Monday, October 22, 2012

Mixed markets on disappointing earnings

Dow rallied in the last hour & finished with a gain of 2, decliners ahead of advancers 3-2 & NAZ was up 11,  The Financial Index fell 1 to the 215s.  The MLP index was up 1½ to the 409s & the REIT index fell 1+ to the 263s.  Junk bond funds inched higher but Treasuries retreated, bringing the yield on the 10 year Treasury near a 5 month high of roughly 2.8%.  Oil fell to the lowest level in 2 weeks as TransCanada planned to restart the Keystone pipeline & on concern that world economic growth is slowing.  Gold hardly budged.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLX12.NYM...Crude Oil Nov 12....88.26 ...Down 1.79  (2.0%)

Live 24 hours gold chart [Kitco Inc.]

The Volcker rule could cut profit at the biggest US banks twice as much as earlier estimates if regulators take a strict stance on limiting proprietary trading, S&P said.  “We currently estimate that the Volcker rule could reduce combined pretax earnings for the eight largest U.S. banks by up to $10 billion annually, up from our initial $4 billion estimate two years ago,” S&P said.  Goldman Sachs (GS)  & Morgan Stanley (MS), the 2 biggest US securities firms before converting to banks in 2008, stand to lose the most because they get a larger percentage of their revenue from trading than the other lenders. But regulators are unlikely to draft a final version of the rule until the end of 2012.  “Less strict rules would have a limited impact on banks’ earnings and business positions, so it’s unlikely that we would take any rating actions as a result,” S&P said.  “Stricter rules could lead us to take negative rating actions on certain banks.”  Section 619 of the Dodd-Frank Act, also known as the Volcker rule, limits federally regulated banks’ ability to make proprietary trades, or bets on their own behalf, & curbs their investments in private equity & hedge funds to 3% of Tier 1 capital.  While proponents of the rule say it will help minimize risk-taking, executives at some of the banks say the rule is unnecessary.  S&P said proprietary-trading restrictions could help make banks safer.  Keep this in mind when buying bank stocks.

Volcker Rule May Cut $10 Billion in Bank Profit, S&P Says

Greece has revised up its budget deficit & debt figures for last year, citing a deeper than expected recession & new data.  The national statistical authority said that gov overspending in 2011 was 9.4% of GDP, compared with an Apr estimate of 9.1%.  The new debt figure is 170.6% of GDP, up from 165.3%.  The authority also slightly revised up the 2010 deficit & debt figures.   Greece will enter a 6th year of recession in 2013.  The bailout-dependent country is negotiating with its creditors on a new austerity program for the next 2 years . Until an agreement is struck, Greeces will not receive a desperately needed new loan payment originally scheduled for Jun.  Without it, the gov will run out of money on Nov 16.  The Greek drama drags on.

VF Corp Q3 EPS climbed 27%t as it continued to benefit from its Timberland acquisition & ongoing strength at its other well-known brands.  The company boosted its full-year adjusted EPS forecast because of its strong year-to-date performance & increased its quarterly div 21%.  But the quarterly revenue performance missed the forecast & its shares fell.  EPS was $3.42, up from $2.69 a year ago.  "Uncertainty around world economic conditions will persist, but we've demonstrated that the VF model built around diversity and brands, products, channels and geographies is ideally suited to succeed regardless of the environment," CEO Eric Wiseman said.  VFC, with brands including Wrangler, Nautica & The North Face, said that EPS was $3.52 when stripping out Timberland acquisition-related expenses & a gain on the sale of John Varvatos Enterprises.  But analysts were expecting $3.49.  Revenue rose 14% to $3.12B from $2.73B, but fell short of the prediction for $3.16B.  VFC foresees full-year adjusted EPS about $9.60, above the previous prediction of $9.50. The company still expects 2012 revenue of $10.9B.  The stock was punished, down $7.23.

VF 3Q profit soars, lifts 2012 adj. profit outlook AP

VF Corp (VFC)

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This was another dreary day for the markets, not good as earnings season cranks into high gear.  Bank earnings have been sort of OK, but the industrial & service companies are not getting good grades.  The stories about Europe are meant to keep that front in mind as those problems will be around for a long time.  Dow is down 210 in 3 days on earnings disappointment.  But the MLP index remains near its recent record high & distribution increases are continuing.  Enterprise Product Partners (EPD) raised its distribution for the 29th consecutive qtr to an annual rate of $2.45. 

Dow Jones Industrials

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