Wall Street Breakfast: Must-Know News

• New GM board to meet, discuss Opel. General Motors' new 13-member board convenes today for the first time, with an agenda that reportedly includes a discussion of asset sales, company goals and, most importantly, a review of the bids received for GM's Opel unit. Ahead of the meeting, Germany's Economy Minister Karl-Theodor zu Guttenberg said both bids for Opel must be improved in order to win government backing. GM's new chairman, Edward E. Whitacre Jr., will be firmly in the spotlight as he tries to simultaneously negotiate political pressure from Washington and help CEO Fritz Henderson turn the company around.
• UBS said to reach tax settlement. Swiss newspapers report UBS (UBS) has reached a tax probe settlement with the U.S. government. As part of the deal, UBS will not have to pay a fine but will release data on 5,000 of its American clients to U.S. authorities. Final details of the settlement are still being worked out, but discussions should be complete by the end of the week. Swiss officials declined to comment. Shares +5% premarket (7:00 ET).
• White House weighs taxes, more jobless aid. White House officials said jobless benefits may need to be extended as an economic recovery likely won't create new jobs until next year. As many as 1.5M Americans will exhaust their unemployment benefits in the coming months, contributing to more foreclosures and hurting already-weak consumer spending. Officials are also unwilling to rule out possible tax increases, including a middle-class tax hike, as a way to address massive budget deficits.
• Surprise profit at HSBC. HSBC (HBC) posted a surprise H1 profit as earnings from its securities unit more than doubled. Net income fell 57% to $3.35B, vs. an expected $600M loss. Though loan impairments and other credit risk provisions rose to $13.9B from $3.9B the year before, HSBC Chairman Stephen Green expressed optimism that "it may be that we have passed, or are about to pass the bottom of the cycle in the financial markets." Shares +7% premarket (7:00 ET).
• Car rebate program clunks along. After the government's 'Cash for Clunkers' ran through its entire $1B budget in just six days, the House of Representatives quickly approved another $2B for the car rebate program on Friday. The Senate is set to take up the funding appropriation today, with the White House expressing optimism that the program will be extended, despite some signs of resistance from concerned lawmakers and the possibility of a Republican attempt to block the funding extension outright. Government and industry officials said nearly 250,000 cars have already been sold on clunker trade-ins, but some economists aren't convinced the program is providing as many benefits as it claims.
• Nissan goes electric in leafs and bounds. Nissan (NSANY) gained 5.4% in Tokyo trading, reaching a 10-month high, after unveiling the Leaf, an electric car which gets 100 miles on a full charge. Nissan spent 17 years developing Leaf's lithium-ion battery, and hopes the technology will help it become the biggest supplier of electric cars. CEO Carlos Ghosn said aggressive estimates that electric cars will make up 10% of all sales by 2020 are very reasonable.
• Friday's failures. Regulators closed another round of banks on Friday, in Oklahoma, Florida, Ohio, Illinois and New Jersey, bringing this year's total to 69 failures and raising questions about the recovery of the banking sector. The closures are expected to cost the FDIC around $912M. (Read the FDIC's press releases: I, II, III, IV, V)

Earnings: Monday Before Open

• Clorox (CLX): FQ4 EPS of $1.20 beats by $0.01. Revenue of $1.5B (+0.3%) in-line. Shares +0.6% premarket (8:30 ET). (PR)
• FirstEnergy (FE): Q2 EPS of $0.87 beats by $0.03. Revenue of $3.3B (+0.8%) vs. $3.2B. (PR)
• Humana (HUM): Q2 EPS of $1.67 beats by $0.03. Revenue of $7.6B (+7.5%) vs. $7.8B. (PR)
• James River Coal Company (JRCC): Q2 EPS of $0.59 misses by $0.19. Revenue of $172M (+25%) vs. $189M. Issues downside FY '09 EPS guidance of $2.25-2.60 vs. prior $3.30-3.80. (PR)
• Loews (L): Q2 EPS of $0.78 misses by $0.20. Revenue of $3.5B (-10%) vs. $3.4B. (PR)
• MGM Mirage (MGM): Q2 EPS of -$0.15 misses by $0.06. Revenue of $1.5B (-21%) in-line. Shares -1.1% premarket (8:45 ET). (PR)
• Molson Coors Brewing Company (TAP): Q2 EPS of $1.11 beats by $0.14. Revenue of $799M (-54.5%) vs. $751M. (PR)
• National Retail Properties (NNN): Q2 FFO of $0.45 beats by $0.05. Revenue of $59M (+4%) vs. $55M. (PR)
• Reliant Energy (RRI): Q2 EPS of -$0.30 misses by $0.03. Revenue of $390M (-61.5%) vs. $360M. Shares +2.8% premarket (8:15 ET). (PR)
• Tyson Foods (TSN): FQ3 EPS of $0.33 beats by $0.11. Revenue of $6.7B (-3%) in-line. (PR)

Today's Markets

Asian markets closed mostly up. European markets and U.S. futures are off to a strong start.

• In Asia, Nikkei -0.04% to 10,352. Hang Seng +1.1% to 20,807. Shanghai +1.5% to 3,463. BSE +1.6% to 15,924.
• In Europe at midday, London +1.8%. Paris +1.5%. Frankfurt +1.8%.
• Futures: Dow +1%. S&P +1.1%. Nasdaq +1.4%. Crude +1.9% to $70.74. Gold +0.3% to $956.60.

Monday's Economic Calendar

• Motor Vehicle Sales
  10:00 ISM Manufacturing Index
  10:00 Construction Spending
• Notable earnings before Monday's open: CLX, FE, HUM, JRCC, L, MGM, MRO, NNN, RRI, TAP, TSN
• Notable earnings after Monday's close: APC, ARNA, ATML, AXS, CHK, CRK, CTX, EXR, FST, HOLX, PFG, PHM, STEC, VMC, WMS

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[absinop:]

08/03/09A. Earnings season is a great opportunity to earn some money. I've taken a position in the following stocks. Their EA announcements are scheduled at the market period indicated. But please remember: Sell the Losers, Keep the Winners.

8/03 before Mrkt. opens: TSN WATG SNT
8/03 after Mrkt. opens: ETM LOPE
8/03 after Mrkt. closes: OREX HLF IPHS PHM SMSI TXRH

Aug 03 07:24 AM

[spald_fr:]

[White House weighs taxes, more jobless aid. White House officials said jobless benefits may need to be extended as an economic recovery likely won't create new jobs until next year. As many as 1.5M Americans will exhaust their unemployment benefits in the coming months, contributing to more foreclosures and hurting already-weak consumer spending. Officials are also unwilling to rule out possible tax increases, including a middle-class tax hike, as a way to address massive budget deficits.]

Young boy on street watching the regal procession: "The Emperor has no clothes!"

Aug 03 08:35 AM

[David White:]

Robin Griffiths says China topped out last week (after rising 100% since last year). He expects the Chinese market to pull back approximately 25%. He expects this pull back will take the US markets with it. He expects the S&P500 to go below 800. Then he expects to see it rise again to 1250 by sometime next year.

Emily Saunders of S&P has also been predicting a pull back in the US markets recently. She is suggesting a pull back of 11% from current levels.

As more analysts get on this bandwagon, a pull back seems more and more likely. The only question seems to be when exactly?

Aug 03 08:36 AM

[Dr. O:]

Looks like a "trend day" (trend meaning from the March lows): dollar lower, commodities and stocks higher. Be careful buying a strong Monday open, they're often sold, and the markets are on the overbought side of life. I would not expect any substantial pullback near term, the markets seem too well bid and the news is not getting worse. Markets bottom and revive long before the news gets "better."

The media has touted Greenspan's "the worst is over" assessment but I watched the interview on the web at ABCnews.com and Dr. Greenspan also clearly stated that a further decline of 10% in home prices would likely trigger another leg down (or double dip) to the recession.

To me, that was more unexpected than the "we've probably bottomed" assessment. For those with risk appetite cyclicals and materials should work nicely if the markets want to embrace this thesis.

Aug 03 08:42 AM

[David White:]

Nouriel Roubini says commodities may slump in the second half. According to him, China has been stockpiling commodities through the first half. For this reason China may slow its commodity buying in the second half. This may lead to a second half commodity slump.

If the retracement Griffiths and Saunders are calling for occurs, that to may be a good reason for a commodity slump. Of course, Crude oil is up today on reaction to the GDP data out last Friday. We may have to wait a bit for the slump. Art Cashin thinks a turn around (retracement) may come as soon as the end of this week, but possibly not until after that. He says the current rally is already getting close to the historic long "bear market" rallies in 1929 and 1930.

Aug 03 08:44 AM

[robert.b.fe...:]

More bailout cash for unions I mean clunkers. Oh wait they are the same thing. Higher taxes on the middle class? That can't be. On the campaign trail Barak Obama promised that no middle class tax hike on any kind of tax was acceptable. Only rich people were going to get taxed to death. This just in: Aanyone making more than $40K is now deemed rich. More clean electric cars except when coal burns it has more emissions than gasoline or deisel. Good thing the electrical grid is run by magic.

Aug 03 08:49 AM

[AndrewBaker:]

How can the big banks continue to rise in price when smaller banks are going under?

Bad debts abound and affect all, not just the small players, and the bad debts of the biggest banks are and will be the biggest.

Bulls keep marking down sensible comment about the current stock market bubble which especially applies to the banks and financial sector: how can the current economic woes which are showing no signs of getting better justify the level of this present market? Chasing the market higher is a recipe for big losses when the bubble bursts: as it will.

Aug 03 08:52 AM

[armny:]

Our government has become nothing but a huge parasite. It ssucks in money through taxes, consumes what it wants to support it's largess and then spits back enough leftovers to keep the tax-paying body barely alive!

Aug 03 08:59 AM

[David White:]

All the recent talk of tax hikes likely by the Obama government may signal an end to the current rally, which is already long in the tooth. Myriad reasons are put forth: 1) need to extend unemployment benefits for 1.5M people; 2) need to pay for the deficit government has been creating (Geithner); and 3) need to pay for the new health care initiative.

In other words the days of free money may soon be over. That has to be bad news to the markets.

Aug 03 09:03 AM

[spald_fr:]

[Nissan goes electric in leafs and bounds.]

((( Ding, ding, ding ))) Pun alert! Pun alert!

Aug 03 09:14 AM

[mac123449:]

about 10% more to the upside tp equal the great bear market rallies of the 1929-1930s.

Aug 03 09:16 AM

[Old Trader:]

"How can the big banks continue to rise in price when smaller banks are going under?"

Andrew,
The big banks have the advantage of trading arms that have benefited from the run up in the market, and underwriting units that have profited from share and debt issuance as the credit markets have eased somewhat to help offset the problems in other areas, such as credit cards.

Aug 03 09:30 AM

[David White:]

mac123449: According to my calculations we are already at the point of the great bear market rallies with the move up this morning of the SPY of 1.05 points. The March low was $67.10. The current value p $99.84. Total move up equal ($99.84 - $67.10)/$67.10 = 48.8%. This equals the moves up of the great depression; and this wasn't a great depression. Is this the signal for a retracement to start?

Aug 03 09:33 AM

[AndrewBaker:]

Thanks for the comment, but my question was rhetorical in that overall the financial situation is not better; just that the big banks have turned a profit from serendipitous low cost money, high charge loans, and other financial happenings - such as the crazy one of buying back their own debt at a lower price because it is suspect and making an accounting profit as a result - none of which actually produce anything or make the economy stronger. Following on my reasoning from there, I was suggesting that such stock price rises, whilst real in one sense, are illusionary in the sense that they will prevail because banks live off of an economy, and do not make anything themselves nor contribute to its growth directly. Oil the mechanism they may do, but drive it they do not, and so, in conclusion, I'm warning people to be wary of buying into this bank stock price rise any more. Taking profits would be better as these prices will fall, and fall far when reality once again sets in about the real economy.


On Aug 03 09:30 AM Old Trader wrote:

> "How can the big banks continue to rise in price when smaller banks
> are going under?"
>
> Andrew,
> The big banks have the advantage of trading arms that have benefited
> from the run up in the market, and underwriting units that have profited
> from share and debt issuance as the credit markets have eased somewhat
> to help offset the problems in other areas, such as credit cards.

Aug 03 10:04 AM

[Old Trader:]

Andrew,

Point taken, and I agree.


On Aug 03 10:04 AM AndrewBaker wrote:

> Thanks for the comment, but my question was rhetorical in that overall
> the financial situation is not better; just that the big banks have
> turned a profit from serendipitous low cost money, high charge loans,
> and other financial happenings - such as the crazy one of buying
> back their own debt at a lower price because it is suspect and making
> an accounting profit as a result - none of which actually produce
> anything or make the economy stronger. Following on my reasoning
> from there, I was suggesting that such stock price rises, whilst
> real in one sense, are illusionary in the sense that they will prevail
> because banks live off of an economy, and do not make anything themselves
> nor contribute to its growth directly. Oil the mechanism they may
> do, but drive it they do not, and so, in conclusion, I'm warning
> people to be wary of buying into this bank stock price rise any more.
> Taking profits would be better as these prices will fall, and fall
> far when reality once again sets in about the real economy.

Aug 03 10:13 AM

[Victor84:]

Bank earnings will not always be so inflated, but there's no reason to think banks can't keep turning healthy profits. The loss of favorable conditions will eventually be offset by eliminating loss provisions. Substantial writedowns will continue to eat into earnings at least until the end of 2010, but people talking about fluke quarters apparently don't understand that the consolidation in the financial industry coupled with continuing favorable conditions until the end of this year will inevitably lead to another few rounds of great earnings.

Aug 03 12:05 PM

[bbowen7:]

Will Obama's "let me make this perfectly clear" have the same result as George H.W. Bush's "read my lips"? Now that Geithner and Summers have started the "rephrasing", who ever thought that we could insure 50 million folks, and upgrade to the level of healthcare insurance that Congress has with only a few millionaires paying for it? And is Jimmy Carter - style inflation a tax?

Aug 03 12:47 PM

[Diogenes of...:]

You guys are missing the point. You're shorting fundamentals and the market is going long liquidity and momentum. Trade the market you have not the one you had.

Aug 03 01:08 PM

[notsosmart:]

read my lips(naw-better not.)

Aug 03 03:53 PM

[spald_fr:]

From my post at 9:14am today:

((( Ding, ding, ding ))) Pun alert! Pun alert!

How in the h*ll can I get 3 "thumbs down" on this post? It's been my observation that Rachel Granby has a love for puns, which appear quite regularly in her columns.

From Wikipedia:
"A pun, or paronomasia, is a form of word play that deliberately exploits ambiguity between similar-sounding words for humorous or rhetorical effect. Such ambiguity may arise from the intentional misuse of homophonical, homographical, homonymic, polysemic, metonymic, or metaphorical language.

By definition, puns must be deliberate; an involuntary substitution of similar words is called a malapropism [think Yogi Berra].

Aug 03 07:26 PM

[Old Trader:]

spald,

Hey,,,this is high finance...some serious s#8t! Of course, I'll be the first to admit a to difficulty coming up with a suitably profound comment, whilst still distracted by Rachel's smiling visage at the top of the page.


On Aug 03 07:26 PM spald_fr wrote:

> From my post at 9:14am today:
>
> ((( Ding, ding, ding ))) Pun alert! Pun alert!
>
> How in the h*ll can I get 3 "thumbs down" on this post? It's been
> my observation that Rachel Granby has a love for puns, which appear
> quite regularly in her columns.
>
> From Wikipedia:
> "A pun, or paronomasia, is a form of word play that deliberately
> exploits ambiguity between similar-sounding words for humorous or
> rhetorical effect. Such ambiguity may arise from the intentional
> misuse of homophonical, homographical, homonymic, polysemic, metonymic,
> or metaphorical language.
>
> By definition, puns must be deliberate; an involuntary substitution
> of similar words is called a malapropism [think Yogi Berra].

Aug 03 10:18 PM

[spald_fr:]

On Aug 03 10:18 PM Old Trader wrote:
>>>" . . . whilst still distracted by Rachel's smiling visage at the top of the page."<<<<

You have a good point, Old Trader (with the good eye).

Regards,
spald

Aug 08 06:41 PM