Browsing articles in "Weekly Market Update"

Santa Rally Snuffed Out?

Dec 16, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Looks like investors rolled out of bed on the wrong side this past Monday and stayed grumpy for most of the week.  The markets headed lower into the middle of the trading range that was established in October.  Institutional investors are making year end changes to their portfolios causing wild swings in otherwise less volatile stocks while retail investors just threw in the towel and called it quits.

In terms of Europe, rumors abounded this week suggesting that Fitch was going to downgrade France’s credit rating.  This drove rates higher in not only France but Italy as well.  In fact, at its five-year auction on Wednesday, Italy saw yields rise to a euro-era record of 6.47%, surpassing the 6.29% previous record that Italy paid last month.  One journalist put it like this, “If you take a blank piece of paper and look at it, that’s the current plan Europe has.”  Unfortunately, the markets will continue to be roiled until the European Union gets their act together.  Fortunately, Fitch affirmed France’s AAA rating late Friday but changed the outlook to negative.  The negative outlook is all about “contingent liabilities,” i.e. if French bank liabilities become French state liabilities.  In addition to France, Fitch also placed Belgium, Spain, Slovenia, Italy, Ireland and Cyrus on negative watch.

If there was one connecting theme to the reports this week it would be “less”.  Several large companies lowered their Q4 and 2012 earnings guidance, states are trying hard to find ways to slash budgets, and economists are lowering forecasts for GDP growth both here and abroad.  It would seem the world is going on a diet.  California announced $2.5 billion in budget cuts following an estimated revenue shortfall of $3.7 billion.  Ironically, the bulk of the savings would come from a seven-day reduction of the school year, projected to save $1.5 billion!    Not to be left out, economists and analysts are feverishly scratching earlier forecasts in favor of now lower GDP and S&P estimates for 2012.

As for companies in the news this week, both Intel and DuPont lowered 2012 guidance.  This is important because both companies are economic bellwethers and could indicate a weak first half to 2012.  Other companies lowering guidance include First Solar, Freeport-McMoran, Charles Schwab and Nucor.  Even the Federal Reserve reiterated in their FOMC minutes they have no plans to raise rates until mid-2013 given the widespread weakness in the economy.  In fact, some pundits pointed out that the lack of inflation leaves the door wide open for the Fed to pursue further quantitative easing in the first half of next year.

And in closing, I was skimming through the news when this headline caught my attention, “World Watches as Norway Runs out of Butter.”  It seems Norwegians have eaten up the country’s entire stockpile of butter, partly as the result of a low-carb diet sweeping the Nordic nation.  “Sales all of a sudden just soared, 20% in October then 30% in November.”  Adding to the shortfall was the unusually wet summer which reduced the quality of animal feed and cut milk production by 25%.  The irony is that right across the narrow sea channel, top dairy produce Denmark is sitting on huge stores of the stuff.  Unfortunately, the high import duties in Norway prevent the butter from being imported.  This is really shaping up to be an interesting year end!

December 16, 2011: Market Update

The Queen & Her Fur Coat

Dec 9, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The market looks to finish mostly flat this week.  We had a couple of days that broke 100 points but for the most part, it was less volatile than usual.  Many investors chose to stand on the sidelines while waiting for the outcome of yet another EU summit on Thursday.  Other than that, there wasn’t much to report this week.

Angela Merkel and Nicholas Sarkozy met on Monday to iron out their differences before the EU summit yesterday.  The roadblock is Germany’s reluctance to bail out Europe without a tighter fiscal union and the power to police the budgets of sinner states.  Understandably, many countries in the EU cringe at the thought of giving up their sovereignty to Germany under the guise of an overriding fiscal authority.  Yesterday’s summit resulted in 23 EU nations agreeing to tighten their fiscal coordination, but stopped short of giving Germany the power to police or enforce the agreement.  The nations also decided to loan the IMF $267 billion for the purpose of lending back to distressed members.  While these are positive steps, it is far from a binding resolution to the liquidity and solvency crisis hitting Europe.

Complicating matters, the S&P placed the ratings of the entire Eurozone on “credit watch with negative implications,” including Germany and France.  The time is coming soon when the ECB is going to have to decide whether it has the stomach to start buying sovereign debt of troubled countries in large quantities (aka “a money-printing bond-buying bazooka”).  This move by the S&P could be a calculated one to put pressure on the ECB to act now rather than later.  One day later the ECB announced they would lower rates to a record 1% from 1.25% but made clear they are not committed to more bond buying.  The uneasiness grew as central banks begin to investigate their options for a partial, or complete, Eurozone breakdown.  Ireland, for example, is said to be considering whether it needs to stock up on printing presses in case it must print new notes, while the Swiss are considering alternate currencies to use as a franc reference point.  Things are coming to a head in Europe.

In the U.S. there isn’t much news.  Jon Corzine was called to testify before Congress on his role in the collapse of MF Global.  He was coached well and while he didn’t take the fifth, he didn’t say much that would incriminate himself.  In other news, it recently came to light that members of Congress are not banned from insider trading like the rest of us.  This isn’t a new story but made headlines this week which forced our representatives to take action.  However, just one day after scheduling a vote to make this practice illegal, the House committee canceled the vote due to a desire for “more time to study the issue”.

And lastly, the story of the week comes from a report I came across last week.  It appears that the global slowdown hasn’t spared anyone.  In a sign of dire economic times, Buckingham Palace is now embracing a little fiscal austerity of its own.  Queen Elizabeth II will see six consecutive years of frozen pay.  Taxpayer funding for royal travel and royal palaces has also been put on the chopping block, so British taxpayers will no longer foot the bill for Prince William and Kate Middleton’s travels and security.  These expenses will now be picked up by Prince Charles.  Apparently it has gotten so bad that the queen has approved renting out rooms at St. James’s Palace as a party venue during the 2012 London Olympics.  “You don‘t really realize, but the queen is going around Buckingham Palace, turning off lights, having fewer staff, even turning the heating down.  She sometimes even writes letters in her very own fur coat,” says Ingrid Seward, editor-in-chief of Royal magazine.  Now you know.

December 9, 2011: Market Update

Shoppers Rejoice

Dec 2, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

What a difference a couple of weeks make.  This week alone, the market swung higher over seven hundred points giving everyone hopes that maybe we’ll finish the year on a strong note.  There were several large developments including Black Friday numbers, steps being taken in Europe and the unemployment rate.  We’re far from being out of the woods, but we’re thankful for the seemingly good news and buoyant optimism this week.

It seems that Black Friday and Cyber Monday surpassed expectations.  We never doubted the resolve of the American consumer to pull out the plastic this time of year.  Retail sales over the Thanksgiving weekend jumped 16.4% to a record $52.4 billion.  The number of consumers who visited stores or Internet shopping sites increased 6.6% to 226 million, also a record.  Cyber Monday sales increased a staggering 18% from a year earlier.  Some have pointed out that the increase in sales has come at the expense of profit margin with promotions, sales and free shipping being big draws for consumers this year.  Either way, retailers are keeping their fingers crossed that the momentum will be sustained.

In other news, it appears Italy might have been on the brink of insolvency earlier this week.  In order to finance their debt they needed to raise additional capital at ever higher interest rates.  An Italian bond auction on three-year paper rose to a euro-era record 7.89% from 4.93% just one month ago.  Equally disturbing, Eurozone banks borrowed $11.6 billion from the European Central Bank (ECB) overnight, the highest amount since March, characterizing the inability of nearly all EU banks to obtain financing in the markets.  One trader was quoted as saying, “Just look at my screen.  I have one big European bank willing to lend and 40 banks wanting to borrow.”  The crisis in Europe is far from over.

There is a lot to be concerned with these days, but one bright spot this week was the unemployment number.  Much to the surprise of both analysts and economists alike, the unemployment rate dropped from 9.0% to 8.6%.  Now this is a preliminary number and it will likely change in the next two months, but we’re hopeful that this marks the beginning of renewed hiring in the United States.  I’d be remiss if I didn’t mention that not all of that gain is from new hires.  Part of that number includes the 315,000 people who dropped out of the labor force which caused the participation rate to fall.  But we’d like to focus on the positive this week.

And finally, you know I look far and wide for interesting stories to close out each week.  Sometimes they are based on financial news, but more often than not they are simply amusing and noteworthy.  This week I came across one that had me laughing.  By now, many of you are aware of Groupon, the discount aggregator.  Well, a London baker is steamed at the daily discounter after customers flooded her shop after issuing a daily deal.  Rachel Brown offered a seventy-five percent discount on a dozen cupcakes.  With twelve cupcakes normally costing $40, her bakery was swarmed.  More than 8,500 people signed up for the deal, which cost them just $10.  Mrs. Brown was forced to bake 102,000 cupcakes which necessitated her hiring extra workers and resulted in the loss of $3 per batch.  She ended up losing nearly $20,000 on the deal.  The moral of the story: Be careful what you ask for!

December 2, 2011: Market Update

Monti: The Missing Mario Brother

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

The markets headed lower this week on thin volume as Italian and Spanish bond yields rose above 7% once again.  The rumors coming out of Europe continued to whipsaw the markets each and every day.  After weeks of Europe this and Europe that, there is a growing impatience that something must be done soon.

Next week we look forward to Thanksgiving but not before several key pieces of economic data are released.  Monday brings us existing home sales, Tuesday is the all important first release of third-quarter Gross Domestic Product (GDP) and Wednesday the Labor Department will announce jobless claims.  Lest we forget, Wednesday is also the deadline for the Congressional Super Committee to come up with $1.2 trillion in budget savings.  Despite all the big announcements, it will be a short trading week with the market closed Thursday and after 1pm on Friday.

The week wouldn’t be complete without some reference to Greece, Italy or Spain.  On Monday, Mario Monti became Prime Minister of Italy.  As a “technocrat” and economist, it is believed he will have the stomach to push through the necessary austerity measures.  In related news, Spain will be holding elections this weekend to elect a new Prime Minister.  And in an audacious move, the European Union is proposing a suspension of credit ratings for those countries in the midst of bailouts.  Ratings agencies “won’t have the right, if the EMSA decides, to rate certain countries,” says markets commissioner Michael Barnier.  This led some to quip: short sale bans, deposing of governments, and now a ratings ban?  This is going well!

In company news, we learned that none other than Warren Buffet has taken a 5.5% stake in IBM among other companies.  We’re happy to say that Warren, while a consummate investor, is late to the game as we’ve been in it for several years now!  In other news, Chipotle Mexican Grill (CMG) ranked #2 on NPD’s list of the fastest-growing restaurant chains in America, only trailing privately held Five Guys burgers.

The story of the week has to do with General Electric’s tax return.  No, we’re not going to harp on whether they did or did not pay taxes in 2010.  That’s old news.  The story I came across this week is more jaw dropping.  It turns out that General Electric’s federal tax return was a whopping 57,000 pages.  Fortunately they were able to file electronically, but it does call into question the complexity of the IRS tax code as it stands.  Whether we agree with it or not, it’s hard to argue against simplifying the current system.

As a final reminder, we’d like to take the opportunity to invite everyone to the Olde West Chester Christmas Walk this Saturday, November 19th.  We will be serving punch and cookies and welcoming all who come out to visit.  The day goes from 1pm to 8pm with much of the activity taking place from 6pm-8pm.  The parade will start at 7pm and end by 8pm.  We look forward to seeing you!

In closing we’d like to mention that due to the short holiday week, we will not be sending out the Harvest Advisor email next week.  We want to take this opportunity to wish all our clients a very happy Thanksgiving.  We value and appreciate each and every one of you.

November 18, 2011: Market Update

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