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Spains Pains – US-FOREX.US

Forex-Publisher — Fri, 14 Aug 2009 23:50:32 +0000

Pity Spain. While stimulus packages offered by the German and French governments quickly helped lift those nations out of recession in the past quarter, Spain had no such luck, and shrank by a more-than-expected 1% quarter-on quarter, its National Statistics Institute said Friday.It also doesn’t look like the situation will pick up any time soon. “We are likely to see a few more quarters of negative growth into late next year,” said Dominic Bryant, an economist at BNP Paribas in London. “Spain will under-perform France, Germany and even Britain.” The International Monetary Fund predicts that Germany’s economy will contract by 6.2% this year, versus Spain’s 4%, but the Germans have been helped by a combination of various stimulus measures offered by Angela Merkel’s government, such as a car scrapping scheme, and short-term state subsidies of wages.
What France – which had been forecast to shrink 3% by the IMF – has going for it is a more diversified economy – its domestic demand isn’t as weak as Germany’s is so it’s less vulnerable. Spain’s trouble is that its companies and residents are going to have be weaned off the massive lending spree they’ve been living off which will make a recovery more protracted and more painful. Household debt levels have traditionally been in the region of 90% of gross domestic product, compared to a 55% to 60% average for the euro zone excluding Spain, according BNP Paribas estimates. While the credit crisis has forced the population to move from being net borrowers to net savers, its corporate sector is still grappling with its dependence on debt. “Banks that were willing to lend to these companies during the boom years are no longer willing to lend or when it comes to renewing loans don’t extend it, or give a smaller amount or a higher rate of interest,” says Bryant.Spain’s massive corporate sector troubles have forced many companies to lay off workers – in June, the unemployment rate rose to a staggering 17.9%, triggering the government to approve a special payment program whereby 340,000 jobless would be eligible for a monthly payment.At least, things don’t seem to be getting worse: in the first quarter of the year the economy shrank by 1.9%.
One upside for Spain: unlike countries such as Britain, Switzerland, Germany and France, which have had to spend billions on supporting banks such as Royal Bank of Scotland
and UBS
, the regulatory system that Spain has had in place for many years has meant that despite the huge increase in bad loans on both the corporate and consumer side, Banco Santander
and BBVA
- the country’s two largest banks – won’t need any state support. Under Spain’s nifty system they had to put extra money aside in the good times to prepare for dark days like these.

Time To Exit REITs – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 15:46:24 +0000

Last week was a big one for real estate investment trusts. Several REITs beat analyst expectations and that sent the sector soaring in a market that was already optimistic. The NAREIT Equity Total Return Index gained 16.5% as investors sighed with relief at an industry which a few months ago looked ripe for bankruptcies. Now REITs look ready to pounce on cheap properties. But analyst Michael Bilerman of Citigroup thinks investors should consider putting a ‘for sale’ sign on their REIT stocks.Few sectors have managed the sharp rebound that REITs have since the financial crisis last winter. REIT shares have nearly doubled since their lows in March, when the S&P 500 hit a 12-year nadir. Since July 10 the sector is up 40%. Why the bullishness? Real estate investment trusts own and manage offices, malls and apartment buildings and take on high levels of debt to compensate for the mediocre returns that real estate typically offers. When the property markets cratered on the heels of the subprime debacle, REITs found themselves mired in expensive mortgages that they couldn’t refinance and holding onto buildings that were plummeting in value.The threat of bankruptcy has receded some as REITs have raised money by selling stock and taking out loans. There are also signs the economy is starting to recover from the shock it experienced with the collapse of Lehman Brothers
last summer. Unemployment is slowing, although still high, home sales are off their winter lows and retail sales may be growing again.But Bilerman sees several reasons to take some profits now. The income that REIT properties are yielding now, called the “cap rate,” is only 7.7%, below the sector’s cost of capital. REIT shares are also trading at a multiple of 15 times their cash flow, which Bilerman considers high in light of the fact that real estate is still in the throes of crisis as companies shed debt. For investors, who often buy REITs for their fat dividends, yields are down to 4.3% which, Bilerman notes, is a half-percent above 10-year Treasury bonds when the historical average is more like 1%.Not all types of property are the same and not all companies are run in the same way. Bilerman sees opportunity as well as danger. As foreclosures skyrocketed last year, many experts predicted self-storage companies would do well, what with millions of Americans needing to move back into rental apartments. Now, however, these firms are just another discretionary expense the strapped consumer can do without, writes Bilerman. Hotels have rallied on the improving economy but could still suffer on lower business travel.Instead, Bilerman likes retail and office properties. He recommends Simon Property Group
, Boston Properties
and Essex Property Trust
, among others. Investors should steer clear of Equity Residential
, ProLogis
and Sovran Self Storage
.

Builders Bottom – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 14:46:13 +0000

This week hasn’t been kind to the nation’s publicly traded home builders, a group that built its collective tract home at ground zero of the subprime mortgage detonation. On Monday, Pulte Homes had the unpleasant task of reporting an even worse quarterly loss than last year. Then, on Tuesday morning, D.R. Horton surprised investors with a loss twice as bad as Wall Street analysts had predicted. If everything goes according to Wall Street’s plan, Beazer Homes will post a sickening per-share loss of 1.53 on Thursday. Hey, that’s better than the 2.85 loss it reported this time last year.Then again, home building stocks have roughly doubled the return of the S&P 500 this year as home sales have picked up and the worst fears about the economy went unrealized . Since Jan. 1 the SPDR S&P Homebuilders ETF, an exchange-traded fund tracking home builder stocks, is up 25% to the S&P’s 11% gain. Even over the last trading week, with companies reporting terrific losses, the ETF is up 7.3% to the S&P’s 2.8% rise. What’s going on? For one thing, economic data is favoring the home builders. Tuesday’s report on pending home sales showed a big jump in activity. Sales were up 3.6% in June when economists were looking for a modest bump of 0.7%. Job losses appear to be slowing, consumer spending is up, if only slightly, and manufacturing and other industrial data have provided encouragement. All that could mean the economy is turning a corner and with it might come the real estate markets.But long-term worries persist and analyst David Goldberg of Swiss investment bank UBS
says investors should pay attention to details. Builders that hold lots of empty land will continue to struggle, he wrote earlier this week. On the other hand, he’s optimistic about firms that dumped their land holdings and have lower debt loads. Overall, he thinks the sector is overvalued after its run-up in recent months.One major problem dogging home builders is debt. Beazer, for example, has run up a tab equal to roughly 70% of the company’s capital. Other firms, like Hovnanian Enterprises
, also sport high levels of borrowing that will cause them to struggle in a recession. Goldberg also thinks that while demand may be rebounding thanks to swiftly falling prices and government incentives, banks are foreclosing on so many homes that the market could be swamped with supply.
For Beazer, Goldberg’s prediction is more dire than his Wall Street colleagues. He thinks the company lost 1.80 a share and predicts Beazer will lag its rivals because of its high debt load. He has a “neutral” rating on the stock. He recommends shares of Toll Brothers
and The Ryland Group
.

Which Airlines Are Solvent – US-FOREX.US

Forex-Publisher — Mon, 20 Jul 2009 22:46:08 +0000

A list of the airline industry’s woes already looked long. They’ve struggled with volatile fuel prices, too many seats for too few passengers and a global recession that has led to a drop in business and leisure travel. Here comes another one: billions in bonds and bank loans are coming due over the next year. The timing couldn’t be worse. When Continental Airlines
, Delta Air Lines
, Southwest Airlines
and UAL Corp.
’s United Airlines report quarterly earnings in the next two days, many will look to see if the airlines beat analysts’ expectations or for new proposals to boost revenues or cut costs. But a more telling measure of their health could be the unrestricted cash on their balance sheets. Money-losing quarters burn cash. Without enough to pay debts, an airline could soon wind up like the CIT Group
, asking its creditors for help and fighting to survive.Southwest Airlines is the exception. It’s the only airline that’s expected to turn a profit. With 163 million in debt and an investment-grade rating, Southwest is also the least likely to drown in its debt. The other three shoulder hefty debt loads and speculative-grade credit ratings, also known as junk. Philip Baggaley, who tracks the transportation industry at the rating agency Standard & Poor’s, will be looking to see if airlines have enough cash to carry them through the year. Cash is usually in abundance in the second quarter, a period when people have paid for their summer vacations but have yet to take them. The industry’s worry is that, after they slashed supply to boost prices, a lack of demand means fewer passengers are paying less .
Of the airlines reporting earnings this week, debt burdens weigh heaviest on United and Delta, Baggaley said. United held 2.5 billion in unrestricted cash at the end of the first quarter and faced 977 million in debt maturing over the following 12 months.
“United’s main challenge is raising enough cash that they’ll be able to make it through the winter,” Baggaley said.
Delta’s merger with Northwest Airlines
last year made it the world’s largest carrier, which partially explains its 1.8 billion in debt coming due over 12 months. That’s 7.5% of trailing revenues, the largest share of any major airlines by S&P’s count. About half of the maturing debt comes from Northwest’s credit facilities. But Delta has a relatively strong cash pile: 5 billion at the end of March. Continental has 578 million maturing over 12 months – a comparatively light 3.9% of trailing revenues. Analysts polled by Thomson Reuters have forecasted a bleak day for airlines announcing quarterly earnings Tuesday and Wednesday:*The consensus is that Delta will report a loss of 27 cents a share. Delta lost an unadjusted 2.64 per share in the second quarter last year.*Continental Airlines is expected to lose 1.36 per share. The airline lost 3 cents a share last year.*The forecast for United Airlines: a loss of 2.56 per share, compared with an unadjusted loss of 21.47 per share a year ago.*Southwest is expected to eke out a profit of 7 cents a share, down from 44 cents a share last year.

Fiats Issue Is Debt Not Profit – US-FOREX.US

Forex-Publisher — Mon, 20 Jul 2009 17:46:11 +0000

There is a chance that Italian carmaker Fiat will surprise the market with a return to profitability on Wednesday. However, the market will be more concerned about the firm’s progress in lightening its cumbersome debt load.
Fiat
could post a net profit of between 31 million euros to 40 million euros according to some analysts who spoke to Forbes, despite a market consensus of a net loss of around 110 million euros . However, the firm’s debt load will be the real market mover. “For Fiat the issue is debt and is key to understanding the company’s behavior,” said Gabriele Gambarova, an analyst with Banca Akros in Milan. “If the debt reduction meets consensus expectations, then shares will fall. But if debt reduction is better than consensus, the stock may recover more than expected.” Debt rose to 6.6 billion euros at the end of March from 5.9 billion euros at the end of 2008, but consensus estimates suggest Fiat may be able to bring that debt down by around 650 million euros to 6.0 billion euros . Gambarova believes debt could even fall by 1.1 billion euros , to 5.5 billion euros .Fiat shares have gained 2 euros in the past 10 days and were down 0.5%, to 7.69 euros in Monday afternoon trading in Milan.”The rally is already happening but expect to see some positive reaction on Wednesday,” said MedioBanca analyst Massimo Vechio, who expects the company to post a 40 million euro net profit for the quarter.
Opinion is divided on Fiat’s performance in the second quarter, even though the firm has benefitted from scrapping scheme incentives in place in Italy. This is partly because of differing assumptions on tax charges. Centrosim analyst Carlo Drago expects Fiat to post a net loss of 89 million euros . So-called “cash for clunkers” programs have been introduced across Europe, slowing losses within the auto sector in France while boosting sales in Germany. .Citigroup is positive on Fiat, predicting the carmaker will “lighten the gloom” in the industry, while broker Cheuvreux expects the Italian carmaker to be the only mass-market company to post a profit in the first half of 2009. JP Morgan, however, told investors to expect negative surprises from Fiat: “We think investors will increasingly focus on 2010, when the post-[scrapping] hangover is likely to result in a volume decline in Western Europe.” UBS also said there were fresh debt concerns affecting the company’s bonds.Analysts will be also expecting fresh details from the car maker’s ouspoken Chief Executive Sergio Marchionne about Chrysler, after Fiat acquired a controlling stake last June.

All Eyes On Fiats Debt – US-FOREX.US

Forex-Publisher — Mon, 20 Jul 2009 12:46:10 +0000

Could Italian carmaker Fiat surprise the market with a return to profitability when it posts its second quarter results on Wednesday? It may well do, but the market will be more concerned about the firm’s progress in lightening its cumbersome debt load.
Fiat
could post a net profit of between 31 million euros to 40 million euros according to some analysts who spoke to Forbes, despite a market consensus of a net loss of around 110 million euros . However, the firm’s debt load will be the real market mover.
“For Fiat the issue is debt and is key to understanding the company’s behavior,” said Gabriele Gambarova, an analyst with Banca Akros in Milan. “If the debt reduction meets consensus expectations, then shares will fall. But if debt reduction is better than consensus, the stock may recover more than expected.”
Debt rose to 6.6 billion euros at the end of March from 5.9 billion euros at the end of 2008, but consensus estimates suggest Fiat may be able to bring that debt down by around 650 million euros to 6.0 billion euros . Gambarova believes debt could even fall by 1.1 billion euros , to 5.5 billion euros . Fiat shares have gained 2 euros in the past 10 days and were up 0.9%, to 7.80 euros in Monday morning trading.
“The rally is already happening but expect to see some positive reaction on Wednesday,” said MedioBanca analyst Massimo Vechio, who expects the company to post a 40 million euro net profit for the quarter.Opinion is divided on Fiat’s performance in the second quarter, even though the firm has benefitted from scrapping scheme incentives in place in Italy. This is partly because of differing assumptions on tax charges. Centrosim analyst Carlo Drago expects Fiat to post a net loss of 89 million euros .
Citigroup is more positive on Fiat, predicting carmaker will “lighten the gloom” in the industry, while JP Morgan told investors to expect negative surprises from Fiat: “We think investors will increasingly focus on 2010, when the post-[scrapping] hangover is likely to result in a volume decline in Western Europe.”

California Wont Default – US-FOREX.US

Forex-Publisher — Thu, 16 Jul 2009 18:46:11 +0000

California’s ongoing struggle to close its budget gap may cause headaches for those collecting IOUs from the state. But investors holding California’s 59 billion in general obligation bonds shouldn’t worry, say some municipal market participants. The state may stiff everybody else, but it’s unlikely to bilk bondholders. Issuing IOUs may seem like a warning of worse to come, and even if California closes its 26 billion gap soon, declining revenues mean another shortfall is likely to hit later in the year. Bondholders may be safe for now, but what about then? The federal government, apparently willing to let the CIT Group
fail, may be less likely to support California than many think .The state’s financial mess has some predicting a default. One of the more prominent voices in this crowd, Martin Weiss, president of Weiss Research, correctly warned of troubles at Bear Stearns, Lehman Brothers
and Citigroup
. Weiss sees spending cuts to balance California’s budget leading to declining tax receipts in the near future, a series of downgrades from rating agencies, a refusal from the Obama Administration to bail out the state and then a default. If California can use IOUs to pay other creditors, Weiss says, it can pull the same trick with bond payments.But there’s another way of looking at the IOUs: Handing them out should reassure bondholders. It conserves cash to make interest payments at the expense of nearly everyone else, says Robin Prunty, a director of Standard & Poor’s public finance group. It would be a different story if the state paid interest on its bonds with IOUs, she said. The state’s constitution, after all, puts education first in line for claims on revenue and bonds second. All other spending ranks lower . California’s debt expenses look relatively low, argue Mustafa Chowdhury and Marcus Huie, fixed income analysts at Deutsche Bank
. In a recent research note, they counted 5.1 billion in interest and principal payments for the fiscal year, against expected revenues of 89 billion-a figure likely to shrink. The two analysts also believe the Obama Administration would come to California’s rescue to avoid a default. Municipalities rely on constant access to credit markets, and letting the largest issuer of municipal debt default would be disastrous for cities and states and raise their financing costs. Philip Condon, a well-known player in municipal markets and head of municipal bond portfolios at Deutsche Bank’s asset-management unit, is sure California won’t default on its bonds. He can, however, imagine a scenario in which the state misses a payment on its revenue anticipation notes, short-term securities held by money market funds that lack the legal claim of bonds. It would be like a cry for help. “Not paying notes would certainly get the federal government’s attention,” he says. “But I don’t think it’s going to happen.”

Deutsche Bank Set For Success – US-FOREX.US

Forex-Publisher — Thu, 16 Jul 2009 18:46:08 +0000

Goldman Sachs and JPMorgan, riding the tailwind of government support and record-low interest rates, reported solid quarters. Germany’s Deutsche Bank, which benefited from the U.S. bailout efforts by taking government money through AIG, is also looking at a strong quarter.The figures suggest that “Deutsche Bank will report the strongest second-quarter results,” wrote Nomura European banking analyst Jon Peace in a note to clients, after JPMorgan reported a second-quarter profit of 28 cents a share-seven times the consensus call-and Goldman’s net rose 30%. Peace’s logic is that while both American banks showed strong growth in their fixed-income business, Goldman Sachs’ equities performance was better than JPMorgan’s. So big fixed-income players will benefit the most, putting Deutsche in the lead in Europe. Though the bank has been making more of a move into equities, it’s still outstripped by its fixed-income business. In the first quarter, while equities sales and trading revenues totaled 275 million euros , revenues were 13 times higher from sales and trading of debt products, or 3.8 billion euros .”What we have heard from JPMorgan and Goldman Sachs
suggest fixed income performed very well in the second quarter, even after performing well in the first,” said Konrad Becker of Merck Finck in Munich, who has a “buy” rating on Deutsche.
On Thursday, JPMorgan
reported that
fixed-income trading revenues grew 1% from the first quarter while equity trading revenues fell 60%.
The strong performance of debt products mirrors last quarter’s performance across the banking sector as a bonanza of government and corporate bond issuance helped banks offset credit-market-related writedowns. It’s still likely going to be the biggest contributor to investment banking earning.
Deutsche Bank
shares dipped 0.9%, to 47.98 euros , on Thursday at the end of trading in Frankfurt.

Gannetts Reckoning – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 22:46:21 +0000

Weak, weak, weak, that’s the outlook for media and advertising company Gannett, says JPMorgan Chase analyst Alexia Quadrani. She has a neutral rating on the stock as Gannett report earnings Wednesday.Though noting that Gannett Co.
is “one of the cheapest stocks in our universe,” Quadrani writes, “we see no positive near-term catalysts for GCI stock.” Quadrani also notes that Gannett has debt coming due and an underfunded pension plan and that it doesn’t look as if the global advertising markets that Gannett relies upon have even bottomed yet.Gannett’s golden digital property is CareerBuilder, a job search engine that loses some of its utility when companies are firing rather than hiring in most industries. As unemployment is expected to continue to climb well into next year and perhaps into 2011, Gannett can’t count on its Internet division to help it pull through.Gannett recently closed down some media properties such as the Detroit Free Press and forced employees to take unpaid furloughs, but, notes Quadrani, “ad revenues are still declining at a rapid pace, resulting in continued pressure on margins.”Quadrani notes that Gannett is the first newspaper company to report earnings. But most of Gannett’s peers have quite different businesses. The New York Times Co.
owns more prestigious papers including The New York Times and The Boston Globe, while News Corporation
has The Wall Street Journal but is also more of a cable and entertainment company than it is a newspaper conglomerate.With the outlook for Gannett’s stock bleak, attention will turn to the company’s debts. Its current liabilities are 1.5 billion against assets of 1.6 billion. Total debt, including long-term debt, is 4.3 billion.

Buy Goldman Sell The Economy – US-FOREX.US

Forex-Publisher — Mon, 13 Jul 2009 18:46:12 +0000

Meredith Whitney thinks you should buy Goldman Sachs, but not because the economy’s improving or things are going well in the financial market. On the contrary, she expects a tidal wave of public debt to fill massive government budget gaps, and the way she sees it, someone has to be the market’s facilitator.”This is not an equity revival story,” Whitney quipped, upgrading of Goldman Sachs
to “Buy” with a 12-month price target of 186. Nonetheless, her call pushed the bank-holding company’s shares up 5.0%, or 7.10, to 148.97, in midday trading. In her report, the closely followed analyst stressed the unique nature of her recommendation. Instead of being a good stock to play the equity market, her thesis depends on the firm acting as an agency, principal and product specialist. In other words, Whitney’s bullish argument for Goldman is based on her fundamentally bearish take on the U.S. economy, and the state of the U.S. financials. “Specifically,” said the head of the Meredith Whitney Advisory Group, “we expect a tsunami of debt issuance from federal, state and local governments ramping up debt issuance to fund woefully underfunded budget gaps.”She expects most of what Goldman will earn will be tied to those factors. She added that she anticipates corporate debt issuance to be at least 60% as strong as peak cycle levels, reflecting sizable debt maturity rolls. “Given fewer players in the market, not only is Goldman benefiting from market share gains on these products, but more widely in the derivatives products.” Her report comes a day before Goldman is due to release its second quarter results.Goldman, which received Uncle Sam’s permission to repay its bailout funds, has consistently been singled out by analysts as the strongest financial firm in the wake of the crisis. In a report published by Whitney earlier this year, Goldman was the bright spot among otherwise weak prospects. Since the beginning of the year, Goldman’s stock has increased 73.5%, while Morgan Stanley
‘s has grown 68.0%. The other big financial firms have had a more difficult time, as JPMorgan Chase
has only risen 5.3%, while Bank of America
, Wells Fargo
and Citigroup
have all fallen 11.7%, 19.4% and 60.2%, respectively. The broader financial sector, as measured by the Financial Select Sector SPDR
exchange-traded fund, has slipped 5.8%.
Meanwhile, Goldman performed well in the rankings known as league tables, according to Dealogic, leading merger advisory underwriting in the first half of the year, and was second to JPMorgan in equity underwriting. Goldman only ranked fifth in bond underwriting, though it is the least profitable among the three.