Huaneng Group to issue RMB 3 bln in financing bills (16 Oct)
Noregs Bank raises stake in Hutchison Telecom Int'l (16 Oct)
BenQ to expand in mainland LCD TV market (16 Oct)
VisionChina Media buys DMG for US$160 mln (16 Oct)
China's power use up 10.24% in Sep (16 Oct)
China's fiscal revenue up 33% in September
INVESTMENT VIEW
Lanco Industries-Core Play On Water Infrastructure
BSE 513605; CMP Rs 41.05
Owned by Electrosteel Castings, Lanco Industries manufactures about
180,000 tpa of ductile steel pipes that are primarily used for the
transportation of drinking water. The Rs 650 crore entity had a
reasonably good FY09, with after tax profits at Rs 18 crore, that work
out to Rs 5 in EPS. For the Q1 to June 2009, Lanco Industries has
reported a 24 per cent increase in Revenues to Rs 169 crore (Rs 136
crore), with after tax profits of Rs 9.8 crore-a qoq jump of 50 per
cent.
With cost key raw material inputs having come down and rupee
appreciation actually making imported coke cheap the margins of the
corporate are looking up. At a prospective EPS of Rs 10 for FY10,
Lanco Industries is the cheapest stock in the ductile pipes space. A
reasonable PE for this type of business would be 7 to 10 giving the
scrip a 12 month prospective price target of Rs 70 to Rs 100.
Backdrop
Water-related demand – thrust should continue
We believe water and irrigation offers a very strong business
opportunity for Indian pipe
manufacturers, in addition to the opportunity from the energy sector.
A combination of greater government focus on irrigation, higher
multilateral lending for water-related sectors and enhanced private
sector participation in water supply projects increase the potential
for a rise in demand from this segment.
Key focus area for the government according to 11th plan
Irrigation remains a key focus area for the government and more so for
the state governments due to the politically sensitive nature of the
investments. Combined with water supply and the sanitation segment,
which is essentially driven by the government plan for Jawaharlal
Nehru National Urban Renewal Mission (JNNURM) projects, this segment
is the second-most important focus for the government after the power
sector as per the 11th five-year plan.
The 11th plan envisages ~US$83bn of investments in irrigation and
water supply and sanitation over FY08–12.
Bharat Nirman programme – significant addition of 5.9m hectares of
irrigation potential in four years
Under the irrigation component of Bharat Nirman (the flagship
programme of the government of India to improve infrastructure in
rural areas), there was a four-year target (FY06–09) to create
additional irrigation potential of 10m hectares. This was planned to
be met largely through expeditious completion of identified ongoing
major and medium irrigation projects in addition to minor irrigation
schemes through surface flow and ground water development.
Irrigation potential added in five key states
The programme succeeded in creating additional irrigation potential of
5.94m hectares over the last four years (FY06–09), with Uttar Pradesh,
Andhra Pradesh, Maharashtra,Gujarat and Rajasthan leading the way,
creating 66% of the additional potential among them. However, there
still remains a deficit of 34.6m hectares irrigation potential in
India. India's estimated irrigation potential is around 139.9m
hectares; after the four-year Bharat Nirman plan, the irrigation
potential could be 105.3m hectares.
Andhra Pradesh remains the leader in providing thrust to irrigation
investments
The re-elected government in Andhra Pradesh has plans to double
spending on irrigation
over the next five years. This could also lead to higher irrigation
spending by neighbouring
states such as Maharashtra and Madhya Pradesh.
Urban Infra – rapid approval of projects augurs well for order inflows
Investments in Urban Infra tend to be much in doubt given the fiscal
scenario of state
governments and urban local bodies. However, significant Jawaharlal
Nehru National Urban
Renewal Mission (JNNURM) projects have been approved during the past
year, with project approvals having increased to Rs494bn from Rs270bn
a year ago. The major positive is the increase in assistance released
by the government of India (GOI) in the past year; that assistance has
gone up almost three-fold from Rs29bn to Rs74bn.
Water supply/sewage projects contribute 76% of total projects
Water supply, sewage and drainage projects account for 76% of all
project approvals. The
mass rapid transport system (MRTS) and roads follow with contributions
of 10% and 7%,
respectively. The top six sectors account for 97% of all the approved
projects.
32% of government's contribution already disbursed – expect surge in
order flows
The total contribution of the central government is Rs234bn,
representing 47% of the total
project cost. The central government has already released Rs74bn under
the first instalment for 461 projects in 21 states and Union
Territories.
We view the release of funds by the government of India as a proxy to
progress on the ground because funds are only released for specific
projects for which detailed project reports (DPRs) have been approved.
Given the strong activity on the ground, we expect a surge in orders
in the areas of water supply, sewage and drainage during the next 6–12
months.
(Some forward looking statements on projections, estimates,
expectations & outlook are included to enable a better comprehension
of the Company prospects. Actual results may, however, differ
materially from those stated on account of factors such as changes in
government regulations, tax regimes, economic developments within
India and the countries within which the Company conducts its
business, exchange rate and interest rate movements, impact of
competing products and their pricing, product demand and supply
constraints.)
Disclosure: I don't have any positions in the above said scrips &
NIFTY FUTURES.
Disclaimer:
"I do not make any warranties, express or implied, as to results to be
obtained from using the information in this e-letter. Investors
should obtain individual financial advice based on their own
particular circumstances before making any investment decisions based
upon information in this report."
--
Arvind Parekh
+ 91 98432 32381
