Investors may look past earnings this week
2009 is easy to improve upon, but can companies continue profit growth?
By Tim Paradis
The Associated Press
updated 2:24 p.m. ET, Sun., April 11, 2010
NEW YORK - For stock market investors, everything outside of what companies earn is pretty much noise.
Profit reports for the January-March quarter will start to trickle in this week and they are sure to look good. That's because business is improving, but also because the economy was so bad last year that it won't take much for companies to post better numbers. What investors want to know now is whether companies can keep the good news coming.
The early recovery in earnings came from heavy cost-cutting. By shearing away expenses, companies could generate profits on far less business than before the recession began at the end of 2007. Then, the newly slimmed down companies got a boost from heavy government stimulus spending and record-low interest rates. Investors will be looking for signs that companies can continue to do better even after the government removes emergency supports and businesses do more than just replace depleted inventories.
"A major question on a lot of people's minds is, 'Well, what's the next act?'" said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank in New York.
The forecasts that companies provide often are far more important than the earnings they report because investors are paying for stocks to get a slice of a company's future profits. Last week, the Standard & Poor's 500 index rose to an 18-month high on expectations that companies are getting stronger.
The estimated first-quarter earnings growth rate for companies that make up the S&P 500 index is 37 percent, according to analysts polled by Thomson Reuters. Investors will get their first taste of first-quarter profits when bellwether companies like Alcoa Inc., Intel Corp. and JPMorgan Chase & Co. report their results this week.
"How are we making the money?" said Mike Shea, managing partner at Direct Access Partners LLC in New York. "If we continue to improve productivity that's all well and good, but I think what we're looking for is are we making more things? Are we selling more things? Are more people working?"
Even if the news is encouraging, investors could still see a drop in stocks, at least at first. The stock market has tended to fall as earnings arrived in the past two quarters. Once most profits came in as well as expected, some investors figured stocks had run far enough.
In October, the S&P 500 index fell 5.6 percent after third-quarter earnings came out. In January, when results from the last three months of 2009 rolled in, the S&P 500 index lost 8.1 percent. The market resumed its climb once most of the earnings were released.
There are reasons to be optimistic that the coming quarters will show an important gain in revenue and higher profits. The best sign is that the government reported the economy added jobs in March at the fastest pace in three years.
Retailers have also been doing better than expected. The government reported last month that retail sales for February rose, even though analysts had expected bad weather in large parts of the country to keep shoppers away. And last week, retailers reported sales at stores open at least a year climbed more than expected in March.
Consumer spending is the biggest driver of the economy, and so an improvement there would spill over to a huge range of businesses.
Tim Speiss, chairman of the personal wealth advisers practice at Eisner LLP in New York, cautioned that consumers still will only be able to spend a bit more because it's harder to borrow money and because unemployment remains stubbornly high at 9.7 percent.
The pace of recovery in earnings all comes down to jobs, Speiss said, because without gains in employment consumers won't spend, and that means companies will find it hard to keep improving their bottom line — the most important thing that stock investors care about.
"It's all about how quickly we put a meaningful dent in the unemployment rate," Speiss said. "Where is the revenue growth going to come from when you know the American consumer has had a glass ceiling put on top of them?"
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Market Commentary October 2, 2009
By Vincent Palmieri, Jr.
Are we out of the WOODS?
As I listen to the market reports I feel they can be very confusing to the average person. Economists and Analyst are telling us the economic indicators are telling us we are out of the recession. Tell that to 551,000 who just applied for unemployment benefits (21 straight months of job loss the most in more than 60 years) and to the 209,795 people whose homes were foreclosed on. And what about the banks that are still holding on to homes that are not counted in the total USA foreclosures numbers, Here is a breakdown of the 209,795 foreclosures: The top five states. So what about the other 45 states, as you can see this number will be much higher if we counted all the states. There is another wave of ARMS that will rest now and in the first quarter of 2010. More foreclosures coming?
- California is still the leader with the most number of properties in foreclosure in the nation: 92,326, which means 1 out of every 144 housing units is in foreclosure.
- Florida has 62,401 properties in foreclosure, which means 1 out of every 139 housing units is in foreclosure.
- Michigan has 19,359 properties in foreclosure, which means 1 out of every 233 housing units is in foreclosure
- Nevada has 17,902 properties in foreclosure, which means 1 out of every 61 housing units is in foreclosure.
- Arizona has 17,807 properties in foreclosure, which means 1 out of every 149 housing units is in foreclosure.
Now let’s talk about retail sales. This number is confusing to the general public because they don’t know how to break it down. Retail sales rose and why? Because consumers dipped into their savings to spend, what does that tell you? What happens when their saving are gone? More foreclosures?
I am not trying to be doom and gloom just realistic. When analyst say oh! the number is better than last month well no ____t. The numbers have been so bad the can only get better. But better is not as positive as they make it out to be. Look at auto sales. Mr. Obama’s cash for clunkers program. It was a real clunker; it increased sales for the last months, this month dealers have reported steep declines in sales yes some due to seasonal factors. Do you know that the $4500 that the government gave people will be taxed as ordinary income? Obama has no clue of how to handle the economy. He and his staff are the most inexperienced individuals trying to solve this problem. To solve a problem you must know where and how the problem began. He has not addressed that issue, and some of those idiots that caused the problem are still in office. He fired the CEO of GM why not the idiot Barney Franks and others. I will tell you why, because they will support Obama and push his disastrous economic plan through. And if he fired them he risks the chance of republicans taking office and then he will not have enough votes to pass his disastrous plans.
Let me give you some food for thought about the future. Obama’s health care plan has about 9 or 10 taxes attached to it that will destroy small businesses, one reason they are not hiring. He will raise corporate taxes and the capital gains tax destroying the financial markets. So you tell me what the future looks like under Obman's America. Oh I forgot one item cap and trade another business buster.
I welcome your comments and opinions.
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Comments by Vincent
March 5, 2009
The market fell sharply today in part by the disappointment in the Chinese Government to spend more money to stimulate the Chinese economy. The other disappointment is in President Obama's plan to stimulate the economy. In my last comments I mentioned the market would retreat to 6000 on the Dow well we are less then 600 points away. If nothing is done to amend this stimulus package I am afraid now it is possible to go below 6000. Please read the article below.
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Stock markets seem to not be sold on Obama
Some blame him for tumble while others ask what can he realistically do?
By Ben Steverman
Business Week
updated 3:35 p.m. ET, Thurs., March. 5, 2009
At least on Wall Street, the honeymoon is over for President Barack Obama.
Polls still show the President has strong popularity among the general U.S. population, and Obama continues to command power in Congress. But among investors, fairly or unfairly, there is griping that the new Obama Administration is at least partly to blame for the recent slide in stocks. Since Nov. 4, Election Day, the broad Standard & Poor's 500-stock index is off about 25 percent, and since Jan. 20, when Obama took office, the "500" is down 15 percent.
It's never easy to determine exactly why the stock market moves in a particular direction. Plenty of other factors have influenced stock prices since November. For example, the global economy has slowed further and the outlook for corporate profits has worsened.
But BusinessWeek interviewed a wide array of investment professionals, and many said the first six weeks of the Obama Administration have soured their outlook on the stock market.
It wasn't always so. On Nov. 21, word arrived that Timothy Geithner would be tapped as Obama's Treasury Secretary and markets rallied immediately. The S&P 500 rocketed 15 percent higher that day and the following trading session.
Stocks continued to climb into January, and even rallied in the week after the inauguration. "Hopes were too high," says independent market strategist Doug Peta. Too many were hoping the new Administration would have "this magic potion to solve our problems," he says. "That was unrealistic."
Proposals for a stimulus bill pushed infrastructure stocks to unsustainable heights. Caterpillar surged 39 percent from the market lows in November to early January. Since then, shares in the maker of construction equipment have tumbled back down again, falling 43 percent.
Many investors hoped Obama could start to solve the stock market's — and the economy's — biggest problem: the credit crisis. "It was a false hope," says Brian Reynolds, chief market strategist at WJB Capital Group, who believes there is "nothing the government can do to stop the crisis."
Others are more hopeful the government can ease credit conditions, but say the Obama Administration has bungled the operation so far. A Feb. 10 presentation of a financial-sector relief plan by Geithner was widely criticized. Stocks fell almost 5 percent that day.
Geithner was a "particularly poor salesperson back on Feb. 10," says Marc Chandler of Brown Brothers Harriman, who says he voted for Obama. "The Obama Administration has failed to get ahead of the curve."
A lack of details from Geithner disturbed investors, says Quincy Krosby, chief investment strategist at the Hartford. "Markets need certainty," she says. "The market has been sitting here waiting, waiting, waiting. That allows rumors and conspiracy theories to dominate."
Jerry Webman, chief economist at OppenheimerFunds , defends the Administration. "I would like to see Administration people more visible" on the issue, he says. But, "the problem is: What do we expect them to say? 'This is a big complicated problem and we don't know where we're going to get the money to solve it'? That would be the truth," Webman says, but it wouldn't make market participants very happy.
Credit issues may be the chief complaint about Obama among investors. But they're hardly the only gripe. In recent weeks, Obama has made clear he intends to keep campaign promises on health-care reform, climate change regulation, and higher taxes for Americans who earn more than $250,000.
Professional investors tend to be more conservative, so it's perhaps no surprise they're concerned. "The basic agenda of Obama's Administration is going to be more leftist and less centrist than I had anticipated," says John Merrill, chief investment officer at Tanglewood Wealth Management in Houston.
The impact of Obama's proposals are easy to see in particular segments of the market. In a speech to Congress on Feb. 24, Obama pledged a "substantial down payment" on health-care reform. David Chalupnick, head of equities at First American Funds, points out that, since then, stocks in the Dow Jones U.S. Health Care Providers Index are down 16 percent. Health-care stocks had been a relative safe haven in the market, because medical spending tends to hold up even in recessions.
Investors aren't just expressing their political beliefs that taxes and regulations are bad for the economy. They're also making a practical calculation that they will hurt corporate bottom lines in the future. "What you're doing is lowering the profitability of these firms," says Bill Larkin of Cabot Money Management.
There may be little right-leaning investors can do about liberal policies coming from the White House. "A majority of Americans elected this President on that platform," says Jeffrey Kleintop of LPL Financial Services. In any case, many in the market are more focused on short-term concerns — the recession and the credit crisis — than the long-term implications of Obama's policies.
"People are looking for a very quick fix," Larkin says. "It's the way the markets are. They like to have a problem resolved." Unfortunately, solutions from Obama, the Federal Reserve, or anyone else are slow in arriving. "It's going to take time," Larkin says.
On Mar. 3, Obama tried to get investors to take the long view. "You know, it bobs up and down day to day," Obama told reporters, referring to the stock market. "And if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong."
Obama and Geithner missed the chance — if they ever had such an opportunity — to "wow" the market and help restore some market confidence early in his Administration, Larkin says. So, instead, "this is going to be a long, drawn-out thing."
Investors will need to wait to see evidence that the stimulus package and measures to ease the credit crisis are really working. "The market is sitting back and saying: 'Show me the money. I'll believe it when it happens,'" Kleintop says.
Obama also tried to argue on Mar. 3 that stocks were a good buy. "Profits and earning ratios are starting to get to the point where buying stocks is a potentially good idea," Obama said, adding "if you've got a long-term perspective on it."
The problem for investors is the long-term outlook has never looked so fuzzy. With the economy deteriorating, the credit crisis continuing, and the Obama Administration still formulating a response, few feel confident enough about the future to buy stocks. It may be quite some time before investors find a change they can believe in.
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Buffett: Economy will remain in 'shambles'
Annual letter to shareholders says crisis has led to 'paralyzing fear'
msnbc.com news services
updated 4:49 p.m. ET, Sat., Feb. 28, 2009
NEW YORK - Billionaire investor Warren Buffett predicted Saturday that "the nation's economy will be in shambles throughout 2009" and probably "well beyond."
In his annual letter to Berkshire Hathaway Inc. shareholders, Buffett said the credit crisis and falling housing and stock prices have led to "paralyzing fear."
But the famed investor remained optimistic about America's resilience.
"Though the path has not been smooth, our economic system has worked extraordinarily well over time," he said. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
America has faced bigger economic challenges in the past, Buffett said, including two World Wars and the Great Depression.
Buffett detailed his worst year leading Berkshire, insurance and investment company, in the shareholder letter issued Saturday.
Net worth shrinks
Berkshire barely broke even in the fourth quarter because of losses on derivatives contracts tied to the stock market.
Profit fell 96 percent, the fifth straight quarterly decline, and Berkshire's net worth tumbled $10.9 billion in the year's final three months.
Net worth per share fell 9.6 percent for the whole of 2008, only the second decline since Buffett began running Berkshire in 1965. It fell 6.2 percent in 2001.
Berkshire generates about half its results from insurance, including auto insurer Geico Corp, but operates more than 70 businesses that offer such things as carpeting, ice cream, paint, real estate services and underwear.
Buffett said he made at least one major investing mistake last year by buying a large amount of ConocoPhillips stock when oil and gas prices were near their peak.
Berkshire increased its stake in ConocoPhillips from 17.5 million shares in 2007 to 84.9 million shares at the end of 2008.
Buffett said he did not anticipate last year's dramatic fall in energy prices, so his decision cost Berkshire shareholders several billion dollars.
He said he also spent $244 million on stock in two Irish banks that appeared cheap. But since then, he wrote down the value of those purchases to $27 million.
'Unsatisfactory'
Berkshire's results were battered by $4.61 billion of pretax losses on about 251 derivative contracts largely tied to the longer-term performance of four stock market indexes and the credit quality of higher-risk "junk" bonds.
A deteriorating economy and tight credit led to steep declines in stock prices and an increase in junk bond defaults, resulting in losses for Berkshire.
While the losses exist on paper, accounting rules require Berkshire to report them with earnings.
Buffett revealed for the first time which stock indexes he has been using: the Standard & Poor's 500, Britain's FTSE 100, Europe's Euro Stoxx 50, and the Nikkei 225 in Japan.
In his letter, Buffett said he believed each contract that Berkshire owns was "mispriced" at the outset, and that the ups and downs "neither cheer nor bother" him.
He said, though, that Berkshire got $8.1 billion of upfront payments from parties on the other side of the contracts, which the company can invest as it wishes. This, he has said, makes the contracts different from the "financial weapons of mass destruction" that he has called other derivatives.
For all of 2008, profit at Berkshire fell 62 percent to a six-year low of $4.99 billion, or $3,224 per share, from $13.21 billion, or $8,548. Revenue fell 9 percent to $107.8 billion. Buffett called full-year results "unsatisfactory."
Berkshire Class A shares closed Friday at $78,600 on the New York Stock Exchange. They have fallen 44 percent since the end of February 2008, while the Standard & Poor's 500 has dropped 45 percent.
More on Warren Buffett | Economy in turmoil
© 2009 msnbc.com
URL: http://www.msnbc.msn.com/id/29441863/
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Economy moving in reverse faster than predicted
By JEANNINE AVERSA
AP Economics Writer
The Associated Press
updated 8:02 p.m. ET, Fri., Feb. 27, 2009
WASHINGTON - The economy is moving in reverse faster than the government can measure.
The contraction for the fourth quarter of 2008 had been estimated at 3.8 percent just a month ago. Then the Commerce Department raised it to an astonishing 6.2 percent Friday ? the largest revision since the government started keeping records in 1976.
That was the economy's worst showing in a quarter-century and raised the prospect that the nation could suffer its worst year since 1946.
"Consumers are just hunkering down and saying 'game over,' and businesses in response are cutting back on investment and employment," said Brian Bethune, economist at IHS Global Insight. "It's a negative feedback loop."
Now in its second year, the recession is expected to stretch at least through the first six months of 2009, as shoppers slash spending in the shadow of hard times at home and aboard.
Companies, in turn, are being forced to cut jobs and production while resorting to other cost-saving measures to survive.
The Commerce Department's new report was also weaker than the 5.4 percent drop economists had expected.
The biggest culprit behind the record-breaking revision: Businesses actually cut inventories instead of building them as the government originally thought. That reduced ? rather than added to ? economic activity.
In addition, consumers pulled back even more on their spending ? which accounts for about 70 percent of national economic activity. U.S. exports suffered a bigger drop and businesses retrenched further.
Many economists lowered their forecast for this year's gross domestic product to show a deeper contraction of at least 2 percent. GDP, the value of all goods and services produced in the United States, is the best barometer of the country's economic health.
White House press secretary Robert Gibbs said the latest GDP figure "underscores the urgency with which the president feels we have to move to improve our economy."
The economy has not suffered a decline for a full year since 1991, and that was just by 0.2 percent.
If the new projections prove accurate, it would mark the worst annual showing since an 11 percent plunge in 1946.
"The slide in our economy is very severe and very broad across all industries and regions of the country," said Mark Zandi, chief economist at Moody's Economy.com. "It is about as dark an economic time that we've experienced since the 1930s."
Before Friday's report was released, many economists were projecting an annualized drop of 5 percent in the current January-March quarter.
Given the fourth quarter's showing and the dismal state of the jobs market, some economists believe a decline of closer to 6 percent in the current quarter is possible.
The nation's jobless rate is now at 7.6 percent, the highest in more than 16 years. The Federal Reserve expects the rate to climb to close to 9 percent this year, and probably will stay elevated into 2011.
California's unemployment rate jumped to 10.1 percent in January, the state's first double-digit jobless reading in a quarter-century. The jobless rate announced Friday by the state Employment Development Department is well above the national jobless rate, and represents an increase from the revised figure of 8.7 percent in December.
On Wall Street, stocks fell Friday as investors reacted to a decision by Citigroup Inc. to turn over a big piece of itself to the government and a move by General Electric Co. to slash its quarterly dividend by 68 percent. Investors also paid close attention to the lower GDP figures.
The Dow Jones industrials fell more than 119 points to 7,062.93, its lowest close since May 1, 1997.
The faster downhill slide in the final quarter of 2008 came as the financial crisis ? the worst since the 1930s ? intensified. Both the new and the old fourth-quarter figures marked the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.
For all of 2008, the economy grew just 1.1 percent, weaker than the government initially estimated. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.
In the fourth quarter, consumers cut spending at a 4.3 percent pace. That was deeper than the initial 3.5 percent annualized drop and marked the biggest decline since the second quarter of 1980.
Businesses slashed spending on equipment and software at an annualized pace of 28.8 percent in the final quarter of last year. That was deeper than first reported and the worst showing since the first quarter of 1958.
Fallout from the housing collapse spread to other areas. Builders cut spending on commercial construction projects 21.1 percent, the most since the first quarter of 1975. Home builders slashed spending at a 22.2 percent pace, the most since the start of 2008.
In the long run, the reduction in new projects should aid the housing market's recovery as fewer properties for sale help increase competition and stabilize prices. But at the moment, a stable housing market appears months away.
A sharper drop in U.S. exports also factored into the weaker fourth-quarter performance. Economic troubles overseas are sapping demand for domestic goods and services.
Associated Press writers Ben Feller and Harry Weber in Atlanta contributed to this report.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
URL: http://www.msnbc.msn.com/id/5965849/
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Obama budget sinks stocks as health sector slumps
Thu Feb 26, 2009 5:05pm EST
NEW YORK (Reuters) - Stocks fell in volatile trading on Thursday as investors sold off shares of healthcare companies such as Merck & Co (MRK.N: Quote, Profile, Research, Stock Buzz) on worries that U.S. President Barack Obama's budget proposal will strangle profits.
A batch of sour economic data added to the gloom, spurring investors to sell shares in big consumer companies such as McDonald's Corp (MCD.N: Quote, Profile, Research, Stock Buzz) and Coca-Cola Co (KO.N: Quote, Profile, Research, Stock Buzz), which slid 3 percent.
The plan to expand healthcare coverage and curb costs calls for cutting Medicare payments to private insurers, letting consumers buy cheaper medicines and preventing drug companies from making deals that block generic competition.
Merck was the Dow's biggest weight, down 6.7 percent at $26.04. Health insurers also fell, including Humana (HUM.N: Quote, Profile, Research, Stock Buzz), which lost 19.5 percent to $23.64.
"They are certainly looking at providing healthcare across the board for everyone, but to pay for that they are looking to obviously reduce revenue for some of the healthcare agencies," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois.
The Dow Jones industrial average .DJI dropped 88.81 points, or 1.22 percent, to 7,182.08. The Standard & Poor's 500 Index .SPX shed 12.07 points, or 1.58 percent, to 752.83. The Nasdaq Composite Index .IXIC fell 33.96 points, or 2.38 percent, to 1,391.47.
The Dow is down 10.2 percent for the month and 18.2 percent year-to-date.
Adding pressure, financial shares trimmed gains after a report showed the number of troubled U.S. banks soared in the fourth quarter, tempering optimism about the prospect of another government bailout for the sector. Among laggards, Citigroup (C.N: Quote, Profile, Research, Stock Buzz) slid 2.4 percent to $2.46.
However, the KBW Bank index .BKX rose 1.2 percent to manage its fourth straight day of gains, the longest winning streak for the index since November.
On Nasdaq, biotech companies including Gilead Sciences (GILD.O: Quote, Profile, Research, Stock Buzz) and Amgen (AMGN.O: Quote, Profile, Research, Stock Buzz) were among the primary laggards, falling 5 and 9.4 percent, respectively.
The S&P Health Care index .GSPA fell 5.1 percent.
After the closing bell, Dell Inc (DELL.O: Quote, Profile, Research, Stock Buzz) reported fourth-quarter earnings of 29 cents a share, excluding items, above the 28-cent average estimate of analysts surveyed by Reuters Estimates. However, revenue of $13.4 billion missed analysts' estimates of $14.06 billion.
Shares of the world's No. 2 personal computer maker rose 2.1 percent to $8.38 in extended trade.
The government released more bleak news on the economy on Thursday as one report showed the number of U.S. workers continuing to claim jobless benefits notched a fresh record in the second week of February while another showed U.S. orders for long-lasting manufactured goods fell for a sixth straight month in January to a six-year low, and data showed new homes sales slumped to their lowest since 1963.
International Business Machines Corp (IBM.N: Quote, Profile, Research, Stock Buzz) was the top performer on the blue-chip index, as shares surged 3.6 percent to $88.97 after it affirmed its full-year earnings outlook, making it the top gainer in the Dow.
In contrast, shares of General Motors (GM.N: Quote, Profile, Research, Stock Buzz) fell 6.7 percent to $2.38 after the auto-maker posted a quarterly loss and said its auditors were likely to cast doubt on its viability.
Shares of Sallie Mae (SLM.N: Quote, Profile, Research, Stock Buzz), the largest U.S. student loan group, plunged nearly 31 percent to $5.80 on a proposal in Obama's 2010 budget that would axe the federally guaranteed student loan program.
Trading was moderate on the New York Stock Exchange, with about 1.47 billion shares changing hands, slightly below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.32 billion shares traded, just above last year's daily average of 2.28 billion.
Declining stocks outnumbered advancers on the NYSE by 10 to 9 and on the Nasdaq by about 5 to 3.
(Reporting by Leah Schnurr and Chuck Mikolajczak; Editing by James Dalgleish)
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Market Comments
By Vincent Feb. 27, 2009
The speech Obama gave the other night about the budget sounded very inspiring. Obama wanted to sound like the Great Ronald Regan but he is not, he also wanted to be the Great Abraham Lincoln, he is not. The fact is Obama does not know what he wants to be, he has take on a job that is too big for his britches. After listening to his speech I am more convinced the market is headed south. Obama?s budget will cut into corporate profits and punish companies that do business overseas. He will stifle investment incentive therefore condensing the economy. Many countries depend on the American economy for their survival. He is taking back America 50 years in just one short month.
Obama says he inherited this financial crisis, he is right but what he doesn't,t tell you is this crisis was created by his own party and they have done nothing to fix the problem. America asked for change and they got now heaven help them.
Market update by Vincent
Feb. 20, 2009 @ 10:02 am Dow down -91.69 7374.27
The Dow had closed below bear market levels. What does this mean? It means the market is now looking for support levels. Is it 7000? 6500 or 6000? The market has 2 support levels major support and minor support i.e. minor support would be 7000 and major support would be 6000. (This is just and example). There is no confidence in the financial markets (thank you Mr. President Obama) The stimulus package has not convinced the market it will work and the stimulus package includes protectionism policies again thank you Mr President for your lack of leadership and understanding of economics.
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Market Outlook
Market Tumbling Toward November Lows
Joseph Hargett and Todd Salamone, Option Advisor 02.17.09, 11:30 AM ET
Last week may have been proof that too much hope and stimulus can be a bad thing. Despite the Obama administration's bank-rescue plan and economic stimulus package, the major market indexes plunged on the week.
Even a weeks-long moratorium on foreclosures by Citigroup and JP Morgan Chase failed to bolster stocks. The Dow plunged roughly 5% for the week. Elsewhere, the S&P 500 Index dropped 4.8% for the week, and the Nasdaq composite slipped 3.6%. The SPX decline wiped out nearly all of the prior week's gains, and the index's 80-day moving average once again marked a peak.
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We enter a new week with the SPX working its way out of an over bought condition. However, according to the index's nine-day relative strength index (RSI), the SPX is not exactly over sold. With the index trading nearer the lower boundary of a one-month trading range between 810 and 880, the short-term case for the bulls can be derived from the fact that there is plenty of room between the SPX and the upper boundary of its trading range.
Key levels, from a short-term support perspective, are in the 800 to 810 area, with 800 emerging as especially important due to heavy out-of-the-money put open interest at this strike. Therefore, those who sold puts at this strike will likely attempt to defend it. However, should this strike be tested and fail to hold, the proverbial dam could break, setting up a quick retest of 750.
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Also favoring the bulls this week is the fact that it is expiration week. But it's not all roses for the bulls, and the risks for the SPX are detailed below:
1. The CBOE Market Volatility Index is resting on its 160-day moving average, a trend line that has marked support for a rising VIX in 2009, including that which marked the early-January peak in the stock market.
2. News that the Obama administration was hammering out a program to subsidize mortgage payments for troubled homeowners arrested a broad-based sell off and acted as a catalyst for a late-day surge on Thursday. Along these lines, a pattern has developed in the market: "Buy the rumors that come out of Washington," and "sell the actual news that comes out of Washington."
3. Some investors have displayed signs of "hope" that Washington will come out with a convincing plan to fix the economy and the credit market. Even as the broad market trades at depressed levels, sentiment indicators are far from depressed. For example, the 10-day moving average of the all-equity call/put ratio on the International Securities Exchange is at 1.41, well above levels that have marked short-term bottoms during the past year. With the congressional stimulus plan and the Treasury's disappointing plan now behind us, the market runs the risk of hope giving way to fear.
4. There are cracks occurring in large-cap stocks, an area of perceived safety during rocky times. First, resistance continues to lie overhead, particularly from the SPX's 80-day moving average. We have also discussed the importance of the round-number 400 level on the S&P 100 Index. From October through mid-January, 400 would not be broken, except on occasion. But, since Jan. 15, there have been 16 closes below this mark.
5. Furthermore, there have been a total of eight closes below the 8,000 level by the Dow Jones industrial average since November 2008. In November and January, the bulls quickly reclaimed this key level. However, there have been six closes below this millennium level already in February alone. Moreover, going into this week's trading, the Dow is facing four consecutive closes below 8,000--the longest sub-8,000 daily streak since March 2003.
We continue to advise maintaining exposure to both the long and short side of the market, especially if you are an option buyer who can put limited dollars at risk. The SPX is in compression mode, but major support or resistance will likely give way in the weeks ahead. Unlike some who "fear missing a rally," we fear for those who have too much riding on an upside move before another major break to the downside.
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Here is a brief list of some of the key events for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective Web site for official reporting dates.
Tuesday: The sole report arriving on Tuesday is the February Empire State manufacturing index. Elsewhere, Fossil, Trans ocean, Wal-Mart Stores, Agilent and La-Z-Boy are among those reporting earnings.
Wednesday: Things heat up on Wednesday with January's housing starts, building permits, import/export prices, capacity utilization and industrial production, as well as the minutes from the most recent Federal Open Market Committee meeting. Entering the earnings spotlight are Comcast, Constellation Energy, Deere & Co., Goodyear Tire, Office Max, Suntech Power, Baidu.com, Hewlett-Packard, priceline.com and Whole Foods.
Thursday: On Thursday, the economic calendar offers up the January producer price index, the core PPI, January's leading economic indicators, the February Philadelphia Fed's manufacturing index and the weekly reports on U.S. petroleum supplies and jobless claims. The earnings calendar includes Apache, CVS Caremark, Newmont Mining, Sprint Nextel and Crocs.
Friday: We round out the week with the consumer price index and the core CPI. The earnings calendar closes out the week with Barrick Gold and J.C. Penney.
Joseph Hargett is senior equities analyst and Todd Salamone is senior vice president of research at Schaeffer's Investment Research. Click here for more ideas and recommendations and to learn more about Bernie Schaeffer's Option Advisor.
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February 18, 2009
Dow Drops Nearly 300 Points
By JACK HEALY and MATTHEW SALTMARSH
From Hong Kong to eastern Europe to Wall Street, financial gloom was everywhere on Tuesday.
Stock markets around the world staggered lower. In New York, the Dow fell more than 3 percent, coming within sight of its worst levels since the credit crisis erupted. Financial shares were battered. And rattled investors clamored to buy rainy-day investments like gold and Treasury debt.
It was a global wave of selling spurred by rising worries about how banks, automakers ? entire countries ? would fare in a deepening global downturn.
?Nobody believes it?s going get better yet,? said Howard Silverblatt, senior index analyst at Standard & Poor?s. ?Do you see that light at the end of the tunnel? Any kind of light? Right now, it?s not there yet.?
At the close, the Dow Jones industrial average was down 297.81 points or 3.7 percent to 7,552.29 points as losses in General Motors, Bank of America and American Express dragged the blue chips lower. The only Dow stock in positive territory was Wal-Mart, which rose after reporting better-than-expected profits.
The broader Standard & Poor?s 500-stock index slid 3.7 percent to drop below 800, which analysts said was an important trading threshold.
?If we get substantially below 800 then look out below,? said Marc Groz, chief investment officer at Topos, a risk-advisory firm in Greenwich, Conn.
The rout on Wall Street began hours earlier in Europe, after Moody?s Investor Services warned that banks in Eastern Europe could face credit downgrades, and said that countries such as Hungary, Croatia, Romania and Bulgaria could be in for ?hard landings.?
Investors are worried about debts owed by Eastern European banks to those in countries like Austria, Germany, Belgium and Italy. As banks in the West remove capital and face more political pressure to lend at home, Eastern Europe stands to suffer, analysts said.
?Eastern Europe fed from the global tidal wave of liquidity and easy money,? said Nick Chamie, head of emerging markets research at RBC Capital Markets in Toronto. ?They will now see significant collateral damage ? a major contraction in growth, and the financial system will continue to implode. You?ll probably see some of the fixed exchange rates broken.?
In addition, he said, there was likely to be a significant rise in unemployment, accompanying social tension and perhaps even a reconsideration of the benefits of integration with the European Union for populations in the East.
?It?s the ugly side of economic integration,? he said. ?When things turn bad, is the support there??
In its January update to the World Economic Outlook, the International Monetary Fund slashed its 2009 growth forecast for Central and Eastern Europe, predicting a contraction of 0.4 percent, down 2.6 percentage points from its last estimate. The monetary fund also cut its outlook for 2010 to 2.5 percent, down 1.3 percentage points from its previous estimate.
The managing director of the fund, Dominique Strauss-Kahn, predicted over the weekend that a ?second wave? of countries would seek assistance. The fund has started programs for Hungary, Ukraine, Latvia and Belarus. Prime Minister Emil Boc of Romania said Monday that he would decide during the next two weeks whether to seek aid from the IMF or the EU.
The sensitive question about whether or how European Union members should help their weaker brethren is already being debated, with governments like Austria pushing for sweeping support.
Dallara said there was ?an urgent case? for better coordination among the IMF, the World Bank and major central banks to provide ?more vigorous liquidity support to emerging markets? by the establishment of new credit lines between central banks in different regions.
Markets in Europe fell sharply on Tuesday, and the euro lost ground to the dollar. In London, the FTSE 100 closed down 2.4 percent while the DAX in Frankfurt fell 3.4 percent.
In New York, the gyrations in stocks came as President Obama signed the $787 billion economic stimulus package and executives at General Motors and Chrysler prepared to submit major restructuring plans to the federal government after receiving billions in bailout money.
General Motors stock, which was more than $25 last February, was trading lower on Tuesday, at about $2.15 a share. Shares of the Ford Motor Company, which has not received any bailout funds, were down 5 percent.
Analysts said investors were still nervous about the Treasury Department?s plans to shore up the financial system and help remove billions of dollars in troubled mortgage-related assets from the balance sheets of major banks.
?The administration is great at floating the rumors, but we need concrete plans to back that up,? said Ryan Larson, head equity trader at Voyageur Asset Management. ?Without any further concreted details, the market?s really left to wonder. And in this environment, they wonder the worst-case scenario.?
Crude oil closed down $2.58 to $34.93 a barrel, pulling down energy companies. Exxon Mobil, Chevron and Total skidded as consumers and industries continued to scale back their demand for oil and gasoline.
In a sign of further deterioration in the industrial sector, a gauge of manufacturing in New York State fell precipitously in February, reflecting a plunge in new orders, prices and employment. The Empire State Manufacturing Survey, which is calculated by the Federal Reserve Bank of New York, fell to a new low of minus 34.7 in February, from minus 22.2 in January.
?Robust export demand had been the main support for U.S. manufacturing for many months,? Joshua Shapiro, chief United States economist at MFR, wrote in a note. ?Now, with economic activity weakening sharply around the world, exports are dropping like a stone, with the pace of decline set to accelerate significantly in the months ahead.?
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Saving the banks
The Obama rescue
Feb 12th 2009
From The Economist print edition
THERE was a chance that this week would mark a turning-point in an ever-deepening global slump, as Barack Obama produced the two main parts of his rescue plan. The first, and most argued-over, was a big fiscal boost. After a lot of bickering in Congress a final compromise stimulus bill, worth $789 billion, seemed to have been agreed on February 11th; it should be only days away from becoming law. The second, and more important, part of the rescue was team Obama?s scheme for fixing the financial mess, laid out in a speech on February 10th by Tim Geithner, the treasury secretary.
America cannot rescue the world economy alone. But this double offensive by its biggest economy could potentially have broken the spiral of uncertainty and gloom that is gripping investors, producers and consumers across the globe.
Alas, that opportunity was squandered. Mr Obama ceded control of the stimulus to the fractious congressional Democrats, allowing a plan that should have had broad support from both parties to become a divisive partisan battle. More serious still was Mr Geithner?s financial-rescue blueprint which, though touted as a bold departure from the incrementalism and uncertainty that had plagued the Bush administration?s Wall Street fixes, in fact looked depressingly like his predecessors? efforts: timid, incomplete and short on detail. Despite talk of trillion-dollar sums, stockmarkets tumbled. Far from boosting confidence, Mr Obama seems at sea.
Toxic tantrums, contingent chaos
The fiscal stimulus plan has some obvious flaws. Too much of the boost to demand is backloaded to 2010 and beyond. The compromise bill is larded with spending determined more by Democrat lawmakers? pet projects than by the efficiency with which the economy will be boosted. And it contains ?Buy American? clauses that, even in their watered-down version, send the wrong signal to trading partners.
For all those shortcomings, the stimulus plan gets one big thing right. Given the pace at which demand is slumping, a big, and sustained, fiscal boost is vital for America?s economy. This package, albeit imperfectly, administers it.
That makes the inadequacy of the financial rescue all the more regrettable. Fiscal stimulus, indispensable as it is, cannot create a lasting economic recovery in a country with a broken financial system. The lesson of big banking busts, such as Japan?s in the 1990s, is that debt-laden balance-sheets must be restructured and troubled banks fixed before real recoveries can take off. History also suggests that countries which address their banking crises quickly and creatively (as Sweden did in the early 1990s) do better than those that dither. This is expensive and painful, but cautious, penny-pinching governments end up paying more than those that tread boldly.
By any recent historical standards America?s banking bust is big (see article). The scale of troubled loans and the estimates of likely losses?which are now routinely put at over $2 trillion?suggest many of the country?s biggest banks may be insolvent. Their balance-sheets are clogged by hundreds of billions of dollars of ?toxic? assets?the illiquid, complex and hard-to-price detritus of the mortgage bust, as well as growing numbers of non-housing loans that are souring thanks to the failing economy. Worse, banks? balance-sheets are only one component of the credit bust. Most of the tightness of credit is owing to the collapse of ?securitisation?, the packaging and selling of bundles of debts from credit cards to mortgages.
Fixing this mess will require guts, imagination and a lot of taxpayers? money. Mr Geithner claims he knows this. ?We believe that the policy response has to be comprehensive and forceful,? he declared in his speech, adding that ?there is more risk and greater cost in gradualism than aggressive action.?
But his deeds did not live up to his words. His to-do list was dispiritingly inadequate on some of the thorniest problems, such as nationalising insolvent banks, dealing with toxic assets and failing mortgages. Mr Geithner promised to ?stress-test? the big banks to see if they were adequately capitalised and offer ?contingent? capital if they were not. But he offered few details about the terms of public-cash infusions or whether they would, eventually, imply government control. His plan for a ?public-private investment fund? to buy toxic assets was vague and its logic?that a nudge from government, in the form of cheap financing, would enliven a moribund market?was heroic. Banks? balance-sheets are clogged with toxic junk precisely because they are unwilling to sell the stuff at prices hedge funds and other private investors are willing to pay. Vagueness, in turn, led to incoherence. How can you stress-test banks if you do not know how their troubled assets will be dealt with and at what price? Amid these shortcomings were some good ideas, such as a fivefold expansion of a $200 billion fledgling Fed facility to boost securitisation. But for nervous investors and worried politicians, desperate for details and prices, the ?plan? was a grave disappointment.
A great failure of nerve
How serious is this setback? One interpretation is that Mr Obama?s crew mismanaged expectations?that they promised a plan and came up with a concept. If so, that is a big mistake. Managing expectations is part of building confidence and when so much about these rescues is superhumanly complex, it is unforgivable to bungle the easy bit.
More worrying still is the chance that Mr Geithner?s vagueness comes from doubt about what to do, a reluctance to take tough decisions, and a timidity about asking Congress for enough cash. That is an alarming prospect. ?Banksters? may be loathed everywhere (see article), but more money will surely be needed to clean up America?s banks and administer the financial fix the economy needs. That, as this newspaper has argued before, means both some form of ?bad bank? for toxic loans (with temporary nationalisation part of that cleansing process, if necessary) and guarantees to cover catastrophic losses in the ?good? banks that remain. Mr Obama?s team must recognise this or they, like their predecessors, will come to be seen as part of the problem, not the solution.
Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.
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Market Comment by Vincent Feb. 11, 2009
As I have mentioned many times before I did not agree with Obama?s economic plan and that it will not stimulate the economy in the immediate future. This plan does nothing for stimulation in 2009 and does not take effect until 2010 or later. Today the Dow dropped 381 points. This is an indication that the market does not agree with this stimulus package and now I fear the market will test the 6000 level. The American economy is not as bad as the president and his Treasury secretary state. There are still many investment banks, commercial banks and business that are still solid. The problem we face now is that banks are not lending and people are not spending and until the government understands its policy are not stimulating for the economy. The only thing this policy stimulates is that government will grow bigger. The capitalistic system is what made America the great economic power that it is and government must let capitalism climb us out of the economic hole.
What most Americans and people around the world don?t understand is that this economic crisis was caused by a policy that was implemented in 1975 (the Consumer Reinvestment Act) by President Jimmy Carter (Democrat) and reinstated in 1995 by President Bill Clinton and enforced the leaders of Fannie Mae and Freddie Mac (both Democrats).
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The Cruel Road Down to 6000
The holiday buzz has worn off; people are starting to realize that Barack Obama is just a mere mortal; and Wall Street traders are waking up to the grim reality.
Call it recession or call it depression, we're nowhere near the end of the pain for the economy.
And while the rally was nice while it lasted, we are headed back down. Past 8,000 on the Dow. Past 7,000. The cruel road down could stretch all the way to Dow 6,000 before we finally see the real bottom.
We're not going to see a lasting move up until a whole lot more bad news is out. Until someone else is lending money other than Uncle Sam. Until businesses start hiring and consumers start spending again.
Sure we will see bear market rallies; but then the inevitable busts will come.
Michael Shulman
ChangeWave Shorts
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