Browsing articles in "Weekly Market Update"

Twinkies, May You Forever RIP

Jan 13, 2012   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The market cooled off a little this week much like the weather did today.  Some of the buying we observed the first week of the year has subsided as investors take a wait and see approach to fourth quarter earnings announcements which start later next week and continue through the end of the month.  In addition, next week will be a short trading week with the markets closed Monday in observance of Martin Luther King, Jr. day.

We’ve gone some time now without talking about Greece.  In the fourth quarter last year, attention shifted to Spain and Italy with the fear of a weakening European Union.  However, behind the scenes Greece has been fervently trying to work out a deal with its creditor banks to write off at least fifty percent of its outstanding debt.  There is over $18 billion coming due in March and without further funds from the IMF, Greece will be forced to default.  We expect to hear a lot more about Greece in the coming weeks.  In other news, Europe’s ability to fight off its debt crisis was again thrown into doubt today when the euro hit its lowest level in over a year and borrowing costs rose on expectations that the debt of several countries would be downgraded by rating agency Standard & Poor’s.  By the end of the day, France had been downgraded a notch to AA with other country downgrades expected.

There was quite a bit of company news this week ahead of earnings.

  • Starbucks rolled out a new “blonde roast” for non-hardcore coffee drinkers who prefer a milder tasting coffee.  I’ll admit, I tried it and came away less than enthusiastic, but then I’m probably not the demographic they’re going after since I prefer a bolder coffee flavor.
  • Chevron is rumored to be close to making a major investment in an offshore gas field in Indonesia.  This move could bring Indonesia back into OPEC.
  • McDonald’s extended its Olympic sponsorship to 2020, remaining one of the eleven top sponsors.  McDonald’s hopes the move will help it brand in fast-growing cities such as Sochi, Russia (2014 games) and Rio de Janeiro (2016 games).
  • Apple’s share of the U.S. smartphone market surged in Q4, jumping from 26% to 43%.
  • At the 2012 International CES (Consumer Electronics Show) this week, Qualcomm launched a platform for sharing media at home, announced chips supporting the Wi-Fi display standard and most importantly introduced Snapdragon processors aimed at the TV and media markets.

The economic news continues to be mixed.  Initial jobless claims came in higher than expected and December retail sales were lower than expected.  But the Fed’s Beige Book is increasingly optimistic, with “ongoing improvements” in conditions being reported from most districts.  In addition, January Reuters/UofM Consumer Sentiment was reported at 74 versus the 71.5 expected and 69.9 in December.  The glass remains half full.

In closing, I came across an interesting story on Monday.  However, by Wednesday it was being reported by most mainstream media outlets.  Yet for those who might not have heard it bears repeating.  Hostess Brands filed for Chapter 11 bankruptcy in Texas this week.  In its filing it revealed it owes creditors more than $1 billion.  The maker of Twinkies, Ho Hos, and Ding Dongs failed to find a buyer from a list of companies that included Kraft and Campbell Soup, according to reports.  It seems that, not unlike Eastman Kodak, it failed to change with the times.  This may not be the ultimate end for the Twinkie but its demise has been a long time coming.  Now you know.

January 13, 2012: Market Update

Ringing in the New Year

Jan 6, 2012   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The markets got off to a good start this year.  Perhaps it was a little optimism mixed in with a little institutional reinvesting of cash.  Some key economic indicators came in better than expected and the jobless number continues to show improvement.  Issues in Europe, which have plagued the markets for some time now, were unusually quiet this week.  Regardless, we’re happy the year has started off on the right foot, albeit a little cautious about what lays ahead.

It seems that with the start of every New Year we’re bombarded with predictions for the coming year.  The pundits seem overly assured that their predictions are correct and remorseless in disparaging anyone who disagrees with them.  However, more often than not, those very predictions, which seemed unassailable just twelve months earlier, don’t seem to pan out.  In light of this observation, I came across a study which looked at the ten stocks with the highest “buy” and “outperform” ratings.  Over the course of 2011, these stocks lost 3.5% including dividends, even before taking into account trading costs and taxes.  For comparison sake, the S&P ended the year down only slightly.  Surprisingly, six of the top ten stocks actually lost double-digits with the median falling 12%.  It’s fun to watch the analysts on CNBC, but keep in mind that their collective track record has been less than stellar.

Along the same lines, it is around this time of year that you’ll hear “themes” being bandied about.  Although, they too seem like sure bets, the time horizon on some of these themes can be years if not decades.  Two that come to mind are the aging of the baby boomers and the rise of alternative energy, i.e. solar power and natural gas.  While both are incontrovertible, the first is happening in unexpected ways while the second is taking considerably longer to materialize.  What we’ve come to expect is that themes are valuable for their insight, albeit not for their timeliness.

As the economy muddles along, we continue to look for opportunities that present patient investors with reasonable rewards.  We’re in the process of reviewing our holdings and will look to make strategic changes to the portfolios in the weeks ahead.  Our dominant focus in 2012 will be on finding investments that can offer both capital preservation and safe income, whether that is in bonds or reliable dividend paying stocks.

Now for the story of the week, I have to issue an apology in advance.  It is a bit disturbing for those with delicate sensibilities.  You’ve been warned.  It turns out that Pepsi is being sued by an Illinois man who claims to have found a mouse in his Mountain Dew can in 2009.  Pepsi Co. has chosen a rather unusual defense.  Instead of insisting that it is impossible for this to have happened due to their spotless bottling facilities, etc.,  they chose to bring expert testimony that demonstrates “the mouse would have dissolved in the soda had it been in the can from the time of its bottling until the day the plaintiff drank it.”  This seems like a winning-the-battle-while-surrendering-the-war kind of strategy that hinges on the argument that Pepsi’s product is essentially a can of bright green/yellow battery acid.  It certainly makes me think twice about drinking Mountain Dew.  And now you know the rest of the story!

January 6, 2012: Market Update

Some Christmas Cheer

Dec 29, 2011   //   by Marc Henn   //   Weekly Market Update  //  No Comments

As a welcome treat, only one of the two main stories this week came from Europe.  European Union banks borrowed nearly 500 billion Euros from the European Financial Stability Facility (EFSF).  This longer-term financing option is offering banks three-year loans at an average rate of just 1%.  Although this lending program alone will probably not solve the sovereign debt crisis, it is designed to help Europe avoid a liquidity crunch.

The second main story this week was the agreement by House Republicans to pass the payroll tax cut extension already approved by the Senate.  This, along with relative quietness from Europe, helped settle down the US markets and give them a nice lift for the week.  There are only 4 days left in the market year and trading volume will surely be light as many traders take holiday vacations.

Now for some Christmas cheer – A Manpower study shows that businesses are expected to increase staff by a seasonally adjusted net 9% in the first quarter of 2012.  This is the largest number we have seen for quite some time.  It will be a welcome story indeed if this number plays out to be true.

All of us at Harvest Financial wish you a very Merry Christmas.

December 23, 2011: 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


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