TheStreet.com's Jim Cramer says the homebuilders won't quit, and that's making the early-cycle plays work.
Have we really bottomed? The stubborn lack of decline in the homebuilders, coupled with the better-than-expected retail sales, the strong transports, and the conclusion of a deal like Clear Channel (NYSE: CCU) (Cramer's Take), has created an environment where you are hard-pressed, if you rely on stocks as forecasters, to ignore the possibility of a bottom.
I watch the HGX like a hawk, the homebuilding aggregation, and it simply won't come down. That's despite the awful numbers, the covenant violations (Standard Pacific (NYSE: SPF) (Cramer's Take)) the bad loans, the lack of mortgage money, the insistence of a down payment and an abysmal spring traffic season.
So, why are people buying the group that signaled the downturn? I think it comes down to price. If you force the homebuilders to sell, as Toll (NYSE: TOL) (Cramer's Take) did this quarter, taking no gains on homes, you clean up inventory. If you clean up inventory, which is what happened in western Florida, you stabilize pricing. When you stabilize pricing, you bring out buyers. It is a virtuous circle.
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Home Prices Fall for 7th Straight Quarter Twenty-eight metro areas saw double-digit drops in median house prices in the 12 months ending in March, according to the National Association of Realtors. Eight metro areas saw year-over-year price declines of more than 20 percent: Sacramento (29.2 percent); Riverside-San Bernardino, Calif. (27.7 percent); Lansing, Mich. (26.9 percent); San Diego (22.9 percent); Sarasota, Fla. (22.2 percent); Los Angeles (21.3 percent); Grand Rapids, Mich. (20.7 percent) and Las Vegas (20.2 percent). Study: House prices -Bankrate.com
As is almost the case ahead of some key data announcement, investors tend to be looking for direction. Indeed, stock futures were mildly lower early Wednesday morning as the Street awaits CPI reading on inflation. Also in focus this morning is housing after a reading on foreclosures surged.
Already on Tuesday investors seemed nervous as U.S. stocks finished mixed on Tuesday. Retail sales, Wal-Mart results, Hewlett Packard's acquisition of EDS and Federal Reserve Chairman Ben Bernanke's speech on the markets affected stocks with the Dow ending 44 points, or 0.34% lower, the S&P 500 nearly flat as it was down half a point, or 0.04%, and the Nasdaq Composite ending 6 points, or 0.27%, higher.
This morning, stocks will likely get a clearer direction after April's Consumer Price Index report due out at 8:30 a.m. EDT. Economists, according to Briefing.com expect CPI to rise 0.3% in April, while core CPI, which excludes the volatile food and energy prices, is estimated to be up 0.2% in April. Investors want the report to allow the Fed to keep interest rates as they are so as to bolster the dollar, and hence commodities, somewhat.
Speaking of the dollar and commodities, though, oil keeps trading on its own set of "rules," it seems. Overnight, oil set yet another record, shrugging off gains in the dollar. The record, near $127 a barrel, was due to concerns that Iran may cut production. Oil has retreated since as the reports may have been overblown. This morning, at 10:30 a.m. EDT the weekly release of U.S. fuel inventories is due. Meanwhile, congress voted Tuesday to challenge President Bush to temporarily halt the daily shipment of thousands of barrels of oil into the government's emergency reserve.
National home prices tumbled by 7.7% in the first quarter in a recent survey. While retail sales did fall -0.2% overall in the month of April, the ex-autos numbers were actually positive by +0.5%. Below are the unofficial closing levels for major averages:
Clear Channel Communications Inc. (NYSE: CCU) was up again on news of a settlement between the buyers and the banks for the $20 billion delayed buyout by Bain Capital and THL Partners. The court was adjourned until 2 pm today to allow settlement talks to continue. Shares were up 4% to $34.24 at the end of the day.
Crude surpassed $126.00 before retreating down by $1.85 to $124.11 late in the day. Many are citing that the interest in owning the dollar is also partly to thank for today's gains. Below are the unofficial closing bell prices for major index levels:
AnnTaylor Stores Corp. (NYSE: ANN) rose today after it forecast that first quarter profit will exceed projections. Additionally, the women's apparel store reported its plans to drop its older women fall line but push the opening of its Loft outlets. Shares were up 16% at $28.50 in the final minutes of trading.
Just a few weeks ago, it looked like the $19.4 billion buyout of Clear Channel Communications (NYSE: CCU) was dead. But in the deal market, things can change quickly.
Just today, the New York Supreme Court said there will be a stay on the litigation on the deal. According to CNBC, it looks like the parties are engaged in heavy settlement talk.
No doubt, a trial could be problematic for the banks that are on the hook for $22 billion in debt financing. These banks include: Citigroup (NYSE: C), Credit Suisse (NYSE: CS), Morgan Stanley (NYSE: MS), Royal Bank of Scotland, Deutsche Bank AG and Wachovia (NYSE: WB).
Now, they may be willing to fund the deal.
Why? Well, it looks like the debt markets are improving and the major banks have worked hard to boost their balance sheets.
In other words, the US credit crunch may be thawing. If so, we may see some more dealmaking – which would be a relief for Wall Street banks eager to get some juicy fees.
So far in today's trading, Clear Channel's shares are up 9.5%.
Thomas H. Lee Partners and Bain Capital have filed suits to try to force a bank group to fund their $19 billion buyout of CCU. The bank group is asking the courts to dismiss a part of the litigation.
Bloomberg is reporting that the CCU trail in New York State Court has been delayed by one day and that lawyers decline to comment on whether a settlement is in the works.
CCU call option volume of 23,870 contracts compares to put volume of 5,295 contracts. CCU May 32.5 straddle is priced at $4.10. CCU June option implied volatility of 89 is above its 26-week average of 61 according to Track Data, suggesting larger price risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Shares of radio broadcaster Clear Channel Communications Inc. (NYSE: CCU) were slightly up in early trading after the company posted higher first-quarter profit boosted in part by gains in its outdoor advertising unit. Though, the company was not able to beat analysts' predictions as the weak economy put pressure on the overall advertising market.
Clear Channel Communications announced that its quarterly profit surged to $799.7 million, or $1.61 per share. The income figures were definitely something to cheer about. During its first quarter last year, the company had net income of $102.2 million or 21 cents per share. Excluding one-time items, earnings for the quarter would have been $0.19 per share. Analysts' forecast (which typically exclude one-time items) was for $0.21 per share, according to Thomson Reuters.
The media and advertising display company also said that quarterly revenue rose 3.9% to $1.56 billion, compared with $1.51 billion reported in the same period a year ago, helped by favorable foreign exchange rates; excluding the effect of the week dollar, revenue rose only 1%. Analysts had been expecting to see slower sales of $1.53 billion.
Activision (NASDAQ: ATVI) late Thursday reported a fourth-quarter profit that handily beat expectations as video games sales nearly doubled with strong demand for Guitar Hero 3 and Call of Duty 4 games. ATVI shares are up over 4.5% in premarket trading.
Bristol-Myers Squibb (NYSE: BMY) and Sanofi-Aventis (NYSE: SNY) are about to face a generic threat from Swiss drug firm, Schweizerhall Holding, that said it's going to soon launch a generic version in Germany of Plavix blood-thinning drug.
Clear Channel (NYSE: CCU) reported its profit soared to $799.7 million or $1.61 per share in the first quarter while revenues rose 4% to $1.56 billion. The results beat expectation even when taken excluding one-time items that have earnings rising 70% to $161.4 million or 32 cents a share.
We are investing in optimistic times. News -- good or bad -- seems to magically morph into an opportunity to move markets higher. In the past week, even more than usual, weak economic news was accompanied by commentary along the lines of, "it could have been worse," and other euphoric sentiments.
It is difficult to determine whether this is another short-covering bear market bounce or a real rally. But next week will bring us new information that will start to indicate where the answer lies. For now, investors are looking at the glass as half-full. Cash on the sidelines is moving in to equities, partly because there are very few other alternatives. Yields are low, commodities are risky and real estate is taboo.
Next week begins with the celebration of Cinco de Mayo, yet the markets were way ahead -- it has shifted into party mode on its own during the past few weeks. Here is a summary of key events to watch during the week ahead:
Monday, May 5
First off, the market gets a chance to react to news of Microsoft withdrawing its bid for Yahoo. It will be interesting to see how far Yahoo's stock price sinks as well as what all the market watchers think Yahoo (NASDAQ: YHOO) and Microsoft (NASDAQ: MSFT) will do next.
Hewitt Associates (NYSE: HEW) the HR firm that has been showing amazing strength is set to report. First Call is looking for quarterly earnings of $.38 as compared to a year ago of $.23. There may be opportunity for this firm as we go into harder economic times where companies are looking for an easy solution to labor concerns.
Also reporting is Nam Tai Electronics (NYSE: NTE). It could have a good quarter since the need for computer parts is on the rise. Intel and Apple did well to show that international demand is still hot for electronics and this is one of the parts manufacturers. Through its electronics manufacturing services operations, Nam Tai makes electronic components and sub-assemblies, including liquid crystal display (LCD) panels, LCD modules, flexible printed circuit sub-assemblies and image sensors modules and printed circuit board assembly for Bluetooth headsets. First Call estimates are for $.19 as compared to year ago of $.19 per share on $163 million of revenue.
Wendy's International Inc (NYSE: WEN), struggling since the 2002 death of founder Dave Thomas, and pressed by investor Nelson Peltz to improve results, will today announce a deal with Peltz, the Wall Street Journal reported.
The Wall Street Journal also reported that the House Financial Services Committee voted to approve $15B in loans and grants so that local governments can buy foreclosed homes throughout the U.S. Committee chairman Barney Frank said the bill will avoid abuse, including requiring that purchased homes be a minimum 60 days into the process.
Adding to evidence of a rally in corporate credit markets, the Financial Times reported that Deutsche Bank AG (NYSE: DB) is preparing another big sell-off of its leveraged loans in Europe.
OTHER PAPERS:
Several e-mails that have been obtained by the New York Post sent between Wall Street banks may prove a serious setback in the fight over the takeover Clear Channel Communications Inc (NYSE: CCU). The e-mails reportedly show the banks, led by Citigroup Incorporated (NYSE: C) and Deutsche Bank, looking to get out of financing the buyout by Bain Capital and THL Partners by offering terms "they know the [firms] won't be able to accept."
Bernstein downgraded Salesforce.com (NYSE: CRM) to "market perform" from "outperform" according toBriefing.com. The news service also reports that Citigroup initiated Southern Cooper (NYSE: PCU) with a "sell".
Banc of America Securities said that Allstate (NYSE: ALL) may miss first quarter earnings due to payments for storm damages according to the AP.
True, the M&A business is known for its "feast-famine" cycles, but this time it looks like things could be particularly bleak – and perhaps long lasting. Just look at the break-down of the $19.5 billion buyout for Clear Channel Communications (NYSE: CCU).
Basically, financial institutions are in the process of repairing their balance sheets, and as a result, don't have the firepower to finance deals -- especially large ones. In fact, these firms need to find ways to deal with more than $200 billion in LBO loans.
There is also likely to be a slowdown in strategic acquisitions. That is, as the US economy slows down – which may impinge the global economy – where buyers are likely to get jittery. Why take big risks in such an environment?
Now, there are offsetting factors such as the emergence of mega sovereign wealth funds. However, they may get some political pushback.
In other words, don't expect a comeback anytime soon.
TheStreet.com's Jim Cramer wonders what's going on with the Clear Channel deal.
The focus on this Clear Channel (NYSE: CCU) (Cramer's Take) breakdown, the endless focus, is on the $500 million that the private-equity team, Bain/Lee, will have to pay Clear Channel.
What's more important, I believe, is the billions of dollars I believe the bankers will owe Bain/Lee if they don't find some way to cut this price and make this deal smaller.
There have been dozens of deals that were struck during this period that the bankers wished they could walk away from but didn't. Which says to me, how desperate are they now NOT to have to pay the $22 billion in this very large deal. How desperate are they given the fact that a judge will, I believe, find against them and the damages will be immense, as big as the billions that Lee/Bain can show -- and will -- they would have made if the deal closed in the out years.
TheStreet.com's Jim Cramer says the homebuilders won't quit, and that's making the early-cycle plays work.
As is almost the case ahead of some key data announcement, investors tend to be looking for direction. Indeed, stock futures were mildly lower early Wednesday morning as the Street awaits CPI reading on inflation. Also in focus this morning is housing after a reading on foreclosures surged. 
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We are investing in optimistic times. News -- good or bad -- seems to magically morph into an opportunity to move markets higher. In the past week, even more than usual, weak economic news was accompanied by commentary along the lines of, "it could have been worse," and other .gif){kind=logo}
It's a scary thing for investment bankers: the "credit crunch." It has essentially depleted the industry, as dealmaking has shrunk significantly.
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