Futures were weak this morning as the rhetoric from China’s Premier Wen Jiabao this past weekend certainly seemed to open up the door for an escalation in the trade war between the U.S. and China (relations have been rather frigid since the arms sale to Taiwan). This is the last thing the U.S. needs, stressed relations with a country growing its GDP at a 10% plus quarterly clip. Though this rate of economic expansion is being fueled by cheap exports predominantly, reflecting an alleged undervalued currency, not maintaining good relations would be detrimental for U.S. business. Why you ask? Well, many U.S. companies have made it a central plank in their expansion plans to aggressively tap China. From my neck of the woods, retail companies like Polo Ralph Lauren (RL), Coach (COH), and Tiffany & Co. (TIF) are using their huge cash piles to position themselves in China. Given a potentially new normal rate of domestic growth, it’s vital for retailers and other U.S. companies to capitalize on the trends in China, such as the infrastructure build out and increased domestic consumption. Wen Jiabao also indicated that a trade war between the two nations would only produce "two losers."
Nonetheless, it appears by data out after the opening bell that China is not only talking the talk, but walking the walk. The country remained a net seller of Treasuries in January, with its holdings falling $5.8 billion to $899.0 billion. This followed net sales of over $34.0 billion in December. China is sending the U.S. a strong message in reducing its purchases of U.S. debt; shore up your fiscal position and leave us alone regarding our currency or we will not finance your country. If China were to continue to be net sellers of treasuries, it would have negative implications for mortgage rates and by extension, the U.S. economy. Talk about a power struggle.
By Marshall Auerback
Why the rating agency needs a lesson in basic accounting — and how its REAL message is anti-private savings.
Chad Brand submits:
In recent weeks I have been accumulating shares of Goldman Sachs (GS) for my clients, more so now than any other time since I began managing money. In a market environment where. over the course of a single year most stocks have gone from severely undervalued to fairly valued, it remains pretty easy to make the case that Goldman stock is undervalued, despite a $20 increase just recently.
Why is the stock still cheap? No doubt due to the negative press coming from both political and consumer circles. Somehow Goldman Sachs is being made out to be a bigger problem for our financial services economy than sub-prime mortgage lenders and insurance companies that chose to insure everything on the planet without ever setting aside any money to pay future claims. Goldman Sachs never gave out mortgages like candy on Halloween and, although they did benefit from the AIG (AIG) bailout (their claims were paid out 100 cents on the dollar after the government bailout), people should be mad at AIG and the government long before blaming Goldman Sachs for owning insurance policies.
David Merkel submits:
One thing I found interesting at the conference was what did not get much play in terms of what helped to create the crisis. It was fascinating that no one talked about why the US bailed out holding companies, rather than letting them fail and merely backing up the operating subsidiaries. This is significant. The moment you put money into a holding company it goes everywhere. Regulators should only care about operating subsidiaries and let the holding companies fail; let the costs be borne by the stockholders and bondholders of the failed company, but protect the regulated entities.
Also, few fingered the Fed’s monetary policy, where Greenspan and Bernanke created a culture of lenders who knew that the Fed would ride to their rescue when things got modestly tough. Unlike William McChesney Martin, who joked that the Fed’s job is, “to take away the punch bowl just as the party gets going,” Greenspan and Bernanke were slow to remove the punch bowl, and quick to bring it back, creating lenders who would rely on the Fed to allow them to take too much risk.
Zachary Scheidt submits:
AYR)” hspace=”6″ vspace=”6″ width=”200″ height=”56″ />When Aircastle Ltd. (AYR) reported earnings earlier in the month, the headline numbers didn’t look all that impressive. The company reported revenue of $135.8 million which was $22 million below the fourth quarter of 2008, and earnings per share came in at $0.29 (adjusted 0.27) which is significantly below the level of earnings from the same period last year. However, the details regarding the company’s overall business environment were actually quite encouraging.
Aircastle is an aircraft leasing company which purchases passenger or freight planes and then leases them under long-term contracts to airlines and freight companies. AYR has taken a very diversified international approach with its fleet of 129 aircraft spread out between 60 different customers in 30 different countries. The focus appears to be passenger planes with only 29% of the vehicles being used for freight. Looking at the length of contracts, the weight average remaining lease term is 4.9 years. This gives investors a fairly stable picture of base revenues for upcoming quarters.
One of the many indicators that we track is that of the Los Angeles and Long Beach port data. Combined, these two ports handle almost 50% of the shipping traffic for the United States, so they are obviously useful in order to follow global trade. As you can see in the chart, port data is very seasonal. You can see that total trade (the green line) typically peaks in October and typically bottoms in February. Sometimes this cycle is off by a month in either direction, but for the most part it’s very consistent.
LA and Long Beach Port Data
Yum! Brands, Inc. (YUM), the operator of Taco Bell, Pizza Hut, and KFC fast food chains, is actively managing its capital and returning much of its free cash to shareholders via share repurchases and dividends.
The company’s Board recently authorized an additional share repurchase program of $300 million to be completed in a year, following the authorization of a same-size program in September 2009.
Pacific Sunwear of California Inc. (PSUN) posted fiscal 2009 fourth quarter results after the closing bell on Thursday. The company recorded a wider GAAP net loss of $36.5 million, or 56 cents per share, compared to a loss of $27.0 million, or 42 cents per share in the prior year quarter. Excluding special items, adjusted loss per share came in at 26 cents, ahead of the Zacks Consensus Estimate of a 29-cents loss.
However, Pacific Sunwear offered a disappointing fiscal 2010 first-quarter guidance and expects to post an adjusted net loss of 32 cents to 38 cents per share during the first quarter of fiscal 2010 assuming a 13% to 18% decline in same-store sales. The guidance is well behind the Zacks Consensus Estimate of a loss of 15 cents per share, which worsened by a penny over the past month. Shares of Pacific Sunwear plunged 89 cents or more than 15% to $4.86 on Friday on the Nasdaq.
"Are markets simply casinos for betting?" Asli recently asked this question on the All About Finance blog. She argues that financial markets do a lot more than that, and I agree. But there are some markets that come very close to being casinos. Surprisingly, in the wake of the financial crisis, the U.S. Commodity Futures Trading Commision has given permission for one such market—a futures exchange based on the box office revenues of Hollywood movies. Basically, anyone will be able to bet on whether a movie will be a flop or become a runaway success. The NYT has the details.
Many were quick to ridicule the idea. Mother Jones screeched that Subprime Goes Hollywood, and compares a futures exchange for Hollywood films to subprime mortgage-backed securities. A blogger on the Davian Letter also astutely points out that (1) Hollywood insiders have a massive informational advantage over the guy on the street (making it a bad idea for most people to bet), and (2) these contracts create the potential for moral hazard by studios that realize they could do better off by causing a movie to tank (although the NYT’s article gives vague reassurances that this will be limited because the size of positions will be too small to create that kind of incentive).
CineMark (CNK) is a movie theater operator with 424 theaters and nearly 5,000 screens in the US and Latin America, which makes it the world’s second-largest motion picture exhibitor (Regal Entertainment (RGC) is #1).
Revenue growth has been steady, advancing even during the Great Recession. CNK has been outperforming the broad market since the stock’s correction ended in August 2009. The steady price appreciation, together with the generous dividend and good outlook for theatrical movie distribution makes CineMark a good choice for the aggressive growth portion of your stock portfolio.