Bob Howard, the editor of Positive Patterns (positivepatterns@prodigy.net) is a smart guy. He’s also experienced enough to know that nobody picks the market direction or amplitude consistently. Those of us who are honest and who have been to two goat ropes and a pig-wrestling contest know that the market will always do its best to confound even the most intelligent and savvy market professional.

You can listen to those touts who claim, “My last pick went up 184% in a month!” if you like. (After all, “a fool and his money are soon parted” is what these charlatans depend upon to keep their business growing and your net worth declining.)

Q3 2009 Earnings Call Transcript

October 29, 2009 8:30 am ET

• CIT snags $4.5B lifeline. A group of hedge funds including many of its bondholders offered to lend CIT Group (CIT) $4.5B to build creditor support for a controversial debt exchange, pitting them against activist investor Carl Icahn, who wants the swap voted down. The lifeline comes as CIT's lenders must decide by midnight tonight whether to support its proposed debt exchange, a pre-packaged bankruptcy plan, or neither. Sources say the funds bought up CIT debt last summer on a bet the government would bail out the troubled lender, and stand to lose from a freefall bankruptcy, which Icahn is pushing for.
• Mutual funds use Fed bucks to buy bonds. Mutual funds - including those run by T. Rowe Price (TROW) and BlackRock (BLK) - are using Fed financing to reap 15%-plus returns with limited risk. The Fed's TALF (Term Asset-Backed Securities Loan Facility) offers low-cost financing to buy AAA-rated bonds backed by consumer and business loans, as well as commercial mortgages. Investors can borrow up to 95% of the bonds' value by pledging the securities and some additional collateral, and have no obligation to repay the loan beyond the collateral - in essence shifting most of the potential losses to the government. In the words of one fund manager: "This is one of those opportunities that, as an investor, we have to take advantage of."
• IMF boosts Asia growth outlook. The IMF raised its 2009-2010 growth forecast for Asia's economy, but warned that a fragile recovery in advanced economies and lingering problems in the global financial system still pose risks. IMF now sees Asia growth of 2.8% and 5.8% this year and next, up from previous estimates of 1.2% and 4.3% - far higher than the 1.25% growth expected from G-7 economies, but well short of the region's 6.66% average. The report says the region is outpacing other parts of the world, with 'green shoots' of recovery appearing earlier and taking firmer root than elsewhere. (IMF Asia Outlook)
• U.S.-China trade talks open on sour note. China/U.S. trade talks opened on a discordant note Thursday as fresh frictions surfaced after China announced plans to investigate dumping allegations against Detroit's Big Three automakers. Punitive measures are unlikely to cause much harm since most of the vehicles they sell are made in China, but another row - on top of disputes over steel pipes, chicken, movies and music - could further stress their tenuous relationship ahead of Obama's Nov. 15 visit.
• Economists shave GDP estimates after weak orders. Durable goods orders rose 1% in September, short of the 1.5% gain economists expected, but a reverse of August's 2.4% drop. Following the weaker-than-expected gain, Goldman Sachs economist Ed McKelvey dropped his Q3 GDP growth estimate - due out this morning - to 2.7% from a previous 3%. "The headline gain in orders was in line with expectations but not as firm as we had thought," he said. Later, Morgan Stanley and Merrill Lynch followed suit, with Morgan shaving its outlook to 3.8% from 3.9%, and Merrill to 2.3% from 2.5%.
• AIG recoups CDS losses. AIG (AIG) is seeing billions of dollars in inflows from recovering credit-default swaps - the very securities that helped level the insurer. Q2 inflows may have topped $3B, including at least $1B from Goldman Sachs (GS). Credit-default swaps - a type of insurance policy on securities backed by assets such as mortgages - required AIG to put up huge amounts of collateral when the investments they backed fell in value. Many of the sour trades were closed out last year by the government, a move that saved AIG, but may have deprived it of billions of dollars.
• Homebuyer credit extension nears approval. Key senators voiced support for extending and expanding the soon-to-expire homebuyer tax credit, and a vote on the measure could come next week. The current plan would see the $8,000 first-time homebuyer tax credit, set to expire at the end of November, extended through April 2010, and would allow for people who have been in their home for at least five years to receive a $6,500 tax credit if they purchase a new primary residence. The income limit on the credit would also rise to $125,000 from $75,000.
• House panel approves credit rating rules. The House Financial Services Committee signed off (49-14) on legislation aimed at ratings agencies, including barring them from consulting for companies they're also rating, and requiring raters to have outsiders on their boards. The bill also enables investors to sue firms for failing to carry out their duties.
• Fed: To grow or to shrink? A draft bill of new financial-regulation legislation moving through Congress would give the Fed substantial new powers, including the authority to force large firms to shrink if their size threatens the broader economy. The view is likely to conflict with the Senate's, where financial regulation is moving at a much slower pace, and members of both parties remain wary of offering the Fed - seen by many as partially responsible for the collapse - any new authority.
• New home sales flatline. New home sales fell 3.6% in September to an annual rate of 402K, well short of economist consensus of 440K and last month's downward-revised 417K. Months' supply rose to 7.5 from 7.3 in August. Sales were down 7.8% year-over year, and, from the peak of the residential construction boom back in mid-2005, sales are down 71.1%. After adjusting for population growth since the pre-2009 all-time low in 1981, sales are now 15% below previous records. (Census Bureau's New Home Sales (.pdf))
• Norway tightens rates. Norway became the first European country to hike interest rates post-crisis, lifting its key rate by 25 bps to 1.5%. Governor Svein Gjedrem noted inflation is higher than expected, while unemployment was "considerably lower than previously projected," and indicated rates would rise gradually. On Oct. 6, Australia became the first G-20 nation to tighten. (Norges Bank statement)

Earnings: Thur. Before Open

• ABB Ltd. (ABB): Net income of $1.03B (+12%). Sales $7.9B (-10%). Orders $7.06B (-21%). "It remains unclear when and how quickly capital investments by customers will recover from the downturn. In addition, the volatility of raw material prices and the limited availability of project funding continue to influence the timing of many power and industrial investment decision." ABB preannounced on Oct. 19. Shares -2.1% premarket. (PR)
• Aetna (AET): Q3 EPS of $0.69 beats by $0.03. Revenue of $8.72B (+14.4%) in-line. Sees full-year EPS of $2.75 vs. $2.86 consensus. (PR)
• Allegheny Energy (AYE): Q3 EPS of $0.59 beats by $0.06. Revenue of $794M (-6.6%) vs. $952M. (PR)
• Allergan (AGN): Q3 EPS of $0.70 in-line. Revenue of $1.13B (+4.2%) vs. $1.08B. Shares +0.8% premarket. (PR)
• American Electric Power Company (AEP): Q3 EPS of $0.93 beats by $0.08. Revenue of $3.5B (-16.7%) vs. $3.97B. (PR)
• AstraZeneca (AZN): Q3 EPS of $1.46 beats by $0.06. Revenue of $8.2B (+5.5%) vs. $7.9B. Sees full-year core EPS of $6.20-6.40 vs. consensus of $5.99. Shares +0.7% premarket. (PR)
• AutoNation (AN): Q3 EPS of $0.36 beats by $0.01. Revenue of $2.92B (-13.2%) vs. $3.13B. "Cash for Clunkers was a highly effective stimulus program that provided a much needed lift in auto sales and has set the stage going forward for a gradual recovery of new vehicle sales." Says CARS boosted Q3 EPS by $0.07. Approves $250M buyback. (PR)
• Avon (AVP): Q3 EPS of $0.42 beats by $0.02. Revenue of $2.55B (-3.5%) in-line. (PR)
• Barrick Gold (ABX): Q3 EPS of $0.54 beats by $0.07. Revenue of $2.1B (+11.6%) in-line. Significantly reduced gold hedges, and will eliminate within 12 months. (PR)
• BioCryst Pharmaceuticals (BCRX): Q3 EPS of -$0.28 misses by $0.06. Revenue of $10.5M (+18%) vs. $4.6M. BioCryst recently received FDA approval to use its flu I.V. drug peramivir as an emergency treatment against H1N1. (PR)
• Brookfield Properties (BPO): Q3 FFO of $0.34 in-line. Revenue of $657M (-7.1%) vs. $580M. (PR)
• Burger King (BKC): FQ1 EPS of $0.34 misses by $0.03. Revenue of $637M (-5.4%) vs. $653M. Expects the unpredictable consumer environment will persist in fiscal 2010. (PR)
• Brunswick (BC): Q3 EPS of -$1.53 misses by $0.19. Revenue of $666M (-35.9%) vs. $701M. Shares -5.1% premarket. (PR)
• CME Group (CME): Q3 EPS of $3.35 beats by $0.06. Revenue of $650M (-17.4%) in-line. "As the economy continues to stabilize, there is room for further organic growth in our core business. At the same time, we are actively working to ensure that the benefits our business model brings to the financial system are communicated to the legislators and regulators who are charged with regulatory reform." (PR)
• CNOOC (CEO): Q3 revenue of 23.8B yuan ($3.47B, -23.1%) vs. estimate of 21.6B. Avg. selling price -36.6% to $67.83/barrel. Net daily production +18.4% to 647K. Capital expenditure +10.3% to 11.24B yuan. Shares -0.9% premarket. (Bloomberg, PR)
• Colgate-Palmolive (CL): Q3 EPS of $1.12 beats by $0.01. Revenue of $4B (+0.3%) in-line. (PR)
• Corinthian Colleges (COCO): FQ1 EPS of $0.37 beats by $0.09. Revenue of $388M (+34.2%) vs. $378M. Total student population +25% to 93.5K. Sees full-year EPS of $1.55-1.60 vs. $1.35. Shares +5% premarket. (PR)
• Cott (COT): Q3 EPS of $0.18 beats by $0.02. Revenue of $405M (-3.7%) in-line. To sell $200M in senior notes due in 2017, and use proceeds to fund a previously announced tender offer for notes due in 2011. (PR)
• Deutsche Bank (DB): Q3 net profit €1.4B from €414M a year ago. Pre-tax profit of €1.3B from €93M. Net writedowns of €300M. Risk provision of €544M, up from €236M a year ago, but down from €1B in Q2. Return on equity 15% vs. 1% last year. Says it reduced levels of trading risk, "even at the expense of short-term revenue gains." DB released preliminary results last week. Shares -2.6% premarket. (PR)
• Digital Realty Trust (DLR): Q3 FFO of $0.74 beats by $0.02. Revenue of $163M (+14.9%) in-line. Shares (PR)
• Eastman Kodak (EK): Q3 EPS of -$0.23 misses by $0.04. Revenue of $1.78B (-25.9%) vs. $1.89B. Sees revenue decline at high-end of previous 12-18% range. (PR)
• Expedia (EXPE): Q3 EPS of $0.48 beats by $0.05. Revenue of $852M (+2.3%) vs. $829M. "Travelers are clearly responding to our improving value proposition, as we broaden our fee cuts and increase the depth and breadth of our global supply." Shares +6.8% premarket. (PR)
• ExxonMobil (XOM): Q3 EPS of $0.98 misses by $0.05. Revenue of $82.3B (-40.3) vs. $85.2B. Shares -1.5% premarket. (PR)
• France Telecom (FTE): Q3 Ebitda of €4.56B (-8%), in line with consensus. Revenue of €12.69B (-6.4%) vs. €12.85B. Expects Q4 to be similar to Q3, and will thus continue to implement cost savings plans to prevent its Ebitda margin from declining further. Shares -0.5% in Paris. (PR, WSJ)
• GrafTech International (GTI): Q3 EPS of $0.15 beats by $0.09. Revenue of $165M (-47.8%) vs. $162M. (PR)
• Kellogg Company (K): Q3 EPS of $0.94 beats by $0.10. Revenue of $3.28B (-0.3%) in-line. "The current economic environment has placed significant pressure on our consumers." (PR)
• KBR Inc. (KBR): Q3 EPS of $0.45 beats by $0.04. Revenue of $2.84B (-5.9%) in-line. (PR)
• Mack-Cali Realty (CLI): Q3 FFO of $0.81 beats by $0.05. Revenue of $194M (-5.3%) vs. $175M. (PR)
• Monster Worldwide (MWW): Q3 EPS of $0.01 beats by $0.01. Revenue of $215M (-35.2%) vs. $223M. (PR)
• Moody's (MCO): Q3 EPS of $0.43 beats by $0.05. Revenue of $452M (+4.2%) vs. $417M. Declares quarterly dividend of $0.10. (PR I, II)
• Motorola (MOT): Q3 EPS of $0.01 beats by $0.01. Revenue of $5.45B vs. $5.54B. Appoints Edward Fitzpatrick as CFO. Sees Q4 continuing operations EPS of $0.07-0.09 vs. $0.06. Shares +4.3% premarket. (PR)
• MPS Group (MPS): Q3 EPS of $0.06 beats by $0.04. Revenue of $408B (-29.4%) vs. $403B. MPS is being acquired by Adecco. (PR)
• Mylan Laboratories (MYL): Q3 EPS of $0.32 beats by $0.05. Revenue of $1.26B (-23.7%) in-line. Sees 2010 EPS of $1.24-1.28 vs. $1.17. (PR)
• Newmont Mining (NEM): Q3 EPS of $0.79 beats by $0.24. Revenue of $2.05B (+49.5%) vs. $1.72B. (PR)
• Nintendo (NTDOY.PK): H1 net profit of ¥69.5B ($768M, -52%). Sales of ¥548B (-34.5%). Cuts H1 dividend by 37% to ¥270. Sold 5.75M Wii consoles (-43%) and 11.7M DS hand-held player sales (vs. 13.7M last year). Sees full-year net income of ¥230B vs. ¥270B consensus, full operating profit of ¥370B (-33%), sales of ¥1.5T (-18%), and Wii sales of 20M (vs. previous 26M). (PR I, II, III, Bloomberg)
• Noble Energy (NBL): Q3 EPS of $1.10 beats by $0.28. Revenue of $621M (-43.4%) vs. $657M. (PR)
• NRG Energy (NRG): Q3 EPS of $1.02 misses by $0.12. Revenue of $2.92B vs. $2.18B. (PR)
• Office Depot (ODP): Q3 EPS of -$0.08 beats by $0.02. Revenue of $3.03B (-17.2%) in-line. (PR)
• OfficeMax (OMX): Q3 EPS of $0.08 misses by $0.06. Revenue of $1.83B (-12.6%) in-line. Same-store sales -11.5%. Continues to anticipate macro employment trends will not turn positive until well into 2010. (PR)
• Patterson-UTI Energy (PTEN): Q3 EPS of -$0.12 beats by $0.04. Revenue of $176M (-71%) vs. $163M. (PR)
• PG&E (PCG): Q3 EPS of $0.93 beats by $0.02. Revenue of $3.23B (+12.3%) vs. $3.48B. (PR)
• PPL Corp. (PPL): Q3 EPS of $0.52 beats by $0.07. Revenue of $1.8B vs. $3B. (PR)
• Procter & Gamble (PG): FQ1 EPS of $1.06 beats by $0.07. Revenue of $19.8B (-6%) in-line. (PR)
• Shell (RDS.A): Adjusted net income of $2.62B vs. consensus of $2.5B. Revenue of $75B, down from $131.6B a year ago. "Q3 results were affected by the weak global economy. Upstream and downstream profitability has been sharply reduced compared to year-ago levels. We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain, and we are not expecting a quick recovery." Shares -3.5% in London. (PR)
• Smith International (SII): Q3 EPS of $0.07 misses by $0.08. Revenue of $1.88B (-34.1%) in-line. (PR)
• Sprint Nextel (S): Q3 EPS of -$0.17 misses by $0.02. Revenue of $8.04B (-8.8%) in-line. Net subscribers -135K. Post-paid churn 2.17% vs. 2.05% in Q2, due to seasonality and heightened competition. Pre-paid churn 6.65% vs. 6.38% in Q2. (PR)
• Taiwan Semi (TSM): Q3 EPS of $0.18 in-line. Revenue of $2.74B (-8.1%) in-line. Gross margin +1.5 points from Q2 to 47.7%. Sees Q4 revenue of NT$90-92B vs. consensus of NT$85.8B. (PR)
• Ventas (VTR): Q3 EPS of $0.66 beats by $0.03. Revenue of $236M (+0.3%) vs. $230M. (PR)
• Virgin Media (VMED): Q3 operating cash flow of £348M (+7%) vs. consensus of £337M. Ebitda of £348M. Revenue of £953M (+1.3%) vs. £942M. Net additions of 8,100 vs. 8,000. (PR)
• Williams Companies (WMB): Q3 EPS of $0.24 beats by $0.05. Shares +2.2% premarket. (PR)
• Xcel Energy (XEL): Q3 EPS of $0.48 misses by $0.02. Revenue of $2.31B (-18.8%) vs. $3.01B. (PR)

Earnings: Wed. After Close

• AFLAC (AFL): Q3 EPS of $1.25 beats by $0.05. Revenue of $4.5B (+23%) vs. $4.7B. Shares -0.2% AH. (PR)
• Agnico-Eagle Mines (AEM): Q3 EPS of -$0.11 vs. estimate of $0.20; results include foreign exchange loss and other items accounting for cost of $0.14/share. Revenue of $159M (+91%) vs. $183M. Shares -8.3% AH. (PR)
• Akamai Technologies (AKAM): Q3 EPS of $0.38 beats by $0.03. Revenue of $207M (+5%) vs. $199M. Shares +9.6% AH. (PR)
• Annaly Mortgage Management (NLY): Q3 EPS of $0.75 beats by $0.03. Net interest income of $436M (+24%). Shares +2.3% AH. (PR)
• AvalonBay Communities (AVB): Q3 FFO of $1.09 beats by $0.01. Revenue of $224M (+0.3%). Sees Q4 FFO of $0.61-0.64 vs. $0.97 and full-year FFO of $3.86-3.90 vs. $4.19. (PR)
• Brandywine Realty Trust (BDN): Q3 FFO of $0.44 beats by $0.08. Revenue of $147M (+2%) vs. $141M. Raises full-year FFO guidance to $1.82-1.85 from $1.75-1.80, vs. $1.78. Sees fiscal 2010 FFO of $1.23-1.34 vs. $1.38. Shares -1.9% AH. (PR)
• Cadence (CDNS): Q3 EPS of $0.03 beats by $0.04. Revenue of $216M (-7%) vs. $215M. Sees Q4 EPS of $0.02-0.04 vs. $0.01, and full-year EPS of -$0.08 to -$0.10 vs. -$0.14. (PR)
• Cerner (CERN): Q3 EPS of $0.61 in-line. Revenue of $409M (-3%) vs. $421M. Sees Q4 EPS of $0.68-0.74 vs. $0.74. Shares -1.9% AH. (PR)
• CB Richard Ellis Group (CBG): Q3 EPS of $0.08 misses by $0.02. Revenue of $1B (-23%) in-line. Shares -4% AH. (PR)
• Duke Realty (DRE): Q3 FFO of $0.32 beats by $0.01. Revenue of $224M (+4.1%) vs. $219M. (PR)
• Equity Residential (EQR): Q3 FFO of $0.53 beats by $0.01. Revenue of $493M (-4%) vs. $487M. Sees Q4 FFO of $0.49-0.53 vs. $0.49. (PR)
• Express Scripts (ESRX): Q3 EPS ex-items of $0.99 beats by $0.19. Revenue of $5.6B (+3%) vs. $5.5B. Sees full-year EPS of $3.76-3.82 vs. $3.49. Shares +0.8% AH. (PR)
• First Solar (FSLR): Q3 EPS of $1.79 beats by $0.05. Revenue of $481M (+38%) vs. $529M. Shares -15.9% AH. (PR)
• Genco Shipping & Trading (GNK): Q3 EPS of $1.09 beats by $0.08. Revenue of $93M (-14%) vs. $91M. Shares -2.9% AH. (PR)
• Helix Energy Solutions Group (HLX): Q3 EPS of $0.04 misses by $0.01. Revenue of $216M (-65%) vs. $249M. Shares -0.3% AH. (PR)
• LSI Logic (LSI): Q3 EPS of $0.18 beats by $0.14. Revenue of $578M (-19%) vs. $556M. Sees Q4 EPS of $0.07-0.13 vs. $0.06 and Q4 revenue of $605M-645M vs. $587M. Shares +7% AH. (PR)
• Lincoln National (LNC): Q3 EPS of $0.84 beats by $0.08. Revenue of $2.1B (-8%) vs. $2.4B. Shares +9.2% AH. (PR)
• O'Reilly Automotive (ORLY): Q3 EPS of $0.63 beats by $0.07. Revenue of $1.26B (+13%) vs. $1.23B. Comparable store sales up 5.3%; "Continued improvement in our gross margin results fueled by improved acquisition costs as the result of our increased purchasing power." Shares -0.2% AH. (PR)
• Owens-Illinois (OI): Q3 EPS of $0.74 misses by $0.19. Revenue of $1.9B (-7%) in-line. Shares -6% AH. (PR)
• Questar (STR): Q3 EPS of $0.60 beats by $0.09. Revenue of $600M (-21%) vs. $542M. Raises full-year EPS guidance to $2.45-2.55 from $2.35-2.45, vs. $2.57. (PR)
• Realty Income (O): Q3 FFO of $0.47 beats by $0.01. Revenue of $82M (flat) in-line. Sees full-year FFO of $1.86-1.92 vs. $1.83. Shares +2.3% AH. (PR)
• Ryland Group (RYL): Q3 EPS of -$1.20 misses by $0.31. Revenue of $328M (-40%) vs. $352M. Shares -0.5% AH. (PR)
• Symantec (SYMC): FQ2 EPS of $0.36 beats by $0.03. Revenue of $1.48B (-3%) vs. $1.43B. Shares +6.1% AH. (PR)
• Teck Resources (TCK): Q3 EPS of $0.59 beats by $0.09. Revenue of $2.1B in-line. Sees 2009 coal sales of 19.5-20.5M tons, slightly higher than previous guidance. Shares +4.1% AH. (PR)
• Teradyne (TER): Q3 EPS of $0.14 beats by $0.03. Revenue of $262M (-12%) vs. $256M. Sees Q4 EPS of $0.12-0.17 vs. $0.12 on Q4 revenue of $255M-270M vs. $252M. Shares +2.2% AH. (PR)
• Trinity Industries (TRN): Q3 EPS of $0.29 beats by $0.04. Revenue of $557M (-52%) vs. $564M. Sees Q4 EPS of $0.08-0.13 vs. $0.06. Shares -1.3% AH. (PR)
• XL Capital (XL): Q3 EPS of $0.89 beats by $0.26. Revenue of $1.5B (-15%) vs. $1.7B. Shares +5.2% AH. (PR)

Today's Markets

Asia markets moved sharply lower Thursday, but losses in Europe were mild and U.S. futures have moved higher overnight following Wednesday's losses.

More companies are set to report earnings next week than this week, but the big names have already come and gone.

There are a lot of second-tier reports to focus on next week, however, and below we provide a list of the names that investors will be following most. As shown, Corning (GLW) and Verizon (VZ) kick off the week with reports on Monday morning, while Baidu (BIDU) will surely be active after the close. Johnson Controls (JCI), Under Armour (UA), Valero Energy (VLO), and United States Steel (X) report Tuesday morning, and Visa (V) will give us some important data on consumer spending on Tuesday afternoon. General Dynamics (GD), International Paper (IP), WellPoint (WLP) report Wednesday morning, while there aren't any big hitters reporting Wednesday after the close. On Thursday, we get reports from Chicago Mercantile Exchange Holdings (CME), Eastman Kodak (EK), Motorola (MOT), Newmont Mining (NEM), Office Depot (ODP), Procter and Gamble (PG), Sprint Nextel (S), and Exxon Mobil (XOM), which will be the biggest day of the week for earnings. Finally, Chevron (CVX) finishes off the week with earnings on Friday before the open.

• CME weighs its CBOE options. CME Group (CME) - the largest futures market in the world - is reportedly in early talks to fold Chicago Board Options Exchange (CBOE) into its empire. Sources say a deal could be worth up to $5B, or a 50% premium to CBOE’s current worth, and would give CME the biggest share of trading in listed U.S. options – a market growing at lightening speed. Analysts say any deal could still be months off, however, due to issues over how CBOE's membership interests would be divided.
• C'mon, Ben! Barron's magazine's Andrew Bary urged Ben Bernanke to hike interest rates to a "more normal" 2%, or risk fostering another financial bubble. Barron's says with the economy recovering, the dollar falling, and commodities on the rise, keeping rates near zero will only fuel speculation and anger America's economic partners and foreign creditors - and potentially stoke inflation. Bary worries the Fed is failing to distinguish between normal accommodative monetary policy and crisis accommodative policy.
• Earnings rule the day. Markets will be closely watching a fresh battery of earnings this week - including consumer-related companies such as Apple (AAPL), McDonald’s (MCD), Whirlpool (WHR) and Hasbro (HAS) - looking to see just how healthy the consumer is, and by extension the economic recovery. Last week Bank of America (BAC), Citigroup (C), and General Electric (GE) disappointed, reporting heavy consumer-related losses, which stomped out a rally kindled earlier in the week.
• Citigroup might lose Mexican unit. Citigroup (C) could be forced to sell its highly-prized Mexican subsidiary, Banamex. A case being decided by Mexico's Supreme Court this week will rule on whether the Citigroup arm is in breach of Mexican law that bans foreign governments from owning a stake in domestic banks; some claim an earlier ruling allowing the "transitory" stake was unconstitutional. Banamex accounts for about 15% of Citi's global profits, and has an estimated worth of about $20B. Other banks with Mexican operations that could be affected by the ruling include AIG (AIG), Bank of America (BAC) and Bank of New York Mellon (BK).
• Vivendi to GE: pay up. GE (GE) and Vivendi are at odds to the tune of about $500M over what Vivendi should get for its 20% stake in NBC Universal. The sale is critical to a deal that GE has reportedly been negotiating with Comcast (CMCSA). GE, which owns 80% of NBC Universal, and Comcast are in the midst of due diligence. Vivendi wants to be paid at least book value for its stake, or about $6.3B. sources say. If Vivendi and GE reach an agreement, a deal on the Comcast-NBC Universal transaction could come as soon as next month.
• Drug companies to benefit from healthcare bill. Some healthcare industry executives believe drug companies stand to profit more handsomely than insurance companies from the government’s healthcare overhaul, as coverage extends to some 29M more Americans. Senate Democrats meet this week to write the bill they plan to bring to the floor. With a surge in coverage, drug companies, pharmacies and hospitals would be protected from carrying the cost of customers who can’t afford to pay up. In contrast, insurance companies would no longer be able to reject those with pre-existing illnesses – which could prove costly.
• CIT throws sop to bondholders. Hoping to crank up bondholder support for its debt exchange plan, CIT Group (CIT) said late Friday night that it sweetened terms of the proposed deal. Some junior bondholders will get more stock in exchange for their bonds and higher interest on new debt. The pool of eligible exchange participants will also be enlarged. CIT, one of the largest lenders to small and mid-sized companies, is looking to slash its $31B in bonds by at least $5.7B and to extend debt maturities. Bondholders will have to choose between the exchange offer and a possible prepackaged bankruptcy plan.
• Wall Street insider crackdown coming. The arrest of billionaire hedge-fund chief Raj Rajaratnam late last week could be the tip a much larger sting operation about to strike Wall Street, sources say. The Fed crackdown, brewing for two years, targets large institutional investors such as hedge-fund managers, lawyers and other Wall Street players. Rajaratnam's ring, extending to the likes of IBM (IBM) executive Robert Moffat, a close confidant of IBM's CEO, allegedly reaped some $20M in profits from trading on insider information.
• U.S. customers: beware of UBS mail. U.S. clients of Swiss investment bank UBS (UBS) could be nailed for tax evasion simply by opening their mail. UBS is reportedly warning U.S. clients, via registered mail, that their account details are being sent to U.S. tax authorities. This could give U.S. authorities an early leg up in tracing customers on their tax evasion hit list – well before such details are due to be shared under a U.S.-Swiss double taxation agreement – and in potential violation of Swiss secrecy laws, sources say. In August, Switzerland handed over details of 4,450 U.S. accounts at UBS to settle the tax evasion furor.
• Stagecoach gallops to National's rescue. Just days after being abandoned by CVC Capital, Britain's National Express Group said Stagecoach Group has stepped forward with a preliminary all-share bid valued at £1.7B ($2.8B). The U.K. rail operator said it was considering a share sale over the next few weeks to reduce debt after CVC dropped its £765M bid.

Earnings: Mon. Before Open

• BB&T (BBT): Q3 EPS of $0.23 beats by $0.01. Revenue +16.1%. Provision for credit losses almost doubled to $709M. "Our earnings continue to be negatively affected by a significant provision for credit losses and other costs related to the credit environment." Shares -2.1% premarket. (PR)
• Eaton (ETN): Q3 EPS of $1.21 beats by $0.29. Revenue of $3.03B vs. $3.13B. Sees Q4 EPS of $1.15-1.25 vs. $1.06. (PR)
• Hasbro (HAS): Q3 EPS of $0.99 beats by $0.06. Revenue of $1.28B (-1.8%) in-line. “We believe we can grow revenues in 2009 if our consumer retail takeaway continues to improve in line with recent fourth quarter trends." (PR)
• Weatherford International (WFT): Q3 EPS of $0.13 in-line. Revenue of $2.15B (-15.4%) in-line. North America rig count -52%; international rig count -11%. Shares +1.4% premarket. (PR)

Today's Markets

Asia markets posted strong gains to kick off the week. Europe stocks are higher at midday, and futures look poised to carry solid gains into the open.

What Do the Following Have In Common?
* Arnold Schwarzenegger
* Al Gore
* The band Coldplay
* Leonardo DiCaprio
* Jake Gyllenhal
* 2008 Oscars

What They Have in Common: They all claimed to have offset their fossil fuel usage by purchasing carbon credits.

Below we look at the market from a different view, if you had bought 1,000 shares of any S&P 500 stock what would have been the big winner? It turns out that a purchase of 1,000 shares of Google (GOOG) at the 3/9 close has returned $226,650 through the 10/7 close; far and away the biggest winner. There are only seven S&P stocks that are down since the market bottomed.

CME Group (CME) published the following product update today:

Effective Sunday, October 11, 2009 (trade date Monday, October 12), the following changes to the listing rules for COMEX Gold options will occur:

Below is a table of the 20 largest financial companies in the S&P 500 sorted by the percentage they're currently trading from their 9/12/08 close (the Friday before the Lehman bankruptcy). As shown, Goldman (GS), JP Morgan (JPM), Franklin Resources (BEN), and Travelers (TRV) are the four firms currently trading above their pre-Lehman levels, while AIG, C, and BAC are still the furthest below their pre-Lehman levels.

We also highlight the average analyst price targets for the 20 companies. AXP, WFC, SPG, PNC, and AIG are the five stocks currently trading above their price targets. With AIG trading at $50, it is $30 above its average analyst price target! BK, TRV, and STT are the furthest below their price targets.

You will soon be paying under $2 per gallon again for gasoline and diesel fuel and crude oil will go back down into the 40's. So you can make plans for that trip to see the grandparents for the holidays as well as give the economy a much needed boost. Demand for gasoline in the United States typically falls after Labor Day due to the end of the vacation season. For the week ending September 4, 2009, demand for gasoline was at its lowest point since January 9, 2008, according to MasterCard Advisors LLC.

Currently diesel fuel is cheaper than gasoline in Canada and vice versa in the US. Canadian truckers, who were paying $1.45 per litre in June 2008, are now just paying 92.5 cents in the first week of September per the M.J. Ervin & Associates weekly petroleum prices survey. That’s a whopping 36% savings in 15 months.

With the September options expiration approaching us in just 4 days, I thought I would outline some trade ideas on stocks I wouldn't mind going long (with the exception of AIG), that would return good percentages in just 4 days. When using the buy/write option strategy, it is important that you are willing to hold the security in case it is below the strike price at options expiration. I have put together a list of stocks/ETFs which will return a nice percentage gain if they are above the strike price as of September options expiration, but will also protect (lower cost basis) to the downside in case the stock/ETF sells off slightly and expires below the strike price. The list below is a very tall one, and for your convenience I have ranked the securities in order from the largest percent return to the least. To learn more about the buy/write option strategy, risks, pricing, calculations, other strategies, and options in general, click here.

Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are riskier.

Buy, Hold, Or Fold?

As we sit at consolidation levels around 1,000 on the S&P 500, we are witnessing the critical nexus point of a binary event waiting to happen.

We’re entering a new era of disclosure which will likely change the landscape for derivative investments for years to come. Tuesday, a group of 15 different Swap dealers including JPMorgan Chase & Co. (JPM) and Goldman Sachs Group, Inc. (GS) agreed to increase the amount of trades they send to clearinghouses. A clearinghouse is simply an intermediary which acts as a guarantor for both parties involved so that the risk of counterparty default is minimized.

For the last decade, the number of unregulated “Over The Counter” contracts between financial institutions has grown and eventually these extensive derivative positions threatened to bring down the nations financial infrastructure. To a large degree, the calamity came as a result of counterparty failure where large players like American International Group, Inc. (AIG) were unable to meet their obligations relating to these complicated agreements.

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is Ken Griffin's Citadel Investment Group. Ken got his start trading options from his dorm room at Harvard his freshman year. He then launched a convertible bond arbitrage fund his sophomore year and by his senior year, he had $1 million from investors invested in that strategy. Since then, Citadel has seen average annual returns of around 20%. The year of 2008 was a difficult one for them though, as their flagship Wellington and Kensington funds were down big. In fact, they were among the top 10 hedge fund asset losers. Since they would not be recouping performance fees from those funds for a while it seemed, they did what any sensible hedge fund manager would do: start new funds where they can collect the fee again. This is an endless boom bust cycle we've seen in hedge fund land. If you fail, then just come back with a new entity and you're good to go.

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is John Griffin's hedge fund Blue Ridge Capital. Griffin is very similar to Stephen Mandel (whom we also just covered) in that they were both some of Julian Robertson's top men at legendary hedge fund Tiger Management. They both went on to form their own funds and as such are labeled 'Tiger Cubs.'

CME Group Inc. (CME) is not far from the level it was at on May 14th when ZachStocks recommended a purchase. Since that time, the CFTC has stepped in with proposals to limit position sizes for commodity trading – certainly a negative for companies like CME who rely on active speculators who need CME’s execution and clearing services. But while the potentially negative news drove the stock lower for a few weeks, it now appears that investors are regaining confidence and supporting the current stock price.

CME has been very active in launching new products as I count nine different press releases which unveil the new products in this quarter alone. One of the benefits of having a robust execution and clearing platform is that additional products are able to be rolled out without much in the way of fixed costs – the platform has already been built and funded. Marginal costs for new products are very low and so the financial risk for the company is minimal even if the new products fail to attract trading volume from market participants. It only takes one or two successful deals to make many attempts worthwhile.

Only 39 stocks in the S&P 500 are trading below their 50-day moving averages. That means nearly 93% of stocks in the index are trading above their 50-days, which is the highest reading in at least three years. Below we highlight the stocks in the index that are the most overbought and oversold versus their 50-days.

As shown, AIG is the furthest above its 50-day at 61.06%, followed by GCI, EK, HIG, LEN, and C. These are names that have been in perpetual trouble over the last few years, so clearly investors are going out and buying up beaten down, risky names. Other notable stocks on the most overbought list include COF, WYNN, WFMI, and BAC.

A good thread busted out in the comments on Thursday's post. A reader asked me to weigh in on my concerns about inflation (hyper or otherwise) and the status of the dollar. Another reader asked for my take on financial stocks and REITs.

So let's roll 'em up and dive in.

The average stock in the S&P 500 Financial sector is up 17.28% year to date. For those interested, below we provide a list of the top 25 performing stocks in the sector in 2009. As shown, XL Capital (XL), Genworth Financial (GNW), and CB Richard Ellis (CBG) are all up more than 100% year to date, and just after them come the big boys -- Goldman Sachs (GS), Morgan Stanley (MS), and American Express (AXP). The bounce that these Financials have seen since their March lows is almost as extreme as the declines they saw in 2008 and early 2009 -- almost.

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