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Intel Corp. said Tuesday that its second-quarter sales fell compared to the same quarter a year ago, but that business is picking up fast.

Even as revenue declined from last year, sales figures were better than what analysts had expected. Profits for the quarter were stung by a one-time fine from the European Commission.

At the time of writing INTC is up 8% in after-hours trading, a good sign for tomorrow.

Read news article

Whitney predicted Goldman Sachs would post second-quarter results Tuesday above Street estimates – she expects earnings of $4.65 a share, compared with the average analyst estimate of $3.48, according to a survey of analysts by Thomson Reuters. She set her 12-month price target on Goldman shares at $186.

Shares of Goldman Sachs rose 2.7% in recent trading to $145.75.

We maintain a bullish view

And for other Norwegians, maybe we should try to do something about the government in this country, it is after all an election in September.

Obamanopoly Part 1

Obamanopoly Part 2

As a result we see an investment opportunity. The foreign exchange (FX) cross between Euro (EUR) and the Norwegian Krone, EURNOK, is hovering around 9.08 and 9.13. We consider this a good entry point for a short position of EURNOK and have sell orders in place at 9.12 and 9.13 for a longer term position.

4 hour chart

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1 day chart

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1 month chart

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We expect institutional investors to start joining from the sidelines and form an upward pressure. The main concern is the low liquidity/volume in the market, which can postpone the recovery. However, these levels are good entry points for long term positions.

* OBX (25 most liquid stocks) ended at 234.79

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Focus is on stockpicking rather than sector allocation, finding companies that shows good cashflows. Earnings season is ahead, and we expect there to be profit warnings (PWs) ahead of these, so thread careful.

Technically, however, we’re now getting bearish and expect a correction of the market to be imminent.

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We observe a fibonacci retractment level around 315 that we see as the upper bound of the turning point. We crossed the 255 day moving average today and expect the correction to start in this area (301-315). Target for correction is adjusted upwards since may 10th due to market conditions with new target range 255-270 where we see a nice meeting point of fibonacci levels, 45 daily moving average as well as 200 daily moving average.

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Technically, on the other hand, there isn’t much resistance untill the 315-level (both 255 day moving average and next fibonacci level)

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In favor of a continuous growth is that the move has been on high volume and international investors seems to be weigthing up again.

Personally, however, I’m confortable with the gains for now and think it is time to reduce positions on the market and position myself defensively, such as primary capital certificates / grunnfondsbevis. Target for correction is the 45 day moving average, around 230-240 when it should be time to increase weights again.

Obviously I could be wrong, I guess time will show.

PCCs are very similar to shares. The main differences between PCCs and shares are that PCCs give ownership rights to specific parts of a bank´s capital, and that the governing bodies of a savings bank will have a broader representation than a commercial bank. As a result of the fact that the PCC owner´s only own parts of the bank, the dividends are limited.

There are 121 savings banks in Norway. 25 of these have issued PCC. In 2002 The Savings Bank´s Act was amended. The savings banks got the possibility to convert to shareholding companies, and the largest saving bank, Union Bank of Norway, converted. The bank has later on merged with the largest commercial bank in Norway, DnB, into DnB NOR Bank ASA. The bank might still be named a savings bank.

PCCs are of great importance for the Norwegians savings banks. 8 of the 10 largest savings banks have issued PCC, and the he owners´ share of the bank´s capital varies from about 10 to 55 percent.

The interesting thing about PCCs in a few of the mid-sized norwegian banks is

• High dividend yield (comparable to dividend shares)
• Low volatility

At the same time the disadvantage from an investor’s perspective is

• Low volatility
• Low liquidity

As should be easily noticable, low volatility is listed as both a pro and con . While the Oslo Stock Exchange Benchmark Index (OSEBX) is up 30% the past month (and rougly 45% since the bottoming) a few of the more interesting PCCs (such as MORG – Sparebanken Møre) has moved 1.9% the past month. As such, a high weight on PCCs vs the overall market means giving up gains. At the same time, in downturns they stay stable while giving a good dividend.

As such having a weight on PCCs serves as a defensive position, and at the current levels seems interesting to position for a pullback.

The most interesting PCCs in my opinion at the moment?

• MORG – Sparebanken Møre

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Dividend history:

• SVEG – Sparebanken Vest

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Dividend history:

• MING – Sparebanken MidtNorge

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Dividend history:

protectionism
n 1: the policy of imposing duties or quotas on imports in order
to protect home industries from overseas competition

At a quick glance, it is certainly tempting to boost own industry on the expense of othe countries. With unemployment rates spiking globally, political pressure towards job creation is enormous. Hopefully, however, the politicians doesn’t go for what seems to be the quick fix. The world stretches past the domestic market, and global competition increases efficiency. Granted there can be a claim for macroeconomic correction of externalities and other market imperfections, but the point still remains. I have no doubt that e.g. the US automaker industry would’ve been in a better position today had it not been for politics such as “buy american”. Instead, it seems General Motors will file for bankrupcy, maybe it will be restructured, maybe it won’t . What is interesting to see is how, seemingly , Ford is doing so much better. With an anticipation of changed to consumer preferences towards smaller and more fuel-efficient cars can be one possible reason. In Europe, incentives towards cars with less emissions has been , mostly, driven by taxes and governmental regulations.

Moving away from the automaker industry, however, lets have a look at agriculture. This is a sector where most countries , especially Norway and a few other countries in Europe, should be particulary ashemed of. The level of taxes on foreign products and the amount of subsidies on domestic products is devastatingly high (looking at it from a taxpayer perspective). It can also be argued on moral grounds, in terms of the less fortunate countries in the world. Norway prides itself on the amount of foreign aid it provides, yet what is demanded the most by participants is market access. Free trade stimulates growth, and they know it.

Thankfully so does the Asia-Pacific Council of American Chambers of Commerce , an organization representing more than 10,000 U.S. Businesses. The organization urged the government to avoid protectionism and move toward expanding trade agreements with Asia *.  In order to avoid another 1930 situation in the real economy, we have to avoid protectionism. Indeed, argued by Joseph S. Nye, hard economic times are correlated with it ** ***. 17 out of the G-20 countries have already entered into some form of protectionistic measure since the beginning of this year ****. But guys, lets try to avoid another Smoot-Hawley Tariff Act as we saw in 1930. Ultimately it is a matter of game theory, if you face a rational expectation of what others will do to counteract a move by yourself, you might find that you’re better off not making the move at all, and sadly, protectionism is increasing while global trade shrinks.

The summary of the situation is that Aker Solutions acquired ownership in a series of companies from the holding company Aker. Internal transactions are always vulnerable to speculations about proper pricing, and stresses the importance of proper Corporate Governance. For one thing the competencies and the independence of the different corporate boards of directors can result in the difference between a favorable and an unfavorable situation.  My hypothesis is that the board of directors in Aker Solutions is too closely related to the Aker system. Simultanuously you have a complicating factor in that the Norwegian government is involved. The Norwegian Prime Minister was present at the Aker Day 2nd of April when the transactions were announced, and naturally got questioned about his thoughts on the matter. More about that later.

Aker

Aker ASA is an industrial ownership company consisting of the companies (ownership in percentages after adjusting for the transactions in question)

• Aker Floating Production (72.3%)
• Aker Drilling (100%)
• Aker Solutions (41.0%)
• Aker BioMarine (82.9%)
• Aker Seafoods (64.95%)
• Aker Exploration (76.1%)
• Aker Philadelphia Shipyard (50.3%)
• Aker Clean Carbon (50%)

The aker companies has a total of 26,500 employees spread across five continents and total operating revenues totaling NOK 65 billion for 2008.

Aker Solutions

Aker Solutions delivers engineering, construction, manufacturing, technology products, maintenance and other specialised services, often as total solutions for complete projects. Aker Kværner is the result of a merger between the Kværner Group and the Aker Maritime Group in 2002, and it got listed on the Oslo Stock Exchange in 2004. In April 2008, Aker Kværner changed the name to Aker Solutions.

Governmental involvement / Aker Holding

Aker Solutions’ largest shareholder is Aker Holding AS, with a 40.27 percent stake in the company. Aker Holding AS is owned by Aker ASA
(60 percent), the Norwegian Government (30 percent), SAAB AB (7.5 percent) and Investor AB (2.5 percent). The government got involved on June 22nd 2007, when Aker transferred its entire ownership of Aker Solution (40.27 %) to Aker Holding, and sold 40% of the latter for NOK 6.4 bn. This happened after international investors showed interest in the company, by reasons of wanting the company to remain in Norway. As this is not a post about protectionism I’ll leave it at that for now. There are also questions about a put option that was given to the swedish investors, but again, I’ll leave that for now.

The transactions

Aker Solutions is acquiring five companies at a total consideration of NOKbn 2 including shareholder loans (ownership in brackets):

• Aker Oilfield Services (100%)
• ODIM (33%)
• Aker DOF Supply (50%)
• Misund Bruk (100%)
• Aker Clean Carbon (50%)

It is worth noticing that a few of these companies undoubtedly prompts sound long-term gains for Aker Solution. The issue is the pricing involved. At the same time it seems weird to increase the capital expenditure requirements for the next couple of years by roughly NOK 2.5 bn and the debt ratio (NOK 2 bn in debt accounts for roughly 25% increase) in the mids of the financial environment we’re in.

One company that seems additive for Aker Solution is the acquisition of Aker Oilfield Services, but while the valuation of comparables are down 50-90% over the past 18 months, the transaction involved a premium to prices at that point, which seems unreasonable at best. Similarly the ODIM stake seems just, except for being sold for a 16% premium over closing prices on the Oslo Stock Exchange previous day. The transfer of Aker DOF Supply (pretty much 6 AHTS (Anker Handling Tug Supply) ships) is more questionable.

The acquisition of Aker Clean Carbon is also interesting, as Aker Solution sold this to Aker in the first place and now pays a premium in order for it to be re-acquired. But the most questionable in the whole situation is the process.

The Aker value statement says “Aker ASA’s overriding concern is to create value via its ownership of well-run businesses that provide products and services in an environmentally sound, ethical, and socially responsible manner.”, an interesting notion considering the situation in the first place.

Aker Solutions had a general assembly 1st of April 2009. Nothing about these transactions, however, were mentioned untill the Aker Day the 2nd of April. For transactions resulting in 25% increase in debt and capex increases it would’ve been nice for this to be mentioned in the documents for the general assembly, not to mention for it to be disclosed at this, not the following day.

As for Aker Holding, the equity agreement between the partners states that such a transaction in Aker Solution ASA is clearly a matter for the board of Aker Holding and the general assembly. However, the transactions were performed through a fully-owned subsidary of Aker Solution ASA named Aker Solution AS (note the difference in organization form, so it is actually two different companies).

Inquery into the transactions

The government has started an inquery into the transactions. The financial valuation will be performed by Pareto Securities, while the legalities will be considered by the lawfirms Simonsen and Selmer. The question is, what can happen even if they should conclude things to be non-favorable for Aker Solutions? Ultimately the responsibility is with the board of directors in the company.  The government’s representative in the Aker Holding board is now responsible for the investigation, after apparently reacting due to the stock market reaction to the news.

As one can see in the drop the past couple of days, it is down (rougly 13% the days directly after the announcement), on a montly basis it is down about 11% vs OBX (25 most traded shares on OSE, of which AKSO consists) which the past month is up 4.36%. The increased debt ratio and capex has also resulted in rating agencies taking matters into their own hands and prompting a negative watch on the rating (BBB- initially)

No matter what happens, it shows the importance of corporate governance when dealing with internal transactions, it will be interesting to see what the inquery concludes.

There have been some statements lately about the Norwegian Krone (NOK) being positioned as an alternative new safe haven. In particular David Bloom from HSBC has claimed that the NOK is the “ultimate haven currency”, and that “It’s probably the best currency in the world.” noting that Norway’s economy grew by 1.3% in Q4 and was not forecasted to experience as big a downturn as other economies this year. Norway’s monetary policy was also NOK supportive, like other commodity-producing countries and it is not expected to resort to quantitative easing policy to boost inflation expectations.

This view has some support, in e.g. that the cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.

At the same time there are several arguments against the NOK being a new safe heaven currency. Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support. But he says: “You are trying to win the least ugly currency contest at the moment. I can’t disagree that it might move higher, but I can’t get too enthusiastic.” His main concerns are the lack of liquidity in the market and the krone’s long-held correlation with oil prices.

If we look at a chart of the NOK vs the USD we see the large shifts of NOK as investors pulled money away from it during the credit crunch, as NOK traditionally has been considered a somewhat emerging market economy.

Ashraf Laidi at CMC Markets says the fact that the krone fell against both the dollar and the euro during the turbulence following the collapse of Lehman Brothers in September means it cannot really be called a haven currency.

Another argument is that Norway, similar to Switzerland is dependant on export, so that the Norwegian Central Bank will most likely intervene if NOK appreciates too much relative to others currencies.

Granted the safe-heaven status is more about low volatility than it being strong per se, and it could be argued that Norway has higher chances of intervening than most other countries, amongst others because of the Norwegian Government Pension Fund – International, and that the high volatility we’ve seen in the past doesn’t necessarily limit a lower volatility forwards if the situation is managed properly by the Norwegian CB. But this would require a shift in the school of thought.

But if NOK won’t be the new safe currency, what will be? Gold is an obvious traditional placement. At the same time the Chinese economy can be an interesting argument for Chinese, or other Asian, currencies.

The only thing that is certain is that we’re facing an interesting situation, and it will be interesting to see how the situation continues to play out.