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March 25, 2011 : Market Update

Mar 25, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Locked Out and Cold

What a difference a week makes. The markets reversed their downward trend this week despite continued global uncertainties. In fact, no matter what news broke from day to day, the markets headed higher. Some of that could be attributed to the quickly approaching end of the quarter but more than a little is simply news fatigue. Regardless of the circumstances, we’re happy to see the trend broken and the market heading higher.

If you turned the TV off this week, good for you. If not, this is what you would have heard. The crisis in Japan, while somewhat stable, remains unresolved. It has already led to some parts shortages in the auto industry and work stoppages at some U.S. assembly lines. This week we also saw oil move above $106 per barrel due to the situation unfolding in Libya. Without the help of the United States and NATO allies it seems the rebel forces would have been crushed. Yet, the aid we provided has emboldened Ghadafi and possibly created a standoff between his government forces and the rebels. And to round out the trifecta of unpleasant news, the chances of Portugal defaulting on its debt rose significantly. We hope for better news next week.

The bulk of the economic releases this week were regarding home sales in one form or another. In a nutshell, they were also unpleasant. Existing home sales fell 9.6% in February with median prices falling further. Even starker is that new home sales fell 16.9%. With interest rates inching higher and an unemployment rate just below 9%, there is simply no market for housing.

On the other hand, company news remained bright. We learned that AT&T will buy T-Mobile for $39 billion (pending regulatory approval). And Caterpillar hits another 52-week high after saying it will invest $5 billion in expansion of its production capacity, centering on a near-tripling of machinery production in Asia. Oracle announced its fiscal third-quarter earnings yesterday and blew past analysts’ estimates. This goes to show that companies with strong balance sheets are able to take advantage of the current economic climate to make strategic purchases or invest in capacity. The best companies are expanding and positioning themselves for the future. We own many of these companies and continue to look for opportunities.

And to leave you on a somewhat humorous note, it appears that even the President of the United States is not immune to being locked out of his own home. President Barack Obama had to try a couple of doors at the White House before finally gaining access to the Oval Office on Wednesday after returning from his five-day trip to Latin America. Before his arrival, White House staff were apparently not informed that the President was coming back to work. I would have loved to see the look on his face.

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