Wednesday, May 25, 2011

Higher markets on a technical bounce

Dow rose 38, advancers ahead of decliners 2-1 & NAZ was up 15. Bank stocks keep lumbering along with the Financial Index at 5 month lows.

S&P 500 FINANCIALS INDEX

Value	208.35
Change	0.11 (0.1%)

While the MLP index was up today, it has really been treading water for 5 days following 2 days of recovery. The REIT index was up 1+ to the 242s & is where it was 3 weeks ago. Junk bond funds had a good day with many up 1% to new multi year highs & correspondingly low yields. Treasury yields continue low as the yield on the 10 Year bond is near the important 3.1% resistance level. Strength in treasuries is from unsettled financial conditions in Europe. Oil climbed to a 2-week high after a report showed that US inventories of diesel & heating oil tumbled to the lowest level in more than 2 years. Gold rose for a 4th straight session, the longest rally in 3 weeks, as Europe's debt crisis increased investor demand for the precious metal.

ALERIAN MLP INDEX

Value	365.08
Change	2.59 (0.7%)

Treasury yields:

U.S. 3-month	0.046%
U.S. 2-year	0.539%
U.S. 10-year	3.130%

CLN11.NYM

...Crude Oil Jul 11

...101.25

...

1.66

(1.7%)

Freescale Cuts IPO Price Range to $18 to $20 a Share

Photo: Bloomberg

Freescale Semiconductor Holdings is selling shares at a 47% discount to what private equity owners paid after cutting the price range in its IPO by 17%. The chipmaker is offering 43.5M shares for $18-$20 each, after lowering the range from $22-$24. A $19 midpoint would value the unprofitable company at $4.6B, which compares with an average price of $36 that investors paid. The private equity firms plan to raise upwards of $870M to help pay down Freescale’s $7.5B in debt accumulated in a 2006 LBO. Even though internet companies LinkedIn (LNKD) & Yandex (YNDX) surged after their IPOs, Freescale joined Spirit Airlines in reducing the size of its IPO today. At the original $23 midpoint, Freescale would have been valued at 1.2X last year’s sales, less than the average 1.9X for the analog-chip industry. Texas Instrument (TXN), the biggest analog-chip maker, trades at a multiple of 2.8X. The IPO market is behaving like the wild west, at least all are not treated the same.

Freescale Seeks IPO at 47% Discount to Buyout Price After Stock-Price Cut

Spirit Pares IPO 22% to 15.6 Million Shares as Price Is Cut

Photo: Bloomberg

Spirit Airlines, the budget carrier, cut the amount of money it’s seeking in its IPO by 37%. The airline could raise $202M by selling 15.6M shares for $12 -$13, down from a previous goal of 20M shares at $14-$16. Its symbol on the NAZ will be SAVE.

Spirit Airlines Pares IPO Size 37% to 15.6 Million Shares as Price Is Cut

Photo: Bloomberg

Costco' s net income rose 6% in its fiscal Q3, with growing membership numbers pushing sales both at home & abroad. EPS was 73¢ for the qtr ended May 8, up from 68¢ last year. The current results included an inventory charge of 7¢. Analysts expected 77¢. Revenue climbed 16% to $20.6B, just edging out expectations. Results included sales from its 50% owned Mexico joint venture, which accounted for 3 percentage points. Sales at stores open at least a year increased 12%, with the figure up 10% in the US & 18% outside the US. Removing the impact of rising gas prices & strengthening foreign currencies, sales at stores open at least a year gained 7%, climbing 6% in the US & 11% outside the US. The stock was 1.03 lower.

Costco Third-Quarter Profit Trails Estimates as Costs Climb; Shares Fall

Costco Wholesale Corporation (COST)

Vice President Joe Biden set a goal of at least $1T in budget cuts with congressional leaders on the federal debt. But Medicare came up & Dems ruled out concessions without agreement to raise tax revenue which has been rejected by Reps so far. House Majority Leader Eric Cantor said he is “confident we can get to over $1 trillion in immediate cuts,” though he also said that “tax increases cannot pass the House.” The Senate is preparing to vote this week on a House Republican budget crafted by Rep Paul Ryan that would privatize Medicare for people who turn 65 starting in 2022. At least they're working on the massive budget cuts which need to be made.

Biden Aims for $1 Trillion Budget Cuts

The average price for gas is stabilizing, down from $3.99 a couple of weeks ago. But with oil over $100, this may be the limit on how far down it is going. A report today showed that gas consumption was cut 2% with these rising prices.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.814	$3.958	$4.085	$4.041	$3.270	$4.303
Yesterday Avg.	$3.828	$3.972	$4.099	$4.049	$3.281	$4.317
Week Ago Avg.	$3.926	$4.068	$4.194	$4.105	$3.306	$4.351
Month Ago Avg.	$3.863	$4.004	$4.133	$4.141	$3.263	$4.295
Year Ago Avg.	$2.780	$2.952	$3.059	$3.040	$2.225	$2.928

Source: AAA

Stocks keep drifting along on light volume, looking for direction. While the Dow was up today, it's down over 400 in May as the European sovereign debt crisis shows no sign of resolution. The IMF needs to elect a new leader. French Finance Minister Christine Lagarde wants the job & says she should be judged on the basis of experience rather than nationality. But Asia countries are pushing for one of theirs to take over. Meanwhile Greece is talking about pulling out of the Eurozone, not sure what good that will do. At least DC politicos are working on the monumental financial problems they face. The remainder of the week should bring modest price changes on holiday like trading.