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Hotline Sample Report
This report is a sample for information purposes only. These recommendations are closed.
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3/4/2010 9:33:55 AM Eastern Time
Volcker Rule Gets Rougher (Final Edition)
By Charles Payne, CEO & Principal Analyst
The basic premise behind the Volcker Rule is that banks benefiting from public support by means of access to the Federal Reserve and FDIC insurance shouldn't engage in speculative activity unrelated to bank services. Banks pay big money for "insurance" from the FDIC, so it's not an altruistic program. Is this the same government that thinks healthcare insurers are evil but somehow if they are the ones peddling insurance than the recipients should be beholden beyond the basic service? It reminds me of the welfare program until recent years when people would come to the home of recipients to make sure they didn't have nice stuff, like a moderately-priced lamp, or that single women didn't have a man in the house. I guess banks must be humiliated and restrained for the right to buy insurance.
It is a good thing that a so-called public option on healthcare isn't officially in the cards. By the way, banks were made to pay three years worth of premiums upfront to the FDIC, so who is saving whom in this relationship? Then there is the notion of the Federal Reserve providing funds to banks to operate. Again, this isn't charity. The Federal Reserve is making money hand over fist! In 2009, that evil company Exxon Mobil (XOM) earned $19.2 billion, down from $45.2 billion and in 2008, while the sinister Goldman Sachs (GS) scratched out $12.2 of net income during 2009. The Federal Reserve rang up $52.1 billion. Just think about this for a moment. The year that saw three million more Americans lose their jobs and 140 banks go out of business, the Fed made more money than any corporation in the world. Out of that tally, $46.1 billion went to the U.S. Treasury Department.
Smoked!
It looks like that not only is the Volcker Rule going to try to limit revenue streams at banks but also other financial entities. This new wrinkle is the latest in a series of chess moves between the Obama Administration and Goldman Sachs. Right now, Goldman is a commercial bank, although you'd probably trip over a dodo bird and bump into Evil before finding a physical bank branch. If Goldman sheds that distinction it would still have to play by the (new) rules. The Volcker Rule is looking to burn Wall Street fat cats for sure. Some of the rules make sense and others seem to follow the notion that these guys are simply making too much money so let's take away the punch bowl.
The Volcker Rule has elements that make sense, but mostly it's a plan to bring the banks to their knees. Class envy is at the heart of this plan, which goes too far, and could make banks less competitive, but then again maybe that is the desired outcome. When the AFL-CIO actually launches a campaign to tax stock trades we know the populism of it all has gone too far. Nixon said we'd miss not having him to kick around but as it turns out Washington, DC never runs out of piņatas. These banks are important because of their ability to compete, so if they lose that the net result is we will all be a little poorer. We should have let them go under rather than rigging the system so banks avoid making tough loans. Fees are going higher and less money will circulate in the economy as a result.
But, then again, maybe that is the desired outcome.
The Economy
The Fed's Beige Book was relatively upbeat, albeit with a tinge of caution. Nonetheless, regions reported signs of improvement, more new orders, and modest growth. Retail was hurt by the weather, but I'm not sure it will have a detrimental impact on jobs. In the Cleveland region, there are reports of workers being recalled. The glaring sore spots continue to be commercial real estate and construction. Lending and credit are still tight.
Additional Economic Observations
It has been a tough ride for the airline industry (pun not intended), and it isn't a new phenomenon. Things have been tough for a long time. But recent data suggests, perhaps, a bottom has been put in as trends for both passenger and cargo traffic has turned higher. According to the International Air Transport Association, global traffic on passenger traffic was +6.5% while capacity use edged to 76.0% from 72.2% year over year. Cargo demand soared 28.3%. Despite all of this revenue per mile is down 15% from the peak and the IATA says airlines will lose $5.6 billion around the world. There is no doubt this is an industry that needs to raise prices, but it's also an example of what happens when profits are stripped from an industry...in this case mostly through mindless price wars and huge labor legacy costs.
Retail Sector Out-duels Mother Nature
By: Brian Sozzi, Research Analyst
The common thread in all the February same-store sales previews was that the pure nastiness of Mother Nature towards those living on the East Coast would detract from the generally positive story emanating from the retail sector entering 1Q10. Even we reasoned that there was downside risk to raised sell-side comp estimates for those companies having outsized exposure to the East Coast; our estimated impact on comps was 2.0% to 5.0%. Alas, in the numbers received this morning most retailers from different walks of the sector posted above consensus February comps, with underlying demand trends seemingly diminishing the storm impact. Among those companies in our coverage universe, we estimate that storms negatively impacted February comps by 1.0% to 2.0%; people found their way to the malls and discount centers and once there, bought merchandise.
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Long Idea: Ctrip.com International Ltd. (CTRP) @ $36.99
Click here to view the trading alerts that followed this recommendation
| Entry Price |
Entry Limit |
Stop Loss |
Trading Target |
Target |
Long-term Target |
Options |
| $36.99 |
see comments |
$34.00 |
$43.00 |
$47 |
N/A |
N/A |
| Type |
Option Symbol |
Entry Price |
Strike Price |
Expiration Date |
| Call |
QCT100619C00 |
$4.11 |
$36.00 |
6/18/2010 |
BACKGROUND: Ctrip.com International, Ltd., together with its subsidiaries, provides travel services for hotel accommodations, airline tickets, and packaged tours in the People's Republic of China. It also sells independent leisure travelers bundled package-tour products, which include transportation and accommodations, as well as guided tours covering various domestic and international destinations. In addition, the company offers Internet-related advertising, aviation casualty insurance, and other related services. Further, it sells travel guidebooks, which provide information for independent travelers, and VIP membership cards that allow cardholders to receive discounts from various restaurants, clubs, and bars. The company was founded in 1999 and is headquartered in Shanghai, the People's Republic of China.
SKINNY: In its most recent quarterly results, the CTRP posted net revenue growth of 43% which surpassed the previous announced year over year guidance of approximately 30% growth. The Company's dominant position in the Chinese market makes it a key beneficiary of that country's significant economic progress. Furthermore, Ctrip had also made a recent announcement of its intention to acquire a Hong Kong based travel Company. This is likely to provide increased exposure to that lucrative market and be accretive to the bottom line. The stock currently has room to $43 and $47 longer term. Risk adverse investors should use $34 as a stop loss.
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