U.S. Retailers July Sales Beat Estimates on Weather (Bloomberg)
The heat wave continues to have its impact felt on corporate earnings. Of course, Starbucks reported weak sales because demand was so high that they couldn't keep up, but other retailers benefited as shoppers sought sanctuary on air-conditioned, fluorescent retail floors. Altogether same-store sales in the retail group were up 3.5 %, with J.C. Penney leading the way at a 4.9% clip. The company presumably benefited from being attached to shopping malls, which are more fun to hang out in than a Wal-Mart, whose same-store sales rose only 2.4%. Of course there was also the countervailing aspect of high gas prices, but most people are reasonably going to pay for a few gallons to avoid heat stroke. (Note: yes, that picture is a visual pun, with a touch of irony thrown in too, since of all malls, the National Mall is the last one you'd want to be at during a heat wave!)
Hurricane forecasts cooling off (Houston Chronicle)
Since weather is the new Iran, you should know that researchers have lowered their estimates for hurricane activity this season. While we've got heat on land, Atlantic ocean temperatures are actually fairly cool. The most respected hurricane forecaster (that deserves its own discussion) has reduced his estimate from 17 tropical storms to 15, and of those only seven will be hurricanes, compared to the previous estimate of 9. Hopefully, if hurricane analysis continues to be an important aspect of business and financial markets, the noted hurricane forecaster, William Gray, will join the Barron's roundtable. But all is not clear; a Canadian forecaster thinks that a major hurricane could get as far north as Canada, do to high ocean temps near the maritime states. And if it could get as high north as Canada, it could probably get as high north as New York, which wouldn't be fun. Well, if it's only Queens that gets hit hard, it shouldn't matter too much.
As Oil Prices Rise, Investors Pour Into Risky Energy Plays (WSJ)
As the price of oil continues its death-defying run, it's no surprise that a lot of investors are eager to get in on the action. Markets are funny that way; assets become more popular as they get more expensive to own. But most people dismiss any talk of bubble, citing the hard assets behind companies, and the stable demand for the dirty stuff. But the hard assets line only works when there is actually hard assets, something that's not so guaranteed these days. There's been a proliferation of energy-related startups that are nothing more than management teams looking to acquire oil assets. And the money they've been raising would put Silicon Valley to shame. Major banks and hedge funds have been tripping over each other to lend them money. Reverse mergers and pink sheet IPOs are hot again. In fact, next month we're going on our road show for Dealbreaker Oil & Gas; wish us luck in abiding by our quiet period obligations.
Legal Stance May Pay Off for Merck (NYT)
Yesterday we wondered whether Merck's string of victories in Vioxx cases would have a discouraging effect on lawyer or plaintiffs. Considering that lawyers take these gigs for free, and are only paid if they win, while plaintiffs have to devote a significant chunk of their time, it would seem foolish to go in with a weak case. Certainly all of the people who had heart attacks, but survived, would seem to be battling with one arm behind their back. Apparently, this is the consensus view, that the plaintiffs are getting discouraged. Over 300 cases have been withdrawn already, just because the lawyer felt the client couldn't produce evidence of actually having taken the drug. Get that? In some of these cases, it's not ever clear that the victim ever took Vioxx, or if they did that they took anything more than a one-week free sample from the doctor. Yeah, there are some week cases out there.
Clear Channel lobbies for change (The Deal)
There's something really quaint about most media ownership regulations. The fact that anyone still thinks that Clear Channel could have a death grip over the media and the information we receive, simply by buying up a few more radio stations, is amazing. It's perhaps a bit too agreed upon that the old media gloms face the fight of their lives, with many handycapping them to come through the carnage as significantly-battered shells of their former selves. True or not, watching the opponents of media consolidation with their media charts, and their complaints that Viacom owns half of cable TV or whatnot is an amusing blast from the past, like the year 1997 were put into a time capsule.
Day of reckoning approaches for Teck chief (Globe & Mail)
We've been trying to follow the twists and turns of the metal mining market, but it's admittedly difficult. Phelps Dodge and Canada's Teck Cominco are locked in a battle to by out Inco. At the moment, Teck has the highest offer on the table, but Phelps is weight is options, staring its opponents down, looking over the river cards, and counting its stack before deciding whether to play on or flop. But it's Teck that's seen as playing with an unclear strategy. Nobody knows how its ready to big to lock up Inco, or whether it's really ready to go down to the wire with Phelps. We'll follow it at every turn, but at this point we're rooting for Teck Cominco, just so that the newly merged company can be called Teck ComincoInco.
Total forced to delay oil sands plans (Globe & Mail)
The residents of Northern Alberta (forgive us for talking about the residents of Northern Alberta) have to be pretty used to disappointment. After all, they live in one of the most resource-rich regions of the world, and have been promised, every time oil gets expensive, that they're about to see a major boom in production. But the sands Alberta have proven stubborn every time; it's almost as difficult to mine as oil from shale. Now Total, the French oil giant, has announced a three-year delay in its sands-based operations due to soaring costs and a shortage of equipment. That's the irony of mining the oil sands. It's only profitable when oil is very expensive, yet when raw materials are so expensive, the costs are prohibitive. Other companies are dramatically ratcheting up their expense estimates for their projects, while others face a shortage of the necessary vehicle tires to drive around. Looks like we're gonna have to rely on MidEast oil for some time.
'Side-Pocket' Accounts Of Hedge Funds Studied (WSJ)
If only there were a way to profit from the general them of "things that hedge funds or companies do that draw the suspicion of regulators", we'd be in great shape. Actually, there are companies that profit from this; they're called law firms. The latest not-yet-a-scandal-but-could-be-one-if-a-major-hedge-fund-blows-up is the use special side accounts that hedge funds use to place assets that are 'harder to value'. They insist that if they had to put these assets into the general fund, it may penalize investors, though they probably mean it might cause a hit to their quarterly compensation. Legitimate or not, the existence of side accounts will only make it easier for politicians and pundits to make Enron comparisons, when stating the case for more regulation.
Serwer: A Starbucks hiccup (Fortune)
Andy Serwer, you sure are a devilish contrarian aren't you. Earlier in the week you were talking about how Sarbanes-Oxley was a good thing, and now you're saying that Starbucks' bad news makes for a good buying opportunity. Man, you sure no how to go against the grain. Of course, if you don't accept the party line, that the company was weak cause of too much demand, well, then your argument is a little less convincing.