It has become a New Year's tradition to combine forces with a few investment bloggers and put together some investment ideas for the coming year. ZachStocks has bragging rights to the last place slot for 2009 as my recommendations for TBS International (TBSI) (a dry bulk shipping company), and China Medical Technologies (CMED), both faced significant challenges. Shipping rates continued to be low throughout much of the year, and China Medical faced a surprise change in management and a heavy debt load.

Note: A recap of performance for the stocks picked at the beginning of 2009 follows below my picks for 2010.

I always enjoy this time of year. The Christmas music, decorations, family gatherings, holiday plays and stock picks. Stock picks? Yes, ’tis the season for stock predictions! Virtually every financial writer will pen an article selecting his or her top picks for the upcoming year. I enjoy reading them and the logic behind the picks. As a long-term buy and hold investor, generally most aren’t useful for me; nevertheless, I find them entertaining and sometimes there is a gem to be found.

Assured Guaranty (AGO) and Financial Security Assurance (FSA), which Assured acquired in July, have done well to avoid collateralized debt obligations backed by mortgage backed securities, which have crippled the remainder of the financial guaranty industry. The credit crisis has taken a toll on so many people that it is hard not to hope that Assured can create a success story out of an industry so severely hurt by the credit crisis. It would be especially attractive if the investment offered an attractive valuation, strong prospects for future revenue and income generation; and solid financials.

Unfortunately, Assured offers the opposite. The current marked capitalization plus the $574 million raised via an equity offering is over 6 times annualized new business production. The 20% premium to book value would be attractive if Assured’s loss reserves were conservative. Unfortunately, this is far from the case. There is a very real risk that loss payments on residential mortgage backed securities (RMBS) will exceed Statutory loss reserves by a factor of four or more, easily enough to wipe out the Statutory surplus of all Assured’s financial guaranty subsidiaries.

Wednesday, we began starter stake in bond insurer Assured Guaranty (AGO) - for those not familiar with the space, think of the 2 disaster of companies called MBIA (MBI) and Ambak (ABK) which we talked about at length in first quarter 2008. This is not my typical fare, but a speculative, "special situation" ... a company whose competitors have been so beaten into the ground, it is currently running a near monopoly on debt issuance for muncipalities.

Technically, the company exploded higher last week on a very surprising earnings report, and has now filled that gap perfectly. I am begining the stake just over $23, with hopes it falls to $20-$21 where I would like to make the position larger. For now, I just did a 0.7% position to get started.

• AIG bailout was muffed. TARP Special Inspector Neil Barofsky said in a report Monday that the New York Fed mishandled the AIG (AIG) bailout by paying its trading partners in full, where it would have been possible to negotiate partial payments. The Fed didn't use its leverage in negotiations, Barofsky complained, including failing to stress that its participation in the process was purely voluntary. In a response letter, the Fed said the terms of the $85B AIG bailout were appropriate given the severity of the crisis, and that leaning on domestic institutions would have been a "misuse of our supervisory authority" and provided an advantage to foreign institutions.
• Bernanke gives mixed signals. The recent pickup in the economy "reflects more than purely temporary factors" and continued moderate growth is likely, Fed Chairman Ben Bernanke said in a speech Monday, though constrained lending and weak labor market remain headwinds to robust growth. Inflation expectations haven't responded to upward or downward pressures, he said, noting plenty of resource slack. Bernanke pledged that low-interest, loose monetary policies would continue for an extended period. In a follow-up Q&A, Bernanke said it's "not obvious" that asset prices are out of line, at least inside the U.S., and that "we can never say never" on using interest rates to deflate bubbles, adding we won't have a "real market-based financial system until it's safe to let a financial firm fail."
• Smelling danger, banks respond. The Financial Services Forum, a lobbying group for 18 of the world's largest financial firms, urged House Financial Services Committee Chairman Barney Frank not to pursue big bank break-up legislation, an idea attracting interest in Congress and causing alarm on Wall Street. In a letter a day before Frank's panel resumes debate on financial reform legislation, the group stressed that size alone does not make firms risky: "The problem is not that some institutions are too large. It's that there is currently no legal authority to unwind, in an orderly way, a failing financial conglomerate."
• U.S. opens door for China banks. Chinese and U.S. regulators are negotiating an agreement aimed at encouraging Chinese firms to buy into small and medium-sized U.S. banks, sources say, something Chinese bankers complain has been difficult for them in the past. The shift highlights how the global financial landscape has been redrawn post crisis, with cash-rich Chinese banks now a force to be reckoned with on the world scene.
• UBS urges patience. UBS (UBS) CEO Oswald Gruebel asked investors to be patient, assuring them the bank was on the come-back track. "We have stabilized UBS's financial condition but we still have some serious topics to address," Gruebel insisted. The bank has fixed a goal for pretax profit at around 15 billion Swiss francs ($14.89B) in the next 3-5 years. In a reference to the bank's history of helping rich foreigners evade taxes, which led to a damaging legal tussle with the U.S. government, Gruebel said he was building "a new UBS: one that performs to the highest standards and behaves with integrity and honesty."
• Obama and Hu set different priorities. At a press conference in Beijing Tuesday, President Obama and Chinese President Hu Jintao had different priorities for economic action. Obama stressed the need for economic balance: "[We need] a strategy where America saves more, spends less, that reduces our long-term debt, and where China makes adjustments... to rebalance its economy and spur domestic demand," Obama said. Hu, on the other hand, thought protectionism was a priority. "I stressed to President Obama that under the current circumstances our two countries need to oppose all kinds of trade protectionism even more strongly."
• Japan, eyeing bond sales, plans new budget. The Japanese government announced plans for a new budget, seeking to maintain economic stimulus measures to support the economy. But the government may have to cut back on some election spending promises if it seeks to keep bond issuance below ¥44T yen ($494B) in the coming year. There is already pressure on government bond yields as declining tax revenues suggest more extended issuance may be necessary.
• GMAC chief ousted by board. GMAC CEO Alvaro de Molina was asked to resign by the board after only 19 months at the helm. GMAC had been preparing a request for additional bailout funds from the Treasury. GMAC director Michael A. Carpenter, who will replace de Molina, has said that he will review the need for that request.
• GM loses $1.5B, but repays loans. General Motors posted a $1.5B loss for Q3, but announced it would repay $6.7B of its $50B government bailout, at the rate of $1B per quarter. Analysts said GM’s results showed a healthier balance sheet, ample cash, and factory production much more in line with consumer demand.
• BOE director says better keep stimulus. Bank of England director Andrew Sentance, a member of the rate setting committee, said on Tuesday that emergency stimulus measures for the U.K. economy had better remain in place for an undetermined period. "We have to be open-minded" about more quantitative easing, Sentance added, even though he thought that the recession in the U.K. had come to an end.
• Fed’s Kohn sees no asset bubbles. Fed Vice Chairman Donald Kohn said in a speech Monday that there was no sign of an asset bubble being caused by the low interest-rate policies the central bank was pursuing. Kohn pointed out that the central bank's loose monetary policies were intended to help investors move into riskier assets.
• U.K. inflation rises. The U.K. Consumer Price Index jumped to 1.5% from a five-year low of 1.1%, the Office of National Statistics said on Tuesday. Food prices pushed the index higher; economists say it's likely only a temporary spike.

Earnings: Tue. Before Open

• Canadian Solar (CSIQ): Q3 EPS of $0.69 beats by $0.15. Revenue of $213M (-15.6%) in-line. Shares +5.1% premarket. (PR)
• Covidien (COV): FQ4 EPS of $0.72 beats by $0.02. Revenue of $2.7B (+0.3%) in-line. (PR)
• Home Depot (HD): Q3 EPS of $0.41 beats by $0.05. Revenue of $16.36B (-8%) in-line. Sees 2010 EPS of $1.55 vs. $1.53 consensus. Same-store sales -6.9%. "There is still a great deal of pressure in the housing and home improvement markets, though there are some positive signs of stabilization." (PR)
• Jacobs Engineering Group (JEC): FQ4 EPS of $0.63 misses by $0.05. Revenue of $2.55B (-20.1%) in-line. Sees 2010 EPS of $2.00-2.60 vs. $2.83 consensus. (PR)
• Melco Crown Entertainment (MPEL): Q3 EPS of -$0.08 beats by $0.01. Revenue of $500M (+69.5%) vs. $520M. Shares -4.5% premarket. (PR)
• Saks (SKS): Q3 EPS of $0.01 beats by $0.12. Revenue of $631M (-8.5%) vs. $624M. SSS -10.1.%. "We believe there is more stability and predictability in our business compared to twelve or even six months ago; however, the overall environment remains challenging." Shares +3% premarket. (PR)

Earnings: Mon. After Close

• Assured Guaranty (AGO): Q3 adjusted EPS of $0.44 beats by $0.13. Revenue of $389M (+161%) vs. $338M. Shares -0.2% AH. (PR)
• Pacific Sunwear of California (PSUN): Q3 EPS of -$0.17 beats by $0.03. Revenue of $268M (-17%) vs. $260M. Sees Q4 EPS of -$0.28 to -$0.35 vs. -$0.11. Shares -11.2% AH. Update 4:54 p.m.: Shares -18.8% AH. (PR)
• Sina (SINA): Q3 EPS of $0.34 beats by $0.03. Revenue of $96.4M (-9%) vs. $99.5M. Sees Q4 revenue of $93M-96M vs. $99.5M. Shares +4.8% AH. (PR)

Today's Markets

Asian and European markets were mixed Tuesday, leaving futures flat after a light-volume overnight session.

U.S. Financial Institutions are interconnected – as the fall of Lehman demonstrated, they are tied together and interwoven in a complex web of obligations which can rip, run or unravel with unexpected consequences. As such, they may be regarded, for analytical purposes, as having one balance sheet. Double entry bookkeeping, which underlies all GAAP accounting, suggests that assets should equal liabilities for this giant composite balance sheet. I doubt that it does. The purpose of the article is to raise questions on two areas that do not seem to add up, and suggest that exploring these relationships would be a good task for the systemic regulator.

Derivative Assets and Liabilities – Five large banks together constitute the bulk of the U.S. Derivative market. The nature of the derivative transaction is such that each position has two sides, an asset and a liability, which will be on the books of the counter-parties. While numerous hedge funds and other bit players add complexity to the picture, it is evident that collectively derivative assets should equal liabilities for the banks involved, since a majority of the trades eventually make their way back to the largest players.

Sentiment

Stocks are trading modestly higher in a light volume trading session Friday. Economic data came into focus early after a report released before the bell showed the nation's Trade Balance widening to $36.5 billion in September, from -$30.8 billion the month before and more than the $31.8 billion deficit economists had expected. Separate numbers showed import prices jumping .7 percent in October, which was a bit less than the .8 percent economists had expected. Export prices, excluding ag, rose .3 percent.

Stock index futures showed little reaction to the data and the major averages opened the session with modest gains, before slipping on consumer sentiment numbers. About 30 minutes into the trading session, the University of Michigan reported that its index of consumer attitudes fell to 66 in November, down from 70.6 the month before and significantly worse than economist estimates of 71.

Assured Guaranty Ltd. (AGO) – Shares in the bond issurer are 14.8% higher at $20.77 and broke right through the 52-week high after Moody’s lowered its insurance financial strength rating on the company from Aa2 to Aa3. In a statement the company expressed its delight in having maintained a double-A rating in the current economic climate. It also noted that Moody’s number-crunching of its insured residential mortgage exposure was conducted under a pretty dire scenario and was based on “an extremely pessimistic view of the future performance of residential mortgage exposure.” The company boasted that even on this worst case scenario its $12.5 billion claims paying resources are more than sufficient to meet projected obligations. The options activity confirmed the bullish jump in Assured’s share price. Using the December contract investors established 11,000 bullish bought call options at the December 22.5 strike price indicating further bullish moves ahead. The 1.40 premium would require the share price to rise a further 15% to reach breakeven at expiration. Curiously the call buying frenzy caused options implied volatility to rise from 69% to 75% today. Options volume of almost 30,000 contracts is around nine times the usual on the stock.

PowerShares DB US Dollar Bullish Fund (UUP) – Once again options action in the dollar index fund catches our eye. The dollar index itself is down 0.3% at 75.45, while this ETF, which allegedly tracks its performance, is down 1.9% at $22.36. No one ever told me this was a leveraged fund, but its own volatility lives in a world of its own. However, the soon-to-expire November options that saw swollen open interest the size of a small African nation last week, are heavily offered this morning and are being sold actively at just five cents. So far it looks like longs are ditching about 23,000 lots of a massive 261,000 established positions for fear that shares in the fund don’t stage a rally that would lift them above $23 by this time next week. Given the recent shenanigans, that may or may not require a rise in the value of the dollar index. It also appears that the pessimism spread to the same strike in the December contract where the action appears to have been inspired by sellers. Some 40,000 calls have changed hands, while open interest is 250,000 lots.

One of the quandaries of running a subscription service is that when you have some really juicy stuff, you inherently limit the audience that you are able to reach. Normally, this isn't that big a deal. When you believe that there is a mass cover up aiming to prop up the largest cadre of zombie, insolvent companies in modern history it becomes a much bigger deal. This leads me to distribute a significant amount of research for free. On that note, I have been following the breadcrumb trail of hidden (or more aptly put, concealed) corporate liabilities, and it has led me to (of all places) off the balance sheet of the big banks. I have spent a lot of time concentrating on exactly where the losses, if any, will come from in these banks. We have already established that the smaller banks had, have and will totally drain the FDIC's insurance fund over a year and a half ago (see As I see it, 32 commercial banks and thrifts may see the feces hit the fan blades Friday, 23 May 2008, notice how many of the banks have gone under since then) in the post "I'm going to try not to say I told you so...

I would also like to add that I raised the flag on this regional bank/commercial real estate issue many months before the sell side and the main stream media said a peep. This is not to brag or boast, for I am a fundamental investor and the market has definitively ignored the fundamentals for 7 months running. The point that I am trying to convey is that analysts in the big sell side banks work for their trading desks, underwriting and sales departments, and not for the investor (be it retail or institutional). Thus, proclamations of "Buy! Buy! Buy!" do not necessarily mean we have entered into a fundamentally firm area in which to buy stocks, bonds or any other risky assets covered by these guys. For a sterling example, see "The sell side is pushing with all of their might to inflate the market...".

Preface: I'd like every pundit who a year ago was saying the United States would be the first to recover due to 1st grade association games i.e. "first in! first out!" to come to CNBC and apologize. They still get the same air time, despite a litany of nonsense dogmatic calls, but no one calls them out for this constant drumbeat of "wrong".

While the U.S.staggers like a drunken bum, Australia has become the first G20 country to raise interest rates overnight. I'd expect the same from India, Brazil, and a few other Asian countries in the next 6-9 months. Just about every country in the G20 except the UK, Spain seems farther along in the "first in, first out" game.

Louis Bacon’s Moore Capital Management bought up equities over the second quarter of 2009, according to the most recent portfolio holdings of the global macro orientated growth investor. Overall, the hedge fund manager’s exposure to US traded equities rose to $1,158 million as of 6/30/2009 from just $510 million as of 3/31/2009.

Moore Capital’s largest purchase was a new $274.3mm / 7,150,000 share position in the iShares FTSE/Xinhua China 25 (FXI) ETF, which invests in the top 25 largest companies in the China equity market that are available to international investors. The other Chinese equity position in the firm’s portfolio was energy giant China Petroleum & Chemical Corp “Sinopec” (SNP). In Sinopec, the firm trimmed its position by 40,000 shares over the second quarter, resulting in an quarter end position of $9.9mm / 130,000 shares.

In this post is a list of 24 stocks, which have broken out to the upside on big volume. The stocks listed in this post have experienced very unusual volume. I believe stocks which have broken out like this are at least worth adding to the watch list. However I must say the technicals on these stocks are not as bullish as they've been in the previous weeks, which may be a hint that a short term correction is near. If the market continues to rally however, these stocks should continue demonstrate strength in my opinion.

As stated at the bottom of this post, I've picked two stocks from the list which I may be speculating with in the weeks to come. A month ago I chose to speculate with STEC Inc. (STEC) using call options. The results from the trade can be read here. A couple weeks ago, I chose to speculate with a stock LaserCard (LCRD). The results from that trade can be read here.

• Fannie asks for cash after loss. Fannie Mae (FNM) posted a heavy Q2 loss of $14.8B (see details below), its eighth quarterly loss in a row, prompting the mortgage lender to ask the government for a $10.7B capital injection. Fannie's cumulative losses over the last two years now stand at $101.6B, and the company has drawn $44.9B from the Treasury since April. The company said "we do not expect to operate profitably in the foreseeable future. We expect that we will experience adverse financial effects" during the fight against foreclosures. Shares fell 12.7% in after hours trading. Shares -11.4% premarket (7:00 ET).
• Greenberg settles SEC charges. Hank Greenberg, former CEO and chairman of AIG (AIG), agreed to pay $15M to settle SEC charges accusing him of improper accounting transactions between 2000 and 2005. The SEC also charged former CFO Howard Smith, saying the two men 'were responsible for material misstatements' that created a 'false impression' of AIG's financial results. Smith settled with the SEC for $1.5M. (Read the SEC's statement)
• Broker admits lying in fraud case. Julian Tzolov, a former Credit Suisse (CS) broker, testified before a jury that he and former partner Eric Butler lied to clients and sent them inaccurate information to cover up risky investments. In one of the first criminal trials connected to the credit crunch, Tzolov said he and Butler told clients certain securities were backed by government-guaranteed student loans when this was not the case, and that they did so in part to receive higher commissions. Butler is on trial for fraud, and Tzolov was called as a witness after pleading guilty to securities fraud, wire fraud, conspiracy and bail jumping last month.
• NYT looking to sell Globe. The New York Times (NYT) confirmed for the first time that it has hired Goldman Sachs to help sell its Boston Globe and Worcester Telegram & Gazette newspapers, as well as their websites. In a regulatory filing, the company said the possible sale is part of a strategic restructuring in response to a heavy downturn in advertising and the migration of readers to the internet.
• RBS posts loss on bad loans. Royal Bank of Scotland (RBS) posted a loss of £1.04B in H1, falling far short of the £1.1B profit consensus, after setting aside £7.52B ($12.62B) to cover bad loans. The bank expects impairments to remain at 'elevated levels,' and "there is every sign that our financial performance over the next two years, at a group level, will be poor due to the severe economic downturn in 2008 and 2009 and consequent impact on impairments and funding costs." Shares -14% premarket (7:00 ET).
• FDIC chided for lax supervision. An agency watchdog found the FDIC failed to act in a timely manner to limit the commercial real estate losses that caused the collapse of two banks in Washington and Georgia. The watchdog's report said the FDIC could have exercised 'greater supervisory concern' after finding weaknesses in the banks' loan portfolios. (Read reports I and II (.pdf))
• Twitter falls silent. Twitter and Facebook suffered outages and delays yesterday after denial of service attacks, raising the possibility of 'a single, massively coordinated attack' on social networking sites. Both services have been restored. Google (GOOG) managed to fend off a similar attack yesterday.
• Exchanges back away from flash. The Nasdaq stock exchange and BATS exchange announced separately that they're both voluntarily ending the flash trading they started this year, effective September 1. The moves come amid an SEC investigation into the practice and ahead of a likely ban. Direct Edge, a fast growing rival that has used flash trading since 2006, continues to defend the practice.
• Morgan leaves TARP behind. Morgan Stanley (MS) paid $950M to repurchase the warrant it issued the government, bringing Morgan's total payment to the government, including dividends, to $1.268B. CEO John Mack struck a positive note, saying "we appreciate the critical role that the U.S. government played last fall in helping stabilize the banking industry and financial markets at a moment of unprecedented crisis."
• AmEx sees loan loss improvement. American Express (AXP) said write-offs tied to bad credit-card debt fell sharply for the second straight month, to 9.2% in July from 9.7% in June, and CEO Kenneth Chenault said he's seeing internal credit metrics improve for the first time in 18 months. Despite the positive improvements, analysts warned it's too soon to call a sector recovery, with many attributing the drop in charge-offs to a seasonal trend. In the specific case of American Express, Chenault was very clear that the improvements of the last two months are 'not seasonality.'
• Clunkers gets new funds. As expected, the Senate approved an additional $2B for the 'Cash for Clunkers' program. The measure passed 60-37.
• Jobless claims drop. Initial jobless claims came in at 550K, down 38K from a week ago (revised), and better than the 575K consensus. Continuing claims rose 69K to 6.31M.
• Same-store sales slide. Retailers reported monthly same-store sales yesterday, with most falling short of consensus estimates. July sales were hurt by the continued trend of shoppers cutting back and waiting for discounts, and by a later start to the back-to-school shopping season.

Earnings: Friday Before Open

• AIG (AIG): Q2 EPS of $2.57 vs. consensus of $1.67 (may not be comparable). Revenue of $29.5B (+48%) vs. $26B. Shares +3.6% premarket (7:10 ET). (PR)
• American Oriental Bioengineering (AOB): Q2 EPS of $0.17 misses by $0.01. Revenue of $71M (+21%) vs. $75M. (PR)
• ATP Oil & Gas (ATPG): Q2 EPS of -$0.10 beats by $0.09. Revenue of $81M (-58%) vs. $83M. (PR)
• Cimarex Energy Co (XEC): Q2 EPS of $0.46 vs. $0.41 consensus (may not be comparable). Revenue of $223M (-64%) vs. $219M. (PR)
• Magna International (MGA): Q2 EPS of -$1.29 misses by $0.28. Revenue of $3.7B (-45%) vs. $4.1M. (PR)
• Mirant Corp. (MIR): Q2 EPS of $1.12 vs. consensus of $0.49 (may not be comparable). Revenue of $496M vs. $546M.
• Senior Housing Properties Trust (SNH): Q2 FFO of $0.44 in-line. Revenue of $69M (+32%) vs. $68M. (PR)
• Warner Chilcott (WCRX): Q2 EPS of $0.44 beats by $0.04. Revenue of $251M (+7%) vs. $252M. (PR)

Earnings: Thursday After Close

• Alkermes (ALKS): FQ1 EPS of $0.01 beats by $0.09. Revenue of $47.5M (-41%) vs. $46.4M. (PR)
• Assured Guaranty (AGO): Q2 EPS of $0.46 beats by $0.10. Revenue of $115M (-3%). (PR)
• Beazer (BZH): FQ3 EPS of -$0.72 beats by $0.81. Revenue of $225M (-51%) vs. $226M. (PR)
• CBS (CBS): Q2 EPS of $0.08 beats by $0.01. Revenue of $3B (-11%) in-line. (PR)
• Chiquita (CQB): Q2 EPS of $1.95 beats by $1.13. Revenue of $955M (-4%) vs. $873M. (PR)
• Computer Sciences (CSC): FQ1 EPS of $0.85 beats by $0.34. Revenue of $3.9B (-12%) in-line. Raises full-year EPS guidance to $4.80-5.00 from $4.20-4.30, vs. $4.18. (PR)
• Crocs (CROX): Q2 EPS of -$0.06 beats by $0.15. Revenue of $198M (-11%) vs. $150M. Sees Q3 EPS of -$0.14 to -$0.16 vs. -$0.20. Sees Q3 sales of $150M-160M vs. $141M. (PR)
• DCT Industrial Trust (DCT): Q2 EPS of $0.12 misses by $0.01. Revenue of $60M (-3%) vs. $61M. (PR)
• Emulex (ELX): FQ4 EPS of $0.09 beats by $0.05. Revenue of $79M (-30%) vs. $78M. (PR)
• EOG Resources (EOG): Q2 EPS of $0.73 beats by $0.31. Revenue of $861M (-21%) vs. $966M. PR)
• Fannie Mae (FNM): Q2 EPS of -$2.67. Revenue of $5.6B (+41%). (.pdf)
• Hansen Natural (HANS): Q2 EPS of $0.60 in-line. Revenue of $300M (+6%) vs. $309M. (PR)
• Intrepid Potash (IPI): Q2 EPS of $0.19 misses by $0.04. Revenue of $73M (-30%) vs. $72M. (PR)
• Leap Wireless International (LEAP): Q2 EPS of -$0.89 misses by $0.59. Revenue of $597M (+26%) vs. $636M. Net customer additions of 203,000 (+19%). Churn of 4.4%. Reduces guidance on full-year net customer addition to 1.5M. (PR)
• Maxim Integrated Products (MXIM): FQ4 EPS of $0.11 beats by $0.10. Revenue of $395M (-21%) vs. $368M. Sees Q1 revenue of $415M-445M vs. $388M. (PR)
• Microchip Technology (MCHP): FQ1 EPS of $0.15 beats by $0.02. Revenue of $193M (-28%) vs. $190M. Gross margin in Q1 of 51.4%. Sees Q2 EPS of $0.18-0.20 vs. $0.17. Sees Q3 revenue of $206M-214M vs. $200M. (PR)
• Nvidia (NVDA): Q2 EPS of $0.07 beats by $0.09. Revenue of $777M (-13%) vs. $710M. Sees Q3 revenue up 5-7% over Q2. (PR)
• Pepco Holdings (POM): Q2 EPS of $0.11 misses by $0.13. Revenue of $2.1B (-18%) vs. $2.7B. (PR)
• Public Storage (PSA): Q2 FFO of $1.25 beats by $0.04. Revenue of $347M (-4%) vs. $394M. (PR)
• Rovi Corp. (ROVI): Q2 EPS of $0.38 beats by $0.10. Revenue of $120M (+64%) vs. $110M. (PR)
• Sapient (SAPE): Q2 EPS of $0.10 beats by $0.04. Revenue of $148M (-11%) vs. $144M. (PR)
• SandRidge Energy (SD): Q2 EPS of $0.25 beats by $0.12. EBITDA of $144M (-18%). (PR)
• Sequenom (SQNM): Q2 EPS of -$0.33 misses by $0.06. Revenue of $9M (-28%) vs. $8M. (PR)
• VeriSign (VRSN): Q2 EPS of $0.31 misses by $0.01. Revenue of $257M (+6%) vs. $255M. (PR)
• Westar Energy (WR): Q2 EPS of $0.35 in-line. Revenue of $468M (+4%) vs. $501M. (PR)

Today's Markets

Asian markets closed mostly down. European markets and U.S. futures are trending down too.

At the end of each trading week, Hillbent scans for the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas over the upcoming trading weeks. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our Market Condition Summary to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.

Sentiment

Stocks opened higher on benign economic data and are adding to early gains late Thursday. The major averages opened steady after monthly retail sales data showed a .5 percent increase in May, which was much better than the .2 percent drop the month before and in-line with economist estimates. A separate report showed weekly jobless claims falling by 24,000 to 601,000 last week, which was better than the 10,000 decline economists had predicted.

Rallying commodity prices seemed to help underpin hopes for an economic recovery as well. Crude oil gained another $1.39 to $72.72. Gold battled back from early losses to close up $6.80 to $961.50.

I am being very selective about purchasing common stock. In fact, my Speculative and to a lesser extent my Permanent Portfolio(s) consist of a higher percentage of bonds, preferred stocks and commodities, almost all via ETFs. Rental real estate has been advanced to a higher amount than ever in my holistic portfolio, as well as tax strategies to keep what I earn. Not one who is prone to panic with each day's news, I try to be well read from a variety of viewpoints, especially the Financial Times and Wall Street Journal, a few blogs and Bloomberg, for starters. I also subscribe to a few eclectic financial and economic publications that I may discuss in a future post.

I am concerned about inflation, creeping socialism, the geo-political status of world hot spots and the victim mentality that appears to be resonating from a form of class warfare not seen in the United States since the 1870s. That said, there is always a bull market somewhere and I have been toying with various stock screens to find gems for possible inclusion to my holdings.

• Breaking down the stress tests results. At long last, the Federal Reserve released the results of its bank stress tests. After a series of leaks, the report contained few surprises, with 10 out of 19 banks ordered to raise a combined total of $74.6B and projected total losses under an adverse testing scenario coming in at around $600B. Officials hope the private sector will step up to help banks close capital gaps. Optimists viewed the findings as a sign that the worst of the banking crisis is over, but questions remain about the tests' rigor, especially considering the Fed scaled back some loss projections after being pressured by banks. Analysts also wonder about the health of the rest of the roughly 8,000 banks in the country and the possibility of writedowns at small-cap banks.
  Here's the breakdown of capital shortfall, or lack thereof:
  -American Express (AXP): $0 (+2.8% after hours)
  -Bank of America (BAC): $33.9B (+9.0% AH)
  -BB&T (BBT): $0 (+4.7% AH)
  -Bank of New York Mellon (BK): $0 (+4.4% AH)
  -Capital One (COF): $0 (+3.4% AH)
  -Citigroup (C): $5.5B (+6.8% AH)
  -Fifth Third Bancorp (FITB): $1.1B (+21.8% AH)
  -GMAC: $11.5B
  -Goldman Sachs (GS): $0 (+2.1% AH)
  -JPMorgan (JPM): $0 (+1.8% AH)
  -KeyCorp (KEY): $1.8B (+9.1% AH)
  -MetLife (MET): $0 (+3.0% AH)
  -Morgan Stanley (MS): $1.8B (-0.5% AH)
  -PNC Financial (PNC): $0.6B (+3.4% AH)
  -Regions Financial (RF): $2.5B (+8.4% AH)
  -State Street (STT): $0 (+8.6% AH)
  -SunTrust Banks (STI): $2.2B (+2.9% AH)
  -U.S. Bancorp (USB): $0 (+7.2% AH)
  -Wells Fargo (WFC): $13.7B (-2.4% AH)
  (Read the Fed's press release, Bernanke's statement the Fed's overview of results (.pdf), and highlights of banks' responses.)
• BoA weighs capital options. With the largest capital shortfall of the 19 stress-tested banks, Bank of America (BAC) will pursue several options to avoid additional government investment or ownership. Asset sales are expected to raise around $10B, and could include private bank First Republic, asset manager Columbia Management and a partial stake in China Construction Bank. The bank plans to raise another $17B through a new common stock offering and conversion of private preferred shares into common stock, and hopes to save $7B by outperforming the U.S.'s earning expectations. The shortfall puts added pressure on CEO Ken Lewis, who was ousted as chairman last month, and the bank is reportedly searching for new directors as well.
• AmEx TARP repayment. After passing the stress test with flying colors (though still dealing with growing delinquencies and defaults on credit cards), American Express (AXP) filed a request with the Federal Reserve and Treasury to repay its $3.4B of TARP funds. The company doesn't plan to raise common equity in order to pay back the funds. Since accepting TARP funds, "financial markets have become more stable, and American Express has made substantial progress in adapting to a very difficult economic environment."
• Fed chairman quits after Goldman ties questioned. Stephen Friedman, chairman of the New York Federal Reserve Bank's board of directors, resigned effective immediately to avoid the appearance of a conflict of interest over his Goldman Sachs (GS) ties. Friedman, who is a former chairman of Goldman Sachs, was scheduled to leave his position at the end of 2009, but has come under recent criticism for his continued connections to the investment bank.
• Oracles holds on to Sun's hardware. Oracle (ORCL) CEO Larry Ellison said he won't sell off Sun Microsystem's (JAVA) hardware business, putting an end to speculation that he only wanted Sun for its software units. Oracle agreed to pay over $7B last month to buy Sun.
• AIG reports smaller loss. AIG (AIG) posted its smallest loss in six quarters (see details below), with a $4.4B deficit that reflected continued investment losses and challenges facing its insurance units. Executives said negative publicity since the insurer's bailout had hurt its brand and sales, as has the economic downturn, but that its businesses are still doing okay.
• Taleb: Worse than the Big Depression. Black Swan author Nassim Taleb says today's crisis is "vastly worse" than the 1930s, because global economies have become uncontrollably intertwined. The NYU professor of risk engineering says gold, copper, and other assets "that China will like" are the best investment bets.
• Discounter strength in April sales. Shares of several major discounters got a boost yesterday from better-than-expected April same-store sales, though some said they were hurt by the Easter holiday which cut out a shopping day. Wal-Mart (WMT) was one of the top performers with growth of 5% vs. 2.9% consensus, with grocery, health and wellness, hardlines, entertainment and home contributing to the increase. However, the company plans to drop its monthly report in favor of forecasts roughly in-line with its quarterly reporting periods, a move that will deprive investors of a valuable consumer indicator. Wal-Mart said the switch is a better fit for the company's long-term approach to business and minimizes volatility caused by holiday shifts.
• Google sees more scrutiny. Google (GOOG) CEO Eric Schmidt expects more regulatory scrutiny of his company, but has no plans to step down from Apple's (AAPL) board despite an anti-trust probe into the matter. Schmidt said he doesn't consider Google and Apple to be primary competitors, and that he recuses himself when competitive issues come up.
• Jobless claims fall. Initial Jobless Claims were 601,000 this week, down from last week's 635,000 (revised) and from consensus of 635K. Continuing claims rose to 6,351,000 from 6,295,000 (revised). While it's true the recent moderation in weekly jobless claims is happening from a breathtaking peak, the extent of the drop is impressive. Going back to 1987, such declines have usually happened at the tail end of a recession.
• Productivity rises. Productivity was up 1.1% in Q1 (preliminary), or 0.8% in the nonfarm business sector, vs. consensus of 0.6% and last quarter's -0.6% (revised). Unit labor costs grew by 3.3% vs. 2.7% consensus. Manufacturing sector productivity fell 3.4%, its fourth straight drop.
• ECB opts for QE. The European Central Bank cut its benchmark rate by 0.25% to 1%, and rolled out its first quantitative easing step, announcing it will buy €60B ($80B) in euro-area bonds. Economists said they were pleasantly surprised by the scope of the QE move, but wished the ECB wouldn't have dragged its feet for so long.
• BoE holds steady. The Bank of England kept it key lending rate unchanged at 0.5%, and raised its bond purchase target by £50B to £125B. "The global banking and financial system remains fragile despite further significant intervention by the authorities... But surveys at home and abroad show promising signs that the pace of decline has begun to moderate."

Earnings: Friday Before Open

• AES (AES): Q1 EPS of $0.34 beats by $0.13. Revenue of $3.4B in-line. Sees full-year EPS of $.103-1.13 vs. $1. (PR)
• Beazer (BZH): FQ2 EPS of -$2.97 misses by $1.37. Revenue of $188M vs. $213M. (PR)
• Calpine (CPN): Q1 EPS of $0.07 beats by $0.18. Revenue of $1.68B (+14%) vs. $1.34B. (PR)
• El Paso (EP): Q1 EPS of $0.47 beats by $0.20. Revenue of $1.48B (+16.9%) vs. $1.26B. Shares +4.3% premarket. (PR)
• Huntsman (HUN): Q1 EPS of -$0.55 misses by $0.33. Revenue of $1.69B (-33.3%) vs. $2.2B. (PR)
• M.D.C. (MDC): Q1 EPS of -$0.88 misses by $0.05. Revenue of $176M (-55.6%) vs. $130M. (PR)
• Mirant (MIR): Q1 EPS of $0.79 beats by $0.22. Shares +7.6% premarket. (PR)
• Sonic Automotive (SAH): Q1 EPS of $0.16 beats by $0.20. Revenue of $1.19B (-25.1%) vs. $1.26B. Shares +11.8% premarket. (PR)
• Windstream (WIN): Q1 EPS of $0.20 misses by $0.03. Revenue of $755M vs. $776M. (PR)

Earnings: Thursday After Close

• Activision (ATVI): FQ4 EPS of $0.08 beats by $0.03. Revenue of $724M vs. $593M. Sees FQ1 EPS of $0.06 vs. $0.09 consensus. Shares +2.4% AH. (PR)
• AIG (AIG): Q1 EPS of -$0.97 misses by $0.91. Shares +5.1% AH. (PR)
• Allstate (ALL): Q1 EPS of $0.84 misses by $0.39. Revenue of $7.88B (-2.5%) vs. $8.16B. Says has statutory surplus of $13B at Allstate Insurance and $3.4B at Allstate Life. Unrealized net capital losses rose by $590M to $9.4B from Q4. Shares -6.9% AH. (PR)
• Assured Guaranty (AGO): Q1 EPS of $0.69 beats by $0.52. Revenue of $148M vs. $140M. Shares +15% AH. (PR)
• Bally Technologies (BYI): FQ3 EPS of $0.52 in-line. Revenue of $208M (-10.8%) vs. $224M. Full-year guidance in-line. (PR)
• CBS (CBS): Q1 EPS of -$0.08 misses by $0.15. Revenue of $3.16B (-13.5%) vs. $3.26B. "Softness in the advertising marketplace continued during Q1." Shares -7.3% AH. (PR)
• Crocs (CROX): Q1 EPS of -$0.24 beats by $0.03. Revenue of $135M (-32%) vs. $114M. Sees Q2 EPS of -$0.15 to -$0.31 (median -$0.23) vs. consensus of -$0.17. Shares -13.7% AH. (PR)
• Genworth Financial (GNW): Q1 EPS of $0.03 misses by $0.16. Revenue of $1.73B vs. $2.71B. Shares -14.4% AH. (PR)
• Hansen Natural (HANS): Q1 EPS of $0.44 beats by $0.07. Revenue of $244M vs. $228M. Shares +8.4% AH. (PR)
• Intrepid Potash (IPI): Q1 EPS of $0.33 beats by $0.07. Revenue of $88.9M vs. $72.2M. Shares flat AH. (PR)
• Leap Wireless International (LEAP): Q1 EPS of -$0.74 misses by $0.05. Revenue of $587M vs. $595M. Shares +0.3% AH. (PR)
• Live Nation (LYV): Q1 EPS of -$1.29 misses by $0.55. Revenue of $499M vs. $562M. Shares flat AH. (PR)
• Microchip Technology (MCHP): FQ4 EPS of $0.15 beats by $0.04. Revenue of $173M (-33.5%) in-line. Sees FQ1 EPS of $0.16 vs. $0.14. Shares -0.3% AH. (PR)
• Moneygram International (MGI): Q1 EPS of -$0.20 misses by $0.28. Revenue of $280M vs. $285M. Shares +4.8% AH. (PR)
• Nvidia (NVDA): Q1 EPS of -$0.09 beats by $0.02. Revenue of $664M vs. $515M. Gross margin 28.6% vs. consensus of 35.5%. Shares +0.2% AH. (PR)
• Public Storage (PSA): Q1 EPS of $1.16 misses by $0.04. Revenue of $347M (-0.8%) vs. $396M. Shares flat AH. (PR)
• SandRidge Energy (SD): Q1 EPS of $0.25 beats by $0.17. Revenue of $159M vs. $238M. Shares -0.4% AH. (PR)
• Standard Pacific (SPF): Q1 EPS of -$0.01 beats by $0.26. Revenue of $209M vs. $179M. "Although we saw improvement in new home orders as compared to the anemic levels experienced during the 2008 fourth quarter, we remain intently focused on preserving cash by controlling our expenses, carefully managing new home starts and reducing speculative inventory levels." Shares +18.8% AH. (PR)
• VeriSign (VRSN): Q1 EPS of $0.32 beats by $0.04. Revenue of $255M (+8.4%) vs. $249M. Shares +7.8% AH. (PR)

Today's Markets

Strong gains overseas following much-awaited and largely anticipated bank stress test results (I, II) in the U.S.

At the end of each trading week, Hillbent scans for the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our Market Condition Summary to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)