Wall Street News 02-02-10: Volcker Testimony

Volcker wants to break up the banks! The market did not mind though, as she put in another winner of a day.

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Wall Street News

The market notched another gain today on the shoulders of a homebuilder's strong earnings report. Motor Vehicle Sales contributed as well, posting the third consecutive monthly increase, as American made stole market share back from the troubled Toyota Motors. However, the most closely followed Wall Street News story of the day was Paul Volcker's testimony before a Senate panel, as he tried to appease concerns about the administration's plans to "break up the banks." The Dow Jones Industrials closed up 1.1%.

Geithner Testimony on Federal Budget

Treasury Secretary Geithner testified before the Senate Finance Committee on the Federal Budget for 2011. Nothing really new came of Geithner's written statement, as he reiterated the same things we have already heard from the President and Peter Orszag. Geithner highlighted the government's most immediate focus as jobs creation through long-term sustainable means, including investments in infrastructure and alternative energy.

Quoting Geithner, "The commitment in this Budget to job creation, innovation, investment in the skills of our people and fiscal sustainability is essential to setting the stage for the kind of broad-based economic growth that will provide middle-class Americans with rising living standards and financial security."

With a keen eye on long-term fiscal responsibility, Geithner reiterated the importance of not repeating the mistakes of the Great Depression by cutting spending too soon, and thereby chopping economic recovery at the knees. He said we will stimulate hiring at the important small business level by providing incentive in tax breaks. And he went on, basically repeating the statements of the President. See all the day's Wall Street news.

Volcker Testimony on Bank Proprietary Trading Ban

Former Federal Reserve Chairman Paul Volcker testified before the Senate Banking Committee, seeking to dispel Congressional concern about the President's newly proposed limits on banking activities. In his effort to solve the "too big to fail problem," and at the advising of his legendary financial advisor, President Obama recently proposed new regulations including restriction against proprietary trading at banks.

This proposal, if enacted into law, would force Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM) and others to reconsider their banking status and the access to cheap money and government backing that has come with that. That is probably inevitable anyway, and I would look for the financial institutions to spin-off some of the businesses they got on the cheap at significant profit in the years ahead. In the end, I think folks are just going to have to swallow the fact that in an increasingly global economy, companies will intertwine business activities and the risk of systematic demise will always exist. All we can hope to do by these measures is to limit the damage.

Pending Home Sales

With the First-Time Homebuyer Tax Credit renewal behind us, December's Pending Home Sales Index stabilized and gained 1.0% month-to-month, reaching a mark of 96.6. The increase follows a November decline of 16.4% on the aforementioned tax impact. However, November's drop was the only one in the last 10 months.

The index is forward looking, and is a useful forecasting tool for existing home sales. It measures contracts entered into in December; contracts usually result in home sale settlement about 60 days thereafter. So this news presents a good sign for real estate.

Regional indexes all increased, excluding the West region, where the index fell 3.8%, to 119.9. Putting things into perspective, the West regional index is still 18.6% above the prior year mark.
Looking ahead, with the current tax credit set to expire for contract signings on April 30, there is almost unanimous expectation for a seasonal spring surge in housing. That said, new home sales have continued to lag, given construction business difficulty in obtaining credit and perhaps a sort of gun shy environment resulting from the collapse... not to mention the bankruptcies of many homebuilders.

D.R. Horton Surprise

Pending Home Sales offers perfect segue into the stunning earnings report from D.R. Horton (NYSE: DHI), a homebuilder based in Fort Worth, Texas. DHI reported its first fiscal quarter earnings profit since 2007. Even after a one-time tax gain, the company still earned a profit, versus analysts' expectations for a loss of 13 cents.

Revenue grew 23% on a 36% increase in home sales. Still more encouraging, new orders increased 45%. DHI is definitely benefiting from the First-Time Homebuyer Tax Credit, as it tailors to first time buyers. This segment now makes up more than half of its total business. DHI shares rose 10.9% today.

Weekly Same-Store Sales

The International Council of Shopping Centers (ICSC) posted weekly same-store sales for the period ended January 30. Recently volatile sales activity calmed, as sales rose just 0.1% on a weekly basis, and 0.4% over the prior year period. In contrast, last week's data showed a 2.5% decline and 1.9% increase, respectively.

Motor Vehicle Sales

Most automobile manufacturers reported their US sales for January today. Given Toyota's (NYSE: TM) recent woes, all eyes were attuned to this data. Bloomberg reports that when the final tally is taken, the analysts' consensus will show the January sales pace reached 10.5 million, which compares against the 9.6 million rate seen at this time in 2009. It would mark three consecutive months of rise, but will still be far off the average pace of the 2000 - 2007 period. Through that span, US sales ran at a rate of 16.8 million.

However, times have changed and free money ain't free no mo in Motown. Under normal credit conditions, deliveries should trend lower than that average. Still, growing global demand will not all be taken by domestic start-ups like Tata Motors (NYSE: TTM), and so Ford and GM have something to look forward to as well.

Toyota reported a 16% sales decrease in January, due to its sticky accelerator pedal scandal and sales freeze. General Motors (OTC: MTLQQ.PK) and Ford (NYSE: F) jumped at the first opportunity to take share from Toyota in years, by offering special incentives to Toyota owners who purchased their American made vehicles. Just about any competitor could have engineered a successful sales pace in January, given Toyota's disaster, so let's not attribute the resulting gains to any strategic win.

Still, Ford's deliveries increased an awesome 25% in January, while GM's rose 14%. Nissan (Nasdaq: NSANY) posted a sales gain of 16%. Somehow, Honda Motor Company (NYSE: HMC) managed to lose sales, as its deliveries fell 5%, while Chrysler's sales slacked 8%.

Corporate Earnings

The day's earnings reports included news from ACE Limited (NYSE: ACE), Acme Packet (Nasdaq: APKT), Actuate (Nasdaq: ACTU), Aflac (NYSE: AFL), Alliance Data (NYSE: ADS), AMB Property (NYSE: AMB), America Movil (NYSE: AMX), AMSC (Nasdaq: AMSC), Animal Health Int'l (Nasdaq: AHII), Anixter Int'l (NYSE: AXE), Archer Daniels Midland (NYSE: ADM), Art Technology (Nasdaq: ARTG), Arthur J. Gallagher (NYSE: AJG), Artio (NYSE: ART), ArvinMeritor (NYSE: ARM), Atmos Energy (NYSE: ATO), Automatic Data Processing (NYSE: ADP), AVANIR Pharma (Nasdaq: AVNR), BE Aerospace (Nasdaq: BEAV), British Petroleum (NYSE: BP), BRE Properties (NYSE: BRE), C.H. Robinson Worldwide (Nasdaq: CHRW), Corinthian Colleges (Nasdaq: COCO), Corn Products Int'l (NYSE: CPO), Ctrip.com (Nasdaq: CTRP), Cummins (NYSE: CMI), Dice Holdings (NYSE: DHX), Emerson Electric (NYSE: EMR), Endwave (Nasdaq: ENWV), Energy XXI (Nasdaq: EXXI), Entergy (NYSE: ETR), Evercore Partners (NYSE: EVR), Fiserv (Nasdaq: FISV), GT Solar (Nasdaq: SOLR), Harte-Hanks (NYSE: HHS), Inergy Holdings (Nasdaq: NRGP), Int'l Rectifier (NYSE: IRF), Intevac (Nasdaq: IVAC), Jack Henry (Nasdaq: JKHY), JDSU (Nasdaq: JDSU), Jones Lang LaSalle (NYSE: JLL), Kenexa (Nasdaq: KNXA), Korea Electric Power (NYSE: KEP), Landauer (NYSE: LDR), LaserCard (Nasdaq: LCRD), Lexmark (NYSE: LXK), Manhattan Associates (Nasdaq: MANH), Manitowoc (NYSE: MTW), Manpower (NYSE: MAN), Marathon Oil (NYSE: MRO), Markel (NYSE: MKL), Massey Energy (NYSE: MEE), Melco Crown (Nasdaq: MPEL), MetLife (NYSE: MET), Millipore (NYSE: MIL), Modine Manufacturing (NYSE: MOD), Mueller Water (NYSE: MWA), Myriad Genetics (Nasdaq: MYGN), Nalco Holding (NYSE: NLC), Netlogic Microsystems (Nasdaq: NTEL), News Corp. (NYSE: NWS), North American Energy Partners (NYSE: NOA), Novo Nordisk (NYSE: NVO), Orion Energy Systems (Nasdaq: OESX), Patriot Coal (NYSE: PCX), Pentair (NYSE: PNR), Pepsi Bottling (NYSE: PBG), Perrigo (Nasdaq: PRGO), Pioneer Natural Resources (NYSE: PXD), Pioneer Southwest (NYSE: PSE), Planar Systems (Nasdaq: PLNR), Quest Software (Nasdaq: QSFT), RadiSys (Nasdaq: RSYS), Radware (Nasdaq: RDWR), Riverbed Technology (Nasdaq: RVBD), RRSat Global Communications (Nasdaq: RRST), Silgan (Nasdaq: SLGN), Silicon Graphics (NYSE: SGI), Simpson Manufacturing (NYSE: SSD), StellarOne (Nasdaq: STEL), STERIS (NYSE: STE), Suncor (NYSE: SU), Techne (Nasdaq: TECH), Tesoro (NYSE: TSO), The Dow Chemical Co. (NYSE: DOW), Hershey (NYSE: HSY), Pantry (Nasdaq: PTRY), Scotts Miracle-Gro (NYSE: SMG), Timken (NYSE: TKR), Thomas & Betts (NYSE: TNB), Tidewater (NYSE: TDW), Trimble Navigation (Nasdaq: TRMB), United Parcel Service (NYSE: UPS), Universal Technical Institute (NYSE: UTI), Unum (NYSE: UNM), Vascular Solutions (Nasdaq: VASC), VeriSign (Nasdaq: VRSN), Vocus (Nasdaq: VOCS), W.R. Grace (NYSE: GRA), Websense (Nasdaq: WBSN), Whirlpool (NYSE: WHR) and Wisconsin Energy (NYSE: WEC).


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