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The Cody Blog: Cody on RM: One Trader's Take on the Headlines

Friday, July 28, 2006

Cody on RM: One Trader's Take on the Headlines

One Trader's Take on the Headlines
07/28/2006 9:57 AM EDT


I get a lot of great feedback from these posts, so here's my latest look at the morning business headlines from The Wall Street Journal:

Hedge funds would be allowed to manage significantly more pension-fund money under a provision of a bill now in Congress.

You know this -- and by "this," I mean "channeling of yet more money to hedge funds" -- won't end well. But it's not because hedge funds are bad. After all, they facilitate capital movements and grease the wheels of capitalism. No, the problem will be that Wall Street will systemize and leverage up these funds to excesses that everyone will profit from in the short term and get blown up by in the long term. Come on, you know it's true.

Suspicious trading patterns in the securities of HCA, Petco and several other companies prior to news of major deals are raising concerns about insider trading.

If true -- and from the unrelenting media reporting on this (hey, the Mainstream Media, often the target of my rants, has a long history of protecting all of us with such reporting) leads me to believe there is something to this insider-leaking stuff. Yet more scandals on Wall Street are not good for stock multiples.

Aetna reported trouble in raising premiums quickly enough to keep up with rising medical costs, sending it shares tumbling 17%.

A gamed quasi-socialized health care system is much more likely to bankrupt our economy than the much more maligned twin-deficit "problem." Heck, as I've postulated before, I don't even consider the trade deficit to a problem. I see it as a positive.

Bristol-Meyers's offices were raided by the FBI as part of a probe of a deal to delay launching a generic version of Plavix.

Every day it seems there's a new article about these drug companies and the doctors they market to compromising the health of patients. (There's a related article on the cover of The New York Times this morning.) Like I said above: When I worry about the long-term health of the economy, it's the health care system that's near the top of the list of potential takedowns.

ExxonMobil's net jumped 36% to $10.36 billion, its second highest profit ever; Shell's net rose 40% on soaring oil prices.

Oil sure is in a boom. If our own tiny little oil companies are generating these types of profits, you have to wonder just how much the nationalized oil companies around the world are generating for their governments. Are the OPEC countries stockpiling huge amounts of capital? What are the implications of that?

Though conventional wisdom might say otherwise, might the oil boom actually be our greatest hope for peace in the Middle East? That is, in this day of the communications revolution, well-capitalized countries won't be able to stop the shrinking of the world and the interpersonal and business relationships that comes with it.

The Dow Jones Industrials lost 2.08 points to 11100.43 after an early rise crumbled on a rise in oil to $74.54 and interest-rate concerns.

Sigh. There's little that more irritating to a trader than reading a 25-word wrap-up of a global market. You ever see those Web sites that take a sentence and generate a version of it in, say, nothing but Instant Message acronyms? I bet there's a great business in creating one of those for business reporters -- just type in whatever the DJIA did that day and it'll spit out the headline, including causes of the movement.

New-home sales fell 3% in June and durable-goods orders, excluding defense products and aircraft, grew at a slower pace.

Inventories were up too. Not bullish stuff.

DaimlerChrysler's net more than doubled on a rebound at Mercedes, but Chrysler's profit slid as sales of trucks and SUVs fell.

Luxury items continue to boom. How long before that changes? Will we measure it in months, years, decades?

Sharman's Kazaa agreed to pay over $115 million to the entertainment industry to settle allegations of illegal file-sharing.

Yes, that's right! How dare Kazaa try to distribute and market the entertainment industry's products -- not.

Sony swung to a $277.7 million profit, helped by a revival at its electronics unit and bolstering hopes for its turnaround plan.

Sony (SNE) needs to break itself apart and separate its content ownership business from the rest of the company. I'd probably be a buyer of Sony if it did that.

Bank of America is close to overtaking Citigroup as the world's largest bank by market value, a goal it has long pursued.

Success story? Or roll-up doomed to end badly? And yes, I'm referring to both companies.

The DOT is investigating allegations that two safety valves at BP's Alaska oil-field weren't working at the time of a March leak.

Remind me again why BP (BP) is hailed as the environmentally friendly oil company? What a crock.

XM Satellite Radio posted a wider loss and again cut its subscriber estimate for the year.

I couldn't believe how bad my father's XM (XMSR) service was in Ruidoso, N.M. Worked great at night, but the signal continuously clicked out during the day. And I had a hard time finding a station that played anything besides the same ol' songs I've already heard 8,202 times before.

EADS reported a 9.5% decline in profit and trimmed its earnings forecast for the year.

Why anyone thinks a government-owned, politically driven entity can compete with less-socialist, more capitalist companies like Boeing (BA) over the long term is beyond me.

US Airways benefited from its recent merger and an industry rebound to post a $305 million profit.

I often wonder how great our airline industry would be if the government quit the cycle of subsidizing, bankrupting, subsidizing, bankrupting the industry. Some day, airlines will make a great investment. Today is not that day.

5 Comments:

Anonymous Anonymous said...

you look dreamy in that leather jacket pose, cody. do you like to pitch or catch?

7/28/2006 12:28:00 PM  
Blogger Stephen L. McKay said...

Cody,

I'm with you on the leveraging. You may recall I wrote a comment before about my concerns over excessive leveraging. Here is another concern of mine, and i would be interested in your opinion when you have a chance.

For a while now we have been seeing a blurring of the lines between hedge funds and private equity, with leading firms in both disciplines inching over into each others field of expertise. I'm wondering what your take is on this, considering the minimal regulation imposed on both groups and the resulting opacity, and the potential for conflict / insider trading at exit, when the PE fund, who also manages a hedge fund may be negotiating a sale to a publicly traded concern. I am not in favor of regulating hedge, or PE funds any more than is absolutely necessary, but I do think this scenario is troubling. What say you?

7/28/2006 04:39:00 PM  
Anonymous Anonymous said...

The oil boom are greatest hope for peace in the Middle East.???? Are our own oil companies or OPEC using any of these profits to promote peace? Has there been any news on that that I've missed? Huge implications for OPEC countries stockpiling cash you say? Gee whiz , I'd say that is no brainer in our future. Enjoy your Escalades now cuz I suggest you all buckle down boys and girls. This could be a bumpy ride.

7/28/2006 06:51:00 PM  
Anonymous Anonymous said...

Cody,
It appears to me that gay men find you attractive and need to be vulgar about it and straight men find you attractive and need to be homophobic about it and jealous.
That's what you get for being a handsome, intelligent, personable, fashionable and creative guy.
These people live on the dark side...For you, it is all good...

7/28/2006 06:59:00 PM  
Anonymous Anonymous said...

I forgot to add " successful". That really gets them.

7/28/2006 07:10:00 PM  

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