According to some news reports Tuesday, the U.S. Congress is gaining support for a Tax Loss Carryback proposal. We're not seeing a lot of news about this proposal but it seems to be something that would be very bullish for the worst off stocks in this economy. Any corporation that made a ton of money in 2004-2007 and is now losing truckloads of money would be able to reclaim some taxes paid in those previous years.

It could be a huge boon to financials struggling to raise capital or manufactures that saw boom years and now are struggling to make ends meet in these lean times. It seems odd that Congress would inact such a law to help the hated banks, but then again a lot of the smaller banks could use some help to stay afloat and continue lending. On the flip side, it would further help to support companies not allowing the best players to gain deserved market share. Some of the banks in strong capital shape might see less growth potential with such a bill.

• Feinberg unveils pay cuts. So-called pay czar Kenneth Feinberg outlined much-awaited compensation rules for seven TARP recipient firms; top executives at firms such as Citigroup (C), AIG (AIG) and Bank of America (BAC) will have a pay cap of $500K - for many a 90%-plus reduction. Also, rather than cash, the rules require that the majority of salaries be paid in stock held for the long-term. The rules are only valid for two months - November and December - but will also form the basis for next year's reviews. Feinberg said the rulings are significant, and hopes his standards, which seek to strike a balance between compensation and risk-taking, will be "voluntarily picked up in the marketplace." In a brief statement, Treasury Secretary Tim Geithner said he hopes the new framework will encourage these companies to "return taxpayer dollars as soon as possible."
• Fed proposes compensation checks. While Feinberg was busy administering to TARP recipient firms, the Fed proposed a framework to crack down on pay packages that encourage bankers to take excessive risks by subjecting executives, traders and dealmakers' compensation to regulatory scrutiny. Instead of pay limits, the Fed's plan is to monitor pay practices at the nation's 28 biggest institutions, making sure compensation structures reward executives for long-term performance and discourage excessive risk-taking. Skeptics worry firms will continue to outsmart regulators in finding inventive ways to circumvent restrictions. (read the Fed's press release, proposal (.pdf), and Q&A (.pdf))
• Britain mired in recession. U.K. GDP dropped a surprising 0.4% in Q3, according to the Office for National Statistics, the sixth straight quarter of contraction. Economists had expected the British economy to move back to timid growth of 0.2%. Six quarters is the longest string of declines on record, while the 5.9% peak-to-trough drop in output is just short of the 6% contraction recorded in the recession of the early 1980s. The pound (ETF: FXB) fell like a stone following the report (-1% at 5:00 a.m.), retreating from a six-week high. (read ONS's preliminary GDP estimate (.pdf))
• CIT, Goldman near deal. After a week of tense negotiations, sources say CIT Group (CIT) and Goldman Sachs (GS) have reached an agreement over a $1B "make whole" payment CIT would owe Goldman if it files for bankruptcy, connected to a $3B credit facility Goldman extended it last year. The deal calls for Goldman to reduce the facility to just over $2B, and for CIT to pay Goldman $300M if it files for bankruptcy. An agreement opens the door for CIT to strike a deal with its bondholders, who were waiting on the outcome of the Goldman talks; it could also reduce CIT's need for financing from $6B to $4B.
• Nokia wants Apple to pay its dues. Nokia (NOK) filed a patent suit against Apple (AAPL) Thursday, claiming the iPhone violates 10 patents for GSM, UMTS and wireless LAN technologies. Nokia said it has repeatedly asked Apple to license its patents, which it developed as part of a consortium of global telecommunications companies, and says Apple is "attempting to get a free ride" on the back of its innovation. Cellphone royalties typically run at 1-2% of the wholesale price, estimated at $600 for the iPhone; a 2% royalty would put $12 per iPhone in Nokia's pockets.
• Book price-war under review. The American Booksellers Association asked the Department of Justice to investigate this week's book price-war between Amazon.com (AMZN), Wal-Mart (WMT) and Target (TGT), claiming it constitutes illegal predatory pricing that is damaging to the book industry and harmful to consumers. If the trio is allowed to continue selling hot-item books for under $10, the net result "will be the closing of many independent bookstores and a concentration of power in the book industry in a very few hands," it said. While mega-retailers can use book sales as a loss leader to drive traffic, independent bookstores rely almost entirely on profits from books. (read the ABA's letter to the DoJ)
• Amazon: emerging juggernaut. Amazon (AMZN) announced Q3 results that exceeded expectations, including a 28% jump in sales, and offered Q4 guidance that was well above analyst consensus, sending shares up over 14% in after-hours trade (see below). Electronics and other general merchandise (EGM) now accounts for 43% of Amazon's sales, vs. 54% for media. The rate of EGM growth (44%) versus that of media (17%) signifies the online retailer's rapid and successful transition from a bookseller to an "everything store," which will become even more pronounced once it completes acquiring Zappos in Q4. (read Amazon's Q3 earnings call transcript)
• Merck/Schering merger wins EC approval. The European Commission cleared Merck's (MRK) bid to buy Schering-Plough (SGP) in a deal worth more than $41B. "The proposed transaction would not significantly impede effective competition in the European economic area or any substantial part of it," the EC said. Merck agreed to sell its half of the Merial animal health business to Sanofi-Aventis (SNY), its JV partner, for $4B in order to meet antitrust requirements. The merged companies will cut 15% of their combined workforces.
• Fed's Evans warns of weak recovery: The Fed will be in no rush to withdraw fiscal stimulus, Chicago Fed president Charles Evans said yesterday, warning the recovery "is going to be very unsatisfactory in 2010." With weak labor markets and plenty of idle factory capacity, there is a sufficient slack in the economy to set aside inflation fears, he said. If anything, low levels of inflation are a concern.
• BP mulls rival bid for Jubilee. Sources say BP (BP) has hired Goldman Sachs (GS) to advise it on a rival bid to ExxonMobil's (XOM) $4B deal to purchase Kosmos Energy's stake in Ghana's Jubilee field. Goldman reportedly advised Cnooc (CEO) on a potential bid for the same stake. Cnooc's attempt is thought to have been hampered by its relative inexperience in developing such a large field, and Goldman's switch to advising BP implies a Cnooc bid is not forthcoming, analysts say.
• Sept. Leading Indicators: The Conference Board's Leading Indicators Index came in at +1%, vs. +0.6% in August and consensus of +0.8%. With the sixth consecutive increase, the six-month growth rate is now at the highest pace since 1983. The numbers suggest a strong recovery is developing, the group says, but notes "the continued downtrend in employment is keeping this index of current economic conditions from rising faster."

Earnings: Fri. Before Open

• Cache (CACH): Q3 EPS of -$0.43 misses by $0.23. Revenue of $44.9M (-22.7%) vs. $48.3M. (PR)
• Dover (DOV): Q3 EPS of $0.58 beats by $0.10. Revenue of $1.5B (-23.7%) in-line. (PR)
• Honeywell (HON): Q3 EPS of $0.76 beats by $0.04. Revenue of $7.7B (-17%) vs. $7.88B. (PR)
• Ingersoll-Rand (IR): Q3 EPS of $0.70 beats by $0.09. Revenue of $3.48B (-19.2%) vs. $3.56B. Sees 2010 EPS of $2.00-2.40 vs. consensus of $1.98. "The outlook for the strength and timing of the global economic recovery and the performance of our end markets remains cloudy. A preliminary review of our internal cost reduction and productivity improvement actions for next year gives us confidence that we can grow our earnings for 2010 even if our markets remain weak." (PR)
• Schlumberger (SLB): Q3 EPS of $0.65 beats by $0.02. Revenue of $5.43B (-25.2%) in-line. (PR)
• Whirlpool (WHR): Q3 EPS of $1.15 beats by $0.38. Revenue of $4.5B vs. $4.28B. Continues to see uncertain and volatile demand levels in many markets. (PR)

Earnings: Thur. After Close

• Amazon.com (AMZN): Q3 EPS of $0.45 beats by $0.12. Revenue of $5.5B (+28%) vs. $5B. Sees Q4 sales of $8.12B-9.12B vs. consensus of $8.11B. Shares +14.5% AH. (PR)
• American Express (AXP): Q3 EPS of $0.44 beats by $0.06. Revenue of $6B (-16%) vs. $5.9B. Consolidated provisions for losses down 13% to $1.2B. Tier one risk-based capital ratio 9.7%. Sees "broad-based improvements in credit quality" and encouraging trends in spending. Shares -0.5% AH. (PR)
• Broadcom (BRCM): Q3 EPS of $0.16 beats by $0.05. Revenue of $1.25B (-.35%) vs. $1.16B. Sees Q4 revenue flat sequentially. Shares -8.3% AH. (PR)
• Bucyrus International (BUCY): Q3 EPS of $1.21 beats by $0.35. Revenue of $676M (+5%) vs. $623M. (PR)CA Inc. (CA): FQ2 EPS of $0.42 beats by $0.02. Revenue of $1.07B (+1%) in-line. Shares +2.3% AH. (PR)
• Burlington Northern Santa Fe (BNI): Q3 EPS of $1.48 beats by $0.20. Revenue of $3.6B (-27%) in-line. Shares -1.9% AH. (PR)
• Capital One (COF): Q3 EPS of $0.94 beats by $0.80. Revenue of $$4.6B (+11.7%) vs. $4.11B. "We are successfully weathering the storm, but the storm is not over." Shares +8.5% AH. (PR)
• Cheesecake Factory (CAKE): Q3 EPS of $0.29 beats by $0.05. Revenue of $401M (-1%) vs. $397M. Comparable same-store sales down 2.8%. Shares +2.4% AH. (PR)
• Chubb (CB): Q3 EPS of $1.56 beats by $0.29. Total net written premiums of $2.7B (-7%). Raises full-year EPS guidance to $5.90-6.00 from $5.20-5.50, vs. $5.51. Shares -1.74% AH. (PR)
• Compuware (CPWR): FQ2 EPS of $0.12 beats by $0.04. Revenue of $218M (-19%) vs. $201M (one estimate). Shares +5.3% AH. (PR)
• Developers Diversified Realty (DDR): Q3 FFO of $0.44 beats by $0.01. Revenue of $202M (-9%) vs. $194M. Shares +1.1% AH. (PR)
• Eastman Chemical Company (EMN): Q3 EPS of $1.38 beats by $0.25. Revenue of $1.3B (-27%) in-line. Sees Q4 EPS of $0.85 vs. $0.79. Shares +3.2% AH. (PR)
• Emulex (ELX): FQ1 EPS of $0.08 beats by $0.02. Revenue of $86M (-23%) vs. $81M. Sees Q2 revenues of $88M-92M vs. $87M. Shares +2% AH. (PR)
• Informatica (INFA): Q3 EPS of $0.22 beats by $0.02. Revenue of $123M (+8%) vs. $120M. Shares -2.1% AH. (PR)
• Interactive Brokers (IBKR): Q3 EPS of $0.20 misses by $0.11. Revenue of $272M (-45.3%) vs. $298M. Market making income -47% Q/Q and -74% Y/Y due to tighter bid/offer spreads on options. Shares -7.2% AH. (PR)
• Juniper Networks (JNPR): Q3 EPS of $0.23 beats by $0.03. Revenue of $824M (-13%) vs. $797M. Shares +1.6% AH. (PR)
• Lattice Semiconductor (LSCC): Q3 EPS of $0.00 beats by $0.02. Revenue of $49M (-15%) vs. $47M. Shares +5.6% AH. (PR)
• Leggett & Platt (LEG): Q3 EPS of $0.34 beats by $0.06. Revenue of $810M (-28%) vs. $840M. Raises full-year EPS guidance to $0.65-0.75 from $0.55-0.70, vs. $0.64. Shares +0.5% AH. (PR)
• MEMC Electronic Materials (WFR): Q3 EPS of -$0.29 misses by $0.23. Revenue of $310M (-43%) vs. $302M. Shares -3.8% AH. (PR)
• Netflix (NFLX): Q3 EPS of $0.52 beats by $0.06. Revenue of $423M (+3.6%) vs. $420M. Subscriber acquisition cost $26.86 per addition vs. $32.21 a year ago. Churn was 4.4% vs. 4.2% a year ago. Shares -3.3% AH. (PR)
• PMC Sierra (PMCS): Q3 EPS of $0.15 beats by $0.01. Revenue of $131M (-6%) in-line. Shares -0.6% AH. (PR)
• Rambus (RMBS): Q3 EPS of -$0.26 misses by $-0.02. Revenue of $28M (-5%) vs. $27.6M (one estimate). Shares -0.3% AH. (PR)
• Riverbed Technology (RVBD): Q3 EPS of $0.19 beats by $0.04. Revenue of $103M (+18%) vs. $97M. Shares +0.8% AH. (PR)
• Sunpower (SPWRA): Q3 EPS of $0.42 beats by $0.02. Revenue of $466M (+23%) vs. $420M. Shares -11.4% AH. (PR)
• Synaptics (SYNA): FQ1 EPS of $0.48 beats by $0.06. Revenue of $120M (+3%) vs. $116M. Expects Q2 revenue of $128M-134M vs. $137M. Shares +10.1% AH. (PR)
• Synovus Financial (SNV): Q3 EPS of -$1.27 misses by $0.60. Net interest income of $758M (-8%). Shares -7.6% AH. (PR)
• Western Digital (WDC): FQ1 EPS of $1.25 beats by $0.31. Revenue of $2.2B (+4.3%) vs. $2.06B. Says demand remains strong. Shares +1.3% AH. (PR)

Today's Markets

Overseas markets echoed U.S. gains Friday. Futures are marginally higher in light overnight action.

For traders with a more short-term time horizon, we have compiled a list of the S&P 1500 stocks that have the largest intraday high-low ranges (based on the average percent spread between the intraday high and low over the last fifty days). We then grouped the stocks based on whether they have a rising or falling 50-day moving average. Stocks highlighted in gray are new to the list this month.

One of the more successful investing strategies we’ve followed this year is what I’ll call, for lack of anything snappier, the Buy-Banks-The-World-Thinks-Are-At-Death’s-Door approach. It works exactly the way you’d think: Find a bank that is a) loaded down with bad loans (preferably in Arizona, California, Florida or Nevada, for maximum investment terror), b) losing money, c) likely to keep on losing money in coming quarters, d) perceived to be short of capital, and e) likely to raise capital.

Then, once you find such a bank, estimate losses over this cycle and, if you’re comfortable with your numbers and the institution’s financial strength, buy the stock aggressively.

For traders with a more short-term time horizon, we have compiled a list of the S&P 1500 stocks that have the largest intraday high-low ranges (based on the average percent spread between the intraday high and low over the last fifty days). We then grouped the stocks based on whether they have a rising or falling 50-day moving average. Stocks highlighted in gray are new to the list this month.

This month's most volatile stock is AIG, which has an average intraday range of 14.6%. A couple of years ago the stock was considered a conservative and safe investment. Today, it has become a daytrader's dream. As the market becomes more stable, we are also beginning to see an increase in the number of stocks with share prices in the double digits. While AIG's double digit share price is somewhat artificial given the 1:20 reverse split, seven other stocks with prices above $10 are also on the list.

Currently, there is approximately $3.5 trillion or more of outstanding debt associated with U.S. commercial real estate. The delinquency rate on commercial property loans pooled together into investments is about $750 billion considered under/nonperforming in Q2, 2009. This rate is nearly triple from where it was at the end of last year. The increasing real estate delinquency rate combined with stagnate L-shaped U.S. GDP growth into 2011 and high unemployment leads us to question whether or not some form of additional bailout stimulus is necessary.

With everyone (well, almost everyone - I am one of the lonely skeptics) convinced that we have stepped back from the "edge of the abyss", the title of this article may be viewed as laughable. When you connect the dots, as I will in this article, you will at least stop laughing, and, maybe, realize that we still have a big problem.

We have a confluence of five factors that have the potential to create damage to banking not seen in 80 years, and that includes the Great Depression. We'll hit these factors one at a time.

• CIT to get much smaller. CIT Group (CIT) reportedly turned down offers from Berkshire Hathaway (BRK.A) and Leucadia National Corp. (LUK) last spring to buy parts of the lender because the offer prices were too low. CIT is now being forced to evaluate a similarly structured breakup as it faces potential bankruptcy, with its aviation-finance and rail-finance operations units the most likely to be sold. CIT will likely keep its vendor-financing department, but could shed its vendor-financing business.
• White House wants to fold OTS. The White House submitted a proposal to Congress to fold the Office of Thrift Supervision into the larger Office of the Comptroller of the Currency, which oversees commercial banks, and to empower the SEC to administer the resolution of large financial firms that operate brokerages. The plan, which is part of a broader effort to create a process for unwinding systemically important institutions that are failing, would try to end the practice of escaping regulation by acquiring a thrift and organizing as a unitary thrift holding company. (Read the Treasury's fact sheet)
• Stock indices head up and away. Better-than-expected quarterly earnings reports have helped stock indices surge forward. The Dow Jones Industrial Average closed at 9,069.29, its first time above 9,000 since January, for a 38.5% gain in less than five months. The S&P 500 has erased half its losses since September, and the Nasdaq is on its longest streak of gains since 1992. Skeptics warn the sharp gains are just a set-up for a sharp pullback.
• Fed seeks consumer protection overhaul. The Federal Reserve submitted its own proposal to Congress yesterday, detailing sweeping new consumer protections for mortgages. Among the proposals were a ban on side payments to mortgage brokers for pushing clients to higher-cost loans and plans to overhaul the content and timing of disclosures to consumers. (Read the Fed's press release)
• SEC sues over fake takeover reports. SEC officials filed a civil lawsuit against Hazem Khalid Al-Braikan, a respected Kuwaiti financier, alleging he made millions in suspicious profits after 'fraudulent' takeover reports sent shares of U.S. companies Harman International (HAR) and Textron (TXT) soaring. The SEC said the case represents 'pretty brazen misconduct,' with Al-Braikan aggressively buying Harman stock and call options in the four days before the fake tender offer, followed by a liquidation of the entire position.
• Qualcomm fined for abusing market power. South Korea’s fair trade regulator is fining Qualcomm (QCOM) a record $208M, accusing the U.S. chipmaker of abusing its market dominance. Qualcomm promised to fight the ruling, which it called 'overly excessive and unwarranted.' South Korean regulators have been investigating Qualcomm since 2006.
• Beijing Auto's Opel bid fails. Xu Heyi, chairman of Beijing Automotive, said the company's bid for General Motors' Opel unit failed because of a disagreement over the intellectual property rights to care designs and technology. Analysts speculate that Beijing Automotive's growing success may have been a factor as well, as "GM has no interest in strengthening a rival in China."
• Tough times for Microsoft. Microsoft (MSFT) reported quarterly earnings after the market closed (see details below), with a $0.02/share miss that dampened hopes of a tech recovery. The company posted its first ever annual decline in sales of its Windows operating system, and saw weak sales across all of its units, but struck a bullish tone, noting "there is some sense we have hit bottom."
• Amazon fails to amaze. Amazon (AMZN) met expectations when it reported quarterly earnings yesterday (see details below), but took a profit hit on a legal settlement and weak sales in high-margin products like videogames. Sales of media, including books and music, were flat in North America. On a more positive note, Amazon's third-party marketplace continued to grow, contributing 30% of unit sales.
• U.K. economy shrinks. The U.K. economy shrank far more than expected in Q2, contracting 0.8% from the previous quarter and 5.6% annually, the largest decline since quarterly records began in 1955. This was the fifth consecutive quarter of GDP contraction in the U.K.
• Jobless claims rise. Initial jobless claims came in at 554K, up 30K from a week ago (revised) and better than the 560K consensus. Continuing claims fell 88K to 6.225M.
• Fewer mass layoffs. Mass layoffs (of at least 50 people) fell 6% in June to 2,763, resulting in 279K job losses, down from record highs in May. Over the year, mass layoffs increased by 1,046 and associated initial claims increased by 104K.
• Home sales increase. Existing home sales rose 3.6% in June to 4.89M/year, vs. consensus of 4.77M. Sales are 0.2% lower than a year ago. NAR chief economist Lawrence Yun said he expects the gradual uptrend to continue, but noted again that new appraisal standards are resulting in lost sales.

Earnings: Friday Before Open

• Arch Coal (ACI): Q2 EPS of -$0.11 misses by $0.05. Revenue of $555M (-29.4%) vs. $634M. Full-year guidance in line. Believes the trough of the current coal market cycle has been reached, and anticipates better industry supply and demand balance in H2. Shares -2.8% premarket. (PR)
• Ashland (ASH): FQ3 EPS of $1.01 beats by $0.09. Revenue of $2.04B (-7.5%) in-line. (PR)
• Black & Decker (BDK): Q2 EPS of $0.63 beats by $0.26. Revenue of $1.19B (-27.4%) in-line. Sees Q3 EPS of $0.35-0.45 vs. $0.52 consensus and full-year EPS of $1.65-2.00 vs. $1.60. (PR)
• Dover (DOV): Q2 EPS of $0.54 beats by $0.08. Revenue of $1.4B (-30%) in-line. "Though quarterly order rates stabilized across most of our businesses, we still do not anticipate a meaningful second half recovery." (PR)
• Ericsson (ERIC): Q2 EPS of 0.26 kroner misses by 0.58 kroner. Revenue of 52.1B kroner vs. consensus of 50.58B. Gross margin 36.3% vs. 37% a year ago. Notes continued growth in mobile subscriptions, although the growth rate has slowed. Shares -6.6% in Stockholm. (PR)
• Exelon (EXC): Q2 EPS of $1.03 beats by $0.06. Revenue of $4.17B (-11.1%) vs. $4.93B. Sees Q3 EPS of $0.90-1.00 vs. $1.05 consensus. Shares -0.5%. (PR)
• Fortune Brands (FO): Q2 EPS of $0.70 beats by $0.06. Revenue of $1.74B (-16.9%) in-line. Sees full-year EPS in line with consensus. (PR)
• Ingersoll-Rand (IR): Q2 EPS of $0.50 beats by $0.11. Revenue of $3.47B (+12.8%) in-line. Sees Q3 EPS of $0.55-0.70 vs. consensus of $0.52 and full-year EPS of $1.39-1.69 vs. $1.32. "Based on our recent order pattern and a review of customer and channel activity, we expect to continue to see reduced activity levels year over year for most of our major end markets for the second half of 2009." (PR)
• Pinnacle Entertainment (PNK): Q2 EPS of $0.08 beats by $0.05. Revenue of $266M (flat). (PR)
• Schlumberger (SLB): Q2 EPS of $0.68 beats by $0.05. Revenue of $5.53B (-18.1%) in-line. Says "the overall sequential rate of revenue decline slowed as a further precipitous drop in North America was offset by slowing rates of decline and some recovery in other parts of the world." (PR)
• Sepracor (SEPR): Q2 EPS of $0.72 beats by $0.33. Revenue of $326M (+10.9%) vs. $280M. Sees full-year EPS of $2.55-2.90 vs. $2.54. (PR)
• T. Rowe Price Group (TROW): Q2 EPS of $0.38 beats by $0.04. Revenue of $442M (-24.6%) vs. $424M. "The second half of 2009 will likely continue to be challenging for both consumers and companies around the world; nevertheless, investors should be encouraged about the prospects for a gradual return to longer-term financial stability and global growth." (PR)
• Wabtec (WAB): Q2 EPS of $0.64 beats by $0.02. Revenue of $334M (-14.4%) vs. $380M. (PR)

Earnings: Thursday After Close

• Amazon.com (AMZN): Q2 EPS of $0.32 in-line. Revenue of $4.65B (+14%) vs. $4.69B. Sees Q3 revenue of $4.75B-5.25B vs. $4.92B. Sees operating income of $120M-210M. (PR)
• American Express (AXP): Q2 EPS ex-items of $0.27 beats by $0.01. Revenue of $6.1B (-18%) vs. $6.3B. Q2 provisions for losses $1.6B vs. year-ago $1.8B. Tier one risk-based capital ratio 9.6% at Q2 end. (PR)
• Ameriprise Financial (AMP): Q2 EPS of $0.58 in-line. Revenue of $1.9B (-5%) vs. $1.8B. (PR)
• Baidu.com (BIDU): Q2 adjusted EPS of $1.71 beats by $0.27. Revenue of $161M (+37%) vs. $158M. (PR)
• Broadcom (BRCM): Q2 EPS of $0.03 misses by $0.21. Revenue of $1B (-13%) in-line. (PR)
• Burlington Northern Santa Fe (BNI): Q2 EPS of $1.18 beats by $0.17. Revenue of $3.3B (-26%) vs. $3.4B. (PR)
• Bucyrus International (BUCY): Q2 EPS of $1.08 beats by $0.25. Revenue of $724M (+17%) vs. $625M. (PR)
• CA Inc. (CA): Q1 EPS of $0.42 beats by $0.04. Revenue of $1.05B (-3%) vs. $1.03B. Sees FY10 EPS of $1.60-1.70 vs. $1.57. Sees FY10 revenue growth high end of 2-4%. (PR)
• Cabot Oil & Gas (COG): Q2 EPS of $0.38 beats by $0.04. Revenue of $205M (-18%) vs. $206M. (PR)
• Capital One (COF): Q2 EPS of -$0.65 beats by $0.08. Revenue of $4.1B (+1%) vs. $3.9B. (PR)
• Century Aluminum Company (CENX): Q2 EPS of -$0.32 beats by $0.50. Revenue of $189M (-65%) vs. $188M. (PR)
• Cheesecake Factory (CAKE): Q2 EPS of $0.32 beats by $0.06. Revenue of $408M (flat) vs. $403M. Q2 same-store sales down 3.2%. (PR)
• Chubb (CB): Q3 EPS of $1.49 beats by $0.18. Net written premiums of $2.8B (-7%) vs. $3B. Sees FY09 EPS of $5.20-5.50 vs. $5.15. (PR)
• Compuware (CPWR): Q1 EPS of $0.22 beats by $0.09. Revenue of $214M (-28%) vs. $218M. (PR)
• Con-Way (CNW): Q2 EPS of $0.64 beats by $0.51. Revenue of $1.1B (-21%) in-line. (PR)
• Developers Diversified Realty (DDR): Q2 FFO of $0.51 beats by $0.01. Revenue of $204M (-8%) vs. $202M. (PR)
• Eastman Chemical Company (EMN): Q2 adjusted EPS of $0.86 beats by $0.15. Revenue of $1.3B (-32%) vs. $1.4B. Sees Q3 EPS of $1.10 vs. $0.82. Sees FY09 EPS high end of $2.00-$3.00 vs. $2.48. (PR)
• Federated Investors (FII): Q2 EPS of $0.52 beats by $0.02. Revenue of $307M (-1%) vs. $314M. Total managed assets $402B. (PR)
• Immucor (BLUD): Q4 EPS of $0.29 beats by $0.20. Revenue of $79M (+15%) vs. $75M. Sees FY10 EPS of $1.10-1.17 vs. $1.11. Sees FY10 revenue of $332M vs. $297M. (PR)
• Informatica (INFA): Q2 EPS of $0.13 misses by $0.06. Revenue of $117M (+3%) vs. $118M. (PR)
• IPC Holdings (IPCR): Q2 EPS of $1.72 beats by $0.36. Revenue of $195M (+240%) vs. $120M. (PR)
• Juniper Networks (JNPR): Q2 EPS of $0.19 beats by $0.01. Revenue of $786M (-11%) vs. $767M. (PR)
• KLA-Tencor (KLAC): Q4 EPS of -$0.15 in-line. Revenue of $282M (-52%) vs. $298M. (PR)
• Leggett & Platt (LEG): Q2 EPS of $0.16 beats by $0.02. Revenue of $757M (-29%) vs. $781M. Sees FY09 adjusted EPS of $0.55-0.70 vs. $0.64. Sees FY09 revenue of $3B vs. $3.1B. (PR)
• MEMC Electronic Materials (WFR): Q2 EPS of $0.03 beats by $0.03. Revenue of $283M (-47%) vs. $231M. (PR)
• Microsoft (MSFT): Q4 EPS of $0.34 misses by $0.02. Revenue of $13.1B (-17%) vs. $14.4B. (PR)
• Netflix (NFLX): Q2 EPS of $0.58 beats by $0.08. Revenue of $409M (+21%) vs. $410M. Sees Q3 EPS of $0.39-0.47 vs. $0.45. Sees Q3 revenue $416M-422M vs. $418M. Raises FY09 EPS guidance to $1.65-1.82 (from $1.56-1.72) vs. $1.72. Raises FY09 revenue view to $1.65B-1.67B (from $1.63B-1.67B) vs. $1.66B. (PR)
• PMC - Sierra (PMCS): Q2 EPS of $0.13 beats by $0.03. Revenue of $123M (-12%) vs. $120M. (PR)
• Rambus (RMBS): Q2 EPS of -$0.23 misses by $0.02. Revenue of $27M (-24%) in-line. (PR)
• RF Micro Devices (RFMD): Q1 EPS of $0.07 beats by $0.07. Revenue of $213M (-12%) vs. $187M. (PR)
• Riverbed Technology (RVBD): Q2 EPS of $0.14 in-line. Revenue of $91M (+12%) vs. $94M. (PR)
• Starent Networks (STAR): Q2 EPS of $0.20 beats by $0.03. Revenue of $78M (+28%) vs. $76M. (PR)
• SunPower (SPWRA): Q2 EPS of $0.24 beats by $0.10. Revenue of $298M (-22%) vs. $263M. Sees FY09 EPS of $1.15-$1.60 vs. $0.96. Sees FY09 revenue $1.35B-1.7B vs. $1.32B. Sees FY09 CapEx $250M-300M. (PR)
• Synovus Financial (SNV): Q2 EPS of -$1.82 misses by $1.28. Pretax income of $145M. (PR)
• Taubman Centers (TCO): Q2 FFO of $0.65 beats by $0.04. Revenue of $159M (flat) vs. $148M. (PR)
• Washington Real Estate Investment Trust (WRE): Q2 FFO of $0.53 beats by $0.03. Revenue of $77M (+12%) vs. $78M. (PR)

Today's Markets

Overseas markets posted modest to strong gains Friday. Futures are moderately higher in overnight trading.

The S&P High Yield Dividend Aristocrats is part of the S&P Dividend Aristocrats index series. This constituents in this index have followed a policy of raising dividends each year for at least 25 consecutive years.

In addition, all the constituents are members of the S&P Composite 1500 Index. The stocks are equally weighted and are re-weighted quarterly.

CreditSights believes that the prospect of the breakup of big banks such as Citigroup (NYSE: C) is receding in the light of the Obama Administration’s proposed regulatory changes. However, Standard & Poor’s still sees this as a real possibility, according to CreditSights’ interpretation of an S&P conference call on its recent downgrading of many retail banks.

In contrast to our view that the Obama proposal reaffirms the position of large banks, S&P seemed more cautious and stated that it did not know how regulators would look at systemic risks. The agency seemed to believe that there could still be a real possibility for big bank break-up scenarios, whereas we feel that this risk is receding.

Standard & Poor’s ratings downgrades on U.S. retail banks reflect the continuation of a very difficult environment for US banks that could see further downgrades if conditions decline.

S&P believes:

Many of the ten big banks repaid their TARP preferred stock loans on Wednesday, June 17, 2009. This means that they can begin negotiations to repurchase the warrants that they issued to taxpayers. I estimate that the warrants issued by those banks are worth $4.2 billion. That is over one third of the value of the taxpayers' warrants. Yet, if history is any guide, we taxpayers could expect to get 50 cents or less on the dollar. My hope is that the U.S. Treasury will take a hard line in these negotiations and take steps to create markets in the TARP warrants. The best prices will come from taxpayers selling their warrants to third party investors.

One of the problems that plagues the valuation of the TARP warrants is the cancellation provisions. Apparently, to encourage banks to raise equity on their own, the purchase agreements for the TARP capital infusions say that half the taxpayers’ warrants will be cancelled if the bank issues equity in the amount of the U.S. Treasury's investment. Recent valuations by Credit Suisse and Bloomberg have assumed a zero chance of cancellation. These studies systematically overvalue the taxpayer's warrants for this reason. Moreover, they most overvalue the banks which are the most likely to cancel half the TARP warrants. Of the 10 big banks due to pay back TARP yesterday, Morgan Stanley (MS) and Goldman Sachs (GS) have such high share prices and have already issued so much equity that they have a 90 and 80 percent chance respectively of issuing enough equity to cancel half the taxpayer’s warrants by year end, according to my estimates. That means that both Bloomberg and Credit Suisse are overvaluing the taxpayers’ warrants in these companies by 45 to 40 percent, if you believe their estimates of volatility and dividend yield.

S&P continues to restore some semblance of credibility (at the zero sum expense of its Warren Buffett controlled peer), after it downgraded 22 banks earlier today, some of which rather viciously, and all for good cause. This is how the McGraw Hill (MHP) company justified its action today:

The actions reflect our belief that operating conditions for the industry will become less favorable than they were in the past, characterized by greater volatility in financial markets during credit cycles, and tighter regulatory supervision.

CreditSights reviews the prospects for consolidation in the US banking industry in a new report. ‘There is an obvious acquisition advantage goes for those banks which no longer have TARP funding,” CreditSights says.Top candidates to be acquirers include JPMorgan Chase (JPM), U.S. Bancorp (USB), and BB&T (BBT). “As well, we have included Morgan Stanley (MS) and Goldman Sachs (GS) as potential acquirers, although we feel the strategic case for the investment banks to enter branch banking is less compelling.”

CreditSights also includes four Canadian banks-Royal Bank of Canada, Toronto Dominion (TD), Bank of Montreal/Harris, and Bank of Nova Scotia- as potential buyers in the U.S.

Sentiment

Stocks struggled at the open, but found a floor in morning trading and bounced a bit higher by midday. The Dow Jones Industrial Average made a run towards 8,250 early and is up 50 points to 8,342 heading into the final 90 minutes of trading.

The CBOE Volatility Index (.VIX) is up .04 to 31.39 and off session lows of 30.57 ahead of data on home prices and consumer confidence due out Tuesday morning. The volatility index is up 18.1 percent since hitting a low of 26.57 Wednesday morning, a sign that risk perceptions are moving higher and the options market is beginning to "price in" the possibility of increased volatility in the weeks ahead. (VIX tracks the expected volatility priced in current S&P 500 Index options.)

• Small banks face huge losses. Small and midsize U.S. banks could suffer $100B in losses on commercial real-estate loans by the end 2010 if economic woes deepen, according to research by the Wall Street Journal. Total losses over the same period could hit $200B using the worst-case scenario employed by the government's stress tests of large banks. The Journal's analysis follows an article in yesterday's Financial Times, which found small and medium banks needed a more sanguine $24B to meet the capital standards set by the government. Synovus Financial (SNV) could face losses of $3.4B, the Journal says. For more on the methodology and results of the analysis, see WSJ's interactive graphic.
• Goldman, JPMorgan, Morgan Stanley want out of TARP. Sources say Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) have applied to repay a combined $45B in TARP loans, a move analysts say will not only remove them from the spotlight of regulators and taxpayers, but also demonstrate their relative health, helping them attract customers, staff, and capital. The government needs to sign off on the payback, and sources say Treasury chief Geithner will not do so before he's issued industry-wide compensation guidelines. The three were among nine banks that took TARP loans from then Treasury-head Henry Paulson under extreme pressure.
• BlackRock: Buyer, seller, adviser. Already chosen to help the government manage the portfolios once owned by Bear Stearns and AIG (AIG), and to analyze difficult-to-price assets of Freddie Mac (FRE), Morgan Stanley (MS) and others, BlackRock (BLK) has now been invited to a coveted "second-round interview" to become one of the few money managers to participate in the government's program (PPIP) to help private investors soak up toxic assets from U.S. banks using taxpayer money, sources say. Some worry being on both sides of the fence - setting the assets' prices and buying them - would be a massive conflict of interests.
• Giants duke it out over BGI. BlackRock (BLK) and Bank of New York Mellon (BK) are both in talks to buy Barclays' (BCS) asset-management unit, whose $1.5T in client assets makes it the industry's biggest. To the victor, title of the world's largest wealth manager, leaving rivals Pacific Investment Management and State Street (STT) to play catch up.
• Homebuilder confidence slowly on the rise. National Association of Home Builders' housing-market index rose for the second straight month, up two points to 16 after a five point jump in April. While the index remains at a very low level, the recent strength - amid falling prices and an $8,000 tax credit for first-time buyers - suggests a potential bottom for the U.S. housing market, analysts say. (see NAHB's release)
• Cautious shoppers pinch Home Depot's sales. Home Depot's (HD) Q1 earnings jumped 44%, exceeding Street expectations, but sales fell 9.7% and same-store sales were off 10% (see data below). Last year's Q1 was hurt by a larger charge related to the closing of its Expo home-design business. During the critical spring fix-up season, Home Depot said customers were focused on small purchases, with amount spent per transaction down a substantial 8.2%. "Our markets, and the consumer in general, remain under pressure," CEO Frank Blake said.
• U.S. to decree stricter fuel goals. President Obama will today announce the U.S.'s first attempt at official emissions limits for cars and trucks, as well as requiring a new mileage standard of 35.5 mpg. The move will cost consumers another $1,300 per vehicle by 2016, officials say. The plan would save 1.8B barrels of oil through 2016, and would be the environmental equivalent of taking 177M cars off the road.
• More, heavy layoffs at Amex. American Express (AXP) revealed its second phase of job cuts, eliminating 4,000 positions (6% of its workforce) with the goal of saving $175M this year. The cuts were deeper than expected by analysts. In October, Amex announced 7,000 layoffs. Combined with additional savings from cutbacks in marketing and business development, Amex says it hopes to save $800M this year.
• Derivatives market shrinks for first time on record. The derivatives market contracted for the first time ever in H2 2008, according to a report today from the Bank for International Settlements. The total notional amount of over-the-counter (OTC) derivatives contracts outstanding in H2 was $592T, down 13.4% from six months earlier. Credit market turmoil was largely responsible for a 26.9% contraction in outstanding credit-default swaps. However, movements of financial market prices in the second half of 2008 lifted the gross market value of all derivatives 66.5%, to $33.9T, which represents the cost of replacing all existing contracts, and may be a better measure of true market risk than notional value. (see BIS's press release and full report (.pdf))

Earnings: Tuesday Before Open

• Dick's Sporting Goods (DKS): Q1 EPS of $0.11 beats by $0.04. Revenue of $958M (+5.2%) vs. $913M. Q2 and full-year EPS guidance in-line. (PR)
• Home Depot (HD): Q1 EPS of $0.35 beats by $0.06. Revenue of $16.18B (-9.7%) vs. $15.86B. Affirms full-year guidance. (PR)
• JA Solar (JASO): Q1 EPS of -$0.18 vs. consensus of -$0.05. Revenue of $33.9M (-79.4%). Shares +5.25% premarket. (PR)
• Medtronic (MDT): FQ4 EPS of $0.82 in-line. Revenue of $3.83B (-0.8%) in-line. (PR)
• Saks (SKS): Q1 EPS of -$0.04 beats by $0.22. Revenue of $621M (-26.9%) in-line. Comps -27.6%. Reaffirms full-year outlook for sales, gross margin, and inventory, but says outlook remains foggy. Shares +8.8% premarket. (PR)
• Solarfun Power (SOLF): Q1 EPS of -$0.02 beats by $0.15. Revenue of $100.1M (-41.5%) in-line. "We continue to remain optimistic for the remainder of 2009 and beyond. With both module and raw material prices declining, we think volume growth is imminent. Incentives already in place, and new ones from the U.S. and China in particular, bode well for a resumption of healthy growth in the long term." Shares +3.5% premarket. (PR)
• Vodafone (VOD): Full-year Ebitda of £14.5B, in-line with consensus, up from £13.2B a year ago. Sales rose 16% to £41.02B. Vodafone added 7M new customers in Q4 to 303M. Shares -1.75% premarket. (Bloomberg)

Earnings: Monday After Close

• American Apparel (APP): Q1 EPS of -$0.13 misses by $0.08. Revenue of $114M vs. $117.5M. Issues downside guidance for FY '09: sees revenue of $550-575M, income from operations $40-50M. (PR)

Today's Markets

Overseas markets posted solid gains Tuesday, and the optimism has carried over into the futures. Treasurys are under pressure.

Q1 2009 Earnings Call

April 22, 2009 4:30 pm ET

The bank stock index, BKX, is down 75% since hitting 121.06 on 02/20/2007 and the volatility has ranged between 50-250% since the credit spreads blew up in summer of 2007. Bank stocks are behaving more like options with exceptional levels of volatility reflecting everyday market sentiment, making a difficult case for longer term investment. In the next 3-5 years, increased regulatory oversight could result in lower financial leverage, increased capital requirements and scrutiny of asset quality, and consequently lower sustainable earnings level.

The Fed's ZIRP will help some banks earn their way out of the down cycle and some other banks, such as WFC and PNC, could benefit from tax assets from acquisitions, however, any bullish bet on banks would mainly hinge on the bottoming of the credit/ housing markets and a resolution for bad assets on bank balance sheets. If the past is any predictor (the RTC resolution trust took more than five years to dispose $458.5b of assets and cost around $160b to resolve), removing toxic assets from bank balance sheets will be a torturous, long exercise.

Banks looking at a one-notch downgrades include: