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

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