News

Mike Spector and Tom McGinty have a big piece in the WSJ looking at the role of hedge funds in bankruptcy negotiations. They’re not fans:

The bankruptcy process was created decades ago as a way to give ailing businesses a chance to heal and creditors a shot at repayment. Hedge funds and other big investors have transformed it into something else: a money-making venue where, after buying up distressed companies’ debt at a deep discount, they can ply their sophisticated trading techniques in quest of profits…

SIFCO (SIF) engages in various metalwork processes primarily for the aerospace industry. The stock is down almost 40% from the market's peak in April, and therefore looks cheap across a few value metrics. Even when a company's numbers look good however, investors must dig under the surface to uncover any risks that may be present. SIFCO does have some business risks that could give investors pause.

SIFCO trades for just $54 million despite having a net cash position of $25 million and 2009 net income of $8 million, making it seem incredibly cheap. Of course, 2010 income will be lower than it was last year, as the company has worked through much of its backlog and revenue continues to out-pace new orders.

Bloomberg reported today that bondholders might suffer record losses in their investment in corporate bonds when policy makers start to raise interest rates. The duration on corporate debt, which indicates the price sensitivity of the bond with changes in its yield, rose to a record high of 5.69 years as of end of August. The fact that bonds maturing more than 10 years from now made up more than 39% of sales last month as companies took advantage of borrowing at low costs makes bondholders more vulnerable given a higher exposure to high duration bonds.

CDS for European corporate bonds is rising, while banks in Europe offered around 8 billion euro of bonds for sale, the most in five weeks. Leading the issuance was German Commerzbank AG, selling 750 million euros of 10-Year bonds at a yield of 150 basis points.

By Dirk van Dijk

Last week the stock market had a good week, and the bond market corrected a bit. Still, relative to the yield on the 10-year t-note of 2.71% on Friday, stocks look extremely attractive.

By David Russell

Nucor (NUE) is starting to regain its footing after a long slide, and now the bulls are looking for a pop.

In recent months anxiety over the viability of the economic recovery has built gradually, with more and more bears seemingly emerging from hibernation with each underwhelming data release. And based on where the smart money seems to be flowing, perhaps there is major cause for concern; some of the most successful investors have established huge positions in gold ETFs, often viewed as a safe haven in difficult economic environments.

The SEC requires money managers who oversee more than $100 million in US equities to report their holdings on a Form 13F within 45 days of the end of each quarter. The filing must include all holdings in stocks that trade on US exchanges, as well as options and convertible debt. According to these filings, several well-known hedge fund managers have accumulated massive positions in the SPDR Gold Trust (GLD), one of the largest exchange-traded products by total assets in the world.

As a follow up to the news that Schwab will be providing much easier and friendlier access to foreign markets and the sinking feeling that, while the cascading down of asset prices is likely behind us (insert nervous smile), the government is still hell bent on trying to fix things despite not knowing what to do, I spent a fair bit of time this weekend looking at foreign companies in search of future candidates for client portfolios.

Part of the task here is to consider countries I don't own. While it is difficult to know what my country weightings will be in the future it would be preferable to own more countries with small weightings than own just a handful at 15-20% each. I dug up an interesting name for most of the sectors.

U.S. stocks had an impressive rally the first four days of the month and this is generally a bullish indicator. The rally took place with a backdrop of really ugly economic news however and that is not bullish. Weakness has a way of coming back to haunt the market as European bank news is demonstrating today.

U.S. economic reports for the last few months have been generally bad to awful. Nothing changed last week. While the ISM manufacturing index went up, this supposedly occurred because of a big increase in manufacturing jobs (the inflation component of the report was the actually the biggest gain, but the mainstream media somehow didn't report this negative news). This gain was not corroborated by the government's August employment report, which showed a drop in manufacturing jobs, nor by anecdotal evidence or anything else taking place on the planet earth. The stock market of course rallied strongly on the news.

A session without history yesterday as the US markets were closed followed by carnage today in European peripheral PIIGS bond markets on the back of a myriad of negative news stories.

In an effort to rev up the sluggish economic recovery, President Obama has proposed $50 billion in spending to improve the nation’s roads, airports and railways. The President’s speech at a Labor Day event yesterday in Milwaukee, Wisconsin called it a long-term investment intended to create jobs. Could this really spur the economy, or is it being irresponsible for the federal government to further extend deficit spending in this way?

Though government efforts so far have succeeded in stabilizing the economy to a great extent, economists and policymakers are seeking alternatives to boost the pace of recovery.

By Chris McKhann

Options on bond funds have been drawing interest, and today we see a big trade in one fund that hasn't traditionally had any options action.

Departmental store operator Kohl's Corporation (KSS) reported a 4.5% hike in its comparable-store sales for the four-week month ended August 29, 2010, ahead of Street expectations of 2.6%. Total revenue for the month rose 7.7% to $1.42 billion as compared with $1.32 billion in the year-ago period. The company expects the positive trend to continue for the rest of the year.

The robust performance in August was mainly driven by positive same store results experienced at all regions and lines of businesses. The Southeast was the best performing region and home business, men's products and footwear were the best sellers.

By Matt Burns

HDTVs are the next consumer electronic battlefield and Samsung is apparently testing out Android on its sets in order to step up their offering in response to the latest from Sony (SNE), Apple (AAPL) and others. Currently, Samsung is the world’s leader in HDTVs sold but there’s a shake-up looming and Samsung no doubt wants to retain its title. Android may or may not be the answer.

Heightened fears that the world economy would not generate the kind of growth needed to avoid solvency issues in Europe weighed again on the euro in the first part of August. However, the prospects of QEII and the effective easing bias of the Federal Reserve put the dollar on its back foot again late last month. The combination of the stronger than expected manufacturing ISM, the rise in pending home sales and, topped off by last week’s employment data (and back month upward revisions) has shifted the sense of urgency back to Europe.

Here the news stream has been poor. There are media reports suggesting that banks may have understated their exposures in the recent stress tests. Many in the market, including ourselves, have consistently argued that the stress tests lacked the rigor to really satisfy the doubters. There are also reports warning that after a relatively quiet August, European countries are planning on selling some 100 bln euro of paper this month, twice the amount raised in August. There are also new worries over the amount of funds that Basel III would require, with concern expressed by both Belgian and German officials. Costs of the Irish banking system are also weighing on sentiment. In terms of politics, there has been a cabinet reshuffle in Greece, with an eye toward the November municipal elections and Italy’s PM Berlusconi reportedly is trying to push his rival Fini from his parliamentary post which may force elections. Meanwhile there are strikes in the UK and France today.

If the history of banking tells me anything, it is that banks are only fooling themselves if they think that they can hide bad assets and then outlast the drag these bad assets put on their performance.

Headlines read,” Europe's Banks Stressed By Sovereign Debts Regulators Ducked” and “Europe’s Bank Stress Tests Minimized Debt Risk."

Oracle’s hiring of former Hewlett-Packard CEO Mark Hurd gives it some expertise in integrated hardware and software, but it’s unclear whether the company can topple HP (HPQ) and IBM without a services unit.