Weekly Markets Review 02-15-2010

February 15, 2010

“But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only…. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.” -Adam Smith, Wealth of Nations
Major indices closed higher this week. The DJIA, S&P 500 and Nasdaq gained 0.87%, 0.87% and 1.98%, respectively. Growth outperformed value for the second consecutive week, and the small cap index gained 2.99%. The 10-year Treasury yield gained 11%, now at 3.69%.
Performing well were consumer electronics (+27%) led by Harman International Industries, the leisure products group rose 8%, and homebuilders gained 8%.
Underperformers were led by the home entertainment software group which declined 7%, brewers lost 6% and industrial REITs fell 5%.
Earlier this month Martin Feldstein, the former president of the National Bureau of Economic Research, an organization tasked with stating the precise beginning and endings to recessions, said that "the current downturn is likely to last much longer than previous downturns ... We will be lucky to see the recession end in 2009." In a recent report, differing indicators could be used to gird either story line: already over, and still occurring. While most Wall Street analysts tend to agree that the recession ended last June, the definitive jury remains out.
As of Friday more than 350 companies in the S&P 500 had reported 4Q earnings with 76% beating analyst’s estimates. Still, while last year’s market climbed amidst a wall of worry, this year has seen the market drop on otherwise good economic news and here-to-now solid earnings. Stay tuned…
Equity Markets Review
* Fed Chairman Bernanke signaled before congress that the Fed may seek to end its policy of quantitative easing and may follow that with an increase in the discount rate it charges banks on loans.
* One in five U.S. mortgages were underwater in Q4, real estate website Zillow.com reported this morning. Home values continued to fall, marking the 12th consecutive quarter of year-over-year declines. "The prevalence of markets in or near a double-dip situation shows that we are not yet at the bottom, in terms of home values," said Stan Humphries, Zillow chief economist.
* Retail sales rose in January for the third month of the last four.
* Home prices rose in more than one-third of U.S. metro areas in the 4Q, reports the NAR.
* The European Union's finance ministers said in a Feb. 16 statement that Greece must show by March 16 that it is on target to cut its deficit from 12.7 percent to 8.7 percent in 2010 of its gross domestic product, AP reported.
* Greece is ahead of its own deficit-reduction goals and will not need a bailout from the European Union, Finance Minister George Papaconstantinou said on Feb. 16, reported Bloomberg.
* Rio Tinto Group, the world’s third-largest mining company returned to a profit.
* Pepsico’s 4Q earnings nearly doubled as food sales grew in the Americas.
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… 1.38%
Materials… 1.68
Consumer Staples… 1.49
Utilities… (0.87)
Consumer Discretionary… 1.62
Financials… (0.38)
S&P 500… 0.87
Industrials… 1.09
Healthcare… 0.10
Telecommunications… 0.03
Energy… 1.57
Deeper Into Climategate
A recent piece in the UK’s Daily Mail indicates that the academic at the center of the “Climategate” affair has now conceded the possibility that global warming may not be a man-made phenomenon and that for the past 15 years, there has been no “statistically significant” warming.
To quote the article:
The academic at the centre of the ‘Climategate’ affair, whose raw data is crucial to the theory of climate change, has admitted that he has trouble ‘keeping track’ of the information.
Colleagues say that the reason Professor Phil Jones has refused Freedom of Information requests is that he may have actually lost the relevant papers.
Professor Jones told the BBC yesterday there was truth in the observations of colleagues that he lacked organizational skills, that his office was swamped with piles of paper and that his record keeping is ‘not as good as it should be.’
The data is crucial to the famous ‘hockey stick graph’ used by climate change advocates to support the theory.
Professor Jones also conceded the possibility that the world was warmer in medieval times than now – suggesting global warming may not be a man-made phenomenon.
And he said that for the past 15 years there has been no ‘statstistically significant’ warming.
And then there’s this story from The Times, which suggests the world may not be warming at all.
Here’s an excerpt:
The United Nations climate panel faces a new challenge with scientists casting doubt on its claim that global temperatures are rising inexorably because of human pollution.
In its last assessment the Intergovernmental Panel on Climate Change (IPCC) said the evidence that the world was warming was “unequivocal”.
It warned that greenhouse gases had already heated the world by 0.7°C and that there could be 5°C-6°C more warming by 2100, with devastating impacts on humanity and wildlife. However, new research, including work by British scientists, is casting doubt on such claims. Some even suggest the world may not be warming much at all.
“The temperature records cannot be relied on as indicators of global change,” said John Christy, professor of atmospheric science at the University of Alabama in Huntsville, a former lead author on the IPCC.
The doubts of Christy and a number of other researchers focus on the thousands of weather stations around the world, which have been used to collect temperature data over the past 150 years.
These stations, they believe, have been seriously compromised by factors such as urbanization, changes in land use and, in many cases, being moved from site to site.
Christy has published research papers looking at these effects in three different regions: east Africa, and the American states of California and Alabama.
“The story is the same for each one,” he said. “The popular data sets show a lot of warming but the apparent temperature rise was actually caused by local factors affecting the weather stations, such as land development.”
The IPCC faces similar criticisms from Ross McKitrick, professor of economics at the University of Guelph, Canada, who was invited by the panel to review its last report.
The experience turned him into a strong critic and he has since published a research paper questioning its methods.
“We concluded, with overwhelming statistical significance, that the IPCC’s climate data are contaminated with surface effects from industrialization and data quality problems. These add up to a large warming bias,” he said.
Such warnings are supported by a study of US weather stations co-written by Anthony Watts, an American meteorologist and climate change skeptic…
… Terry Mills, professor of applied statistics and econometrics at Loughborough University, looked at the same data as the IPCC. He found that the warming trend it reported over the past 30 years or so was just as likely to be due to random fluctuations as to the impacts of greenhouse gases. Mills’s findings are to be published in Climatic Change, an environmental journal.
“The earth has gone through warming spells like these at least twice before in the last 1,000 years,” he said.
Why do we so often hit on this topic in this missive? Because it’s important for you and for your investments that you know the truth. Anthropogenic global warming is by no means a done deal in the science world as President Obama and the power elite in Washington so often claim. And any legislation that comes about (in the U.S. or elsewhere) touting that it’s being done to “save the planet” needs to be recognized for what it is – just another attempt by the powers-that-be to benefit certain special interests at the expense of everybody else. (source: Casey Research LLC)
More Than Just Greece
This is not just a Greek problem. Debt and out of control deficits are a problem all over the developed world. The Greeks are just the first. As Niall Ferguson wrote this week in the Financial Times, the contagion is headed to US shores unless we get our budget house in order. You cannot spend your way out of a fiscal crisis. The current path is simply unsustainable. At some point, we can become Greece. Yes, we have the advantage of having our debt denominated in dollars, but that is only an advantage up to a certain point.
The Nobel Prize economists (who will go nameless here) who say the US cannot default because our debt is in dollars miss the point. Being the world's reserve currency just means we can run up bigger bills, but if we go the route of printing money to pay those bills, that is devaluation and fraud, as the value of a dollar will diminish; and that is tantamount to default.
Whether it is Japan or Portugal or the US or (pick a country), the body of evidence clearly shows that there is a limit to the amount of debt a sovereign country can handle without a crisis developing. That limit is different for each country, but there is a limit that the bond market will impose. And there are many countries in the developed world that are approaching that limit.
We are in the fullness of time approaching the End Game. In country after country, the choices that have been made over the last decades will yield a Greek situation, where there are no good choices. And the longer the hard choices are put off, the more difficult they will become. (source: John Mauldin, Frontline Thoughts)
Sports, Culture & Politics
* Eurogroup Chairman and Luxembourgian Prime Minister Jean-Claude Juncker said Feb. 15 that the eurozone will give Greece "determined and coordinated" support if necessary, Dow Jones reported. Juncker said Luxembourg is prepared to offer bilateral aid to Greece but also said that if the country doesn't address its economic promises by next month, the EU will ask for extra debt-slashing measures. However, there is no chance Greece will be forced out of the euro, he said.
* U.S. Secretary of State Hillary Clinton denied the United States planned to attack Iran and said Washington wanted dialogue with Tehran but could not "stand idly by" while Iran pursued a suspected nuclear weapons program, Reuters reported Feb. 15. Speaking with students in Qatar, Clinton said the United States is trying to bring the world community together in applying pressure on Iran through sanctions adopted by the United Nations that will be aimed at those enterprises controlled by the Revolutionary Guard, which Washington believes is supplanting the government of Iran. She added that Iran is moving toward a military dictatorship.
* U.S. Marines are making steady progress but areas infested with roadside bombs are bogging them down, Reuters reported Feb. 15. A spokesman for the provincial governor of Helmand said 200 villagers urged the regional government to persuade NATO-led troops to remain in Marjah once they secure the area. Gen. Aminullah Patiani, the Afghan Army's senior commander in Operation Mushtarak, stated that combined forces took Marjah and Nad Ali, adding that the Taliban left the areas but the threat from IEDs remains. A senior defense ministry official said the end of Mushtarak is likely to be announced soon.
* U.S. Vice President Joe Biden said the United States has the support of everyone from Russia to Europe, and he believes China will support imposing sanctions on Iran to isolate the country, Reuters reported Feb. 15. Jim Jones, Obama's national security adviser, stated that the United States needs to work on China a little more, adding that on this issue China cannot be "nonsupportive." Jones also said China has been extremely good on North Korea in terms of sanctions, and that as a responsible world power, China will apply the same standards on proliferation in the Middle East.
* Mullah Abdul Ghani Baradar, who was captured in Karachi, Pakistan in a joint raid on Feb. 11, ranks second in influence only to Mullah Muhammad Omar, the Taliban’s founder, and was a close associate of Osama bin Laden before the Sept. 11 attacks, The New York Times reported Feb. 15.
* The first successful test of an airborne laser system (ABL) against a ballistic missile in flight was conducted Feb. 11, proving that such system can indeed shoot down a missile. While offering many benefits over land-based systems -- more mobility, quicker deployment and fewer headaches over basing agreements -- the ABL in its current state is still very much a test system. Under the current Pentagon, it is unlikely to be fielded any time soon. (Stratfor)
* The Winter Olympics kicked off in Vancouver Canada amid dicey weather conditions (lack of snow) and a tragic accident during a Georgian athlete’s luge run.
* Xavier University improved its record to 17-7 with a solid road win over the Florida Gators on Saturday, 76-64.
* Brazilian Off-Shore Drilling Scandal? Link to http://online.wsj.com/article/SB10001424052970203863204574346610120524166.html
The weekend’s top-five box office performers as reported by The New York Times were:
1) Valentine’s Day, Warner Bros., $66,855,000
2) Percy Jackson…, Twentieth Century Fox, $38,750,000
3) The Wolfman, Universal, $36,489,000
4) Avatar, Twentieth Century Fox, $30,000,000
5) Dear John, Sony Pictures, $18,800,000

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