tv First Business KICU July 10, 2013 4:00am-4:31am PDT
wall street is out of the dugout and into earnings season. will it be a swing and a miss? in today's cover story, banks are asked to step it up as regulators try to prevent another financial crisis. plus, why small community banks are stuck in a rut. and, is gm giving tesla a run for its money with a green car that is "red" hot? first business starts now! you're watching first business: financial news, analysis, and today's investment ideas. good morning! it's wednesday, july 10th. i'm angela miles. in today's first look: here we go again! stocks have now rallied 4 sessions in a row. that places the dow and
s&p within striking distance of all-time record highs. the nasdaq had its best close since 2000. gold moved up $12, and oil by 82 cents as it edges closer to $104. a microsoft management shakeup is reportedly in the works. the tech company is expected to detail its largest re- organization plan in 5 years tomorrow. exxon mobile tops fortune magazine's list as the most profitable company in the world with $44 billion. the oil giant is followed by apple with $41. a back-to-school spending splurge: shopper trak predicts parents will spend more because the economy is stronger now than a year ago. it's exciting times once again for the stock market. larry shover of sfg alternatives joins us now. good morning larry. - good morning. - the s&p 500 cleared 1650. what will that mean to traders today? - a big resistance point. short-term, it's going to get
more people off the fence and into the market, but intermediate-term, a lot of people are on hold because not many companies really report their earnings until the middle of the month, so more people will be on hold than usual. - what about the rising price of oil? oil now near $104 per barrel. the reality is, fewer people will drive, and that could slow the economy down, true? - it definitely could slow the economy down, but i don't think it's up enough where it's really going to stall the economy. it seems like the numbers that we're seeing are coming out pretty well. auto sales, industrial production, etc., are all doing pretty well. we're not growing in vast portions, but we are making baby steps in the right direction. - there are a number of countries that are running into big financial problems: portugal, spain, greece, the list goes on and on - egypt, you could add in, with the unrest there. what are traders most focused on? - traders right now are most focused on the emerging
markets. let's not talk about china, but let's talk more about indonesia, mexico, brazil, korea. those are really dependent on exportation, and with the u.s. dollar continuing to go higher, with their economy at stall speed, that is troubling, and that's the thing that could potentially take the market down. - larry, thanks for your thoughts today. - you're welcome. in today's cover story, the fdic announces tougher leverage limits to create a "stronger, more resilient" banking industry - but financial firms say the new rules are an unnecessary step that will hurt the economic recovery. "currently, most banks are already compliant." now, the fdic proposes all major u.s. bank holding companies set aside at least 5% of their total assets, and that banks owned by them hold at least 6%. that's double the current level required by banks worldwide under regulations that took effect after the crash. "that means u.s. banks are at a competitive disadvantage to the rest of the world because it will cost more to do business than their international
counterparts." supporters say it will protect the government - and taxpayers - from having to bail out the 'systemically important' banks - chase, citigroup, wells fargo, goldman sachs, bank of america, morgan stanley, state street, and bank of new york mellon corp - in the event of another financial crisis. but the american bankers' association questions the cost of such protection, saying regulators are "under a mistaken belief that doubling capital requirements will have no impact on credit availability or the ability to hedge risk." "banks set aside money to strengthen leverage and liquidity ratios; on an overall basis, that reduces their ability to lend." "banks have enormous liquidity, plenty of capital. the problerm with lending is not so much banks as much as the borrower not wanting to take risk and borrow the money." the professor says the impact will be minimal because firms will have until the end of 2017 to adapt. "some may not be able to meet
it now, but they will easily be able to do it over the next four years." "the markets will expect the banks to be in compliance much sooner than 2018. in fact, they'll expect it within the next year or two." for the next 60 days, the fdic will take comments before final approval. professor mondschean believes banks will be able to tweak the rules to suit their needs, but the financial services roundtable vp says that's giving financial institutions too much credit. investors are bailing on bonds. according to morningstar fund tracker, investors in pimco, the world's largest bond fund, pulled $14.5 billion from the fund in june. the fund fell 2.6% last month - it monthly performance since 2008. morningstar analyst eric jacobson says the fund has an excellent track record and is well managed. "my suspicion is a lot of investors were people who jumped into the fund because it was doing so well before and are now being spooked by
volatility. that's not a good reason to buy or sell it, either." the bond funds in general have been hit hard since may, when 10-year treasury note yields hit a low. economic growth around the globe is slowing down. according to the imf's christine lagarde, new risks in the global economy have emerged. among them, the fed's future plans to pull back on stimulus. lagarde claims it's already having a ripple effect on the u.s., china, and brazil. she notes that europe's deepening recession also remains a concern. a new beginning for libor: nyse euronext will take over the administration of libor, the financial industry's benchmark interest rate. libor came into focus after several large banks admitted to roles in manipulating the rate, which is tied to interest rates globally. nyse euronext will take over the responsibilities early next year. tesla is on the move. the upstart electric car company will join the nasdaq 100 monday. tesla shares are up
roughly 260% this year. its market cap has revved up to a value of $14 billion. tesla currently trades on the nasdaq. the nasdaq 100 is an index of the top 100 companies of the nasdaq. the shift is happening as oracle exits the nasdaq for the new york stock exchange. general motors is following tesla's lead by releasing a hot car that is also eco-friendly. chevy's revamped corvette stingray allows drivers to shift into an eco-friendly mode which delivers 30 miles per gallon. chevy is calling it the most efficient sports car on the market. michelle krebs, an analyst for edmunds.com, tells us while tesla, with its battery-powered technology, isn't direct competition for chevy, tesla's influence is present throughout the industry. "i know that gm was inspired by tesla when they started developing the chevy volt. when
time goes by, we will look at tesla as being the turning point for moving towards electric vehicles, but more importantly, the electrification of vehicles." the stingray prices in at $51,000. new details are emerging about that asiana crash at san francisco airport. the national transportation safety board says there were 3 pilots on board flight 214. one was about halfway through the 777 training program at the time of the crash landing, and a commanding pilot was on a first trip as a flight instructor. the ntsb adds that the pilots believed they were maintaining speed. a surpirse pick to lead shell oil: europe's largest oil company has picked refining boss ben van beurden as its new ceo. van beurden joined shell in 1983 and will take over the top spot in the new year. he will need to help the company grapple with capital expenditures as it attempts to reach 4 million gallons of production a day in 2017, up from its current level
of 3.6 million daily gallons. the ceo of blackberry is asking investors to be patient. at a shareholder meeting yesterday, thorston heins reported the company is still in the early stages of its transformation. blackberry posted disappointing first-quarter earnings and has lost some 4 million subscribers. tech analyst rob enderle says a true turn-around takes 5 to 7 years. "well, it's whether the market will give him the 5 to 7 years. it's often not the case. that's why we have so very few successful turnarounds. it's often the financial investors won't give the ceo the time to execute the turnaround, but the way he fired up the base today would indicate that he's got more time" heins told shareholders that blackberry is in the second phase of its three-phase turn- around plan. also at the meeting, shareholders made it official by changing the company name to 'blackberry' from 'research in motion.' the country's second-largest retailer after wal-mart is bulking up. kroger company is
buying harris teeter supermarkets for $2.4 billion. kroger is the nation's largest grocery store chain, and this deal gives it a greater presence in the high-growth southeast and mid-atlantic with 212 more stores. this will be kroger's largest takeover in more than a decade. new twinkies will have a longer shelf life. next monday, twinkies return to store shelves after a labor fight. the treats now last 45 days on the shelf, versus 26. still to come, will corporate earnings throw wall street a curve ball this time around? that's later on. but first, five years after the damage of the recession, why community banks are still stuck in a perfect storm. that's after the break.
the banking industry is showing signs of health and wealth. overall profits for large banks are up 15% year-over-year; however, community banks are still struggling under the weight of regulations, low interest rates and bad loans. jackie keenan reports from florida. power lunches are common again here at mise en place in tampa, florida - good news for owner maryann ferenc, who is paying off loans she borrowed from gulf shore community bank to open her second restaurant. "we knew that it was the right
thing to do, it was right for our business. event business just died, and we went to the bank, and we knew it would be go, dig in and loan us the money." mise en place is thankful to gulf shore, and vice versa. with more than $230 million in assets, and armed with a recent capital raise of $6 million, gulf shore wants to grow to be one of the largest community banks in town. "you reed to get to 750 to a billion dollars in assets. that not only allows you to have the capabilities to serve your clients, it also gets you to a point where you see fixed costs rise in the industry, margin compression. at that level, we are able to have the scale to drive the type of returns investors want to see." five years after the start of the financial crisis, community banks are still being closed. the number of banks shrunk to just over 7,000 in 2012, down
from 8,500 in 2007. the five largest thrifts now control 52% of all u.s. assets. the crisis brought dramatic changes to u.s. banking regulations, regulations that are devastating profits already squeezed in community banks. caballero says community banks are burdened. "whether it's investment in technology, it's people, so you take the same size institution, and you just moved the same fixed-cost bar." in addition to regulations, overexposure to bad loans will continue to haunt community banks. "the banks are on the hook for that money, and they're gradually writing down those loans. they are overexposed; they lent too much." but trying to make money in a low-interest-rate world is tough when banks make money from yield. caballero says making a risky loan is not worth it . "you don't want to extend that credit risk, cuz what happens is a bank changes its credit risk profile and you get 3% more
over an investment, but you take 12% more risk, so it's mispriced." and with lending still tight, ferenc says community banks might be the only ones small businesses can turn to. "i wouldn't be in business if it wasn't for community banks." for first business news, i'm jackie keenan. the fdic reports the number of "problem" community banks is down, and bank failures have slowed. meanwhile, credit unions are catching on to consumers' overdraft habits. as fewer consumers overdraw their accounts, unions are increasing fees to $28, up from $25 a few years ago. big banks still charge the most, at nearly $35. americans are doing a better job of keeping up with credit cards. as the economy improves and banks remain tough on lending, the american bankers' association reports the delinquency rate on credit cards issued by banks fell to 2.41%, the lowest since 1990. it's down from 2.47% last
expectations are low for the latest round of earnings news coming from corporate america. sheraz mian, director of research at zacks investment research, is on set with us this morning. good morning, and what is your outlook? what are you predicting? - the expectations, as you rightly point out, are very low. they have been coming down as the quarter progressed. earlier we were looking for earnings growth of close to 4%. it's down now to 0.4% for the
second quarter, so extremely low expectations. that should make it easier for companies to jump through there. my sense is when all is said and done, the q2 earnings season will not be materially different from what we saw in q1. - why so dramatically low? what is the stumbling block here? - guidance. at the time of the q1 earnings releases, the overwhelming majority of companies guided higher. as i mentioned at the time, expectations were for earnings growth of about 4%, and those kept coming down as the guidance came through - and that will be the key thing to watch this earnings season as well, because expectations for the second half of 2013 remain quite high. - the last time you were here, you mentioned that the financials would be a standout sector as far as earnings. you were correct on that. what do you see this time around?
- it's the same story. in fact, finance is even more of a growth-driver in q2 verses what it was in q1. total earnings growth for finance is expected to be up close to 19% from the same period last year. if you strip finance out of the s&p 500, total earnings growth turns negative: -3.2% growth outside of finance, so not much growth within the corporate sector outside of finance. - what about technology? apple has had its struggles of late. - that's right. pretty much all of them have had it. we heard from oracle, exentra reported, too, and the growth expectation for technology remains weak. by our estimates, total earnings for the sector are expected to be down close to 8 - 8.5% from the same period last year. - and quickly before you take off, will there be anything in earnings news this time around that could spur the stock market higher? - i am thinking more of the stock market going lower. the trend is higher, as everybody has been talking about, but my sense is that as guidance comes
through, and expectations, given as high as they are for the second half, those expectations will come down. and now that the fed is not there to comfort everybody, those negative estimate revisions could be a problem for the market. - sheraz mian. thank you for coming on the set today with us. - sure. thanks for having me. still to come, trade secrets: a trader reveals his strategy for trying to turn a profit off his own off earnings news. chart talk is next.
you. - there are major earnings in focus this week. i'd love to hear some of your strategies. let's talk about wells fargo first. this one is very much in focus. - absolutely. wells and j.p. and the other banks, you have to be aware of loan-loss reserves. that's a way that they can kind of bring the earnings forward to kind of meet expectations here. so, with a lot of the banks, you have to almost pull that loan-loss reserve out, so look at what's called the "organic" or the actual earnings. given the fact that interest rates have shot up here, i look for earnings to maybe be lukewarm. and with the prices running so hard in front of it, i look for somewhat of a muted response, if any, to the earnings on both wells fargo and jp. - all right, the financials have rallied, so let's take a look at the chart here. so wells, where is this stock likely to go post-earnings? - you know, unless we really have a great, organic beat - again, without that loan-loss
number - i would look for the stock to struggle here, and maybe pull back 3-5%, just given the fact that they have had that move. again, that move in front of earnings is what a lot of us traders look at to kind of position. if it's run up in front of earnings, even if it beats, the post-earnings response may be muted; conversely, if it sells off hard, a lot of times it will miss, but you might get a rally. - so what would be your strategy here? - my strategy would probably be to wait until after earnings and jump in if there is a decent pullback. again, looking to maybe capture a little bit of a downdraft here on both wells and j.p., but, i wouldn't be an aggressive buyer in front of earnings, i tend to be somewhat cautious - that's a fancy way of saying chicken. i wait for earnings to come out before i play them. - so if either j.p. morgan or wells fargo fall on earnings news, that's when you're going to become a willing buyer, because you want to own those stocks thinking those stocks are linkely to rally from here. - absolutely. on about that 3-5% pullback i would jump in. around here, i'd probably wait and see. - good to have you on the show. thanks as always, tim. - you bet. thank you, angie. that's a wrap for now. coming up tomorrow, "the lone ranger" is already being called a flop. what the film's misfire could mean for disney's bottom line. we hope you will join us for movies & money thursday. from all of us at first business, thank you for watching, and have a great wednesday.
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