Archive for July, 2011

  • Reinhart and Rogoff on the Economy
    , July 14th, 2011 at 9:18 am

    Bloomberg has an interesting op-ed from Carmen Reinhart and Kenneth Rogoff. They warn that growing yourself out of debt isn’t so easy because at some point, debt begins to impede growth.

    As public debt in advanced countries reaches levels not seen since the end of World War II, there is considerable debate about the urgency of taming deficits with the aim of stabilizing and ultimately reducing debt as a percentage of gross domestic product.

    Our empirical research on the history of financial crises and the relationship between growth and public liabilities supports the view that current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP. Nevertheless, many prominent public intellectuals continue to argue that debt phobia is wildly overblown. Countries such as the U.S., Japan and the U.K. aren’t like Greece, nor does the market treat them as such.

    Indeed, there is a growing perception that today’s low interest rates for the debt of advanced economies offer a compelling reason to begin another round of massive fiscal stimulus. If Asian nations are spinning off huge excess savings partly as a byproduct of measures that effectively force low- income savers to put their money in bank accounts with low government-imposed interest-rate ceilings — why not take advantage of the cheap money?

  • ConocoPhillips Plans to Split Into Two
    , July 14th, 2011 at 9:05 am

    ConocoPhillips ($COP) announced today that it’s going to split itself into two companies. Marathon Oil split itself up earlier this year. Generally, in a commodities industry, when prices go down, the industry consolidates. When prices rise, the industry separates.

    COP’s CEO said, “We have concluded that two independent companies focused on their respective industries will be better positioned to pursue their individually focused business strategies.”

    The reason I highlight this is that you can often find good bargains when top-quality stocks break themselves up. The hitch is that it’s often the less glamorous company that does well.

    Earlier this year, Motorola split itself in two, years after promising us it would. I joked that the company would now be two lousy companies instead of one.

    At the time, I wrote that the one to watch was Motorola Solutions ($MSI), the less glamorous spin-off:

    The one to steer clear of is Motorola Mobility. I firmly expect these guys to be crushed to dust. Motorola Solutions, however, might be a compelling buy. They do the “everything else” part of Motorola’s business which is things like barcode scanners and two-way radios.

    So far, I’ve been right.

    Many people have experienced a situation at a company where one part of the firm is much more profitable than other parts are. This can often lead to problems when employees feel that they’re “carrying” the rest of the company.

    ConocoPhillips wants to become a refining and marketing company and an exploration and production company. The refining and marketing is probably the safer bet.

  • JPMorgan Posts Good Earnings
    , July 14th, 2011 at 8:13 am

    I hadn’t expressed any opinion on JPMorgan Chase‘s ($JPM) second-quarter earnings because I didn’t have a good “feel” for how they were going to shake out. Sometimes the numbers are pretty clear but I just didn’t have that clarity this time around.

    From what I saw, it looks like Wall Street was pretty anxious about JPM and the entire banking sector. The Street was expecting JPM to earn $1.21 per share. The good news is that the bank reported Q2 earnings this morning of $1.27 per share.

    Analysts have expected strength in the bank’s capital market business. On Thursday, J.P. Morgan said its investment-banking arm’s profit jumped 49%. The retail financial services business, meanwhile, reported a 44% slide in profit.

    Credit-loss provisions were $1.81 billion, down from $3.36 billion a year earlier and $1.17 billion in the prior quarter. Many banks have seen earnings boosted by a reduction in loan-loss reserves as credit conditions improve.

    J.P. Morgan reported a profit of $5.43 billion, or $1.27 a share, up from $4.8 billion, or $1.09 a share, a year earlier. The latest period included a net seven cent charge, due in part to costs of foreclosure-related matters. The prior-year period included a net benefit of 12 cents related to a reduction in loan-loss reserves.

    Revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, rose 7% to $27.41 billion.

    Analysts polled by Thomson Reuters most recently forecast a per-share profit of $1.21 on $25.13 billion in revenue.

    The bank resolved a number of legal problems during the quarter. Earlier this month, it agreed to a $228 million settlement with the U.S. Securities and Exchange Commission over claims it rigged municipal bond transactions. In June, it said it would pay $153.6 million to settle charges it misled investors by packaging complex securities tied to the housing market before its downturn.

    Here’s a PDF from the company with all the details.

    I added JPM to the Buy List this year because I felt the stock was underpriced. The shares had a great start to the year and broke $47 by early April. Ever since then, the stock has trended lower and it broke below $40 recently.

    Three months ago, JPM reported earnings of $1.28 which was 12 cents above the Street’s consensus. With today’s earnings report, the company has delivered again. Going by yesterday’s close, JPM is going for an absurd 8.1 times earnings.

    The bank got approval to raise its quarterly dividend from five cents per share to 25 cents per share. I think it’s pretty obvious the dividend can go a lot higher — probably even to 50 cents per share. Even by the current dividend, JPM yields 2.52%.

    The shares are up over 2% in the pre-market.

  • Morning News: July 14, 2011
    , July 14th, 2011 at 7:58 am

    Italy Calls for Austerity Vote

    Italy Pays High Yields; Sells Bonds At Range Top

    Asian Stocks Decline as Concern Over U.S. Debt Rating Threatens Exporters

    EU: Hard To Understand Fitch’s Greek Credit Downgrade Decision

    Gold Hits Record Highs on U.S. Easing Talk, Euro Zone Debt Woes

    Moody’s Downgrade Warning Pressures U.S. on Debt Deal

    Bernanke Says Fed ‘Prepared to Respond’ If Stimulus Needed

    China Struggles to Tame Pork Prices

    Bank Delays Push 1 Million U.S. Foreclosures Into 2012 in ‘Ominous Shadow’

    JPMorgan Chase Quarterly Profit Rises 13% to $5.4 Billion

    ConocoPhillips Plans to Split in Two

    Amazon Takes on California

    Borders Faces Liquidation After Takeover Bid’s Rejection

    Todd Sullivan: Are LinkedIn’s Users Becoming Less Engaged?? The Data Says Yes…

    Stone Street: A Chinese Reverse Merger “Fraud” CEO Speaks

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  • Surprising Results for Gilead’s AIDS Drugs
    , July 13th, 2011 at 2:46 pm

    This sounds pretty impressive:

    Two studies released Wednesday show AIDS drugs can sharply reduce the risk of heterosexuals acquiring HIV, adding to a growing number of new methods to slow the spread of the virus world-wide.

    Many researchers now believe science has developed sufficient tools to contain the pandemic, which is thought to infect about 2.6 million people annually. But tight budgets may limit deployment of these methods.

    The results are the latest to demonstrate that existing medications are an important tool for prevention as well as treatment of HIV/AIDS, and show their effectiveness in the population hit hardest by HIV globally—heterosexuals in Africa. The findings also are likely to help alleviate concerns that emerged in April after another study was unable to determine whether the drugs protected women at high risk.

    Both of the new studies, conducted in different African countries, found that giving antiretroviral drugs to heterosexuals reduced the risk of HIV infection by at least 62%—”which is huge,” said Jared Baeten, co-chairman of one of the studies, led by researchers at the University of Washington International Clinical Research Center.

    That study examined 4,758 heterosexual couples in Kenya and Uganda in which one partner had HIV and the other didn’t. Researchers found that those who received a daily dose of a drug called tenofovir had an average of 62% fewer infections than those taking a placebo, while those who received a drug combining tenofovir and another medication, emtricitabine, had an average of 73% fewer infections. The drugs, marketed by Gilead Sciences Inc. under the brand names Viread and Truvada, respectively, are thought to work by preventing the virus from replicating and establishing an infection.

    The study, funded by the Bill and Melinda Gates Foundation, wasn’t supposed to end until late 2012. But after reviewing partial results, an independent data and safety monitoring board decided Sunday to halt the trial early because the findings were so strong, Dr. Baeten said.

  • The Onion: Banks Introduce 75-Cent Surcharge For Using Word ‘Bank’
    , July 13th, 2011 at 2:35 pm

  • Gold Soars
    , July 13th, 2011 at 12:25 pm

    While Bernanke speaks. (Click on graph for ultra-massive version.)

  • Is Gold Money?
    , July 13th, 2011 at 12:11 pm

  • Bernanke’s Testimony
    , July 13th, 2011 at 11:04 am

    Twice each year, the Chairman of the Federal Reserve is required to testify before Congress. I’ve actually hauled over to Capitol Hill a few times to see this. It’s a very odd experience since the hearing room is mostly empty.

    The two testimony dates usually come on the hottest day of the year and the coldest day of the year. Today is one of the hottest and Bernanke spoke before the House Financial Services Committee.

    Before Bernanke starts speaking, the Fed releases the transcript of what he’s going to say. Here’s today’s testimony.

    I’ve said before that there’s been a surprising gap between what Ben Bernanke says and what other people say he says. If you want to get a handle on what the Fed thinks, I encourage you to give it a read. It’s pretty clear.

    He said that the economy has been hurt by some temporary issues. Bernanke also noted that inflation has picked up some but that should also be temporary.

  • Morning News: July 13, 2011
    , July 13th, 2011 at 8:17 am

    Draghi Says EU Debt Crisis Is in New Phase

    E.U. Vows to Back Banks That Fail Stress Tests

    Moody’s Downgrades Ireland Debt to Junk Status

    China’s Economy Slowed a Bit in the 2nd Quarter

    Italian Borrowing Costs Rise on Debt Crisis Fears

    French Banks Face Greatest Italian Risk

    IEA: Saudi Domestic Crude Demand May Cap Exports

    Bernanke to Face Grilling on Jobs, Debt, Europe

    Stock Index Futures Gain on Signs of China’s Growth

    Netflix Rates Rise Up to 60% for DVD, Streaming

    Amazon Backs End to Online Sales Tax in California

    Capital One’s Earnings Rise 50%

    Electronic Arts to Buy PopCap Games

    Jeff Miller: How the Individual Investor Can Trade Like a Pro

    Joshua Brown: UBS: Apple TV Could Be Worth $100 Billion

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