Stock Market

Bank Failure #63: BC National Banks, Butler, Missouri

Bank Failure #62: Champion Bank, Creve Coeur, Missouri

Oil Spill Likely Poisonous to BP’s Rebranding Efforts

As the Gulf oil spill inches closer to landfall, the New York Times considers the impact on BP (BP). The company’s initial estimates suggest the incident could cost several hundred million dollars, which might even be conservative. Between cleanup costs, settlements, fees, and other costs, Exxon Mobil paid more than $4.3 billion dollars for the 1982 Exxon Valdez spill. But industry analysts suggest the biggest impact will be the damage to BP’s reputation. So far, they’ve been unable to stop the leak, and the worsening incident threatens to undo aggressive marketing efforts to rebrand the company as “beyond petroleum.” The company seemed to have cleaned up its act in recent years, says an oil analyst at Oppenheimer & Co., but now “it looks like a house of cards that has totally collapsed.”

The Post adds that the spill has prompted attacks on Obama’s plan for expanded offshore oil drilling and will likely supercharge calls for greater regulation on the oil and natural gas industry. Florida Sen. Bill Nelson has already announced plans to block Obama’s offshore drilling legislation. One of his top aides, Dan McLaughlin, wondered why regulators hadn’t been tougher on oil companies to institute emergency shut-offs. “Somebody is going to have to ask the question as to why the regulators didn’t put this question to the industry before?”

With the auto industry slowly stabilizing, local economies across the Midwest are returning to life, the Wall Street Journal says. Once GM and Chrysler emerged from bankruptcy, their orders for car parts skyrocketed, bringing jobs back to many small towns. Two factories in Flora, Ill.—population 4,772—were able to rehire 400 of the 550 people they’d laid off, a big boost for the small town. Shops are once again selling patio furniture and new Little League gear. Debate continues over the effectiveness of the bailouts, and many of the 400,000 jobs lost are never returning. But the government’s efforts “allowed GM to remain viable, and the fact that it got back up and running quickly really helped the supply chain,” as Lear (LEA) CFO Matthew Simoncini argues.

The feds aren’t done with Goldman Sachs (GS), the Wall Street Journal reports. Sources say prosecutors are conducting a criminal investigation into possible securities fraud at the firm, in connection with mortgage trading. It’s too soon to tell whether they’ll bring any charges, and it’s unclear which deals are at issue. To move forward, prosecutors would need evidence of intent to break the law, something proving the firm or its employees knew they were committing fraud. The potential fallout is significant: No U.S. financial firm has ever survived criminal convictions. The Washington Post suggests charges are unlikely, as standards of evidence are high and indictments in similar cases rare.

According to the Times, the Department of Labor will begin requiring companies to create plans for compliance with labor laws regarding wages, safety, and equal employment. Deputy labor secretary Seth Harris hopes to curb companies who view the benefits of ignoring the regulations as outweighing the risk of getting caught and the costs of compliance. “They are playing a dangerous game of catch me if you can, and they are putting workers’ rights, even their lives, at risk,” he said at a recent public appearance. But business groups say the new requirement would just be another burden on employers, without evidence it would increase compliance.  

Business travelers are slowing getting back on the road, the Wall Street Journal reports.  Many road warriors went missing from the nation’s airports and hotels last year, as the recession took its toll on corporate travel budgets. It’s good news for airlines like US Airways (LCC), which saw a 7.9 percent uptick in first-quarter revenue, thanks largely to business travelers. It will take time to recover the 12.2 percent drop in corporate travel spending, and most companies are maintaining cost-saving measures. But the paper points out the numbers are a good sign for the broader recovery.

Next Congress will begin hearings on proposals to strengthen federal auto regulators, the Times says. In addition to boosting enforcement powers, the Motor Vehicle Safety Act would require installation of several safety features, many discussed in recent Toyota (TM) hearings. The bill would also charge automakers a fee for certification costs.

Business – BP – Oil well – Oil spill – ExxonMobil

What We’re Reading ~ 4/30/10

Hedge fund manager Bill Ackman’s battle against the bond insurers: Confidence Game [Christine Richard]

Anthony Scaramucci of Skybridge Capital talks about the hedge fund industry [Pragmatic Capitalist]

The thing about selling stocks is that you have to buy something else [Reformed Broker]

Q&A with Herb Greenberg [The Kirk Report]

Moore Capital’s Louis Bacon is the richest hedge fund manager in the UK [FINalternatives]

Mike Darda says the Fed is on hold for the next few quarters. What’s this mean for all the hedgies with curve steepener trades on? [Pragmatic Capitalist]

Comparing Simon Property Group & General Growth Properties to mergers of past [ValuePlays]

The Kelly formula and event driven investing [Distressed Debt Investing]

Is the market being driven by technicals or fundamentals? [Big Picture]

Why you shouldn’t worry about Green Mountain Coffee Roaster’s patent expiration [Barbarian Capital]

Chanticleer’s first quarter investor letter [MyInvestingNotebook]

Thoughts from David Winters of the Wintergreen fund [Business Week]

How Steven Cohen averaged 30% returns [Washington Post]

Fund of hedge funds: 1 & 10 and never again? [Economist]

20 signs that could mark a market top [TheStreet]

Hedge fund veteran Philippe Jabre sees value in Europe [Reuters]

From hedgie to hedges, a look at Michael Steinhardt [WSJ]

Does Prudential face a roadblock in its takeover? [BBC]

Beware The Falling Retail ETF (XRT)

Despite recently touching a new 52-week high, stoked by what appears to be a freshly confidend consumer, the SPDR S&P Retail ETF (NYSE: XRT) could be poised for a decline.

At least that’s the feeling of options traders as put trading in XRT reach a nine-month high last week. The ETF now has a put/call ratio of about 4 to 1, according to Bloomberg News.

After rising steadily for several weeks, put volume in XRT jumped to 99,441 on April 22 and 191,315 on April 23, triple the four-week average, Bloomberg reported. Many traders are forecasting a drop of 18% or more for XRT by May 21, options expiration day for that month.

Many of XRT’s 62 constituents report April same-store sales on May 6 and those numbers could prove to be a drag on the ETF. XRT’s top holdings include Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and Amazon (NYSE: AMZN).

Jefferies May Offer First ETF Tied VIX Futures

Jefferies (NYSE: JEF), the boutique investment bank that is a fairly new entrant to the ETF game, has filed plans to launch an ETF tied VIX volatility futures. The volatility index or “VIX,” is a gauge of investor fear that typically rises as equities fall.

The Jefferies ETF will trade futures contracts in the underlying the VIX Futures Index. The VIX measures price fluctuations in put and call options over a one-month time horizon.

Jefferies’ ETF will be different than the S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) and the Mid-Term Futures ETN (NYSE: VXZ) because those are ETNs and both invest in other areas of VIX futures.

The Jefferies ETF will trade unde the ticker “VIXX” on the NYSE with an expense ratio of 0.49%. No release date was disclosed. Jefferies already issues four ETFs.

Claymore Nixes Use Of Derivatives In Actively Managed ETFs

ETF issuer Claymore, which earlier this year filed plans to list an actively managed ETF, said it will not use derivatives as part of the investment strategy for any actively managed ETFs the firm issues.

Claymore’s plan follows an announcement by the Securities and Exchange Commission (SEC) that it was putting a hold on new actively managed or inverse ETFs that use derivatives to accomplish their investment objectives.

Claymore currently issues about 35 ETFs.

Deutsche Bank Q1 Profit Jumps 49%

Deutsche Bank (NYSE: DB), Germany’s largest bank, said its first-quarter profit surged 49% helped by the company’s capital markets and trading operations along with fewer loan write-downs.

Deutsche posted a profit of $2.34 billion compared with $1.58 billion a year earlier. The bank gave a full year 2011 forecast for a profit of $13.3 billion, but declined to give further outlook for this year, according to the Wall Street Journal.

Analysts said Deutsche’s profit beat was primarily due to the investment banking and trading businesses and the results were probably not sustainable for the rest of this year.

Deutsche Bank set aside 50 percent less money for possible loan defaults, citing “improved credit conditions,” according to Bloomberg News.

BP Q1 Profit More Than Doubles

BP (NYSE: BP), Europe’s largest oil company, said its first-quarter profit rose by 135% thanks to higher oil prices. BP’s profit for the quarter jumped to to $6.08 billion from $2.56 billion a year earlier. Excluding one-time items and inventory changes, BP earned $5.65 billion beating the $4.84 billion median estimate, according to Bloomberg News.

BP is in the midst of searching for missing workers and cleaning up a 1,000-barrel per day spill in the Gulf of Mexico after one of its rigs there exploded and sunk last week. BP is the biggest oil and natural gas producer in the Gulf and the biggest North American natural gas producer.

The company said production won’t be affected much by the lost rig. During the first quarter, BP acquired operations in the Gulf, Brazil and Azerbaijan from Devon Energy (NYSE: DVN). BP is the third-largest Western integrated oil major by market value.

27 Apr, Daily Pre-Market Report

S&P’s had a weak close yesterday and really need to close above 1210.5 the high from 15th April if they are to start a new leg higher. There is still a negative divergance in the RSI which occurred when the Goldman Sachs news hit the markets. 

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