Whitney Reverses Citigroup Call: Is Financial Crisis Over?

Meredith Whitney, who made the prescient call in 2007 that Citigroup would cut its dividend, has now upgraded the very stock that brought her celebrity status among equity analysts during the credit crisis.

Shares of Citigroup
Tuesday rallied as news of the upgrade to a “hold” from “underperform” spread beyond Whitney’s direct clients. The stock is up 34 percent so far on the year.

“C shares continue to trade well below tangible book value (70%), despite relatively lower mortgage and European exposures than its large-cap bank brethren,” wrote Whitney, who founded Meredith Whitney Advisory Group in 2009. “On the capital question, we believe C will handily make its capital target of +8% by the end of 2012.”

Whitney had a “Sell” or “Underperform” rating on Citigroup since starting coverage on the stock at her new firm in April 2009.

At the end of October 2007, while working for Oppenheimer Co., Whitney made waves by predicting that Citigroup might have to cut its dividend payout to raise capital.

The call drew the scorn of the company and fellow analysts, but turned out to be right after Citigroup cut its dividend in January of 2008 as more of the subprime mortgage securities that Whitney had warned about went sour on the company.

The stock would go on to lose more than 95 percent of its equity value before bottoming at the depths of the credit crisis following a series of government injections of capital that ultimately saved it.

Citigroup reported better than expected earnings and revenue on Monday, which was the catalyst for Whitney’s call.

“Management also reaffirmed guidance for 2012 expenses, stating that operating expenses should be $2.5-$3.0B lower than the 2011 total of $50.7B,” wrote Whitney. “We continue to believe that expense management is key for C, as continued positive operating leverage will be an important support for the stock.”

This week’s call marks a sort of milestone for the credit crisis, given that Whitney was one its most outspoken prognosticators.

“The financial crisis is over,” said Rosecliff Capital’s Michael Murphy in response to the Whitney call. “There is a lot of money to be made if you can take your emotions out of the equation and focus on company valuations. Big banks will continue to cut spending, manage costs, make money.”

Right or wrong, the media spotlight that followed Whitney in the wake of the crisis brought with it a ton of scrutiny of her current calls. The analyst didn’t help herself by making a controversial prediction in 2010 that “billions” in municipal bond defaults were ahead, a forecast that has yet to come true.

Whitney was still negative on Citigroup in her most recent television appearance a month ago, which you can see above.

CNBC’s Maria Bartiromo asked the analyst what it would take for her to invest in Citigroup.

“A new brain,” answered Whitney.

For the best market insight, catch ‘Fast Money’ each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.


John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team. Click here to see his full bio.

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Article source: http://www.cnbc.com//id/47074311

Posted by admin - April 18, 2012 at 3:26 am

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Market Rebound: ‘Earnings Have Really Driven Stocks’

Despite the recent stock pullback, corporate earnings are expected to continue giving the market some short-term momentum.

“There’s a huge tug of war between Europe and earnings and right now, earnings are winning,” said Burt White, CIO of LPL Financial on CNBC’s Power Lunch.

Stocks spiked sharply Tuesday, logging their strongest rally in a month, boosted by a handful of positive earnings reports from heavyweights such as Goldman Sachs
, Johnson Johnson
and Coca-Cola
. (Click here to track the results.)

Eighty-six of the SP 500 companies are scheduled to report earnings this week, marking the first heavy earnings week of the season. Abbott Labs
, BlackRock
, Ebay
and Yum Brands
are scheduled to post results on Wednesday.

“Two weeks after report, earnings have really driven stock prices and we’re sitting right in the middle of that,” White explained. “Eleven of the last 12 quarters we’ve seen positive gains for the market in the two weeks after Alcoa
we’re only five days post, so we have another week of this going.”

Some experts extended their bullish views, saying they expect a favorable environment for equities to last for the rest of the year.

“I do think this market moves substantially higher over the course of the next year,” said Carmine Grigoli, chief investment strategist at Mizuho Securities. “Earnings will rise by 8 to 10 percent, you also have an increased appetite by the corporate sector…and the valuations of the equity market relative to interest rates have not been this low in over 50 years, so what’s not to like?”

And Joe Bell, senior equities analyst at Schaeffer’s Investment Research has a 1,525 year-end price target on the SP 500.

“The strong price action, coupled with decline expectations and the overall negative market sentiment is all going to be a positive for stocks going forward,” he said.

But a handful of tepid economic news, ongoing euro zone debt woes and worries over a soft landing in China prompted a selloff in the last two weeks, leaving investors to wonder whether a bigger correction is on the horizon.

While stocks are taking a pause from the pullback, some experts say the global worries will continue to spook the markets for the foreseeable future.

As a result, Todd Schoenberger, managing principal of The BlackBay Group said he remains bearish.

“Going forward, housing is going to be bad, jobs growth is going to be disappointing and so the poison is still there for investors,” he said. “I predict we’re going to finish lower for the year.”

Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC

Article source: http://www.cnbc.com//id/47077966

Posted by admin -  at 3:26 am

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Warren Buffett: My Succession Plans Have Not Changed

Berkshire Hathaway Chairman and CEO Warren Buffett said Berkshire Hathaway’s succession plans have not changed, despite his diagnosis of stage 1 prostate cancer.

Warren Buffett

Buffett put out a release informing shareholders of his condition after the market’s close on Tuesday. In the release, Buffett said a CAT scan, bone scan and an MRI all showed no cancer elsewhere in his body, adding “I feel great — as if I were in my normal excellent health — and my energy level is 100 percent.”

In an interview with CNBC in late February, Buffett said Berkshire’s board had chosen his successor, but that the individual was not aware he had been chosen as the next CEO of the company.

On Tuesday, Buffett said that nothing had changed and the chosen successor was still unaware of the board’s decision.

Buffett said he and his doctors have decided to begin a two-month treatment of radiation beginning in mid-July.

The timing was chosen to keep from interfering with previous commitments Buffett has made, including travel for Allen Co.’s annual Sun Valley retreat, which takes place in early July.

When he is undergoing radiation, he won’t be able to travel because his treatments will take place daily.

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Article source: http://www.cnbc.com//id/47079344

Posted by admin -  at 3:26 am

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Housing Starts Fall, New Building Permits Surge

Groundbreaking on U.S. homes fell unexpectedly in March but permits for future construction rose to their highest level in 3 1/2 years, giving a mixed message for one of the economy’s weaker sectors.

Housing starts slipped 5.8 percent to a seasonally adjusted annual rate of 654,000 units, the Commerce Department said on Tuesday.

The long-moribund U.S. housing sector has showed signs of an incipient recovery in recent months, and homebuilding could add to economic growth this year for the first time since 2005.

Despite the drop in starts, the data suggest housing construction could still add to gross domestic product during the first quarter, said Millan Mulraine, a macro strategist at TD Securities.

But an oversupply of unsold homes is depressing prices, creating a big hurdle for the sector, said Gregory Miller, an economist at Suntrust Banks in Atlanta.

“It’s going to be rocky for a while,” Miller said, adding the data pointed at best to a tentative recovery.

Some analysts speculated that a mild winter in the U.S. led homebuilders to start new projects ahead of schedule, and that March’s decline amounted to a payback.

“Weather was so mild earlier in the year we might have pulled some of the starts forward,” said Mark Foster, who helps manage $500 million at Kirr Marbach Co. in Columbus, Ind. “But the trend looks good, it feels like the housing market is trying to form a bottom.”

February’s starts were revised down to a 694,000-unit pace from a previously reported 698,000 unit rate.

Economists polled by Reuters had forecast housing starts little changed at a 705,000-unit rate.

U.S. stock futures pared gains after the data was published, while prices on U.S. government debt trimmed losses.

March’s decline in housing starts was the biggest percentage drop since April of last year, although most of the fall was in the volatile multiunit category, which declined 16.9 percent.

Starts for single-family homes eased 0.2 percent.

And brightening the report’s message on the economy, new permits for home construction surged.

Permits rose 4.5 percent to a 747,000-unit pace last month, the highest since September 2008 and beating economists’ expectations for a 710,000-unit pace.

“The rise in permits kind of offsets the disappointing data,” said Omer Esiner, a market analyst at Commonwealth Foreign Exchange in Washington.

Sentiment among homebuilders ebbed in April for the first time in seven months, a survey showed on Monday.

Article source: http://www.cnbc.com//id/47072035

Posted by admin - April 17, 2012 at 3:22 pm

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Goldman Earnings Top Estimates; Raises Dividend

Goldman Sachs reported higher-than-expected quarterly earnings thanks to aggressive cost-cutting and strong investment banking and trading revenues, and the Wall Street bank raised its dividend.

The Goldman Sachs booth on the floor of the New York Stock Exchange

earned $2.1 billion, or $3.92 per share. In the year-ago period, which was generally stronger for investment banks’ trading and banking activity, it earned $4.38 per share, excluding a one-time cost for buying back preferred stock.

Analysts had expected $3.55 per share, according to Thomson Reuters I/B/E/S.

Goldman said it would raise its quarterly dividend to 46 cents per share from 35 cents.

Revenue was down across most of Goldman’s businesses except for financial advisory and equities client execution.

But bond-market businesses were a bright spot compared to the 2011 fourth quarter, when markets were still reeling from the European debt crisis.

Revenue more than doubled in debt underwriting and fixed-income, currency and commodities trading.

“Because client activity remains relatively low in certain areas, especially in parts of Investment Banking, we believe that our mix of businesses gives the firm significant room for revenue growth as economic and market conditions continue to improve,” Chief Executive Lloyd Blankfein said in a statement.

Goldman also made further cuts to staffing and expenses in what is expected to be the final stretch of an aggressive cost-cutting program that began during the second half of 2011.

The bank set aside $4.4 billion for compensation and benefits during the first quarter, down 16 percent from a year earlier. It also reduced its workforce by 900 employees, or 3 percent.

“I like the dividend increase. I would expect to see that at some point we’ll see significant announcements about share repurchases. I like what I see and sense about cost containment at Goldman. The two reasons we own Goldman are a culture of cost containment and just the fact that they have a heritage of successful best-on-the-street intellectual capital,” Steve Shafer, CIO of Covenant Global Investors told Reuters.

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Article source: http://www.cnbc.com//id/47062001

Posted by admin -  at 3:22 pm

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Obama to Push for Crackdown On Speculation in Oil Markets

Under pressure to take action on rising gasoline prices, President Barack Obama wants Congress to strengthen federal supervision of oil markets, increase penalties for market manipulation and empower regulators to increase the amount of money energy traders are required to put behind their transactions.

The White House plan, which Obama was to unveil Tuesday, is more likely to draw sharp election-year distinctions with Republicans than have an immediate effect on prices at the pump. The measures seek to boost spending for Wall Street enforcement at a time when congressional Republicans are seeking to limit the reach of federal financial regulations.

Obama plans to spell out his $52 million proposal Tuesday at the White House, where he will be joined by Attorney General Eric Holder. Republicans have been hammering Obama on his energy policies, recognizing the political cost of high gas prices on the president.

Obama’s plan would turn the tables on Republicans by taking aim at Wall Street’s role in the oil price chain. Senior administration officials who put together the proposal said it aims to detect and deter illegal manipulation by energy speculators, the type of practices that many Democrats blame for the high cost of gasoline. The officials spoke on condition of anonymity to discuss the plan ahead of Obama’s announcement.

They would not go as far as to say that market manipulation is responsible for rising gas prices, but the officials said they wanted to curtail the ability of speculators to take unlawful advantage of oil price volatility.

At issue is the increasing role of investment in oil futures contracts by pension funds, mutual funds, hedge funds, exchange traded funds and other investors. Much of that money is betting that oil prices will rise. Analysts say it is possible that such speculation has somewhat inflated the price of oil.

At the same time, investors can also bet that prices will go down — indeed, speculators have been credited for low natural gas prices.

Studies of the effects of speculation on oil markets indicate that it probably increases volatility, but doesn’t have a major effect on average prices.

Still, seeing a potential problem with speculators is not limited to Obama or Democrats or this election season. When gasoline hit $3 a gallon in 2006, George W. Bush launched an investigation, declaring Americans “don’t want and will not accept … manipulation of the market. And neither will I.”

Last year, as prices rose, Obama and Holder announced the creation of a task force to look into fraud in the energy markets. Obama’s plan this time calls on Congress to:

1) Increase six-fold the surveillance and enforcement staff of the Commodity Futures Trading Commission to better deter oil market manipulation.

2) Increase spending on technology to provide better oversight and surveillance of energy markets.

3) Increase civil and criminal penalties against firms that engage in market manipulation from $1 million to $10 million.

4) Give the Commodity Futures Trading Commission authority to increase the amount of money that a trader must put up to back a trading position. The administration officials said such authority could help limit disruptions in energy markets.

In addition, the Obama administration, on its own, will increase access to the commission’s data so the White House Council of Economic Advisers can examine and analyze trading information.

The White House effort comes at the same time that Republicans have been pushing Obama with their own energy proposals. House Speaker John Boehner (R-Ohio), wants to seek votes on more domestic oil and natural gas exploration, a freeze on regulations on refineries and approval of construction of the Keystone XL pipeline from Canada to Texas, a project Obama has blocked.

Republicans are also trying to place limits on the financial regulation legislation Congress passed in 2010 over Republican objections. Though the House Republican budget, which calls for sharp reductions in government programs, does not specify reduction in spending by the trading commission, the administration officials said that if the cuts were applied the commission would lose more than five times what it spends on regulating energy markets.

The debate will pit Republicans who blame Obama for high gasoline prices against a White House that blames Republicans for coddling Wall Street.

Article source: http://www.cnbc.com//id/47071519

Posted by admin -  at 3:22 pm

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