Buzz Bits: Fannie Mae Finally Issues Report
Daily dose of the Buzz and Banter!
Earnings Report - MV News
Kohl's (KSS) reported Q1 EPS of $1.08 vs $1.07 cons on revs of $4.65 bln which it reported on Feb 2.
H&R Block (HRB) reported Q3 EPS of $0.19 vs $0.28 cons on revs of $1.20 bln (in-line).
Gap (GPS) reported Q4 EPS of $0.39 vs $0.37 cons on revs of $4.8 as reported on Feb 2.
Ooofda - Jeff Macke - 3:59 PM
Greetings from the Land of 10,000 Frozen Solid Lakes where I'm tending to some lingering family business and wishing I could use an ice-pick to do so.
Speaking of cold water, Coldwater Creek (CWTR) is up another 2% today on no news and I still don't have any on my sheets. The stock is over $22 per share, well over the $19 and change it hit when I pondered (but didn't buy) the early-February dip.
In more personally satisfying news, Safeway (SWY) is up as much as 5% after opening a private label branded can of whoop-ass and served it to the earning estimates. The company posted a 5.8% sales boost for the 4th quarter, leading to an "adjusted earnings" number of 51-cents, vs. analyst estimates of .46. Regarding SWY's stock I can share, without advising, that I'm not touching a share today and would be a buyer of future swoons.
Position in SWY
Flashback! - Bill meehan - 3:25 PM
This day in market history...
- Closing levels 2 years ago
- DJIA: 10,609.62
- Naz: 2007.52
- S&P 500: 1140.99
- Crude: 35.75
- Gold: 404.25
This day in Minyanville history...
- Prof. Goepfert took a look at Fund Cash and Rates
In other news...
- In 1945, during the Battle for Iwo Jima, US Marines from the 3rd Platoon, E Company, 2nd Battalion, 28th Regiment, 5th Marine Division took the crest of Mount Suribachi and raised the US flag.
Mini-Minyan Mailbag - Todd Harrison - 2:01 PM
"Have you noticed the positive correlation between the equity market and commodity prices? With gold down today, let's see if the market will soon follow. Minyan Garrett"
This is consistent with the 'rising tide' discussion we've bantered about in the 'Ville. It's also something I discussed in Ojai during last year's Minyans in the Mountains retreat.
My view has been that something must give--either the dollar devalues (as the Fed prints money) or asset classes deflate (if they stop flooding the market with greenbacks). It makes intuitive sense although the lack of slippage in the dollar has been a curious outlier in that equation.
Playing Dirty - William Fleckenstein - 1:11 PM
In my 25+ years of investing I have never seen a legitimate company attack, much less sue short sellers. In fact what I have seen is - the more aggressive the behavior the dirtier the company typically is.
I know nothing about Biovail (BVF), but if they aren't "dirty," it would be a first. Blaming shorts for your problems has always been a loser's lament....shorts don't make the companies do the things they do to cause the stock price to drop (I've yet to see a short seller cut a dividend for instance).
As for impacting independent research, I see no reason why that should be the case. My favorite bio-tech stock, Nastech Pharmaceutical (NSTK), has a huge short position and it doesn't bother me at all. If I'm right they lose, if they're right I lose.....seems fair to me.
Position in NSTK
Just a few more thoughts on Banks and the Yield Curve - Vitaliy Katsenelson - 12:13 PM
Unlike Bennet, I don't golf with the high flying bank executives. My mini golf buddy is my four-year-old son, Jonah, and his insights about banking were not as helpful as Bennet's golfing partners!
On a more serious note, Bennet's comments do make a lot of sense. Large banks such as JPM, BAC, C, do have a very large fee business, where smaller ones like Zions Bancorp (ZION) don't. So the rally in smaller banks doesn't really make that much sense. Maybe I am trying to find a rationale where one doesn't exist?
That said, there may be several explanations for why small banks are up at the time when the yield curve is inverting:
1. Flat yield curve will not impact their business - that doesn't appear to be the case.
2. Investors don't expect the yield curve to be flat or inverted for a long time. The market is a discounting mechanism, looking into the future. The problem with this argument is that smaller banks have not really declined much in expectation of the flattening yield curve. It is not like they were oversold to begin with.
3. Maybe investors expect smaller banks to be gobbled up by larger banks. I believe that is in part (key words here are "in part") a reason why ZION is trading at a premium multiple to larger banks.
Position in BAC, C, JPM
Sour Grapes - David Miller - 11:35 AM
Biovail's (BVF) suit makes for an interesting read. Most everyone will pawn it off as sour grapes, but I think that is too simplistic of a response. If this suit survives into the discovery stage, expect it to get legs really quickly once subpeonas start flying. Without implying anything about the parties to this case, I can say with certainty Biovail is looking under the right rocks. This alleged behavior is very common, particularly in the biotech space. It's only a matter of time before someone puts the right case together and proves it.
The sad thing is it will drag "independent" research through the mud. My views on what qualifies as independent research are published. When our little corner of the research world is dragged through the mud, please take a second to understand most of the people who call themselves "independent" are not.
Riddle Me This - Adam Warner - 10:54 AM
Not advice here, but when you look at the Google (GOOG) and Chicago Mercantile Exchange Holders (CME) stock and volatility charts, I can't fathom why GOOG commands a significantly higher option volatility. CME hovers near all-time highs, while GOOG sits in the middle of a pretty well-defined range.
Both stocks themselves tend to trade at about a 30 volatility (factoring out the one-day earnings blip in GOOG). That is roughly where CME options change hands, yet GOOG options trade at an over-40 volatility.
I suppose the arguments for GOOG are that you have a more exciting business, and the ever-present potential for a one-day S&P 500 invitation blip. OK, the first may be true, but it has had little bearing on the propensity of the stock to fluctuate, so why would it matter to the options? And the 2nd has hovered over GOOG for 6 months now, so I would question the wisdom of essentially overpaying every day on the off chance that the GOOG Powerball number hits.
Position in GOOG
Where Fundamentals and Technical/Sentiment Analysis Meet (Financials) - Phil Erlanger - 10:05 AM
Even though we earn our money day in and day out reading the tea leaves, we acknowledge and respect that ultimately fundamentals drive a stock's price higher or lower. In fact, we have and will continue to integrate fundamental data from independent research vendors we respect like Jefferson Research and Ford Investor Services.
With that disclaimer out in the open, we would like to back up long time friend Bennet Sedacca's comments on bank and financial stocks this morning. Also, we note that John Succo has been offering up similar comments, so these thoughts are for you guys and those that pay attention to their insightful comments.
We get concerned when short interest drops to relatively low levels on a historic basis. Short interest has dropped on many groups within the financials. A lack of shorts means that for stocks to continue higher we need folks to actually buy stocks instead of relying on shorts to cover. The following financial groups saw short intensity drop by at least 5% month over month and the groups overall short intensity is under 40%. These groups include:
Insurance Brokers, Multi-Line Insurance, Accident & Health Insurance and Investment Bankers/Brokers.
In terms of banks, we note that Bank of America (BAC) sees short intensity now at 1% with a short ratio of 2.54. Other major banks with light short selling include: DB, MEL, STT, C, WFC, HBAN and MI. Light short selling is short intensity under 30%. We have the potential to set up for the perfect storm to the downside. From our perspective, if the financials weaken we could finally see the full effect of Reg SHO which allows short sellers to short on a downtick. We note that STT is one name on the REG SHO list that could enter the "house of pain."
More on banks and the inverted curve conundrum. - Bennet Sedacca - 8:34 AM
Yesterday, Succo and I expressed here that we were surprised by the acceleration of bank shares to all-time highs in the face of fresh new highs in curve inversion. I also received countless e-mails from many a Minyan with the same questions. Later, Professor Vitaliy correctly pointed out here that banks are not as dependent on their earnings on loans as they used to be. In fact, we pinged back and forth on IM about the dependency on each major bank's earning on lending versus fees, asset management, etc. Point well taken and this is the key to the 'Ville. We are always learning.
But then a funny thing happened. It was 85 degrees here in Orlando yesterday, so I took my opportunity to head to the course and hit some golf balls. I ran into the CFO of the largest community bank in Orlando. I asked HIM about the inverted curve. He grimaced and said 'we can't make any money.' I then asked a CEO of another financial services company that I know about it and he reiterated. So.............What is the point? Whether JP Morgan (JPM) and Bank of America (BAC) only have 40-50% of the earnings from loans, the inverted curve IS an issue. Why the stocks go to new highs? Short squeeze anyone? Short-term, that is my guess, even if, as Succo pointed out to me, many of the shorts could be hedged with calls. There must be SOME naked shorts out there.
But I will say this. I think the rally in financials, while in the short-term, is impressive, it doesn't have legs, particularly if 10's fail, as I suspect. So be careful with the 'it's different this time' mantra in our shop. In fact, the execs that I was talking with were actually laughing about the fact that commentators were actually saying it was. It NEVER is.
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