Weekly Markets Review 02-08-2010

February 8, 2010

"Never interrupt your enemy while he is making a mistake." –Napoleon Bonaparte
Major were lower on the week. The DJIA, S&P 500 and Nasdaq fell 0.55%, 0.72% and 0.29%, respectively. Growth outperformed value. And the small cap index lost 1.50%.
The best performing sector was materials (+0.83%), with technology and energy following closely. Underperforming sectors were utilities, healthcare and financials.
Friday’s report of 20,000 net jobs lost in December all but assures that the Fed will not raise interest rates, and that the Obama administration and congress may even consider further stimulus injections to pump up the economy. Stay tuned…
Equity Markets Review
* Moody's released a statement yesterday that unless the U.S. works to lower its budget deficit or the economy grows more than expected, the government's triple-A bond rating will eventually come under pressure. Moody's called the $3.8T budget proposal a small step in the right direction, but "the deficits projected in the budget do not stabilize debt levels in relation to GDP, and the portion of government expenditures going to pay interest on the debt shows a steady rise."
* Pending home sales rose 1% in December to 96.6 month-on-month, better than the 0% expected and November's 16% drop to 96. Sales were up 10.9% year-over-year.
* U.S. Department of Labor data released Feb. 4 showed jobless claims rose by 8,000 to 480,000 in the week ended Jan. 30, while the previous week was revised upward to 472,000. The four-week moving average in jobless claims rose by 11,750 to 468,750.
* The Treasury Department expects to hit the government's $12.4T debt ceiling by the end of February, and is working with Congress to raise the limit by $1.9T. A government official said a new ceiling of $14.3T (the equivalent of around $45,000 for every American) would allow borrowing to continue into 2011.
* The unemployment rate fell from 10 percent to 9.7 percent in January, the U.S. Bureau of Labor Statistics reported Feb. 5. However, initial Jobless Claims rose 8,000 to 480K vs. 460K consensus.
* Fitch Ratings warned that banks in China face the greatest "bubble risk" of any Asian country, Sino Daily reported Feb. 3 Fitch stated that Chinese banks' loan growth was 32 percent in 2009 and is likely to be followed by 20 percent growth in 2010. Fitch said credit growth of more than 50 percent over a two-year period in an economy where bank credit is already quite large relative to gross domestic product almost inevitably involves some misallocation of credit. The limited transparency of Chinese banks and their tendency to reschedule loans means bad debt problems would surface slowly.
* Productivity continued to surge in the fourth quarter as companies squeezed more out of remaining workers to boost earnings. The trend has enabled companies to reduce labor costs and increase profits. Employee output per hour rose at a 6.2% annual rate, capping the biggest one-year gain since 2003.
* Kraft finally won control of Cadbury Tuesday, as 72% of Cadbury shareholders accepted the £11.7B ($18.6B) takeover offer. Following the approval, S&P cut its rating on Kraft two notches to BBB, the second lowest investment grade, but gave the company a positive outlook and said it may revise the ratings upward if Kraft successfully integrates Cadbury and improves its credit profile.
* U.S. auto companies saw sales rebound in January from the previous year, with the notable exception of Toyota. Overall, sales increased 6% from Jan. 2009.
* UPS beat earnings estimates, reporting Q4 profit nearly three times higher than the year before. In an otherwise strong quarter, UPS' main weakness came from its money-losing freight business, and the company continues to position itself for a real but gradual economic rebound. UPS will cut spending in 2010, including through job cuts.
* Monster Worldwide agreed to buy Yahoo's HotJobs for $225M in cash.
* Testifying before the Senate Budget Committee, Geithner told lawmakers that he still sees a risk to taxpayers from the government's bailout of AIG. Though the Treasury's $30B loss estimate is significantly higher than the $9B forecast by the Congressional Budget Office, Geithner said the figures are "a fraction of what those estimates were six, nine, 12 months ago.
* Former Merrill Lynch chief John Thain was tapped to lead CIT Group, the lender that emerged from bankruptcy in December. CIT said Thain will become chairman and chief executive effective immediately.
* According to a New York Times report, U.S. regulators are investigating whether the mortgage insurance market was improperly distressed in 2008 because of demands that Goldman Sachs and other banks made on AIG. A Goldman spokesman said "this is the New York Times' third attempt to develop a conspiracy theory about Goldman Sachs and AIG. The theories are “disgracefully contradictory and the 'facts' don't stand up to serious scrutiny."
* IBM is announcing its Power7 chip today, hoping that its next generation of microprocessor chips and systems will help extend its recent lead in the market for midrange servers. The chip is four times faster than its predecessor, and its debut comes as rival Intel is expected to introduce a long-delayed version of its high-end Itanium chip today.
* Cisco’s profits rose 23%, and its revenue increased 8%. This is the first increase in net income that Cisco has experienced in a year. The news adds to the growing evidence that companies are starting to spend after the recession.
* Pfizer’s quarterly profit more than doubled as did Comcast’s earnings amid solid subscription growth.
* United Parcel Service signaled that an economic recovery may be underway and reported a strong fourth-quarter profit that was almost triple its profit of the same quarter a year ago. The company predicted shipping volume gains and higher pricing this year. Because of their roles in enabling commerce, freight handlers, such as UPS and FedEx, are among the first to feel the effects of a slump or recovery.
Weekly Sector Review
The sectors of the U.S. economy, as well as the S&P 500, have performed as follows:
Last Week's Returns:
Information Technology… 0.72%
Materials… 0.83
Consumer Staples… (0.87)
Utilities… (2.12)
Consumer Discretionary… (0.67)
Financials… (1.67)
S&P 500… (0.72)
Industrials… (0.70)
Healthcare… (1.69)
Telecommunications… (1.04)
Energy… (0.54)
Imagining Liberty: The Misean Vision
I'm finding it ever more difficult to describe to people the kind of world that the Mises Institute would like to see, with the type of political order that Mises and the entire classical-liberal tradition believed would be most beneficial for mankind. It would appear that the more liberty we lose, the less people are able to imagine how liberty might work. It is a fascinating thing to behold.
Link to http://www.lewrockwell.com/rockwell/misesian-vision139.html
Two Years of Equity Outflows
The final tally is in, and the results are eye-catching: despite an impressive run in equities, 2009 saw $375 billion gush into bond funds while $9 billion bled from equity funds, marking the second consecutive year of net outflows for the asset class that so badly burned investors in 2008. While the anxiety around stocks is understandable, with an economy in recovery, surging profits (thanks to cost-cutting and high productivity) and the fact that many investors remain underweight stocks, the case for rebalancing towards equities may be just what the doctor ordered for many portfolios. (source: JP Morgan Asset Management)
Sports, Culture & Politics
* An explosion at the Kleen power plant on River Road in Middletown, Conn., has caused at least two deaths and 100 injuries, the Hartford Courant reported Feb. 7. The explosion at the plant, owned and operated by NRG, was reportedly felt for miles, and all three district fire stations have responded to the incident.
* Three soldiers killed in a bombing near a school in northwest Pakistan were part of a small U.S. mission to train members of the paramilitary Frontier Corps for fighting al Qaeda and Taliban militants, Pakistan's army said, AP reported. Dozens of schoolgirls were also injured. The Taliban has claimed responsibility for the bombing.
* Pakistani authorities detained 35 suspects in connection with a suicide car bombing that killed three U.S. soldiers in northwest Pakistan, AP reported Feb. 4. Police official Naeem Khan stated that a massive search was launched in the area, adding that 35 suspects are in custody and are being questioned to trace those who orchestrated the suicide attack. Khan said police recovered the engine number of the vehicle used in the attack in Lower Dir, and will "capture those responsible for the carnage."
* U.S. counterterrorism officials believe Pakistani Taliban leader Hakimullah Mehsud is dead following a missile attack last month, Reuters reported Feb. 4.
* Pennsylvania Congressman John Murtha died on Monday of complications from surgery. He was 77.
* Michael Jackson’s doctor, Conrad Murray, was charged with man slaughter for providing Jackson with a powerful anesthetic ruled a contributing factor in his death.
* The New Orleans Saints earned their hometown a much needed break by beating the Colts in yesterday’s Super Bowl.
The weekend’s top-five box office performers as reported by The New York Times were:
1) Dear John, Sony Pictures, $32,400,000
2) Avatar, Twentieth Century Fox, $23,600,000
3) From Paris With Love, Lionsgate, $8,120,000
4) Edge Of Darkness, Warner Bros., $17,005,000
5) Tooth Fairy, Twentieth Century Fox, $6,500,000

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