"Strategy is the art of making use of time and space. I am less chary of the latter than the former; space we can recover, time never." – Napoleon
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Hindsight
Major market indices were higher last week. The DJIA, S&P 500 and Nasdaq rose 2.33%, 3.10% and 3.94%, respectively. Growth outperformed value. Small cap stocks gained 5.96%. And the 10-year Treasury yield closed at 3.68%, up 9 basis points for the week.
Bulls and bears appear locked in a struggle to gain traction, with neither getting very far for more than a few weeks at a time. On the positive side, durable goods, energy exploration, steel production and tax refunds are up. Confidence, not to mention corporate profits, are rising. Greece’s issues appear to be stabilizing. And foreign markets are, like the U.S., showing strength.
Alas, the negatives persist. New home sales fell 22% with mortgage apps dropping to a new record low. Unemployment claims ebb upward. Companies are not hiring.
While we see the indicators pointing to this bull market being intact, we remain very cautious. Stay tuned…
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Equity Markets Review
* The U.S. Federal Reserve Board’s Beige Book, a survey of the nation’s 12 economic regions, gave further support to those who believe that the U.S. economy is moving forward, albeit slowly and deliberately. The economy improved in nine of the Fed’s 12 regions in February. And while improvements are being described as modest, that gradual growth has not led to any signs of inflation or is it expected to for some time. That should be positive for the stock and bond markets, which generally do not respond well to inflationary signs because they lead to higher interest rates and may squeeze profit margins.
* European Union Monetary Affairs Commissioner Olli Rehn said the EU stands ready to support Greece, but urged the country to take immediate further measures to narrow its bloated budget deficit, Dow Jones reported March 1. After a meeting with Greek Finance Minister George Papaconstantinou, Rehn stated that the EU will continue to support the Greek authorities and the Greek people so as to bring the economy back to a sustainable path. Papaconstantinou said that Greece is ready to do "whatever is necessary" to meet its deficit goals.
* The Greek government will announce budget cuts worth 4.8 billion euros ($6.5 billion), or about 2 percent of Greece's 2009 gross domestic product, to address the country's deficit, Bloomberg reported March 2, citing an unnamed source familiar with the plan. The plan will include cuts to public employees' bonus payments and higher sales taxes.
* China Premier Wen Jiabao said he is confident that he can manage the nation’s soaring property market and keep home prices at a reasonable level during his time in office, Bloomberg reported Feb. 27. Wen said the government aims to boost the supply of affordable housing and curb home purchases for speculative purposes. He added that 2010 will be the most complicated year for the Chinese economy, and that China will continue a “moderately loose” monetary policy this year.
* A study by the Congressional Budget Office suggests that the White House's proposed $90B bank tax would have only a minimal effect on firms, and the fee would ultimately be "borne to varying degrees by an institution’s customers, employees, and investors." It would also result in a "slight decrease" in the total amount of credit available.
* Greece's 5 billion euro ($6.8 billion) 10-year bond sale was successfully completed on March 4. Total investor demand for the bonds exceeded 16 billion euros, according to Petros Christodoulou, head of the Greek debt agency, Bloomberg reported. Greece offered a yield of 6.35 percent on the rates, which was higher than the yield of 6.09 percent on bonds of similar maturity. The return of investor interest will be a welcome reprieve for Athens, which is dealing with a restive populace planning strikes for the next two weeks and with a need to raise another 18 billion euros ($24.6 billion) before the end of May in order to repay maturing debt.
* AIG reached an agreement to sell its Alico unit to MetLife for around $15.5B. AIG will receive $6.8B in cash and the remainder in MetLife equity, equivalent to roughly a 20% stake in MetLife. The cash will be used to repay the New York Federal Reserve. Through the acquisition, MetLife, the top life insurer in the U.S., will be transformed into a global powerhouse tapping Asia for growth.
* Berkshire Hathaway released its annual report February 29th, showing a rise in Q4 net income to $3.06B ($1,969/share) from $117M ($76/share) in Q4 2008, thanks in part to a recovery in derivatives. "We’ve put a lot of money to work during the chaos of the last two years," said Buffett, because "a climate of fear is [investors'] best friend.” Among other points in the report, Buffett predicts the housing market will recover by 2011, says he should have bought more "ridiculously cheap" corporate and muni bonds, and calls on bank CEOs to take responsibility.
* Regulators are investigating a growing number of complaints that fixes made to recalled Toyota vehicles haven't solved sudden acceleration problems. The National Highway Traffic Safety Administration is reviewing more than 60 complaints and has asked Toyota to provide additional information. Separately, an Associated Press investigation found Toyota has been inconsistent, and sometimes contradictory, in revealing what information is recorded by its cars' "black boxes." The data could potentially explain crashes blamed on sudden acceleration problems, and other automakers routinely allow much more open access to this sort of information.
* German sportswear maker Adidas reported a 65% drop in quarterly net profit, and it lowered its forecast for 2010. The company, second only to Nike in its industry, earned 19 million euros in the fourth quarter of 2009, down from 54 million euros a year earlier. Sales fell 4.5%, and earnings were squeezed by rising input costs and the decline in the Russian ruble against the euro.
* Anheuser-Bush InBev reported 2009 fourth-quarter results that fell short of expectations. The world’s largest brewer earned $1.28 billion for the period, up sharply from a $29 million profit a year earlier, a figure that was skewed by one-time charges related to the merger of InBev and Anheuser-Busch and only partial results a year ago. The firm’s core earnings of $3.12 billion rose from $2.81 billion a year earlier but failed to meet expectations of $3.29 billion in profit.
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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… 3.23%
Materials… 5.29
Consumer Staples… 2.13
Utilities… 2.91
Consumer Discretionary… 3.94
Financials… 3.70
S&P 500… 3.10
Industrials… 3.36
Healthcare… 1.87
Telecommunications… 0.69
Energy… 3.39
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With A Little Help From Our Friends
The last few weeks of less than flattering economic data are a reminder that the economy has a long way to go in this recovery. A great deal of focus has been placed on the U.S. consumer, which amounts to roughly 70% of GDP over the last 50 years, and approximately 48% of the first year of past recoveries. But now more than ever, the U.S. consumer is shouldering less of a burden. Emerging markets share of global consumption has actually eclipsed that of the U.S. consumer. Just maybe we’ll get by with a little help from our fast-growing friends. (source: JP Morgan Asset Management)
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Sports, Culture & Politics
* U.S. Gen. David Petraeus said security in Iraq has greatly improved over the last two-and-a-half years but elements of al Qaeda and Shia militia remain, AP reported March 2. The U.S. military is on track to reduce the number of troops there to 50,000 by the end of August and those that remain will have an "advise and assist" mission, he said.
* Chilean President Michelle Bachelet said Feb. 28 that the death toll from Chile's Feb. 27 earthquake has risen to 708, and is expected to rise further, the BBC reported. Bachelet said that 541 people had been reported dead in Maule region, 64 in Biobio region, and 103 in other parts of the country, and said the number of people reported missing is also growing. Reports of looting and unrest have forced the government to instill curfews.
* Chinese Foreign Minister Yang Jiechi said March 7 that relations between the United States and China have been disrupted and urged Washington to help repair the rift, Xinhua reported. Yang said at a press conference during the session of the National People's Conference that relations with the administration of U.S. President Barack Obama began smoothly, but U.S. arms sales to Taiwan and a meeting with the Dalai Lama caused a disturbance in ties.
* The Academy Awards recognized the following Oscar winners: 1. The Hurt Locker, Best Picture; 2. Kathryn Bigelow, Best Director (first woman to do so); 3. Sandra Bullock, Best Actress; 4. Jeff Bridges, Best Actor.
* XU completed their regular season with a win over St. Bonaventure, finishing 21-7, second in the A-10.
* Link to America, The Fragile Empire, Niall Ferguson, LA Times
* Link to Will Democrats Resort to Blatant Abuse of Power to Pass Unpopular ObamaCare?
* Link to Obama refusing to mention RomneyCare, similar plan to ObamaCare. Here's why...
The weekend’s top-five box office performers as reported by The New York Times were:
1) Alice In Wonderland, Disney, $116,300,000
2) Brooklyn’s Finest, Overture Films, $13,500,000
3) Shutter Island, Paramount, $13,300,000
4) Cop Out, Warner Bros., $9,145,000
5) Avatar, Twentieth Century Fox, $7,700,000