Mel's Blog

March 3, 2011 Market News

March 3rd, 2011 9:36 AM by Mel Samick

While the U.S. celebrated 'Presidents Day', some Middle Eastern and North African citizens gave their men-in-power quite the opposite treatment. The contagious Egyptian revolution sent leaders in many countries mindful of their position of power. In the developed world, the hope for democratization of the Near East comes along with worries of possible crude supply disruption. On Wednesday, oil hit $100 a barrel and continued higher; gas prices at the pump jumped above $3.20, an all time high for February. However, the situation improved by Friday as Saudi Arabia increased output and the IMF released a statement that OPEC's idle capacity is greater than those of the countries hit by political crises. According to the IMF, there is no negative effect on the global economy expected as a result of recent 'moderate' oil price increases.

A standoff of Wisconsin Democrats against Republicans' plans to curb the rights of unions and restructure spending, reached an apotheosis last Wednesday when 14 Democratic senators chose not to appear at the state's Capitol, intent on breaking a required quorum Republicans responded by having police sent to their homes. Patrol officers discovered upon arrival that the Senators left state out of fear of being forced to attend. One of the runaway Senators, in his Friday interview, stated that there is no intention to return home until Republicans agree to open a debate on said issues. In the meantime, the State will not be able to market its debt issue, on Monday, as previously planned.

Annualized GDP for the fourth quarter of 2010 was revised down on Friday from a previous 3.2 percent to 2.8 percent, bringing annual 2010 growth down 0.01 to 2.8 percent for the entire year. Weaker economic growth was explained by deep State and local governments' spending cuts, which came in at 2.4 percent for the last quarter of 2010 as compared to the estimated 0.9 percent. The Durable Goods Orders reading fell just slightly short of a +3 percent consensus figure when it came up at 2.7 percent month-to-month growth rate on Thursday. However, if we dig deeper, it appears that the growth was mostly due to transportation. Excluding transportation, there was a 3.6 percent decline in January following a revised 3 percent growth in December, equating to a 0.6 negative change over the past two months. Keeping in mind that Durable Goods Orders are a leading economic growth indicator, there may be more disappointing GDP news ahead.

Read the headline, "P&G (Procter & Gamble) to raise prices, maintains earnings outlook" as "P&G had to raise prices to maintain earnings outlook". The move was anticipated since the last quarterly reporting of the company and falls in line with overall economic growth concerns. In other news from the world of corporate giants, GM reported its first full year of profits since 2004, delivering 4.7 billion dollars in net income. Results were made public on Thursday and did not receive any remarkable reflection in the stock price that slipped slightly over the past month and continues drifting around the $35 range.

This week brought long awaited positive employment news. New applications for unemployment benefits fell to 391,000 seasonally adjusted and even the four-week average was measured at only 402,000, the lowest reading since mid 2008. Applications below 425,000 are said to signal some growth, but steady levels below 375,000 are needed to declare a real job market recovery scenario. At the same time, Consumer Confidence and Consumer Sentiment both jumped in the past month way above expectations, while Fidelity reported that, according to their data, average 401K balances reached a 10-year high. All in all, the horizon seems to be fair on the consumer side.

Existing home sales went up in January as foreclosures kept dragging down the prices, attracting investors. The first-time home buyers market remained stagnant, hinting that real recovery in the housing market is not yet in sight. No wonder new home sales dropped 12.6 percent to 284,000 units on an annualized basis, while a healthy number is considered to be above 600,000. Sad statistics are inevitable for the market correction in the oversupply environment, while new production should slow down until demand catches up.

Fannie Mae posted a $2.1 billion loss for Q4 of 2010 and Freddie Mac's losses were $1.7 billion for the same period. Both companies asked for more taxpayers' money. At the same time, the FDIC reported that banks earned $21.7 billion in the last quarter of the past year. The situation lays the grounds for massive pressure from both Federal and State authorities on banks to make principal reductions on "underwater" loans, where the loan amount exceeds the property value and to put extra effort (and money) into loan modification programs. At the end of the day, someone has to pick up the bill from the party. Banks appear to be good candidates for two reasons; they are perceived to have played a host role and they've got money!

After a short and fairly light economic news last week, investors look forward to busy days:

·       Monday -- Personal Income and Outlays, Pending Home Sales Index

·       Tuesday -- Motor Vehicle Sales, ISM Manufacturing Index, Construction Spending

·       Wednesday -- ADP Employment Report, EIA Petroleum Status, Fed's view on economic condition

·       Thursday -- Jobless Claims, Productivity and Costs, ISM Non-Manufacturing Index

·       Friday -- Employment Situation, Factory Orders

Mel

Information provided by NYCB Capital Markets

Posted in:General
Posted by Mel Samick on March 3rd, 2011 9:36 AM

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