New Shine on Gold

123jump.com Staff
15 Sep, 2005
New York City

Well, gold is back in favor, and for good reasons. Federal deficit is likely to be higher, when one add up the cost of Gulf of Mexico rebuild, Iraq costs, airline bankruptcies driving pension obligations and ever rising oil prices. Twin deficits of trade and budget are here to stay and market is finally realizing that, even though averages do not reflect that yet. Bear Stearns earnings failed to impress market and Pier One stock rose 9% on earnings.

U.S. MARKET AVERAGES

Market remained on the edge and defensive all day. The morning news on inflation and initial claims of unemployment supported early momentum at opening. The rise in oil price in the morning was overshadowed by the good news on the core inflation. The market in the afternoon ran into the weakness in oil, home builders, casinos, retailers and financials sectors. In the late afternoon utilities, techs, and energy stocks led the advances but major averages failed to rise much.

Gold shined during the session and rose $5.60 to $456.30 per ounce. The inflation worries in the short term is not reflected in the economic statistics, but Hurricane Katrina, highway bill, airline bankruptcy, and Iraq war will all contribute to higher federal government deficit. Gold closed nine-month high as several traders predicted that price may reach as high as $500.

AOL and Microsoft ((AOL)), ((MSFT))

Microsoft is in talks with Time Warner to acquire or partner with its troubled subsidiary AOL. Once fierce rivals are driven to explore merger talks indicates how times have changed in the last ten years. With the success of Google search engine, Yahoo’s lead in advertising revenue and AOL’s failure to exploit the content synergy with its parent Time Warner, AOL is now looking for a tech savvy home.

AOL and Microsoft hope that Microsoft’s ability to develop Internet tools and merge AOL client base with that of MSN will give both a bigger customer base. AOL may have been better off, had it remained independent in the first place. The hoped synergy between Time Warner and AOL never really materialized.

AOL and Microsoft are still far from the success of Google, Yahoo, and eBay. If size was the issue none of these three leaders of today would have succeeded. The merger between AOL and Microsoft may turnout to be yet another sad chapter in the AOL saga.


MOVERS AND SHAKERS

UICI ((UCI)) jumped 15% after it has agreed to be bought by an assembly of private equity firms headed by Blackstone Group.

Bear Stearns ((BSC)) fell 2.1% due to its earnings report that stated earnings of $378.3 million, or $2.69 a share, which is only little higher than the expectations of $2.38 a share.

Google ((GOOG)) dropped 0.9% after the search engine priced its secondary offering of 16 million shares through a group of investment bankers.

Motorola ((MOT)) was 0.8% higher after news report saying that the company took advisers to explore the sale of its automotive unit.

Boeing ((BA)) could be in play after Prudential Equity Group warned about possible feedbacks from a machinists' strike.


ECONOMIC NEWS

Consumer prices continued higher in the month of August, according to a report from the Department of Labor, although the increase came in line with economist estimates. Nonetheless, the report did not include much of the impact of Hurricane Katrina.

The Labor Dept. said that the consumer price index rose 0.5 percent in August, matching the increase seen in the previous month. Most economists had been expecting prices to increase by 0.5 percent.

The increase in consumer prices was largely due to a sharp rise in energy prices, which rose 5.0 percent in August following a 3.8 percent increase in July. The increase reflected a 7.9 percent increase in prices for energy commodities and a 1.3 percent increase in prices for energy services.

The report also showed that the core CPI, which excludes food and energy prices, rose by 0.1 percent for the fourth consecutive month. The increase came in slightly below economist expectations of an increase of 0.2 percent.

The number of people filing for first-time unemployment benefits surged in the most recent week, according to government data released Thursday, due largely to the impact of Hurricane Katrina.

The U.S. Labor Department reported that initial jobless claims jumped to 398,000 for the week ended September 10, up 71,000 from the previous week's revised figure. The sharp advance during the week came as a large number of people displaced by Hurricane Katrina filed for unemployment benefits.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks ended mixed after higher trading at mid-day as stock markets shrugged off rising crude-oil prices. The Japanese stocks climbed 1.2% on economic data, showing improved household confidence, while Taiwan’s shares dropped 1.1% on raised interest rates. Across the region, Hong Kong’s Hang Seng lost 0.3% and South Korea’s Kospi fell 0.1%.

European stocks closed mixed as the German DAX 30 lost 0.1% ahead of general elections on the weekend. In the other regional markets the French CAC 40 added 0.2% and London’s FTSE 100 climbed 0.7% as both stock markets made gains on the back of strong oil and mining sectors.

ENERGY, METALS, CURRENCIES

Oil prices eased back on signs of lower fuel demand. U.S. light sweet crude October delivery lost 19 cents to $64.90 a barrel. London Brent fell 26 cents to $63.11.

Gold futures neared $460 per ounce pushing metals-mining indexes up to a nine-month high. Gold for December delivery reached $459.20 per troy ounce, a level last seen when the precious metal touched $467.00 on December 7. Silver gained 7.5 cents to trade at $7.12.

Copper prices slipped 1.9 cents to 1.592 a pound.

The U.S. dollar advanced against the other major currencies in European trading. The euro slightly fell to $1.2207 from $1.2275 ahead of general election in Germany. The British pound traded at $1.8055, down from $1.8231 on unchanged level of retail sales in Britain for August. The dollar bought 110.36 yen, unchanged.

EARNINGS NEWS

RBC Bearings ((RBC)) posted first-quarter net income of 22 cents a share, as it swung to a profit from a year-earlier loss of 71 cents a share on revenue growth to $66 million from $56 million. The company, which went public last month, is not surveyed by analysts.

Docucorp International Inc., ((DOCC)) information software producer, posted 4Q net income of 1 cent a share, down vs. 14 cents in the same period last year4 despite revenue growth, missing analyst estimate of 7 cents a share Profit dropped as a result of lower margin in Docucorp's ASP business, increased software amortization, expenses associated with Sarbanes-Oxley Act compliance and currency exchange losses.

Pier1 Imports Inc. ((PIR)), home-furnishings retailer, reported a 2Q net loss of 12 cents a share , down from last year’s profit of 12 cents a share on decline in sales. Comparable-store sales dropped 7.7%. The market analysts’ estimate was for 13 cents a share.

The Bear Stearns Companies Inc. ((BSC)), securities broker company, posted 3Q record earnings of $2.69 up 29% vs. $2.09 per share for the comparable period last year on 18% revenue growth and 34% net income growth. Annualized after-tax return on average common stockholders' equity for the third quarter 2005 was 16.9%, and for the trailing 12-month period ended August 31, 2005 was 16.8%.

SYS Technologies ((SYS)) information technology solutions provider, reported 4Q net income of 5 cents a share, up a penny from last year result on 15% revenue growth. Operating income rose approximately 7% and net income increased 41%.

[Epic Bancorp ((EPIK)), holding company, reported 2Q net income of 30 cents per share up from 18 cents per share, for the same period last year, representing a 67.8% rise in net income and a 66.7% rise in earnings per share. The company announced the declaration of a 3-cent per share second quarter dividend, payable on October 14, 2005 to shareholders of record as of September 30, 2005.


CORPORATE NEWS

Fidelity National Financial ((FNF)) and Certegy ((CEY)) announced a definitive merger deal. Under the agreement, each share of Fidelity National Information Services, a majority-owned subsidiary of Fidelity National Financial, will be exchanged for 0.6396 shares of Certegy common stock.

Private equity firm Blackstone Group is close to an agreement to acquire UICI, a nontraditional health- insurance companyin a $1.2 billion deal. Blackstone is expected to sell about $250 million of equity in the deal to two other investment firms, including DLJ Merchant Banking Partners, the private-equity arm of Credit Suisse Group's Credit Suisse First Boston.

Google priced a follow-on stock offering of 14.16 million shares at $295 apiece. The sale will raise $4.18 billion, making it the biggest follow-on offering.

Newell Rubbermaid, consumer-products maker, announced that it will cut more than 5,000 jobs and close a third of its 80 manufacturing plants as part of a restructuring plan aimed at cutting $120 million a year in costs by 2008.