Weeky Markets Review 12-07-2009

December 7, 2009

“Shallow men believe in luck. Strong men believe in cause and effect.” - Ralph Waldo Emerson
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Hindsight
The major equity indices were higher last week, with the DJIA, S&P 500 and Nasdaq up 0.77%, 1.33% and 2.61%, respectively. M&A news and positive employment data encouraged investors. Value stocks outperformed growth stocks, and Asian Pacific equities saw particular strength throughout the week. Domestically, the best-performing sectors were utilities, telecom services and technology. The worst-performing sectors were energy, financials, and consumer staples.
The S&P 500 failed to close above the important 1,112 level. Doing so could portend a significant move higher for equities. That said, the week was strong, concluding with a positive employment report, as non-farm payrolls lost only 11,000, and the unemployment rate improved unexpectedly from 10.2% to 10%. This caused bonds to sell off sharply on Friday, ending four straight weeks of appreciation. Expectations continue to build for 4Q growth in the U.S., possibly as much as 4 to 5 percent. The global economic recovery appears to be taking hold. Stay tuned…
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Equity Markets Review
* Business activity in the U.S. unexpectedly accelerated in November as orders climbed, signaling the economic recovery will carry through into 2010. The Institute for Supply Management-Chicago Inc. said today its barometer rose to 56.1, the highest level since August 2008, from 54.2 the prior month. Readings above 50 signal expansion.
* The manufacturing sector in the United States also grew but decelerated in November, the ISM said. The ISM's index of national factory activity was at 53.6, down from 55.7 in October. "The manufacturing sector grew for the fourth consecutive month in November," said ISM Chairman Norbert Ore. "While the rate of growth slowed when compared to October, the signs are still encouraging for continuing growth as both new orders and production are still at very positive levels."
* The U.S. economy is showing modest signs of improvement, with little pressure on wages and finished goods, the U.S. Federal Reserve said in its latest Beige Book Wednesday. Eight of the 12 Fed districts showed some gains in economic activity since an October 21 report. The remaining four – Philadelphia, Cleveland, Richmond and Atlanta – reported conditions little changed or mixed.
* Latin American economies will shrink by between 1.5% and 1.9% this year but return to growth in 2010, according to the latest projections by the Organization for Economic Cooperation and Development (OECD). "Latin America as a whole is showing signs of recovery and stabilization," the Paris-based organization said in the statement. "Economic activity is helped by improving conditions in global financial and commodity markets, as well as recovering exports."
* India yesterday (Monday) reported its best growth figures in a year and a half as government spending and record low interest rates helped Asia's third-largest economy rebound to 7.9% growth. Analysts said the growth could pave the way for the central bank to raise interest rates.
* Dubai World is in "constructive" initial talks with banks on restructuring about $26 billion in debt, Bloomberg reported Nov. 30. The proposal would involve Dubai World and several subsidiaries, including Limitless World and Nakheel World, while excluding some units that are financially stable, such as Infinity World Holding, Ports and Free Zone World, and Istithmar World, according to a statement from Dubai World.
* Las Vegas Sands Corp.'s Macau unit slid 10.2% to close at HK$9.32 in its first day of trading on Hong Kong's Hang Seng Index, making it the fourth-worst Hong Kong debut this year.
* General Motors Co. Chief Executive Officer and President Fritz Henderson will resign his position effective immediately and Chairman Ed Whitacre Jr. will take over on an interim basis, the company said. Henderson, who has been with GM since 1984, took over as CEO March 31 after U.S. President Barack Obama asked then-CEO Rick Wagoner to step down. More information was not available at press time.
* Dell Inc. Chief Financial Officer Brian Gladden said he sees potential upswings in consumer and commercial demand in the coming year, as well as a "moderately good" holiday season. "I think the consumer cycle has been surprisingly positive this year," he said at a Credit Suisse Group AG technology conference.
* GE has agreed to purchase Vivendi’s 20% stake in NBC, paving the way for Comcast’s joint venture with GE. The deal values NBC at about $30B. GE shares rose 1.63%.
* Walgreen reported lower-than-expected same-store sales, sending shares down 2.95%.
* Delta Air Lines reported that revenue was showing month-to-month gains amidst cost-cutting. Shares leapt 25.66%.
* Bank of America announced that it will repay U.S. taxpayers their $45B granted under TARP. Shares added 4.72%.
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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 / YTD
Information Technology… 1.94% / 54.40%
Materials… (0.18) / 42.95
Consumer Staples… 1.00 / 13.05
Utilities… 3.02 / 4.58
Consumer Discretionary… 1.62 / 35.16
Financials… (0.41) / 16.25
S&P 500… 0.94 / 22.44
Industrials… 2.10 / 18.40
Healthcare… 1.06 / 16.10
Telecommunications… 2.86 / 0.94
Energy… (1.56) / 10.64
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Gold Bubble?
According to the WSJ, the traditional reasons for buying gold are increasing uncertainty and increasing inflation fears. However, today’s benign inflation numbers, combined with a fall in the VIX index (measure volatility) over the last year, suggests that gold’s move is more speculative than fundamental. A brief look at history over the last decade shows that surges in asset prices tend to end badly—something worth thinking through before making any major investment decisions. (source: JPMorgan Asset Management)
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George Will on Peak Oil
"In 1914, the Bureau of Mines said U.S. oil reserves would be exhausted by 1924. In 1939, the Interior Department said the world had 13 years worth of petroleum reserves.
In 1970, the world's proven oil reserves were an estimated 612 billion barrels. By 2006, more than 767 billion barrels had been pumped and proven reserves were 1.2 trillion barrels. In 1977, Scold-in-Chief Jimmy Carter predicted that mankind 'could use up all the proven reserves of oil in the entire world by the end of the next decade.' Since then, the world has consumed three times more oil than was then in the world's proven reserves."
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Fight Back Against Wealth Destruction
By Frank Holmes, CEO and Chief Investment Officer, US Global Investors
A bill taking shape in the U.S. House would hurt you by imposing a transaction tax on hard working middle-class Americans who buy and sell stocks, bonds and other financial instruments. The sponsors say this tax would raise $150 billion a year for federal debt reduction and job creation, both of which are certainly worthy goals. But this bill is a flawed tax-and-spend effort that amounts to an assault on middle-class savers and investors, who are the economic engine of the world’s strongest nation.
I understand why it’s important to help the disadvantaged, particularly during times of stress, but this legislation would cripple the nation’s important financial industry, destroy tens of thousands of high-tax-paying jobs (and in doing so drive up the deficit) and punish millions of investors trying to grow their wealth (on which they already pay taxes).
I have no doubt that the congressmen drafting the bill believe they are helping the country, but its unintended consequences on savers, investors and the economy as a whole could be catastrophic. It’s important to send a powerful message opposing this bill in our role as guardians of good government. This is a chance to take control of your destiny – to express your concern about taxing money that is important for your retirement and for the formation of the capital needed to create jobs in America.
To see a petition dealing with this topic, please visit: click here
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Sports, Culture & Politics
* President Obama announced his intention to add 30,000 troops to Afghanistan, at a cost of $30 billion per year. He also stated that he will begin pulling troops out within 18 months, reports Bloomberg.
* Social Security: Eating The Young Alive… Link to http://www.realclearmarkets.com/articles/2009/12/07/watching_social_security_eat_the_young_alive_97536.html
* Thousands of people dressed in white demanded soldiers leave Mexico's most violent city, accusing troops of provoking a surge in drug-war killings and running protection rackets, Reuters reported Dec. 7. Police and local media said around 5,000 people marched through Ciudad Juarez on the U.S. border, many with white balloons and holding signs stating "Leave Juarez, soldiers and federal police."
* Venezuelan President Hugo Chavez asserted greater financial control of several banks following the arrest of financier Arne Chacon and the removal of his brother Jesse as the country's science minister, The New York Times reported Dec. 7. Chavez, seeking to calm the population, said he was simply trying to protect depositors.
* Senator Baucus nominates his girlfriend to post of Montana state Attorney General... Link to http://www.billingsgazette.com/news/state-and-regional/montana/article_3d7f02de-e164-11de-b6c2-001cc4c002e0.html
* Day after announcing NBC merger, head of Comcast announces his support for health care reform... Link to http://biggovernment.com/2009/12/04/comcast-nbc-deal-does-the-mergers-approval-rest-on-health-care/#more-41222
* Afghan President Hamid Karzai said Dec. 6 that the United States should engage in talks with Taliban leader Mullah Omar, and that there is an urgent need for negotiation with the Taliban, Pakistan's The News International reported. Karzai said he hopes to negotiate with Omar if the Taliban leader renounces violence and cuts off connections to al Qaeda and other terrorist networks, and that he hopes the United States and other allies with back negotiations with the Taliban.
* Cap and Fade… Link to http://www.nytimes.com/2009/12/07/opinion/07hansen.html?_r=1
* The final regular season NCAA Football BCS rankings were released with the top five being: 1) Alabama, 2) Texas, 3) Cincinnati, 4) TCU, 5) Florida
Over the weekend, the top-five box office performers as reported by The New York Times were:
1) The Blind Side, Warner Bros., $20,440,000
2) Twilight: New Moon, Summit Entertainment, $15,704,000
3) Brothers, Lionsgate, $9,700,000
4) Christmas Carol, Walt Disney Studios, $7,520,000
5) Old Dogs, Walt Disney Studios, $6,901,000

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