Tuesday, August 9, 2011

US Still AAA Rated: Buffett. Will S&P Bow To The Pressure?

. Tuesday, August 9, 2011
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After downgrading the US from AAA to AA+ and a undertone threat that if fiscal position is not improved then there could be further downgrade has witnessed two kinds of reaction. Analysts and bear economy experts like Nouriel Roubini had been saying that a downgrade is imminent. Willem Buiter from Citigroup was quoted on CNBC TV18 as "We expected this, at least for S&P, including the timing. The downgrade should have happened around 2009. "

Then on the other side there are many who believe this rating slash was not necessary, obviously one was US government which said it was a terrible mistake on part of the Standard & Poor's. After the press release issued by S&P was challenged by the US Treasury officials as they pointed out that S&P has done a mistake in its calculations to $2.1 trillion.

To this the rating agency changed its reasoning for downgrade. This led to a furore, as White House and the Treasury accused S&P of 'shaping arguments to fit its own conclusion.' In fact many have said this downgrade was more of a political nature, like Bloomberg quoted Robert Litan, vice president for research and policy at the Kauffman Foundation in Kansas City, Missouri said “Clearly the ratings downgrade was a ‘political decision’ in the sense that the politics explained the timing of this, because the numbers have been irrefutable for a decade.”

“It gives an enormous amount of ammunition to the Tea Party. They said the deal didn’t go far enough and they’ll say ‘see’”, he further added. This was further confounded when Oracle of Omaha, Warren Buffett, stated to the media 'Standard & Poor's made a mistake in downgrading the US credit rating. I reiterate my view that the economy will avoid its second recession in three years.' Disclosure: None.

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US Rating Downgrade: Implications for India

By stockOzone team

The news is that Standard & Poor’s (S&P) has downgraded US Economy’s Long-Term Sovereign Credit Rating to AA+ from AAA with a negative outlook. According to S&P, this rating action is primarily driven by the perception that (a) the recently agreed debt ceiling plan envisaging $2.1 trillion spending cuts for the decade ending 2021 falls short of the S&P expectations ($4 trillion spending cuts to reaffirm US rating at AAA) and (b) recent data revisions of US GDP growth supports the contention that the economic recovery since 2008 has been more muted, contrary to earlier perceptions of a robust recovery.

Notwithstanding the rating downgrade, there is no denying of the fact that US fiscal position remains a cause for concern. FICCI estimates that the US budget deficit is currently running at over 9% of GDP, the third largest since Second World War. As the S&P estimates, under the worst case scenario, US federal debt now at 74% GDP, will touch a staggering 101% of GDP by 2021.

Increase in debt levels act as a double-edged sword. Assuming taxes are to be raised to achieve debt sustainability, the distortionary impact lowers potential output. On the other hand, if the governments resort to discretionary cut in spending, this may have a contractionary impact. However, more crucially, as debt to GDP increases, there is a significant adverse impact on GDP growth (research indicates that US GDP may decline by as much as 1.8% if debt levels were to cross 90% of GDP)Of more importance is the impact on the Indian economy because of this rating downgrade.

FICCI believes that while the short-term impact would be more obvious in terms of market uncertainties, the long term impact may be more prolonged, but less obvious. However, the good thing is that the 2008 credit cycle has resulted in Indian industry emerging stronger and competitive in global business (for example, cost rationalization). On the downside, an uncertain global environment could however depress India’s exposure to global markets (exports of goods; services, more than a quarter of India’s GDP) and knock off percentage points from India’s GDP growth.

There is a fear that investor moving out of US treasuries could move with commodities like crude oil, copper, iron ore etc which would result in a spiking of these prices. This could worsen the global inflationary scenario.

This apart, one positive fall out of the rating downgrade, FICCI feels could be the Indian market perception that a possible decline in crude prices may signal a pause in RBI rate hikes buoying investor sentiments. Additionally, the spreads between a US sovereign and Indian sovereign paper of comparable duration may decline, thus acting as an enabler to FII inflows into the country. This may have a sobering impact on the current account deficit, even though this may not be exactly desirable.

In conclusion, a mention must be made to the unchanged status of India’s Foreign Currency Long-Term Sovereign Credit Rating by S&P at “BBB –“ with a stable outlook (April 6, 2011). The reason for this rating outlook (Surprisingly, Iceland also enjoys a “BBB-“rating) as per the S&P is the fiscal position with debt GDP ratio at 71% of GDP in FY2012 (S&P estimates). On the hindsight, consensus GDP projections for India’s economy for FY2012 continue to be in the realm of near about 8%. This we feel, is principally a result of our high savings and investment rate and the buoyant domestic demand. Nevertheless, the need for a better fiscal management and accelerating structural reforms in India can hardly be overemphasised. Disclosure: None.

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Monday, April 11, 2011

Notable Earnings Before Tuesday's Open: Fastenal Co. (NASDAQ: FAST)

. Monday, April 11, 2011
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By stockOzone team

Fastenal Co. (NASDAQ: FAST) is scheduled to release third-quarter earnings before the market open on Tuesday, April 12, 2011. Analysts, on average, expect the company to report earnings of $0.51 per share on revenue of $629.00 million. In the year-ago period, the company reported earnings of $0.38 per share on revenue of $520.77 million.

Fastenal Company, together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies.

Full Disclosure: None.

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Wednesday, April 6, 2011

Notable Earnings Before Thursday's Open: STZ, GBX, MOV, PIR, RAD, RPM

. Wednesday, April 6, 2011
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By stockOzone team

Constellation Brands Inc. (NYSE: STZ) is scheduled to release its fourth-quarter financial results before the market open on Thursday, April 7, 2011. Analysts, on average, expect the company to report earnings of 0.26 per share on revenue of $731.54 million. In the year ago quarter, the company reported earnings of 0.27 per share on revenue of $708.70 million.

Constellation Brands, Inc., together with its subsidiaries, engages in the production and marketing of beverage alcohol brands in wine, spirits, and imported beer categories.

Greenbrier Companies (NYSE: GBX) is scheduled to release its fiscal second-quarter financial results before the opening bell on Thursday, April 7, 2011. Analysts, on average, expect the company to post a loss of $0.01 per share on revenue of $264.96 million. In the year ago quarter, the reported company posted a loss of $0.28 per share on revenue of $199.95 million.

The Greenbrier Companies, Inc. engages in the design, manufacture, and marketing of railroad freight car equipment in North America and Europe.

Movado Group, Inc. (NYSE: MOV) is scheduled to release its fourth-quarter financial results before the opening bell on Thursday, April 7, 2011. Analysts, on average, expect the company to report earnings of $0.01 per share on revenue of $95.00 million. In the year ago quarter, the company posted a loss of $0.28 per share on revenue of $92.15 million.

Movado Group, Inc. designs, sources, markets, and distributes fine watches and jewelry. Its portfolio of brands is comprised of Movado, Ebel, Concord, ESQ, Coach Watches, HUGO BOSS Watches, Juicy Couture Watches, Tommy Hilfiger Watches and Lacoste Watches.

Pier 1 Imports, Inc. (NYSE: PIR) is scheduled to release its fourth-quarter financial results before the market open on Thursday, April 7, 2011. Analysts, on average, expect the company to report earnings of $0.47 per share on revenue of $425.59 million. In the year ago quarter, the company reported earnings of $0.32 per share on revenue of $395.97 million.

Pier 1 Imports, Inc. operates as an importer and specialty retailer of imported decorative home furnishings and gifts in the United States, Canada, and Mexico.

Rite Aid Corp. (NYSE: RAD) is scheduled to release its fourth-quarter financial results before the opening bell on Thursday, April 7, 2011. Analysts, on average, expect the company to post a loss of $0.24 per share on revenue of $6.38 billion. In the year ago quarter, the company posted a loss of $0.24 per share on revenue of $6.46 billion.

Rite Aid Corporation, through its subsidiaries, operates retail drugstores in the United States. The Company operates its drugstores in 31 states across the country and in the District of Columbia.

RPM International Inc. (NYSE: RPM) is scheduled to release its third-quarter financial results before the market open on Thursday, April 7, 2011. Analysts, on average, expect the company to post a loss of $0.05 per share on revenue of $625.22 million. In the year ago quarter, the company posted a loss of $0.07 per share on revenue of $666.59 million.

RPM International Inc. engages in the manufacture, marketing, and sale of various specialty chemical products to industrial and consumer markets worldwide.

Full Disclosure: None.

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