Research Takeaways, Week of July 11, 2011

Special Feature: The Obama Administration’s Assault on Freedom, Jobs, the Constitution, Capitalism, Business, Christians & Jews

The Cat’s Out of the Bag! Obama Admits Social Security is Officially Broke, July 14, 2011

Because You Can Always Make a Bad Situation WorseHear Us Now!, July 13, 2011

Obama officials misled Congress regarding illegal immigration deportations AGAIN!, July 10, 2011

The, July 12, 2011

Democrats’ Magical Thinking Won’t Reduce Deficit: Ramesh Ponnuru, July 11, 2011

Entitlement Abuse — Here, There and, July 11, 2011

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Airfreight: “Freight demand disappointed in 2Q, along with the macro. Despite these trends, airfreight was surprisingly resilient with pricing improving through the quarter. Tough year-over-year comparisons will limit growth rates, but stable or improving demand in June, modestly lower fuel prices, and JIT inventory may be enough to create some upside surprise in the quarter. Given the macro focus and air freight’s early cycle tendency, earnings season may be an opportunity to gain insight into current global demand and the outlook for high value goods in 2H/11, both of which we expect to be more positive than sentiment suggests.” — Morgan Stanley Research, July 11, 2011

Airlines: “…airline revenue trends are echoing the recent “soft patch” in macro data and anecdotal evidence suggests the weakness is more leisure than business driven.  …we suspect airlines will remain volatile into earnings though longer-termremain bullish on the basis of: 1) attractive valuation and 2) we believe that fall capacity cuts will be a positive industry catalyst.” — Morgan Stanley Research, July 11, 2011

Agricultural Chemicals: “Despite an ongoing correction, nitrogen prices remain robust relative to typical seasonality (i.e., they will likely remain higher than peak spring prices). After a $200/mt increase in 2Q, urea pricesare expected to be soft for the next 2-4 weeks with price support from Brazil and India. Domestic potash prices in the US are rising, and there are discussions of a $20/mt Brazilian price increase later in 3Q.” — Morgan Stanley Research, July 11, 2011

Banks: Dodd-Frank Forces Banks to Shrink,, July 12, 2011

“In Smith’s view, the power of Dodd-Frank can already be seen in moves like Citigroup Inc. (C)’s decision to sell off lines of business such as its consumer-lending unit.”  I’ve  noticed this myself, as TJ Maxx and Target have also sold off their credit card businesses. — Crista.

Bank Stocks: On Thursday, JP Morgan (JPM) reported eps of $1.27, above consensus of $1.21. On Friday, Citigroup (C) reported eps of $1.09, above consensus of $0.96. Will this spark a turnaround in bank stock prices? Their charts are still all over the place, with ugly to neutral scenarios. JPM and C’s charts look stable. A person who wanted to “buy low” on banks could start here — nobody has missed the next run-up by any stretch of the imagination! — Crista, July 15, 2011

GDP: “Payroll growth of only 18k jobs and weak underlying component data fell well below expectations. Our economics team cut their 2H11 GDP growth outlook to 3.5% from 4%.” — Morgan Stanley Research, July 11, 2011

IT Spending: “The July data showed the first downtick in IT spending intentions since January 2009, with IT spend forecast to grow 3.4% in CY11 vs. 4.1% in the April survey and 3.9% in January. We are likely entering a period of IT spending where growth rates no longer improve each quarter, but show volatility as demand settles post cyclical recovery.” — Morgan Stanley Research, July 13, 2011

Oil Services, Drilling and Equipment — “While North American activity and pricing should be strong, much as expected, we believe the real change this quarter will be a firmer tone from the service majors with respect to their international outlook.We also expect a more positive tone from the offshore drillers, despite choppy numbers due to downtime as the industry upgrades older rigs. A solid recovery in bidding activity should push deepwater rigs through $500kpd in the Gulf of Mexico relatively soon. For the Big 4, the 2Q earnings season should offer a constructive outlook on international pricing which has increased by as much as 20-40% in some product lines. We expect SLB ($89.96) (our top pick into earnings) and BHI ($75.07) to lead the pack on international margins, while HAL ($54.04) stands to benefit from relative multiple expansion, as US activity becomes oil-driven. WFT ($18.73) is the one true wildcard, although anything other than a bad quarter is likely good news and we would buy post-2Q.” — Morgan Stanley Research, July 11, 2011

Rail Freight: “Tough operating environment and uncertain macro suggest 2Q11 is likely to be a volatile earnings period. We expect the combination of: 1) fair valuation vs. historical levels heading into earnings, 2) decelerating volume growth throughout the quarter, 3) difficult weather-driven seasonal operating conditions, and 4) a negative fuel surcharge lag impact to drive a volatile earnings period rather than the correlated beats to which many rail investors are accustomed.  …we would be predisposed to buy any earnings related weakness.” — Morgan Stanley Research, July 11, 2011

Target Corp. — Target is moving into Canada. This should cost earnings a bit in 2011 and 2012, and the revenue should start flowing in 2013. In addition, target is selling its credit card services, which should also dilute earnings in 2011. Overall, the Canada entry will contribute to Target’s longer-term success.

Trade Balance: “Worse than expected report, with a surprising 0.5% decline in exports and larger than expected 2.6% gain in imports combining for a much bigger than anticipated $6.6. billion widening in the trade deficit to $50.2 billion in May, the widest trade gap since October 2008.” — Morgan Stanley Research, July 13, 2011

U.S. DollarBest Currency Forecasters Say Dollar Slump, July 11, 2011

U.S. EconomyWhat Happened to the Jobs?, July  11, 2011

U.S. Equity Strategy — “It seems that of late the market is reacting to economic news, instead of predicting the economic landscape as it has for much of the last half century. The contradictory and confusing economic data, as well as the stifling fiscal and monetary stimulus, are likely the root of the problem and the reason the market seems more reactive than clairvoyant. Our view is that by year-end, the consensus will have moved to a view that EPS growth will be lower in 2012 than 2011. While the multiple on price-to-forward earnings has declined from 13.5x to 12.7x so far this year, further contraction is likely in our judgment.” — Morgan Stanley Research, July 11, 2011

Earnings Growth Back to Norm, Shares Cheap, July 11, 2011

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