|
Hotline Sample Report
This report is a sample for information purposes only. These recommendations are closed.
Contact our research department for access to current reports. research@wstreet.com
3/2/2010 9:27:12 AM Eastern Time
Consumer Protection and Financial Regulatory Reform (Final Edition)
By Charles Payne, CEO & Principal Analyst
One of the interesting things going on with the Greek story is the brewing battle between global governments and financial players using credit default swaps. Yesterday I read where hedge funds and investment banks were using CDS to bet on a Greek default. Of course, if you aren't long Greek debt then the reality is that anyone buying CDS either hopes there is more pain or a complete default. Then there is the issue that enough action in the CDS arena causes a self- fulfilling aspect that wrecked havoc in the 2008 meltdown. I don't think we can ever prove without a shadow of a doubt that Wall Street wanted the nation to collapse. Certainly, if that was their goal it was dumb because they took such a shellacking to the point that many had to be bailed out. Still, they are the easy target because they are not altruistic and did take chances that bordered on suicide.
Around the world, anti-bank sentiment lifted left-leaning governments and triggered sweeping election victories for the democrats. The promise of curtailing these big, nefarious banks hasn't been met, and stands out among other failures of western governments. But the thing is that despite the bloodlust in 2008 and 2009, there is a greater urgency to create an atmosphere that fosters job creation. In the EU, the focus is on stopping what looks likes teetering dominos on the cusp of an ugly tumble. People still want the banks to pay, but will that change their employment status? Would revenge on the banks increase the value of homes? Anger is giving way to desperation and there isn't time to point fingers right now. Unfortunately, the only thing politicians seem to know how to do is point fingers, so the focus is on all the wrong things at the wrong time.
Does Financial Regulation Need More Bullets?
Yesterday, Chris Dodd wrote an editorial on Politico that began with this line:
"The financial crisis that has shaken the American economy did not happen by accident."
That sounds open and shut to me; the U.S. economy was crushed on purpose. The inference is that Wall Street deliberately killed the goose that laid the golden egg. Then, the soon to be retired senator went on to say:
"It was caused by outrageous greed and recklessness on the part of some in the financial sector. And it was enabled by the failure of our outdated regulatory system to stop those abuses."
The reality is that there are so many rules and so many regulators the system wasn't outdated. As it turns out, the guys in charge had more in common with Barney Fife than Elliott Ness.
But admitting that would make the government more culpable and mitigate their argument that the guys on Wall Street were so smart they played the system. The fact is that regulators had the power but didn't implement it properly. Unlike Barney Fife, these guys had bullets in their guns, and some even had bazookas, but they didn't know what the heck they were doing. More power + incompetence = disaster. Be that as it may, there are areas like credit card abuses that need to be re-tooled. I even think that the CDS market needs to be more transparent.
The thing is that all of this stuff could be done within the existing frame of regulators. I don't know if that's going to happen, however. Everyone has an opinion on this stuff, by the way.
* Chris Dodd wants a watchdog to operate under the Treasury Department with rule-writing abilities.
* President Obama wants an independent Consumer Financial Protection Agency to regulate credit cards, mortgages, and other matters.
* Yesterday, Senator Shelby of Alabama proposed a watchdog under the FDIC with some rule-writing power. The director would be appointed by the White House and confirmed by the Senate.
I happen to think that Shelia Bair is doing a wonderful job handling the avalanche of bank failures since last year, but the FDIC doesn't have any money and can't afford to fund this new watchdog entity.
I think that something will be cobbled together, and it will probably have bi-partisan support. But the Volker Rule looms large, and I'm not sure there will be any compromise. There is no doubt that the White House wants to crush Goldman Sachs (GS) despite the back door bailout via AIG. In the meantime, leaders in Europe are prepared to go to war with Goldman Sachs or any purchasers of CDS on Greek debt. "If the Greeks hold onto the strict parameters and the markets continue to speculate against Greece, we will not let them just March through." This statement was made by the head of the Eurogroup of finance ministers. Also, Luxemburg Prime Minister Jean-Claude Juncker told a newspaper "we have the torture equipment in the cellar, and we will show them if needed" when commenting on how the EU would fight back against buyers of CDS on Greek debt.
I think that he also went on to say he would get a couple of hard, pipe hitting brutes, who'll go to work with a pair of pliers and a blowtorch. In other words, if Goldman Sachs and others want to force Greece toward bankruptcy then the EU will get medieval. The CDS market is out of control; it's nuts that I can in essence buy insurance on my neighbor's home. They aren't nice guys but we must be careful not to let the unrelenting stoking of public scorn allow for the creation of an anti-capitalism agency that limits profits and finds a new way to fulfill the key vestiges of the Community Reinvestment Act, which holds as much blame for the current circumstances our nation is in at the moment. After all, the financial crisis that has shaken the American economy did not happen by accident.
By the way, Goldman Sachs made $100.0 million a day 131 times last year through trading. Wow...I'd fight tooth and nail to keep that going, too. But I would chill out on CDS beyond basic hedging.
 By the way, if a healthcare plan is going to be rammed down out throats then at the very least I think congressmen and senators must be forced to take the same plan. I even believe the President should show solidarity with Americans and also accept what he is demanding the masses accept. There is a resolution proposed by Rep John Fleming of Louisiana that aims to get our brave politicians to eat their own cooking. So far 2 million Americans have replied to the call to ask their reps to do the right thing.
http://fleming.house.gov/index.cfm?sectionid=55
http://fleming.house.gov/images/FLEMING%20HEALTH%20CARE%20RESOLUTION.pdf
The Market
I love the action in the market, but it's still early in the week. Nonetheless, I must stress to everyone that the economy can suck and the market can move higher. See 2009. I must stress that while the greatest risk to our long-term prosperity are attempts to change our nation from one of pulling its bootstraps to one that sits around and waits for the government to take care of basic needs in life, I think that threat is being beaten back. Saying these things doesn't suggest a double-dip in the economy wouldn't hit stocks hard. It probably would, but I think it would be short-lived, too. As for fighting back big government this isn't going to be easy as it is the ultimate goal and will be tried over and over again.
In the meantime, don't ignore the action in the market. Stocks act like a bull in a chute ready to bolt out of the gate. My parameters are the same:
* 10,450 key resistance on the DJIA, and then 10,750 is the true breakout point.
There was some good acquisition news yesterday and that helped, although it's interesting that foreign companies see the urgency to buy American companies and are offering attractive premiums. It's not like U.S. companies don't have the cash, or even pretty good share prices, to make a move. According to Biryini & Associates, S&P 500 companies are sitting on $3.2 trillion in cash! Take out financial companies and the tally is $1.1 trillion, an all-time record, and 11% of total assets (the highest percent in 60-years, typically cash is 8% of total assets). The money is there. The good news is that we are seeing bigger share buybacks. For the week that ended February 26, companies announced $13.23 billion in share buybacks, up from $1.07 billion in the year earlier period that ended February 27, 2009.
After the bell, Qualcomm (QCOM) hiked its dividend by 11.8% to $0.19 P/S and announced a new $3.0 billion share buyback. This is a huge vote of confidence.
Long Idea: Micron Technologies (MU) @ $9.54
Click here to view the trading alerts that followed this recommendation
| Entry Price |
Entry Limit |
Stop Loss |
Trading Target |
Target |
Long-term Target |
Options |
| $9.54 |
see comments |
N/A |
$11.40 |
$14 |
N/A |
N/A |
| Type |
Option Symbol |
Entry Price |
Strike Price |
Expiration Date |
| Call |
MU100717C000 |
$1.49 |
$9.00 |
7/16/2010 |
BACKGROUND: Micron Technology, Inc., together with its subsidiaries, engages in the manufacture and marketing of semiconductor devices worldwide. Its products include dynamic random access memory (DRAM) products that provide data storage and retrieval, which include DDR, DDR2, DDR3, and other specialty DRAM memory products, such as SDRAM, mobile DRAM, pseudo-static RAM, and reduced latency DRAM. The company also offers NAND flash memory products, which are electrically re-writeable and non-volatile semiconductor devices that retain content when power is turned off. Micron Technology’s products are used in a range of electronic applications, including personal computers, workstations, network servers, mobile phones, flash memory cards, USB storage devices, digital still cameras, MP3/4 players, and in automotive applications. It sells its products to original equipment manufacturers and retailers through internal sales force, independent sales representatives, and distributors, as well as Web-based customer direct sales channel. Micron Technology, Inc. has joint ventures with Intel Corporation, Singapore Economic Development Board, Canon Inc., and Hewlett-Packard Company, Nanya Technology Corporation, and Photronics, Inc. The company was founded in 1978 and is headquartered in Boise, Idaho.
SKINNY: I swore off this stock a decade ago but our chip analyst liked it and we featured it on the Hotline and Swing Strategies services, but now I think we got out too soon. Yesterday a report from the SIA said that January chip sales were up 0.3% month over month and 47.2% year over year. This industry, notorious for self destruction, could be on a real roll. Certainly, this company is on a roll having beaten the Street’s earnings estimates in each of the last two quarters by 50% and 228%, respectively. Earnings estimates for FY10 have climbed to $0.93 P/S from $0.25 P/S and FY11 $1.10 P/S from $0.50 P/S three months ago. The stock is changing hands at just 1.5 times book value. Technically, the stock breaks out through $11.40 and has room to $14.00.
| Analyst Coverage |
| Wedbush Morgan Upgraded to Outperform |
|
|
| |
|
|
|
 |
 |
