Browsing articles in "Weekly 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

3rd Quarter Comes to an End

Oct 3, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The markets regained about half of last week’s losses as institutional investors, mutual funds and hedge funds put in their quarter-end trades.  To be clear, this quarter was all about domestic and international headline news.  Europe played a big role in driving markets lower by creating uncertainty regarding the viability of the European Union (EU).  To a lesser extent, the S&P downgrade of U.S. debt also played a part in creating investor anxiety.  However, lost in all the media punditry is the more basic question of how companies are faring in these difficult economic times.  In just a few weeks we’ll have an answer to this question.  Until then, we bid farewell and good riddance to the third quarter.

Not to belabor the point, but Greece is still driving the bus and Italy has joined for the ride.  This week Germany, despite some opposition from various factions within the German government, voted favorably on the creation of the European Financial Stability Fund (EFSF).  This fund is akin to our controversial TARP program from 2008 which bailed out our investment banks.  As part of a $1 trillion rescue package, the EFSF is authorized to issue bonds of up to $536 billion in order to provide lending to European countries “in difficulty.”  While this represents a positive development, some believe the fund is insufficient and requires more like $2 trillion.  Ultimately, this is yet another step towards a more unified Europe with hopes of a final plan being presented in early November.

There was more company news this week than is usual.

  • Chevron – They are making a major investment in natural gas with a $29 billion Australian natural gas project.  They believe this will help position the firm to capitalize on growth in Asia.
  • Coca Cola – The Company announced they are spending $3 billion to aggressively build their presence in Russia which is one of the fastest growing soft drink markets.
  • Apple – Finally announced the much anticipated iPhone-related event for next Tuesday (Oct 4) at 1pm EST.  We will finally learn what Apple has up their sleeve for the new iPhone 4S/5.  However, it now looks like an iPad refresh is now mostly likely pushed back to 2012.
  • McCormick & Co. – Released fiscal Q3 earnings which beat analysts’ expectations.  Yet, their margins are being pressured by higher commodity costs (+20% y/y).  We will be paying close attention to see if this theme repeats in the weeks ahead as companies report earnings.

The economic picture remains in the doldrums.  September Consumer Confidence came in below expectations.  Consumers expressed greater concern about their expected earnings, a sign that does not bode well for spending.  In addition, durable goods orders also came in at -0.1% which was also below expectations.  On the other hand, Initial Jobless Claims fell back below 400,000 this week which provided some temporary relief (although this number is known to fluctuate from week to week).  And perhaps most uplifting was the announcement that Q2 GDP was revised slightly upward instead of downward which has been the trend of late.

The story of the week is not for the faint of heart or those afraid of flying.  You probably heard all the hoopla over ANA airlines (Nippon) taking possession of the first Boeing 787 “Dreamliner.”  However, you might not have heard about a mishap by the very same airline earlier this month.  The co-pilot of an ANA flight, with 117 passengers aboard, accidentally almost made a Boeing 737-700 fly upside down.  Mind you this is not a stunt plane.  We’re talking about a full size 737.  Apparently, he mistook the rudder trim knob for the cockpit door lock switch.  When he “opened the door” for his captain, he actually caused the jet to roll and drop over 6,000 feet in 30 seconds at a downward angle of 35 degrees.  Fortunately, no one was injured.  And interestingly enough, officials say that because it was dark outside, many of the 117 passengers did not realize what had happened.  In his defense, it seems the knobs are roughly 10cm apart and turn in the same direction.  Let’s hope the new “Dreamliner” was thought out a little better.  Now you know.

September 30, 2011: Market Update

The Twist: Bernanke Learns to Dance

Sep 23, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was another in a line of volatile weeks with the markets ending quite a bit lower in heavy volatility and trading.  The Federal Open Market Committee (FOMC) had its much anticipated two-day meeting and unfortunately failed to deliver.  Analysts and investors were hoping for a magical elixir that would make everything better and instead found they had drunk syrup of ipecac.  Issues in Greece continue to simmer while the White House’s solution to the weak U.S. economy is to raise taxes on the wealthy.  We’ve had better weeks.

The FOMC released the minutes from its meeting earlier this week and unfortunately did not propose further quantitative easing.  Instead what they proposed was to take the proceeds from maturing securities (already on their balance sheet) and reinvest them in longer term securities.  This move has been done once before in 1961 and was coined “The Twist.”  Some quipped that perhaps Bernanke should have called it the “twist and shout” instead.  The idea is to sell short-term maturities and invest the proceeds on the longer end of the curve.  However, this will not expand the size of their balance sheet and will not stimulate the economy in the same manner that the last two rounds of quantitative easing did.  Instead the aim is to push long term interest rates even lower in order to reduce mortgage rates and provide a disincentive to banks holding on to their capital.  Regardless how you slice it, this plan fell far short of what the markets were looking for and helped precipitate the market sell off this week.

In other news, the issues in Greece, and more broadly Europe, continue to fester.  The opposition to bailing out Greece is growing at the same time spending cuts and tax increases (in Greece) are meeting strong resistance.  The last round of austerity measures were rather tame compared to the ones proposed last week.  In addition, Italy was hit with a credit downgrade by S&P and responded by saying they were just fine and didn’t have a debt problem.  Germany and, to a lesser degree, France appear to be the only adults in the room at the moment.  With potentially $400 billion in bank bailouts on the line, and considerably more if things get worse, we hope the European Central Bank (ECB) and International Monetary Fund (IMF) can navigate through this mess before it spirals out of control.

On the subject of spending cuts and tax increases, this week President Obama announced his proposal to reduce spending by roughly $3 trillion over the next ten years.  He modeled his plan after one proposed by billionaire Warren Buffet who has often lamented how little the rich pay in taxes.  The plan would include raising the top nominal tax bracket for those earning over $1 million a year.  In fairness, this tax increase would be part of a larger plan which would reduce Medicare and Medicaid benefits (while leaving Social Security untouched).  Whether the debt reduction super committee incorporates President Obama’s ideas is yet to be seen. They still have a couple of months before things get interesting again.

This has been a particularly busy week with market volatility and trading.  Unfortunately, because of this I don’t have a story of the week to share with you.  I’ll look for an especially good one for next week.

September 23, 2011: Market Update

September 16, 2011: Market Update

Sep 19, 2011   //   by Marc Henn   //   Weekly Market Update  //  No Comments

Don’t Ignore Me

Concerns about Europe seemed to impact the market only slightly this week as investors shrugged off concerns on Monday and managed to hold a week-long rally into the close on Friday.  It seemed Europe was supplying us with Jekyll and Hyde news all through the week.  Concurrent positive and negative news out of Europe – sometimes within just a few hours of each other – started to be ignored later in the week as a more cohesive European leader front started to advance in addressing the Greece situation.  On Thursday, the Greek, French and German leaders emerged from a conference call saying that they were “convinced that the future of Greece is in the euro-zone”.  Adding to the market confidence was a commitment on Friday by the world’s leading central banks to provide unlimited dollar funding to European banks if needed.  We will be looking for more potential action coming out of a 2-day meeting of European finance ministers being held in Poland.

If European banks were not having enough difficulty already trying to convince investors and the rest of the financial community that their world is stable, along comes trader Kweku Adoboli to throw a wrench into it.  On Thursday UBS, a Swiss bank, announced that a rogue trader allegedly racked up and hid $2 billion in trading losses.  While this will have a huge impact on UBS’s earnings for the third quarter the bigger issue that will need to be addressed is oversight of risk management within these large financial firms.

With economists predicting slower growth in the U.S. and globally, China announced this week that imports into their country surged over 30% in August from a year ago – which followed an almost 23% increase in July.  This data helps alleviate economists’ concerns over a slowdown in Chinese demand.  With this silver lining comes the threat that China will need to raise their interest rates further to help keep inflation in check.

The story of the week comes from the executive branch of our government.  With many still questioning the use of taxpayer money to help bail out “too big to fail” financial institutions, a story emerges that President Obama may have wanted to consider letting it happen in at least one case.  Ron Suskind in his upcoming book on the Obama administration claims that the U.S. Treasury ignored a March 2009 order by President Obama to consider dissolving Citibank.  Of the event, President Obama is quoted with saying that he was trying to be decisive but “the speed with which bureaucracy could exercise my decision was slower than I wanted.”  Regarding his feelings about being ignored, he is quoted with saying, “Agitated may be too strong a word.”

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