The Economist - December 4th 2010

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A Hated Stock You Might Just Love

Here’s a stock you don’t usually hear about until spring rolls around: H&R Block, Inc. (NYSE: HRB), the tax preparation and consulting outfit, which reports earnings after the bell on Tuesday, Dec. 7.

Let’s just say that it hasn’t been a great year for HRB. In fact, TheStreet.com had an article Tuesday noting that HRB is among the 10 worst performing stocks of 2010 (it’s No. 3) with a return of -43%. Ouch. And analysts expect the company to post a loss of 38 cents per share this quarter after a 36-cent loss last quarter.

So what is there to like about HRB?

Well, here’s the thing. Despite all the negativity, the company has managed to beat the past four earnings estimates. And the stock has done pretty well after each report, gaining ground in the subsequent week by an average of just under 3%.

Perhaps the stock performs well because expectations can’t get much lower. Along with the earnings estimate, short interest is robust and just 1 of 6 analysts recommends buying the stock.

On the charts, HRB is on a nice run, having gained about 25% off its October low (that underscores how lousy the rest of the year has been). The shares are currently sitting atop their 20-day and 50-day moving averages, trendlines that bullishly crossed for the first time in seven months. (more)

Keith Schaefer: Pushing the Boundaries

The Energy Report: Keith, the Oil and Gas Investment Bulletin primarily covers the Canadian oil and gas (O&G) industries. What's newsworthy north of the border right now for our U.S. readers?

Keith Schaefer: The shale-oil revolution is still going full force, particularly around the high-profile Bakken area. We're hearing that new areas are opening up, expanding what were previously considered the boundaries of the Bakken. The main area of the Bakken is in southern Saskatchewan, but now it's been shown that it's productive right down to the U.S. border. It's also going over as far as Alberta. The Bakken is potentially very productive in Alberta.

There are new staking rushes that are happening. A lot of the juniors are leading the way and they are getting some great land positions. That's setting the average retail investor up for a lot of new plays where they can make some money.

TER: Why are companies exploring these areas now?

KS: The shale-oil revolution started in the Bakken in about 2002 and continued for five years, then the market crash hit. For two years, none of these companies has done much exploration work. They only drilled the land they already had that had no exploration risk. (more)

‘Shock and Awe’ in Precious Metals

Earlier this month, precious metals investors witnessed arguably the most concerted take-down of the precious metals sector since the Crash of ’08. First, investors were lathered-up into a mania, after World Bank head Robert Zoellick planted a piece in the Financial Times where he feigned interest in having a gold standard re-instituted.

Then the ambush took place.

This time, China was clearly participating as the ‘tag-team’ partner of the U.S. government. It began by raising reserve requirements for its banks – a move always seen as restraining the growth of an economy (and reducing commodities demand). Then the Chinese government leaked word that it was “planning interest rate increases” (even more bearish for commodities), all within the span of a couple of days.

What launched the “ambush”, however, was the utterly unprecedented move by the CME Group (owner of the Comex exchange) to radically increase margin requirements for silver halfway through a trading session. Clearly, the intent was to get precious metals investors as over-extended as possible – and then to “drop the hammer” on them at literally the best (i.e. most-damaging) moment.

This was immediately followed by yet another increase in bank reserves by China’s government, mere days after the previous reserve-increase was announced. With the U.S. having already taken radical action to curb commodities markets, it is simply not plausible that the Chinese government suddenly decided that further tightening was necessary. Instead, this was a move purely intended to generate more downside momentum in commodities by China, the world’s largest consumer of those commodities (including precious metals). And when those moves still did not generate the downward momentum desired by these market-manipulators, the CME Group announced yet another reduction of “margin” – this time for both gold and silver. (more)

State Default Risk Levels

On Monday we highlighted the recent spikes in default risk for some of the problematic European countries. So what has default risk for states done recently? We were able to track down 5-year CDS prices for 16 states, and we highlight their current prices in the table below. While California probably comes to mind as the state that's in the most trouble, Illinois actually has the highest default risk according to investors. To insure $10,000 worth of Illinois debt for 5 years, a buyer would have to pay $291.30 per year. The cost for California is only slightly lower at $287.20. Michigan ranks third, followed by New Jersey, New York, Nevada, and then Florida. Of the 16 states that we found CDS prices for, Texas, Virginia, Maryland, and Delaware have the lowest risk of default. (more)

How The FDIC Shuts Down Failed Banks - Official Video

Mortgage tax break in the crosshairs

(CNNMoney.com) -- Don't even think of touching the mortgage interest tax deduction in the midst of a fragile housing market.

That was the immediate response of the housing industry, which has come out with guns blazing against the presidential deficit commission's proposal to overhaul the coveted tax provision.

"We will fight this proposal," said Joe Stanton, chief lobbyist for the National Association of Home Builders. "From everything we've read, it will end up being a tax hike."

Charged with finding ways to reduce the nation's exploding federal debt, the bipartisan debt panel recommended Wednesday a wide range of controversial spending cuts and tax changes that would slash $4 trillion in deficits over the next 10 years.

Among the proposals was a major change to the mortgage interest deduction, which costs the Treasury Department an estimated $131 billion a year. (more)