Weekly Markets Review 09-30-2010

September 30, 2010

"Scars have the strange power to remind us that our past is real."
-Cormac McCarthy

Major market indices rallied last week. The DJIA gained 2.38%, the S&P 500 added 2.05%, and the Nasdaq climbed 2.83%. Growth stocks outperformed value stocks. And the small cap index gained 3.00%. The 10-Treasury yield lost 13 basis points on the week, closing at 2.61%.
Last week was a full-bore, pedal-to-the-metal, guns blazing bullish blitzkrieg. A balance of positive economic and market news shaken gently with additional stimulus possibilities, and equities rushed upward.
The Index of Leading Indicators advanced by 0.3% in August. Housing starts displayed unexpected strength. Building permits improved (multi-families... single family still stinks). Existing home sales came back a bit.
The Fed announced the possibility of a resumption of Quantitative Easing, so providing more prospective liquidity to the economy. Do we need more liquidity? What about healthier consumers?
And the NBER declared that The Great Recession officially ended in June 2009, 18 months after its December 2007 beginning, making it the longest recession since The Great Depression. Great.
Stay with us, folks. The Buckeye's, Reds and Bengals are winning. Midterm elections are a month away. And Bull and Bears, Republicans and Democrats-all are clawing each others' eyes out in an effort to gain the upper hand. In other words, things could get interesting.
We remain positive on select emerging markets and continue to gauge momentum in the domestic markets, which would love to close out the year on a high note. Stay tuned...
Economically Speaking
- U.S. housing starts increased more than forecast in August, up 10.5% and the most since April.
- Orders for U.S. capital equipment rebounded in August, reports Bloomberg, signaling that a slowdown in business investment may be less severe than some economists projected.
- The National Bureau of Economic Research announced that the last recession, which began in December 2007, officially ended in June 2009, making its 18 month stretch the longest recession since The Great Depression.
- The Fed will boost its balance sheet by half a trillion dollars over the next half year, and keep it inflated for up to a year, economists say. In a new survey crafted to gauge sentiment on the Fed's QE policies, 70% of the respondents believed the Fed will restart quantitative easing; of those 80% think it will happen before year-end. "The trigger for the resumption of quantitative easing late this year will be an increase in unemployment back into double-digits," Moody's Mark Zandi said.
- Former Fed Chairman Paul Volcker scrapped a prepared speech last Thursday and delivered a blistering critique of nearly every corner of the financial system. While praising the financial overhaul, Volcker told attendees at the Chicago Fed the system is still at the risk of regulators being swayed by the relentless lobbying of banks and politicians. Volcker said central banks may have become, "a little too infatuated with their own skills and authority because they found secrets to price stability... I think it's fair to say there was a certain neglect of supervisory responsibilities."
- Initial jobless claims rose for the first time in five weeks, up 12K to 465K, vs. expectations of a flat reading or small drop. The rise suggests jobs remain scarce, and that some companies may still be cutting workers. Claims have been stuck above 450K for most of the year.
Foreign Observations
- Japan must release the illegally detained Chinese skipper "immediately and unconditionally," Chinese Premier Wen Jiabao said during a Sept. 22 meeting with representatives of Chinese nationals and Chinese Americans in the United States, Xinhua reported. If Japan clings to its mistake, China will take further actions, and the Japanese side shall bear all the consequences, Wen said. The United States is urging Japan and China to quickly resolve the dispute that has deepened animosity between the longtime rivals, AP reported Sept. 23. Secretary of State Hillary Clinton told Japanese Foreign Minister Seiji Maehara in a meeting in New York on Sept. 23 that good ties between China and Japan are crucial to Asia's prosperity. State Department spokesman P.J. Crowley said neither country wants to see the situation over recent ship collisions in the East China Sea escalate to the point where it has a long-term impact on the region.
- China's foreign ministry told the United States to stop pushing for a stronger yuan and instead focus on its own economic recovery and maintain stability of its own currency, reported Reuters Sept. 21. A statement released on the Chinese Foreign Ministry website said pressing for yuan appreciation is unwise and nearsighted. The statement added that the trade imbalance between China and the U.S. is not decided by exchange rate but by globalization and that yuan appreciation alone cannot solve the U.S trade deficit.
- Ireland's gross domestic product (GDP) decreased by 1.2 percent in the second quarter from the previous three months, a report from Ireland's Central Statistics Office said Sept. 23. The GDP in the second quarter is down 1.8 percent compared to the same period last year, the report said.
- German business confidence rose to the highest level in more than three years in September.
- French gross domestic product (GDP) increased by 0.7 percent in the second quarter after an increase of 0.2 percent in the previous quarter, Insee reported Sept. 24. Imports were up 3.9 percent after a previous growth of 2.0 percent. Exports dropped 2.8 percent after a 4.5 percent increase in the previous quarter.
Equity Markets Review
- Blockbuster filed for Chapter 11 bankruptcy, wiping out shareholders and reducing their debt load 90% from nearly a billion dollars to about $100 million. filed for Chapter 11 bankruptcy protection Thursday, reeling from mounting losses, rising debt and competitors that have better catered to Americans' media habits. Blockbuster will continue to operate its 3,300 U.S. stores, although hundreds will likely close over time under new owners led by billionaire investor Carl Icahn. In 2005, Icahn pushed Blockbuster to build up its DVD-by-mail service after acquiring a 10% stake in the company, only to see the chain get into deeper trouble.
- Unilever agreed to buy Alberto-Culver for $3.7B ($37.50/share), a 33% premium to its 12-month average. ACV's portfolio includes TRESemme and Nexxus, Alberto VO5, St. Ives and Noxzema. Unilever, headquartered in London and Rotterdam, is the world's No.3 consumer products company behind Procter & Gamble and Nestle. The acquisition "further skews Unilever to high growth, high margin personal care categories, gives a more rounded category presence in hair care and makes it global leader in hair conditioning, No.2 in shampoo and No.3 in styling," analyst Graham Jones said.
- Southwest Airlines will buy AirTran for $1.4B ($7.69/share) in cash and shares - a 69% premium to Friday's close.
- Wal-Mart plans to buy Massmart Holding Ltd., $ 4.6B transaction, and allowing the company to enter Aftrica.
- Nike announced 9% growth in quarterly profits on better demand and less discounting.
- Darden posted a 20% rise in 1Q earnings.
- General Mills reported a 12% boost to earnings, but profits were tempered by higher commodity prices.
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... 2.84%
Materials... 1.96
Consumer Staples... 1.54
Utilities... 1.98
Consumer Discretionary... 2.91
Financials... 0.09
S&P 500... 2.05
Industrials... 2.47
Healthcare... 2.40
Telecommunications... 2.13
Energy... 2.54
Sports, Culture & Politics
- According to The Economist, the most obese countries in the world are the U.S., Mexico and New Zealand. Japan and South Korea are the leanest. One in six adults in OECD nations is obese.
- U.S. and Iranian diplomats have initiated contact to examine opening covert lines of communication between the countries, unnamed sources in New York said, Haaretz reported Sept. 22. Diplomats from both sides secretly met at the U.N. headquarters in New York ahead of the Sept. 23 U.N. General Assembly, sources said. The officials discussed a U.S. plan to set up unofficial diplomatic relations.
- The CIA and U.S. Special Operations forces train and deploy a well-armed 3,000-member Afghan paramilitary force, known as Counterterrorism Pursuit Teams, for operations in Afghanistan and Pakistan, according to a forthcoming book by Bob Woodward, The Washington Post reported Sept. 23. The teams' primary mission is to improve Afghan security, an official said, adding they do not engage in "lethal action" when crossing into Pakistan for intelligence collection. Border bases are used to build and manage networks of ethnic Pashtun informants who identify and located al Qaeda and Taliban leaders. The Pakistani government will not comment until Woodward's book is released. Further, U.S. Defense Secretary Robert Gates downplayed reported feuds within the administration regarding the war in Afghanistan, saying a vigorous debate preceded the endorsement of the president's policy, AFP reported Sept. 23. Gates' comments came in response to questions about Woodward's book. Gates called the relationship between senior administration officials "harmonious" and said the Afghanistan strategy is being executed to the best of the officials' abilities.
- Venezuelan President Hugo Chavez's socialist party won at least 90 of the 165 seats in the National Assembly, while the opposition coalition won at least 59 seats, National Electoral Council chief Tibisay Lucena said Sept. 27, AP reported. Ramon Guillermo Aveledo, leader of the opposition coalition, called the delayed results "inadmissible," claiming that according to the opposition's tally, anti-Chavez candidates garnered more than half the popular vote. Areas where the electoral council didn't release results were dominated by the opposition, Aveledo said, demanding electoral authorities give details on those results.
- North Korean leader Kim Jong Il's son Kim Jong Un was elected as a delegate to an extraordinary Workers Party congress slated for Sept. 28, Chosun reported. The North Korean army elected Kim Jong Il and Kim Jong Un as delegates to the party congress on Aug. 25, but until now, only Kim Jong Il's election was made public, a source stated, adding that many senior officers were aware of the situation. After the election, the Central Committee declared Kim Jong Un "the only successor" to Kim Jong Il.
- Lawrence Summers will become the third economist to leave the Obama Administration, saying Tuesday he will return to Harvard at year-end. Former Xerox CEO Anne Mulcahy is thought to be the frontrunner to succeed Summers at the helm of the National Economic Council - which could ease criticism that the administration lacks private-sector experience and is aloof from corporate America. Friends say Summers' departure is not due to the scathing criticism, but out of fear of his tenure being revoked.
- Rick Lazio dropped out of the NY Governor's race.
The weekend's top-five box office performers as reported by The New York Times were:
Last Week's Returns:
1) Wall Street 2, 20th Century Fox, $19,000,000
2) Legend of the Guardians, Warner Bros., $16,335,000
3) The Town, Warner Bros./Legendary Films, $16,000,000
4) Easy A, Screen Gem, $10,700,000
5) You Again, Disney, $8,300,000

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