Browsing articles in "Weekly Market Update"

Something is a Little Fishy!

Oct 28, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It seemed just last week we were bidding farewell and good riddance to September.  After a difficult third quarter it is with sincere feeling of thankfulness that we bid October adieu.  This past month represents the largest monthly point gain EVER for both the Dow Jones Industrial Average and the S&P 500 Index (short of some calamity on Monday).  For those who question the wisdom of being patient in a volatile and event driven market we understand your anxiety.  However, it is months like October that remind us that patience can be a virtue and fear sometimes a vice.

There was a lot to be grateful for this week, but perhaps the most important was a framework resolution for the bailout of Greece.  While the devil is in the details, the responsible parties seem to have agreed on a basic premise for this and future bailouts.  While it’s likely that the problem isn’t yet solved, the can has been kicked into 2012 and beyond.  To a large extent, this is what drove the markets higher this week.

However, the next hurdle facing the markets is quickly approaching.  You’ll remember that before the situation in Greece heated up this summer, there was that little situation over our burgeoning debt problem.  A “super committee” was created to look at ways to reduce our debt-to-GDP ratio with a deadline of November 23rd.  The committee has been unusually quiet these past few months and if history is any guide we won’t hear anything until November 22nd.  What’s at stake is another potential credit downgrade by Moody’s or S&P with a prolonged battle into the presidential election season next year.

The good news is that the economic indicators are slowly beginning to suggest that we’re not in or heading into a double-dip recession.  Just today, the first estimate of Q3 Gross Domestic Product (GDP) was released as +2.5% (annualized).  This is above the +1.3% increase in Q2 GDP and a reversal of weakening numbers in recent quarters.  However, one number does not make a trend.  Understandably consumer confidence remains low with the October reading coming in at an anemic 39.8, well below the 46 expected.  And while companies continue to report good revenue and earnings growth, more than a few are warning that Q4 will come in below prior guidance.  To be certain, there are obstacles ahead.  Yet, we’ve once again come through a difficult period of cyclicality and are for the moment on the mend.

There were a few stories I was considering for the story of the week.  I settled on this one because it is the second time I’ve come across it.  For a long time now, health conscious foodies have opted for fish.  Over time, we’ve seen a quick rise in the variety of fish and the increasingly upscale options available.  Yet would you know one species from another once cooked and sitting on your plate?  Apparently many wouldn’t in light of a recent study.  Consumer Reports found that a surprising number of fish are not what we think they are.  Another study showed that nearly half the 183 fish samples reporters purchased at restaurants, grocery stores, and seafood markets were sold with the wrong species name.  The downside is that not only are you not getting what you think you ordered, but that you probably paid too much and it may be less healthy than you think, i.e. mercury.  Among those often mislabeled include red snapper, white tuna, grouper and Pacific cod.  Just some food for thought!

October 28, 2011: Market Update

Most Overpaid CEOs

Oct 21, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

If you had been following the markets this week you would have noticed that they continued the recent trend higher.  For the most part, this was due to reasonably good earnings announcements.  Companies reporting earnings were pretty optimistic about future prospects and most met analysts’ expectations.  On the other hand, the curtain just went up on Act Three of the Shakespeare drama playing out in Europe.  Are we closer to a resolution over Greek debt?  We’ll know after this weekend.

Given the recent pessimism over the state of the economy these past few months, it shouldn’t come as a surprise that many analysts had lowered their expectations.  Everything from GDP estimates to growth estimates was slashed.  So when companies started announcing third quarter earnings this week, it was with bated breath that we waited.  Fortunately, with few exceptions, many companies beat consensus expectations.  But more notably, many cyclically important companies remain bullish on the fourth quarter.  This is partly due to the recent pullback in the price of oil and other commodities.  It’s also due to the observation that price increases are being tolerated by consumers better than had been hoped.  We’re not out of the woods yet, but what we’re hearing so far suggests that perhaps the pendulum is swinging in the right direction once again.

Then we have Europe.  One commentator on CNBC said he wished politicians in Europe would “shut up” until an agreement is reached.  I concur.  The back and forth of news releases is dizzying and isn’t serving any purpose other than to confuse and exasperate investors.  For a quick timeline of this week we had the following:

  • Monday – Germany and France agree to meet this Sunday to discuss increasing the bailout fund (EFSF) to €2 trillion.
  • Tuesday – it is leaked that legal experts say it would break the law for the EFSF to buy sovereign debt directly.
  • Wednesday – news comes out that the Sunday meeting may be postponed to next Wednesday despite the critical deadline.
  • Thursday – it is suggested that maybe instead of the EFSF buying the bad debt, foreign countries could borrow money from the EFSF and use it as collateral against their bad debt to raise additional funds in the private market.
  • Friday – new rumors emerge that now the IMF could step in and provide loans to faltering countries, circumventing the EFSF.  Oh, and in closing it is announced that Greece is in far worse shape than had previously been thought.  In fact, if 50% of the Greek debt is written off, it would still take until 2020 for Greece’s debt to fall to 120% of GDP.

We can only wonder how this third act ends.

Lastly, the story of the week comes straight from 24/7 Wallstreet.  Each year they look at the compensation of CEOs at the 100 public companies that paid their chief executives the most.  Here is their list of America’s most overpaid CEOs.  You’ll be happy to know that we do not own any of these companies.

Name Company Total Compensation Change in Stock Price
Kevin Sharer Amgen, Inc. $21,138,133 -3.0%
William Weldon Johnson & Johnson $28,720,491 -4.0%
Robert Stevens Lockheed Martin Corp. $21,897,820 -7.2%
William Swanson Raytheon Co. $18,787,343 -10.1%
Miles White Abbott Labs $25,564,283 -11.3%
Laurence Fink BlackRock Inc. $23,839,294 -17.9%
Tom Ward SandRidge Energy $21,756,257 -22.4%
John Chambers Cisco Systems $18,871,875 -31.4%

 

For a more detailed explanation why they think these CEO are overpaid click here.

October 21, 2011: Market Update

Prepare for an Expensive Christmas?

Oct 17, 2011   //   by Marc Henn   //   Weekly Market Update  //  No Comments

The markets closed the week on a strong note as higher-than-expected retail sales and a blowout quarterly report by Google took the market higher from beginning to end on Friday.  The retail sales figure came in at a surprising 1.1% gain – better than the expected 0.7% and the best number in 11 months.  Google also surprised analysts with a 27% jump in earnings and a strong 33% surge in sales.

From Monday to Friday we saw a big change in short-term sentiment.  If you can remember that far back, on Monday we were hearing the story of the rescue of Dexia bank by France, Luxembourg and Belgium.  Even with Alcoa’s disappointing start to earnings season earlier this week, the market seemed to not want to focus on the woes of Europe as it had for the past several weeks and was anticipating better earnings to come.  Earnings season will be in full swing over the next couple of weeks with eyes on company guidance and not just past quarterly performance.

In international economic news we continue to see a mixed bag.  China’s customs bureau warned of severe challenges as their export growth slowed to 17.1% year over year.  While this is still a strong number it slowed from 24.5% in August.  However, in Europe, amidst the debt problems, industrial production climbed an unexpected 1.2% for August.  Analysts were expecting a drop of 0.8% and growth was largest in Italy, Ireland and Portugal of all places.  The eurozone also ratified an expansion of the EFSF (European Financial Stability Facility).  The EFSF’s responsibility is to preserve the financial stability of Europe’s monetary union by providing temporary financial assistance to euro area Member States in difficulty.

For the story of the week we turn to a headline out of IBM.  IBM’s retail analytics practice has discovered a strong connection between the volatility index (VIX) and jewelry sales.  It seems that when there are big swings in the stock market along with an increase in the VIX, IBM also saw increases in jewelry sales 2 months later – just in time for Christmas this year.  Data suggests that sales should be strong this season.  Start saving.

October 14, 2011: Market Update

Wedding Insurance: When You Just Are Not Sure

Oct 7, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Despite some developments in Europe, the market had a pretty good week and looks to close above 11,000 once again.  The economic releases were somewhat better than expected and investors ploughed money back into the market sensing that maybe, just maybe, the recessionary fears are overdone.  In fact, Marc mentioned to me just last week that he’d like to see the market move higher on bad news.  On the surface this sounds upside down, yet it’s just the evidence we’re looking for to help determine if the market has bottomed.

For all intents and purposes, “Greece is bankrupt,” says one of Angela Merkel’s men in parliament.  Realization is beginning to dawn that a 21% write-off of Greek debt simply won’t be enough.  Talk this week seemed to indicate that creditors will likely have to accept a much steeper 50% loss.  Yet this didn’t seem to shake the market too much.  Just one day later Dexia, a large European bank, announced they were having liquidity problems.  The Wall Street Journal reported that Dexia will essentially be dismantled with France and Belgium initially backing $240 billion in risky and/or bad assets.  Yet again, the market didn’t crumble.

In other news, there is talk that American Airlines (AMR) is on the brink of bankruptcy.  It is said that the company has burned through its cash reserves and that over 200 pilots have retired in the past two months.  While the company stock plunged, the market remained sanguine.  Late last week Eastman Kodak (EK) announced they were drawing down their credit line another $160 million which sent speculators running for the exits.  One of the oldest and most iconic companies of our generation (and many generations before us) is on the verge of bankruptcy.  What would have sent investors out of the market is now seemingly reserved for just the company in question.  Both AMR and EK suffered big losses.

Yet stocks rallied.  They rallied partly due to a glimmer of optimism that Europe is moving in the right direction, a positive ADP jobs report, September Nonfarm payrolls ahead of expectations and an expansion of the EFSF (see last week).  That’s not to say that all is clear.  In fact, there are still some large hurdles ahead, i.e. China’s slowing economy and the insurmountable differences between politicians in the United States.  However, if this week is an indication, investors appear ready to step back in and test the waters.  Earnings announcements start with Alcoa next Tuesday and all eyes will be on earnings and forward guidance.  To a large extent, the remainder of the year hinges on the next few weeks.

This week we bring you a story about insurance.  You’re no doubt familiar with health, life and home insurance.  You may be familiar with casualty and liability insurance.  But are you familiar with wedding insurance?  Zurich Financial started selling policies in January that cover weddings against cancellation, including no-shows by the bride, groom and their parents due to illness, bad weather and power outage.  It even includes a provision for the risk of a caterer being shut down by health inspectors.  I suppose if you’re willing to spend upwards of $24,000 on a wedding (the average cost in the U.S. last year), what’s a few hundred more for an insurance policy?  Before you ask, this isn’t an advertisement and no we don’t sell this insurance.  I thought it was both amusing and informational at the same time depending on which side of the table you’re on.

In closing, I’d be remiss if I didn’t mention the passing of Steve Jobs.  As co-founder of Apple, his creativity and innovation sparked a technology revolution that has forever changed our lives.  The stock held up this week but we’ll be monitoring it in the weeks ahead to ensure that Apple’s momentum doesn’t falter in Steve’s absence.

October 7, 2011: Market Update

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