David's Feed
Aug 13, 2014
via Counterparties

MORNING BID – Retail therapy

All that’s left for investors now when it comes to earnings season is the shouting, but if the rest of the retailers post results anything like Kate Spade did on Tuesday, the shouts will be screams of terror rather than anything that assuages investors over the state of the overall economy. Kate Spade’s executives went into some detail on its conference call as to the nature of its margins shortfall – which Belus Capital chief equity strategist and longtime retail analyst Brian Sozzi said are not likely to improve until the middle of 2015 – and the company then did itself no favors by declaring that it wouldn’t be discussing the margin issues any further on the call. (Craig Leavitt, the CEO, violated that rule to some degree, but basically, investors don’t like it when you tell them flat-out that you’re not going to talk about your problems, and when you’re a company with a forward price-to-earnings ratio of 77.5 and a price-to-book value of 119, that’s going to be particularly true.)

Other luxury retailers have noted their own problems with attracting customers at this time, including Michael Kors Holdings, which saw its own shares stumble of late after also warning of margin pressures due to expansion in Europe, but at least Kors has a forward P/E ratio around 19, which puts it in line with peers like Coach and Ralph Lauren.

Aug 12, 2014
via Counterparties

MORNING BID – Margins, China and whatever else

We’re deep into a period where the earnings calendar has basically dried up and the news flow overall is pretty slim, so the market will hang whatever gains it can on thin reeds – deals involving master-limited partnerships here, results from the likes of Sysco (the food services company there), and maybe Priceline.com in the mix too. The broader economic signals remain the more important ones for markets right now, and while they’re not uniformly outstanding, there are some hopeful signs for those finally looking for an acceleration in activity.

The earnings situation has been better than anticipated – Goldman Sachs notes that margins broke out of an 8.4-to-8.9 percent rate in the second quarter, ticking up to 9.1 percent, and the firm’s corporate “Beige Book” – a compendium of company comments – shows that the concerns the C suite has looks more like the concerns of those seeing accelerating demand and rising prices, and not slack demand and weak pricing power. They cited a strengthening corporate outlook, margin forecasts coming under pressure as a result of inflation expectations, and a combined focus on spending money on both buybacks and capital investment. Furthermore, companies have been less negative than in the recent past when it comes to revisions, and guidance for the fourth quarter of this year and first quarter 2015 was revised higher.

Aug 8, 2014
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MORNING BID – ‘You don’t wanna go long into the weekend’

Get ready for one of those days where people say a lot about not wanting to be “long going into the weekend.” Except perhaps in bond markets, where the rush to government debt intensified with President Obama’s remarks that the US is ready to provide air support through airstrikes against ISIS, which now controls a big swath of Syria and Northern Iraq. That’s forced a big move into U.S. and German yields, among other things, which is undermining some of the recent strength in the dollar as well. (That’s not to say it’s a strong-euro move, more of a weak-dollar move, given the declines in the dollar against the yen as well.)

What’s striking here about the rallies in U.S. debt and German debt is that even though there’s a substantial safe-haven bid behind both markets, the difference is the German 2/10 spread has narrowed from about 1.73 percentage points to 1.04 percentage points since the beginning of the year thanks to a big move in the 10-year, a bull “flattening” trade that reflects ongoing concerns about economic growth in Germany, and more broadly, in Europe.

Aug 7, 2014

Analysis – It may be too early to give up on the bull market in equities

NEW YORK/LONDON (Reuters) – Investors fretting about the possibility of a big reversal in global stock markets may just want to borrow a slogan from the British – and just keep calm and carry on.

It won’t be easy given the background noise. Fears of a Russian invasion of Ukraine on top of deepening chaos in the Middle East, and the bailout of a Portuguese bank, are all fuelling the pessimism. Add in expectations the U.S. Federal Reserve will raise interest rates next year for the first time since 2006, and concerns that the U.S. stock market has gone too long without a correction, and it isn’t surprising to see the glass half-empty crowd emerging from a long hibernation.

Aug 7, 2014

It may be too early to give up on the bull market in equities

NEW YORK/LONDON (Reuters) – Investors fretting about the possibility of a big reversal in global stock markets may just want to borrow a slogan from the British – and just keep calm and carry on.

It won’t be easy given the background noise. Fears of a Russian invasion of Ukraine on top of deepening chaos in the Middle East, and the bailout of a Portuguese bank, are all fueling the pessimism. Add in expectations the U.S. Federal Reserve will raise interest rates next year for the first time since 2006, and concerns that the U.S. stock market has gone too long without a correction, and it isn’t surprising to see the glass half-empty crowd emerging from a long hibernation.

Aug 6, 2014
via Counterparties

Murders and Acquisitions

People tend to like to see a couple of occurrences and call them “canaries in the coal mine,” a signal of something ominous to come.

Twenty-First Century Fox’s decision to cancel its bid for Time Warner, which was quickly followed by Sprint backing away from buying T-Mobile, certainly could count as one of those things, given the way in which mergers and acquisition signal confidence about an industry, about company earnings, about the economy.

Aug 6, 2014

Investors betting on takeover of Time Warner face ugly reckoning

By David Gaffen

(Reuters) – Many options traders who had taken bets on a successful buyout of Time Warner Inc (TWX.N: Quote, Profile, Research, Stock Buzz) by Rupert Murdoch’s Twenty-First Century Fox Inc (FOXA.O: Quote, Profile, Research, Stock Buzz) are facing a grim lesson in the risks of betting on deals.

Murdoch pulled the $80 billion offer after the close of trading on Tuesday, saying Time Warner management had refused to engage in discussions. He also cited the sharp drop in Fox’s share price since the proposal last month, saying it “makes the transaction unattractive to Fox shareholders.”

Aug 5, 2014
via Counterparties

MORNING BID – Once Upon a Dream

Disney is expected to report third-quarter results after market close and is likely to beat average analyst estimates, according to StarMine. The media company’s results could get a boost from “Maleficent”, its revisionist take on “Sleeping Beauty” featuring Angelina Jolie, but the company’s prowess doesn’t end there, not with “Captain America: Winter Soldier” also a box-office champ in 2014 – which was also released during its most recent reporting period.

The studio budget for Maleficent was said to be somewhere around $180 million, so it’s not as if this was a cheap one, but consider that it posted worldwide grosses of $727 million, ranking it third for 2014, with the fourth-place film being Captain America (which cost $170 million), and also came through through Disney’s Buena Vista studios, per BoxOfficeMojo data.

Aug 4, 2014
via Counterparties

MORNING BID – Recipe for a correction

The ingredients have been in place for some time for a correction – it’s only taken some kind of spark to ignite them, and yes, it’s a bit early for such mixed metaphors. The market has dipped 3.2 percent from its highs, and while that’s not all that much, it’s enough, as Dan Greenhaus of BTIG puts it in late Sunday commentary, to generally result in a bit of dip-buying. That said, the softness of late in auto sales and some really ugly housing data does point to the possibility that the economy’s direction is just squishy enough to warrant a bit more of a pullback, and Greenhaus, one of the Street’s more reliable bulls right now, says even his firm doesn’t “have high conviction right now” as far as a rally.

With the Russell 2000 having given up a more significant portion of its gains — this small-cap index was a super underperformer throughout July and hasn’t really distinguished itself for all of 2014 — and the earnings season for the most part starting to wind down (particularly for bigger names) there doesn’t end up being a lot of real good reasons to take the market higher right now. Sure, investors on some levels may start to put money to work, but given the thin volumes the appetite for additional risk is probably going to be muted. The one exception may be from foreigners, who will probably keep pushing money to the U.S. market, in part because of favorable interest rate differentials.

Aug 1, 2014

Massive, unusual options volume Friday confounds Wall St

Aug 1 (Reuters) – A barrage of bearish options contracts
costing an estimated $8 million and nearly certain to expire
worthless at the end of Friday’s session were purchased across
multiple stocks Friday afternoon in a move that traders said
made no sense.

After 1 p.m. EDT (1700 GMT), more than 700,000 put options
contracts were traded across a number of different stocks,
including Priceline, Chipotle Mexican Grill and
others, most of which expire at the end of Friday’s trading,
according to Henry Schwartz, president of Trade Alert LLC.

    • About David

      "David Gaffen oversees the stocks team, having joined Reuters in May 2009. He spent four years at the Wall Street Journal, where he was the original writer of the web site's MarketBeat blog. He has appeared on Fox Business, CNN International, NPR, and assorted other media and is the author of the forthcoming book "Never Buy Another Stock Again.""
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