Earnings Season Hangover
Research for Online Investors

by John Dalt

04/20/09

The market is up for six consecutive weeks almost 29% from the March 9 lows.  This is the biggest gain for a like period since 1938.  The market has been ignoring bad news, this probably will not continue, as the trend may now be to sell the news as earnings season really picks up.  The “stress tests” on the 19 largest banks will be released this week; we already know that none of them flunked.

Sun Microsystems (JAVA) is back in play this week, with Oracle announcing a buy at $9.50 per share.  This was a 42% premium to Friday’s closing price.  Sun was under pressure after the board rejected a deal last month with IBM.  There was concern this would look like Yahoo after they rejected a bid from MSFT last fall and lost over two-thirds of their value.

This week almost 25% of companies will have earnings announcements.  BAC announced before open this morning.  They reported $0.44 earnings for the first quarter, compared to expectations of $0.04  They are down over 20%!  IBM reporting later today, and AAPL on Wednesday will tell us how tech sector sales are doing.  Intel reported $0.11 last week, which beat reduced expectations of $0.3, this was on a sales decline of 27% from last year’s first quarter.  Amazon on Thursday will give us insight into online retailing.  KO (Tuesday) and MCD (Wednesday) will further confirm retail consumers.  I am watching FCX (Thursday) for miners and copper.  Copper has been on a run in anticipation of a recovering world economy.  There have been reports that China is buying base metals and commodities in anticipation of a recovery.  The low prices were too attractive. This stockpiling has been at the expense of U.S. Treasuries.

In March, there were 341,180 default filings against property in the U.S. The first quarter saw 803,489 properties seized, or receive a default/auction notice.   This was 24% higher than last year. It is a good thing that OH! Bama had a foreclosure moratorium in place! The research firm Campbell Communications, reports that one-third of foreclosures are too damaged by the previous owners or criminals to qualify for standard mortgage financing.

Gold bounced 2% today and oil dropped almost 8%. The dollar is showing strength, the mightiest of the midgets. There is a better case being made all the time that the Euro is in trouble. There is no defense of it, individual European countries cannot agree on interest rates, because each country wants to protect their businesses and economy.

The EIA report last week shows a continuing build in crude oil stocks.  They predict a soft market this summer for gasoline and diesel with gasoline usage up, but tempered by the economy.  Thankfully, for those who use diesel fuel, they predict a tightening of the price differential between diesel and gasoline.  The two charts that follow show the continuing build of crude oil supply and days of supply compared to last year.  The report is bearish for crude oil pricing, and the market is reflecting this.  It also does not bode well for the refiners, as the crack spread will narrow with reduced consumption.  OPEC has cut production, but there is a tremendous overhang in the crude oil supply to be worked through, before prices can increase very much.  The crude market has been in a tight trading range, but may break down if the dollar continues to strengthen.  Dave J. sent a video clip of T. Boone Pickens predicting $75 oil this year.  As T. Boone said, “OPEC wants $75 oil, I wouldn’t bet against them.”

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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