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Buzz Bits: Dow Inches Higher, Nasdaq Closes Lower


Your daily Buzz highlights...


Editor 's Note: This is a small sample of the content available on the Buzz and Banter

Earnings Report - MV News
  • News Corp (NWS) reported Q3 EPS of $0.26 vs $0.20 cons on revs of $6.20 bln vs $6.32 bln cons.
  • American Int'l Group (AIG) reported Q1 EPS of $1.29 vs $1.36 cons. Net premiums written were +4.3% y/y to $11.255 bln, with a combined ratio of 89.17% vs 93.52% y/y.

Flashback! - Bill Meehan - 2:41 PM

This day in market history...

  • Closing levels 7 years ago
    • DJIA: 11,007.25
    • Naz: 2,526.39
    • S&P 500: 1,340.3
    • Crude: 18.57
    • Gold: 278.00

This day in Minyanville history...

In other news...

  • In 1963, The Rolling Stones produced their first recordings, including Come On and I Wanna Be Loved.

What gives? - Vitaliy Katsenelson - 2:08 PM

Home Depot (HD) announced that it will be buying EnerBank, an industrial bank which will allow the company to promote the bank's services to contractors in its US stores.

Interestingly, Wal-Mart's (WMT) similar ambitions to own an industrial bank (one very similar to EnterBank) are being viciously fought by the banking industry in what has become a highly politicized event.

Next Fed day let's open the markets at 2:00 pm - Fil Zucchi - 12:42 PM

  • 50 bps. and done? An interesting idea from a smart Minyan. It would destroy whatever is left of the spring housing market.

  • We are seeing call buying in the homies. Makes sense if you trade faster than you blink.

  • The chippies (SOX) are at pretty important support. Directionally speaking the SMH June calls don't look terribly expensive.

  • Fido shed 7.4M shares of Whole Foods (WFMI) according to a fresh off the presses filing.

  • In a CNBC interview earlier this morning a futures trader suggested that the gold trade is pretty crowded with teen traders turned gold experts. When that trade ends will high beta names be the beneficiaries?

  • The other side of homies call buying.

Position in SMH, homebuilders gold, WFMI

A word about the potential of peak earnings and tough comparisons top come…… - Bennet Sedacca - 12:05 PM

With the majority of the companies in the S&P500 having reported, we find ourselves with what I would consider an astounding 15% year over year increase of earnings growth. Why do I, pray tell, find this astounding? Well, I have had accounting 101, not to mention having been around a while.

Here is how the math usually works in profits and profit margins. S&P500 corporations, due to productivity gains of recent years, among other things (like questionable accounting, but that is for another day). The question I have is the following. If you combine record margins, spiking commodity prices across the board and increasing interest rates across the curve and economic growth around 3.5%, how on Earth do we end up with 15% earnings growth? Personally, I am perplexed by it. And I don't LIKE BEING PERPLEXED.

I would have thought that corporations would truly struggle as everything they buy skyrocketing in price and labor costs rising near 4%, there is no way I expected that sort of earnings growth. Can it be explained by stock buybacks? Perhaps, but something smells a little rotten to me.

It also smells like peak earnings to me, as sooner or later the cost increases and rate increases will 'creep' into earnings. So is it possible that comparisons will get tougher? You betcha. Is it possible we are looking at peak earnings? Yep. And for those of you not old enough to know this little tidbit, generally speaking, it makes most sense to buy during trough earnings and sell at peak earnings. Just some thoughts from someone that has been through many cycles.

General Malaise - Kevin Depew - 10:56 AM

In addition to the ex dividend and difficult borrow for GM today noted by Professor Succo, some of GM's strength may be technical related.

Dorsey Wright this morning noted the PnF breakout yesterday for the stock, a double top followed by a spread triple top. That is the first buy signal for GM (using a default PnF scale of 1-point per box above $20) for GM since December 2003.

I believe the stock actually has room to 35 in this counter-trend bounce before the downtrend reasserts itself. Going back to 2000, the stock has had five similar moves counter-trend moves before the larger trend has reasserted itself.

Further Color on McDonald's Comps - Brian Gilmartin - 10:40 AM

Yesterday, McDonald's (MCD) report pretty good April '06 comps, but the real surprise was Europe's +9.3% increase in April, the best comp in terms of region, and the best European comp since Feb '04's 7.7%. (See the attached spreadsheet.)

Another interesting angle to MCD's found in their q1 '06 10-q filed yesterday: "However, as a perspective, assuming no change in cost structure, a 1% point increase in US comp's would increase annual earnings per share by 2 cents. Similarly an increase of 1% in Europe's comparable sales would increase annual earnings per share by 1.5 cents." (see page 9 of the q1 '06 10-Q.)

My read of this is that MCD's is a little more leveraged to the Europe store base, and the strong European comp bodes well for q2 '06.

To be fair, as you can see from the comp table, last April '05's European comp was weak, a negative 0.07%, as is May '05's comp.

MCD's is another boring stock in client portfolios: trading at under 10(x) cash from operations (MCD's generated $3.90 per share in cash from ops as of q1 '06), as the company returns its significant cash generation to shareholders via share repurchases and increased dividends, the risk reward continues to be attractive.

Position in MCD


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