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Dubai Debacle: Weekend Reading

Sun, 29 Nov 2009 15:07:08 EST

NEW YORK (TheStreet) -- Good Sunday afternoon and welcome to another edition of Weekend Reading. First a look back at the week that just finished, then a look forward to the week ahead, and, finally, a summary of articles and papers worth reading.

It was a down week for the major markets, with most of the damage (at least in the U.S.) happening at the end. (See the table below.) The cause, of course, was Dubai World's unhappy decision to try to push out some sizable debt payments, which led, of course, to oodles of noodling about cascading defaults, more bank troubles and so on. Gold soldiered on through all of this, setting a new record on the week, before settling back a little on Friday.

Looking ahead to next week, there are two big situations to watch. First is the continuing fallout from the Dubai debt kerfuffle on Friday, which could continue to spread into this week. Mind you, over the weekend it became clear that Dubai banks wouldn't be left to completely founder, with the UAE among others making generally supportive sounds. The other thing to watch next week will be a Ben Bernanke confirmation hearing on Thursday, which will almost certainly be noisy, strident and unhappy, with lots of YouTube-ready clips for the many detractors of the Fed, Bernanke and Congress.

Turning to economic indicators, anecdotal evidence is that U.S. shoppers turned out in large numbers on Friday, but investors will be looking for hard data on Monday. Next week we will also see nonfarm payrolls for November, which are expected to have declined by 120,000.

As for earnings, it will be a slow week. Reports to watch include Staples, Aeropostale and a clutch of Canadian banks, like National Bank, Royal Bank of Canada, and Canadian Imperial Bank of Commerce.

Finally, here are some articles and papers worth reading:

Editor's note: To access some of these stories, registration or a subscription may be required. Please check the individual links for each site's policy.

U.A.E. Central Bank Intervenes ( TheStreet.com )

Abu Dhabi rides in to rescue Dubai from debt crisis ( Times )

Renminbi replacing US dollar for trade as a new currency ( Risk )

Target is stalking Wal-Mart ( BusinessWeek )

Woman Who Sank Galleon Was Beauty-Queen-Turned-Analyst Insider ( Bloomberg )

Japan's appreciating currency: Time for action ( The Economist )

Salesforce's Marc Benioff sees cloudy future ( San Francisco Chronicle )

Dry Lands: Water and irrigation in America ( London Review of Books )

Ex-Moore trader lays out his dollar and gold scenarios ( Fortune )

Centaurus's John Arnold: The king of natural gas ( Fortune )

Get Ready for Half a Recovery ( The New York Times )

Golf courses suffer as recession deals a bogey ( Los Angeles Times )

Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis (SSRN)

A world awash in debt ( The Globe and Mail )

The Danger to America of an Overheated China ( The New York Times )

Ben Bernanke - The right fix for the Fed ( The Washington Post )

Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View (NBER)

The 00's: A Decade from Hell ( TIME )

Beijing Plans to Continue Its Stimulus Next Year ( The Wall Street Journal )

Nomura hit for 18 million pounds by rogue trader and FSA ( Evening Standard )

Obama is having the best first year of any president since Franklin Roosevelt ( Slate )

China, gold, and the civilization shift ( Telegraph )

From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons (NBER)

When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks ( Journal of Finance )

-- Written by Paul Kedrosky in La Jolla, Calif.

GBP-USD: Halts Declines

Sun, 29 Nov 2009 10:46:48 EST

By Mohammed Isah of fxtechstrategy.com

GBP-USD: On Friday the pair halted its declines triggered off its Nov. 16 high at 1.6875, recovering from intraday weakness from the 1.6267 level to close at 1.6499.

Although this did not stop GBP from closing marginally lower for the week, the daily chart now shows a hammer formation, which is a signal of a bottom reversal.

This should turn the immediate focus higher. A close above the broken short-term trend line (seen clearly on the daily chart) likely will clear the way for further upside toward 1.6875, the Nov. 16 high.

An eventual loss there will leave 1.7041 level, the year-to-date high, as the next upside target. After that, the next target will be the pair's .50 retracement (2.1160-1.3501 decline) at 1.7314.

The risk to our analysis will be a convincing violation of the 1.6267 level, the pair's Nov. 27 low, and 1.6249, its Oct. 26 low, where a cap is expected. If the pair fails to break through those levels, it will target its Oct. 30 high at 1.6124 and then a major swing low at 1.5706, the Oct. 13 low.

This level preserves the pair's medium-term uptrend outside its long-term rising trend line drawn from the 1.3655 level of March.

On the whole, with a temporary halt in prices seen, GBP should build on that strength and recover higher with the possibility of resuming its broader medium-term trend.

Don Dion's Weekly ETF Blog Wrap

Sun, 29 Nov 2009 08:42:59 EST

Here is some of what Don Dion blogged about on RealMoney this past week.

Gold Seems Like a Winner, No Matter What Comes

Posted 11/23/2009 12:28 p.m. EST

Some investment managers and economists predict that many commodities will decline in price next year due to strong supply, but such a move may be thwarted by inflation. In either case, gold may be the best commodity to hold.

A Bloomberg story out today quotes Bill Gross and Nouriel Roubini, plus a variety of industry and investment reports, to paint a picture of commodities supply that exceeds demand. Gross and Roubini expect economic weakness going forward, such that expected demand does not materialize and oversupply causes prices to decline.

One sector that recently gained is industrial metals. They have had a strong run since Oct. 2, with PowerShares DB Base Metals up 18%, iPath Copper ETN up 17%, iPath Industrial Metals ETN up 13% and iPath Aluminum up 12%. (iPath Nickel ETN headed in the other direction, down 3%. Exposure to nickel is what caused JJM to underperform DBB.)

By comparison, iShares Comex Gold gained 15% and the S&P 500 index gained 6% over the same period. The recent run in metals appears to be inspired by inflation, because economic data have not improved significantly and the move is very similar to the gain in gold.

Investors who want to play this rally and expect stronger economic growth should stick with a diversified ETF such as DBB. Higher demand plus inflation will cause the industrial metals to outperform.

While DBB should do well in an inflationary scenario even with weak demand, a large drop in demand may still cause prices to decline. A better option for a strictly inflationary play is IAU, because gold has very little industrial demand. Gold also offers less risk on the downside because a lack of inflation will mean a weaker-than-expected economy, possibly accompanied by more financial crises.

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Clash of the Retail Titans

Posted 11/24/2009 12:25 p.m. EST

Amazon and Wal-Mart are going toe to toe this holiday season as Wal-Mart looks to expand its Web presence and Amazon seeks to expand its retail footprint. While people focus on the battle, however, they miss the war -- and a good way to profit from it right now.

The story isn't that these two giants are battling it out for retail dollars, it's that there's nobody else left in the story. This is the British Empire vs. Napoleon, or the U.S. against the Soviet Union. Other retailers are mere spectators in the war for supremacy, featuring lots of collateral damage and the threat of retail Armageddon: pure price-comparison shopping.

Home Media Magazine highlights the situation with a recent article detailing how Best Buy is falling behind the two hegemons in their price-cut battle. It also gives a glimpse of the future of retail. According to an industry analyst cited in the story, Amazon recently had the lowest prices on a sampling of products sold by all three retailers, with Wal-Mart coming in second and Best Buy trailing.

It has become a cliche to say the Internet allows consumers to instantly compare prices and find the best deal, but it has never been truer than it is today. Apple's iPhone has an app that already allows consumers to scan barcodes and get instant information on a potential impulse buy, and it won't be long before consumers can walk into a store, scan the item they want and have their phones show them the cheapest available price.

While I believe Wal-Mart will survive, as will niche retailers that find a competitive space, the ETF that will best capture this trend is First Trust Dow Jones Internet Index. FDN holds a combination of companies that use the Web to deliver products and services, along with the companies that build and support the Internet infrastructure.

A Showdown in Coal ETFs

Posted 11/24/2009 7 a.m. EST

While the Market Vectors Coal ETF is the first exchange-traded instrument that comes to mind when discussing anything related to the coal industry, another fund, the PowerShares Global Coal , also aims to track firms dedicated to the production, transportation and storage of the black rock.

Looking at the funds' underlying holdings, KOL appears to be more diversified with 40 firms making up its basket; PKOL has 30. A number of similar holdings appear among both funds' top 10 holdings, including the No. 1 holding for both: Peabody Energy. Other similar holdings include China Shenhua Energy, China Coal Energy, and Consol Energy.

One of the most striking differences between the two funds can be found in their geographic breakdown. While nations including Australia, China, Indonesia and the U.S. are the most prevalent nations in both funds, KOL is nearly twice as heavily weighted in the U.S. as PKOL. In fact, U.S. companies make up nearly half of KOL's total index.

Year to date both funds have returned more than 100% thanks to continued economic recovery. Through Nov. 23, KOL and PKOL have gained 134% and 127%, respectively. However, with an average volume failing to break 9,500, PKOL hasn't gained anywhere near the popularity of KOL, which boasts an average volume of 444,000. One reason for PKOL's lower trading volume may be its 0.75% fee ratio, which is higher than KOL's 0.62%.

I'd advise investors looking to play coal's continued success to choose KOL. While both funds have performed well, the cheaper expense ratio and stronger popularity will ensure more stable returns for KOL in the future.

A special note from Don: Put simply, I want to help you profit from ETFs. You don't have to be an expert trader -- there are potential profits for investors at every level. And I think there's no better way to jump into the world of ETFs than through my brand-new service, TheStreet ETF Action by Don Dion. Membership is limited, so click here to get in on the action!

This Week's 'Barron's' Roundup

Sat, 28 Nov 2009 15:15:20 EST

Editor's note: Welcome to "Barron's Roundup." Each weekend, Stockpickr presents portfolios related to articles in the latest issue of Barron's.

Bullish and Bearish : Each week, Barron's publishes bullish and bearish stories on a variety of stocks. We present summaries of those stories in this portfolio. This week, there are bullish stories on Monsanto, PepsiCo and Sysco.

Research Reports : The latest analyst research highlighted by Barron's, including reports this week on Agrium, eBay and Medco Health Solutions.

Latest Activist Purchases : Which companies are the top hedge funds chasing? This week's list includes names like Conseco, New York Times and Waste Services.

Top Insider Purchases of the Week : Insider purchases are a lot more predictive than insider selling. Barron's lists companies where managers are buying stock, and we build a portfolio with those companies' stocks. There has been interesting activity in Weatherford International, Wal-Mart Stores, Dollar General and Werner Enterprises.

>>Bull or Bear? Vote in Our Poll

Dubai, Jobs in Focus for Coming Week

Sat, 28 Nov 2009 09:00:00 EST

NEW YORK (TheStreet) -- The Dubai debt debacle is likely to take center stage at the start of next week, when more active trading will show whether Friday's sell-off was exacerbated by light volume at the end of a holiday week, or whether the market is truly spooked.

Dubai World, the investment arm of the Middle Eastern state of Dubai, has asked creditors to defer at least $60 billion in debt repayments for at least six months with some reports putting the number as high as $100 billion. Its apparent inability to make good on its debt was reminiscent of the Lehman Brothers failure that further froze the credit markets and pushed the stock market into a downward spiral in 2008.

On Friday, investors chopped off over 150 points, or 1.5%, from the Dow Jones Industrial Average, following sell-offs in the Asian and European markets. The market is still up significantly from its lows earlier this year, with the Dow closing at 10,309.92 on Friday, 60% better than the depths of March. The broader S&P 500 Index closed down 1.7% on Friday at 1,091.49, but is still up 64% from its March low.

>>Bull or Bear? Vote in Our Poll

Rochdale Securities analyst Richard Bove said the impact to U.S. banks, such as Bank of America , JPMorgan Chase , Citigroup , Wells Fargo , Goldman Sachs and Morgan Stanley is likely to be "minimal." But he added that, given the interconnectivity of the global financial markets, the resolution of this debt issue needs to come quick.

"Now the great game of 'chicken' is underway to see who will feel the pain the most if Dubai fails," Bove said in a report on Friday. "The likely result is that the Arab states will come together to protect Dubai but that the city-state will be made to suffer. However, if this takes months there will be financial upset everywhere."

Beyond Dubai, next week will be earnings-light and data-heavy. Retail reports may be a top focus, as investors eagerly await measures of foot traffic from "Black Friday," a key shopping day for the holiday season. Reports about discounts and lines at the registers of behemoth shopping centers like Walmart and department stores like Macy's and J.C. Penney will give investors a clue about the underlying strength of the consumer-driven economy.

"The holiday spending activity will be a major focus because it will reflect consumers' ability and willingness to spend," says Alan Gayle, senior investment strategist for RidgeWorth Investments.

Gerry Sparrow, who manages the Sparrow Growth Fund, doesn't expect the focus to be on Dubai. He says investors' appetite for risk -- albeit balanced risk -- has increased, as evidenced by his fund flows' recent turn to positive. He believes the focus next week will ultimately be on a slew of economic reports to be released, especially Friday's jobs report.

"That's going to be the big number, so traders who are looking to invest should be buying on Thursday ahead of that number," says Sparrow.

Another crucial economic data point next week will be initial jobless claims to be released on Wednesday. This week, the Labor Department reported that claims had fallen below 500,000 for the first time since September 2008, lifting hopes that the unemployment rate may be topping out near the 10.2% it recently reached. Even if the losses come in better than expected, Sparrow expects a true bull market to return only when job figures turn from red to black.

"Everyone's waiting right now for jobs to come back," he says. "The jobless recovery will not drive the market higher. The catalyst is going to be job creation."

The Federal Reserve's stress test used a rate of 10.4% as its peak unemployment scenario, stoking fears that banks may need to raise more capital to cover loan losses if their customers continue to lose their jobs. The unemployment rate for November will be released on Friday.

Also next week are reports on manufacturing activity, with Monday's Purchasing Managers Index report and Tuesday's ISM Index release, as well as auto sales and pending home sales on Tuesday; the Challenger and ADP job reports on Wednesday, along with the Fed's beige book.

"The coming week just has a whole lot of data in it," says Gayle. "And the scrutiny of that data will be heightened because of the Dubai debt situation."

-- Written by Lauren Tara LaCapra in New York.

Jim Cramer's Best Blogs

Sat, 28 Nov 2009 08:54:33 EST

Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

Bernanke's role,
the new bull markets of ag and shipping stocks, and
how to value a middling market.

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.

Sanofi Has Lots of Upside Catalysts
Posted at 8:12 a.m. EST, Nov. 23, 2009

Now that we see that health care reform is not going to bring price caps or socialization of medicine, we are beginning to see some real expansion in the drug stocks, including Merck , Bristol-Myers and Lilly . But there is one drug stock that is continually met with skepticism -- Sanofi Aventis , the French vaccine and pharmaceutical maker run by Christian Viehbacher. The resistance is obvious, as his biggest two drugs are coming off patent very soon, and his hope is that by 2013 the company might again reach 2008 levels.

Sounds like there's no reason to buy this one. Sounds like its 4% dividend isn't safe.

But after interviewing Viehbacher on Friday I reach a totally different conclusion. I think that the breast cancer franchise here, with reports due out on its principal new tumor-arresting drug, could be so dramatically undervalued that you could get something to replace Plavix, its major breadwinner well within that time period.

We know Sanofi-Aventis as the vaccine company that combats swine flu. While we know the flu rages overseas, it has peaked in this country, even giving the short term for SNY -- next year -- a worrisome aspect to it while Plavix gets challenged. (All of the worries are laid out well in a recent Bear Stearns report.)

The short-term concerns made me worry about the dividend, but I sure didn't feel that way after Viehbacher said that after seeing what happened with Pfizer after its dividend cut, he had no desire to go down that path.

More important, as Citigroup pointed out in a Nov. 9 report, the catalysts here are many:

Lantus, an important diabetes drug could be a blockbuster.

The purchase of the animal health portion of its jv Merck, could give a huge boost to an important, growing segment. SNY has Frontline, which is an expensive product that dog owners seem to be willing to pay any price for.

The breast cancer drug BSI-201 launches in 2012, but because of potentially spectacular drugs it might be entering the marker faster -- we will know more from a Dec. 5 unveiling of some results.

Its emerging-market drug franchise -- including a new malaria pill announced Friday -- is on fire and growing at a much faster clip than any other drug business among the majors.

SNY also has some investments in biotechs like Regeneron that could one day produce results in arthritis, pain and cancer drugs.

In short, what looks on the surface like the most patent-challenged drug company after Pfizer may be the best out there for growth in the outyears, and I think that makes the stock both inexpensive and very exciting.

Random musings: Deere was moved to a "buy" at Morgan Stanley right ahead of the quarter. This is a stock I like very much along with Potash and Monsanto , as the ag bear market seems to have run its course.

At the time of publication, Cramer was long Bristol-Myers Squibb.

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Where to Find Yield? In the Stock Market
Posted at 12:10 p.m. EST, Nov. 24, 2009

Most people are worried about skyrocketing interest rates because of the federal deficit. You read these kinds of stories every single day, including today. Yet, when I see the GDP revision down, when I see consumption down, I think that's misplaced worry.

What am I worried about?

I am worried about no demand for money and no projects worth lending to. I am worried that there's no new business to speak of that needs to borrow, and demand for money is pretty nil.

So the question becomes, what do you do for a return? If rates remain low and there's worry that one day they will spike, how do you pick up yield to protect yourself?

And the answer I always come up with is equities. They give you the yield that bonds can't give you.

Yesterday I noted that Verizon and AT&T are moving up. It is happening again today. That feels definitely like a yield-grab. The master limited partnerships are all up substantially, more yield-grabbing. Altria didn't get hit on that tobacco lawsuit loss. Usually that would cause it to drop significantly. Seems like a yield-grab to me. Kimberly-Clark has roared here, more yield grab. What's great about these is that you are not lowering quality in any of these cases when you reach for yield -- the total opposite of what's happening in the bond market.

It's tough to pay up for any of these higher-yielding securities right now. However, we can hope that a decline in oil will bring about another selloff where the high-yielders can be bought at bargain prices.

That's what's the best hope here. Paying up for these prices seems a mistake, as I suspect we will get a chance to get yield at a better price.

Just not yet. Waiting, waiting. ... And if oil doesn't take out $75, we probably won't get our prices.

Random musings: Speaking of yield, I see that Windstream is doing everything to grow its rural base with this purchase of Iowa telecom, and therefore remain growth-oriented and yield generative.. Still a good story. ... .Emerson Electric's order numbers show the power of the weak dollar. ... So do H.J. Heinz's. Home prices up again in a bunch of cities ... no one cares.

At the time of publication, Cramer was long MO and EMR.

This Bullish Retail Story Looks Like a Good Fit
Posted at 7:17 a.m. EST, Nov. 25, 2009

Can you be as bearish about retail if the company that has almost half the dress shirt business in the country, the one that has more than half the neckwear in this country, the one that has more than 600 stores and is in Kohl's , Wal-Mart , Sears and just about everyone else, tells you that things are booming?

That's what you are up against if you listen to the CEO of Phillips-Van Heusen , Manny Chirico. His description of the environment out there, with all of his brands -- from Calvin Klein (high-end and low-) to Geoffrey Beane and Bass and Arrow and so many others -- just doesn't jibe with what others are saying about how weak the consumer is.

If anything, the question is, will the holiday season be a blowout?

It seems pretty counterintuitive given the home value loss, mortgage woes and unemployment, but why would he make this stuff up? Go look at his audited numbers from a week ago. Go listen to this Morgan Stanley conference points.

Go watch what he said last night on the show.

This is the most important apparel company in this country, and his statements are just too bullish to be as negative as you might think to be.

Just pointing it out.

At the time of publication, Cramer had no positions in the stocks mentioned.