Tuesday, April 13, 2010

Greece Gets Great Loans; Talbot's a Loser; Stocks Tack on More Gains

If anybody out there can offer advice on how to write the same story 33 different ways, I'll be your first subscriber, because that has been my primary task since February 8, the date of the last interim bottom on the Dow.

While the index hasn't been going straight up, it often seems that way, as, over the span of the past 44 trading days, the Dow has advanced 33 of them. That's a 3-1 ratio of up days over down, and a winning investing formula in anyone's book. I admit, due to my disbelief in the overall economic recovery that everyone keeps talking about but nobody sees, to have completely missed this 1100+ point rally.

That's my fault, but I'm also not about to jump in at these seemingly inflated levels, either. I remain steadfastly, stubbornly, in cash, and it's not a matter of wanting to catch the next low, because I probably won't be investing in stocks for the next few years, at least not US stocks.

Today was more of the broken record variety of days on the Street. Stocks were up, though not by much. Earnings are beginning to trickle into investor equations, with Alcoa (AA) announcing earnings in line with forecasts on Monday at 10 cents per share in the 1st quarter on revenue of $4.9 billion, lower than consensus estimates of $5.24 billion.

After the closing bell today, Intel (INTC) announced 1st quarter results of 43 cents per share, beating the street consensus of 38 cents. Revenue for the chip giant was $10.3 billion, on expectations of $9.84 billion.

Earnings season is off to a good start. Even a company like Talbot's showed a profit of 7 cents per share, even better if you exclude one-time items (Why not? It's a party!). The women's retailer then shows 13 cents per share.

The company had been on the brink of failure, but has redefined itself over the past two years. Still, it's profit was a mere $4.1 million for the quarter, but shares rose significantly due to the amount of short interest. Selling at nearly $15 per share, investors are taking a pretty heavy risk with Talbot's. The company shows negative return on equity, virtually no growth, a p/e of 27 and nearly a half billion dollars in debt. That debt burden alone is enough to keep heavy volume investors away and the shorts making their downside bets.

Talbot's looks a lot like the nation of Greece, which should be the subject of some focus due to the favorable loans it secured from the EU and IMF. Greece will be able to finance its debts at around 5%, or about 100-120 basis points below market rates. The unusually-generous terms have been applied because all of the European finance ministers understand that a Greek default would likely have a severe domino effect on countries like Portugal, Italy, Ireland and Spain. The stronger nations, especially Germany, would likewise be affected, either having to underwrite immense losses or suffer a collapse of its own economy or the Euro.

While a decoupling from the Euro might be the very best thing for the Germans and the continent as a whole, scrapping the entire Euro project has not been something widely anticipated, though it could very well happen within the next 2-3 years. The Southern countries aren't nearly as industrious as their Northern neighbors, and the German populace isn't taking kindly to the concept of bailing out countries which cannot manage their internal budgets. Giving Greece better terms than the very best borrowers, when they are, in fact, sub-prime, at best, reeks of the kind of unfair "picking winners" that was a hallmark of the infamous bank bailouts in the US.

With Greece, failure is being rewarded. With Talbot's, failure has only been delayed. The losers will be the investors who could not judge the risk, as it should be.

Dow 11,019.42, +13.45 (0.12%)
NASDAQ 2,465.99, +8.12 (0.33%)
S&P 500 1,197.30, +0.82 (0.07%)
NYSE Composite 7,638.35, -3.40 (0.04%)

Volume was a little bit perkier than normal, possibly owing to options expiration on Friday or the flood of earnings announcements due out over the next two weeks. Advancing issues outnumbered losers, though marginally, 3362-3108. New highs bettered new lows, 646-50.

NYSE Volume 5,806,878,000
NASDAQ Volume 2,557,582,750

As oil dropped for the fifth straight day, CNN Money ran this headline, Oil declines on oversupply worries. All we can say, after watching naked speculation take the price above $87 last week is, "no kidding?" Crude dropped another 29 cents, to $84.05 on the day, which is still $20-35 above where it should be. The oil speculators are so concerned about keeping the price this high due to imminent, continuing threats of production cuts by the oil-rich nations of the mid-East. Their economies are teetering on insolvency and a price of at least $80 per barrel is needed to keep them current on payments. Eventually, somebody's going to see the light and force the price lower, despite the economic realities facing the royal Suadis and other potentates in the region. Maybe Russia.

Gold dropped $8.80, to $1,152.80, while silver slid 16 cents to $18.24. Once again, the metals are unable to break out to new highs, for reasons that should, by now, be pretty obvious to everyone.

Where are the jobs, and how about that housing market?

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