Friday, December 28, 2007
As I close out the first year of this blog,I would like to thank my small group of committed readers.Knowing you are out there makes this more worthwhile.Some of you are in distant lands.Some of you are financial professionals.All are thoughtful participants in the global economy.Whatever happens in the financial markets,we are all better off for having applied our minds to this subject which affects our daily lives.The best-performing Dow stocks in 2007 as of this morning were McDonald's(MCD),Merck(MRK) and Honeywell International(HON).Such large-cap multinationals remain in favor with many analysts.
Wednesday, December 26, 2007
Ford Motor Company(F) isn't just sitting around watching a slowing economy.CEO Alan Mulally says Ford has planned for a slowdown.It is reacting with a little bit less production.Although the Edge crossover vehicle has been a big hit,winning the JD Power and Associates "Most Appealing Midsize Multi-Activity Vehicle" designation,Ford will continue to make production adjustments.It is carrying out a strategic review of the Volvo brand to strengthen it,not sell it.Ford has lost a billion dollars in North America,but it is still aiming for profitibility in 2009.With the success of the new cars and utility vehicles,Ford should be able to stabilize in 2009.There is no reason for the automaker to seek a partner or cash infusion.This has been a year of honors for Ford.In late October,Consumer Guide Automotive recommended a number of Ford vehicles,including the Ford Fusion,Mercury Milan,Ford Taurus,Mercury Sable and Ford F-150.They ought to be strongly considered by customers for their price,features,fuel economy,reliablity,resale value and accommodations.One of the most popular features on Ford's 2008 line-up is the Sync voice recognition system,a collaboration with Microsoft(MSFT) that took eighteen months to develop.Walter Mossberg of The Wall Street Journal praised Sync for being a surprisingly reliable,very well done method for integrating digital devices,such as cell phones and MP3 players,into a car.Ford vehicles also garnered safety honors from the Insurance Institute for Highway Safety.Honorees included the Ford Taurus,Mercury Sable,Volvo C70,Ford Edge,Taurus X,Lincoln MKX and Volvo XC90.A University of Michigan customer satisfaction survey,conducted by its National Quality Research Center,gave Ford's Lincoln and Mercury brands an 86 out of 100.Ford is excited by the data.It shows that what they're doing is working,according to spokeswoman Anne Marie Gattari.Ford shares traded down this morning,at 6.73.
Tuesday, December 18, 2007
Rite Aid Corporation(RAD) is the first pharmacy chain to sell a DNA test.Rite Aid stores in California,Oregon and Washington are selling a DNA paternity test kit.The kit sells for about 20.00,and the lab results,which are obtained by mail,are about 120.00.The Camp Hill ,Pennsylvania firm is in the midst of its busy Christmas selling season.Rite Aid sells a complete line of Christmas decorations,bargain gifts and candy.A good assortment of gift cards is also available.The Rite Aid gift card is blank.The customer specifies the amount at the register.As well,you get a free 5.00 Rite Aid gift card with any purchase of 49.99 or more at 1-800-Flowers.com.You also get one with your first order of 50.00 or more at PetCareRx.The Single Check Rebate program gives Rite Aid shoppers 5.00 back for each 25-50 spent;10.00 for each 51-100;and 20.00 back for over 100 spent.Shopping at this dynamic store,you are almost sure to leave with more than you expected.The service sector,to which Rite Aid belongs,was recently charted by the Institute for Supply Management,a buyers' trade group in Tempe,Arizona.In November,the service sector fell to 54.1,from 55.8 in October.Readings above 50 indicate expansion.New orders plummeted to 51.1 from 55.7.The survey of purchasing managers noted a decline in employment and an increase in fuel prices.The manufacturing sector declined slightly,from 50.9 in October to 50.8 in November.This was slightly stronger than the 50.1 expected by analysts polled by Thomson/IFR Markets.There were gains in new orders and production,while employment declined.The gains were attributed to more export activity,on acccount of the weak dollar.The ISM surveys are important indicators to the Federal Reserve.Shares of Rite Aid were up this morning,at 4.10.Rite Aid reports earnings on Thursday,and rival Walgreens(WAG) reports on Friday.CEO of Rite Aid is Mary Sammons,who has been interviewed by CNBC's Jim Cramer.
Tuesday, December 11, 2007
Central banks are cutting interest rates in hopes of sparking flagging economic growth.The Bank of Canada was first last week,cutting its overnight rate a quarter of a point,from 4.5 to 4.25.As late as July,the BOC was worried about inflation.Now it is concerned about deflation and the prospect of a failing economy.The Bank of England followed suit.It cut its key rate to 5.5 from 5.75.Growth has begun to slow,though the upward risks to inflation still remain.Credit tightening poses a risk to the Gross National Product.Slowing demand growth will ease pressure on capacity.The European Central Bank left rates unchanged.That may amount to a concession,since the ECB has been a hawk on inflation,and might prefer to raise rates.Today at 2:15 PM Eastern,the Federal Reserve will issue its decision on interest rates.It is expected to cut as well.Bill Gross of PIMCO would like to see the Fed cut all the way down to 3%.To restart the near-recessionary economy,we will need that.The Fed needs to reduce steadily and significantly.There has been a breakdown of the modern banking system.The tangled web of subprime loans has created a shadow banking system.The banking system must be shored up.Home prices may fall another 10% over several years.The banking system exhibits a freezing up of liquidity and a reluctance to make loans to the vital part of the economy.The Fed must use all means to provide liquidity.Troubled Swiss bank UBS has written down another 10 billion of subprime securities,following an initial write-down of 3 billion.To cover this,it has sold a stake in itself to the government of Singapore and a secret Middle Eastern investor.Shares of UBS rose on the news.Longterm investors are building positions in such financial stocks,which are trading at a big discount,although they could well drop further before recovery.Similar holdings are HSBC(HBC) and Citigroup(C).
Tuesday, December 4, 2007
The Conference Board's Consumer Confidence Survey registered 87.3 last week-a drop from 105.3 a year ago,and down 8.3 from last month.A combination of high gas and food prices,coupled with a decline in home values and a nervous stock market,are giving consumers their most cautious frame of mind in two years.Billionaire Wilbur Ross of W L Ross and Company says the consumer is quite a bit overstretched.Spending has exceeded income growth for the past six years.Donald Ratajczak of Morgan Keegan feels that the pressures should create a recession,but the economy's internal dynamics have allowed for absorption to this point.Still,there is a 50-50 chance of a consumer-led recession.Goldman Sachs(GS) issued an analysis upping the chance of a recession to 40-45%.Gross Domestic Product growth will be below trend for an extended period-through 2008.Unemployment will rise to 5.5% from 4.7%.The housing downturn will worsen,and credit availability will decline.To Joe Battipaglia of Stifel Nicolaus,the U.S. is going through financial difficulty that will affect the general economy.We may be in a recession right now.That bonds are outperforming stocks is an indication of this.The equity risk premium is only 2.25%,yet the slowing economy suggests there is actually more risk than that.The correction of stock prices could have as much as 15% more to go.You'll see more rate cuts.Financial institutions will write more losses off.The economy won't pick up till the end of next year and into '09.A growth portfolio should contain 50% U.S. equities,25% international equities and 25% short term,risk averse instruments and gold.David Rosenberg of Merrill Lynch(MER) puts the odds of recession at 60%.Financial and brokerage stocks are already pricing it in.The Federal Reserve is pushing on a string,as we are in a rare environment of national real estate deflation and a credit crunch.Robert Albertson of Sandler O'Neill thinks the market will fall another 15%.The Federal Reserve can't do much about the mortgage problem.You should stockpile cash,as there is no pressing need to buy stocks right now.If you must buy them,then defensive areas such as tech and health care would be best.The iShares Lehman Brothers SHY and TIP bond funds have been good refuges for cash this year.
Tuesday, November 27, 2007
Sun Microsystems(JAVA) and Microsoft(MSFT) show how two firms can both challenge and support one another in their quest for progress.Google(GOOG) is now distributing a free version of Sun's Star Office software.It is part of the Google Pack.Star Office is Microsoft Office-compatible and is also sold by Sun in a version with technical support and free updates.Star Office provides the Open Document Format Alliance,which includes Google,Sun and IBM,with an important open product.The free Star Office has the same basic features as Microsoft Office,which goes for 150-400 dollars.Word-processing,database,graphics,spreadsheets,photo editing and Web publishing are all possible with Star Office.Sun acquired Star Office when it purchased its parent company in 1999.Sun refined the product and contributed to a free version called Open Office before the Google Pack was offered.More than 100 million copies of Open Office have been downloaded.Star Office supports the Open Document file format,which many governments have considered adopting for its free document storage.Star Office is available on Sun's Solaris Operating Environment,along with Microsoft Windows and Linux.At the same time that Sun's Star Office competes with Microsoft Office,Sun is allied with Microsoft on a number of other fronts.Sun now sells servers with factory-installed Microsoft Windows.In this connection,the two firms will even call on customers together.They are also collaborating on interactive television built on Microsoft's Mediaroom software and Sun systems.AT and T wants to use this blend for its U-verse offering.It is clear that Sun and Microsoft are fully implementing their 2004 alliance,while competing in the office software realm.Their complex relations will be of benefit to both of them into at least the next decade.Shares of both Sun Microsystems and Microsoft were up this morning.
Tuesday, November 20, 2007
Del Monte Foods(DLM) has tied itself to a couple of winners.In a coupon ad,the company celebrated Disney Pixar's(DIS) release of Ratatouille on DVD and Blue-ray Hi Def.It also offered a five dollar rebate if you buy five cans of Del Monte vegetables and a Ratatouille DVD or Blue-ray.This proved to be a clever choice,since Ratatouille promptly went to the top of the DVD chart.The ad encouraged people to eat healthier and get more exercise.The Wolfe family,YMCA members,are shown preparing a meal with Ratatouille himself."Just One More,"the Del Monte healthy living campaign,is a proud supporter of YMCA Activate America.Nor is Del Monte limiting its health promotion to humans.On the flip side of the ad,we see a cat licking its chops while imagining a shrimp."Think like a cat.Think fresh.Think Meow Mix.Made with REAL Poultry and Seafood!"Meow Mix has its own website,where you can enter a contest and win"a culinary adventure with celebrity chef Cat Coral."DLM has committed itself to the health of the whole family."Foods of Del Monte.Nourishing families.Enriching lives.Every day."These tie-ins and slogans appeal to young families.Del Monte is making itself an element of their lifestyle.With DLM's substantial distribution network and shelf space,they will have no trouble finding the Del Monte foods they want.Carl Marker of IMS lists Del Monte as one of his top five stock picks.In this morning's trading,Del Monte shares were up five cents to 10.02.This consumer staple stock looks appealing in light of a National Association of Business Economics forecast released yesterday.One in five economists surveyed sees greater than a 50% chance of a recession.The median growth forecast is 1.5% for the fourth quarter.Gross Domestic Product for 2008 is pegged at 2.5-down from 2.8.Seventy-eight percent of Americans think the economy is getting worse.
Tuesday, November 13, 2007
For the past several days,a wary mood has been expressed by Wall Street analysts.David Greenlaw of Morgan Stanley(MS) notes a powerful flight to the safety of government bonds.Banks are still tightening credit,which will slow the economy over the next several quarters.Peak foreclosure on homes will not occur until mid-2008.Jack Ablin of Harris Private Bank thinks the world has changed now.There is the high price of oil coupled with the weak dollar.The trend has changed.As the Federal Reserve lowers interest rates,the price of commodities spikes.Fifteen of twenty commodities have gained over the past six months.Billionaire Wilbur Ross of W L Ross and Company says we are in the fourth or fifth inning of the crisis.It will be at least a few more years until foreclosures and write-downs end.More credit card and loan delinquencies are being recorded,which suggests that consumers are tapped out.Oppenheimer's Michael Metz feels we are in for a period of very slow growth.This will last for about two years,as we've been in a leveraged economy.The big growth wasn't real.Now we will see a period of 1-1.5% growth.To Joe Battipaglia of Stifel Nicolaus,we are in a contraction from housing,and consumption will be weak for some time.It will take years to work this out.Housing prices are just beginning to fall.The biggest consumer asset is losing its value.Credit is harder to get,so the market is properly going down.We've only dropped 5% in home prices so far.The clock is ticking on 600 billion of mortgages,so he is staying in a lot of cash and some multinational stocks.Cash has been pouring into money market funds,sending them to record levels.Oppenheimer offers its customers the Advantage series of funds.Other stable funds are TIAA-Cref Instit MMF/Retail and Vanguard Tax-Exempt MMF.Procter and Gamble(PG) and Johnson and Johnson(JNJ) are favored multinational stocks.
Tuesday, November 6, 2007
Exxon Mobil(XOM)is no longer the largest company in the world.That distinction now belongs to Petro China(PTR).Petro China is worth an estimated one trillion dollars.In an initial public offering on the Shanghai exchange yesterday,the oil giant's shares tripled in value.Last week,Exxon Mobil reported earnings down 10%.The price of crude oil is at record levels,which means refiners such as XOM aren't able to make as much money off their refining operations,since the competitive nature of gasoline sales prevents them from raising gas prices very much.This is known as a "narrow crack spread." As well,production was down 2%,with new oil fields to replace declining ones being very hard to locate;what is more,the countries where XOM is exploring and drilling are demanding a bigger cut,and exploration and drilling costs are rising.Big oil is feeling a big squeeze.Chevron(CVX)reported nearly identical results for the third quarter.Investors will have to adjust to these smaller profits,but they are still in the many billions of dollars.According to Jerry Castellini of Castleark Management,the energy market is still in the early phase of an ascent.In order to fund enough of an investment to keep the oil flowing,a price of 100-200 dollars a barrel is needed.So far,the capital flow hasn't reached the level of a secular bull market.Oil price rose 17% in October-the biggest increase since Hurricane Ivan struck in 2004.Shares of both XOM and CVX rose on Monday,even as crude oil retreated 2.03%.This morning,shares of XOM were up in European trading,as was the price of crude.Many analysts are recommending energy stocks as a good long-term holding.
Tuesday, October 30, 2007
A small drug trial conducted by Duke University indicates that Avastin,now approved for the treatment of lung,breast and colon cancer,may lengthen the lives of some brain cancer patients.Avastin works by blocking the nutrients and oxygen which sustain malignant tumors.Eighty percent of the 35 patients in the trial experienced a doubling of expected survival to at least six months,while 50% of them had a halting of new tumor growth.In at least one case,complete remission occurred.Typically,patients with the type of cancer,glioblastoma,live only three months with conventional chemotherapy.The combination of Avastin with another drug,irinotecan,must be further evaluated in a larger trial to get approval.If it does,more insurance companies will cover the treatment.Avastin is produced by Genentech,a San Francisco Bay area biotech firm.The drug is extremely expensive,running into six figures for a full course of treatment.Genentech(DNA) sometimes provides free drugs or caps treatment costs.The company's stock has been battered by Wall Street analysts,who obsessively track the career of every medication.The slightest setback for one drug reinforces the stock's range-bound status.Ultimately,this can mean fewer dollars supporting the firm's critical research,as investors are scared away.Nonetheless,many analysts consider Genentech a good long-term investment.It has a long list of drugs and prospects in various stages of development and approval.Another company with a battered stock,Rite Aid Corporation(RAD),has been living up to its name.The Camp Hill,Pennsylvania pharmacy chain provided free sunscreen,lip balm and hand sanitizers to victims of the Southern California wildfires.It also donated 100,000 dollars to the American Red Cross for the victims.Along with other retailers,Rite Aid has heavily promoted a wide range of Halloween merchandise this year,while inserting a number of Christmas items in this week's circular as well.Rite Aid,which is led by CEO Mary Sammons,is dealing with its recent acquisition of Eckerd and Brooks drugstores.
Tuesday, October 23, 2007
As the hills of Malibu burn,investors are facing their own persistent hazards-many of them so obscure that even the elite are puzzled.John Mack,CEO of Morgan Stanley(MS),says it will take 6-9 months to figure out what the losses are.We are not out of the woods yet.The credit market has improved,but mortgage securities will take a long time to work through.What is the collateral behind these packaged mortgages? That is the challenge.Treasury Secretary Hank Paulson calls for an aggressive response to the housing crisis.It is a significant threat to the U.S. economy,and is still unfolding.The longer housing prices are stagnant or fall,ther greater the penalty on our economy.Scott Sperling of Thomas H. Lee Partners,a private equity firm,says it is a very dangerous time for his business.It is a time for great caution.We haven't seen the last of the troubles.We have improved a little,notes Paul McCulley of Pimco,but the mortgage area is very restricted.There is a lot of downside on the economy.The equity market is a call option.Asset-backed commercial paper remains a problem,and structured investment vehicles still need to be unwound.To Carter Worth of Oppenheimer,it seems we will go back down to where we were before the Federal Reserve cut interest rates on 9-18.The market is wobbly and increasingly thin,so why rush to buy? Jeffrey Saut of Raymond James notes a big uptick in credit card debt.That suggests the peak of a credit cycle,and a slowdown to follow.To prepare,some investors are looking to the Vanguard Total Bond Fund(BND) for their protection.Others are buying shares of General Electric(GE),which is relatively cheap at this time,pays a dividend and has an international presence.
Tuesday, October 16, 2007
Ford Motor Company(F) is expanding in Southeast Asia.It is building a plant in Thailand with its Mazda affiliate.The factory will produce 100,000 small cars a year.The 2008 Ford Focus,the automaker's smallest car,has received good marks for being predictable and steady on the road,with more comfortable front seats and a 3% more powerful engine than in previous versions.It is perhaps most remarkable for its debut of the Sync voice control system.Designed by Microsoft(MSFT),this voice-activated feature reads text messages to you from Blackberries and other devices while you are driving.The Sync system has received a Breakthrough Award from Popular Mechanics for setting benchmarks in design,creativity and engineering.Talks between Ford and the United Auto Workers union are in high gear,now that the UAW has reached agreements with General Motors and Chrysler.Because Ford carries a lot of debt and isn't as far along in its restructuring as GM and Chrysler,talks could be more difficult.As well,CEO Alan Mulally has a reputation for toughness,having endured a 28 day strike while he was working at Boeing(BA).Ford intends to sell its luxury brands in the next two months,and has hired away a marketing executive from Toyota Motors(TM).Having had a big loss in '06 and the worst sales decline among US automakers in '07,the old line company needs every leg up it can lift.Ford shares have been sparked by the UAW accords with the other automakers,while Microsoft shares have been bolstered by its global business and success with electronic games.Both stocks were trading up this morning.
Tuesday, October 9, 2007
The Institute for Supply Management,a U.S. buyers' trade group,has released its Purchasing Managers Index for September.The manufacturing sector index fell to 52 in September from 52.9 in August,but had been expected to reach 52.5 at a minimum.This indicates continuing ecconomic growth,but at a slower pace than was previously believed.The ISM manufacturing index surveys more than 350 companies.In September,new orders fell to 53.4,down from 55.3 in August.The production index dropped to 54.6 from 56.1.The ISM service sector index for September depicts a similar scene,although it is more significant to the U.S. economy,which is predominantly service-oriented.The September reading was 54.8,down from 55.8 in August.New orders declined to 53.4 from 57.Inventories plummeted from 57 to 50,on account of the decline in orders.These are not recessionary numbers,but seem to support a gentle landing scenario at this late phase of the business cycle.The ISM manufacturing index was seconded by the factory orders report,which showed a drop of 3.3%,versus an expected fall of 2.4%.Investors are looking to multinationals such as IBM or exchange-traded funds such as the iShares Trust FTSE/Xinhua China 25 index(FXI) to get beyond the U.S. slowdown.
Tuesday, October 2, 2007
When Patricia Russo left America for Paris to head Alcatel-Lucent(ALU),she knew it would be a challenge.Mergers and acquisitions,such as the combination of Alcatel and Lucent Technologies,are rarely if ever easy.Not only are there cultural issues,but financial pitfalls as well.Alcatel-Lucent is proving to be no exception to the rule;indeed,it is ailing to a frustrating degree.Its share price was over 15.00 in January.Today,it struggles to stay above 10.00.The board of ALU has demanded changes within a month,following the telecom colossus' third profit warning.They expect Ms. Russo to deliver a restructuring plan.There is no reason why this industry leader can't be turned around.It is number one in DSL,with a 39% market share;number one in optics,with a 23% market share in Terrestrial and Submarine;and number one in long-haul microwave transmission,among other areas.With a capital of more than 4.5 billion euros,ALU has the substance.It just needs to be shaped a little better.Ms. Russo,54,is a Georgetown University graduate.She served more than twenty years at AT and T(T) and Lucent Technologies,which she helped found.I wish her much success at this crucial moment in the life of her major firm.This morning,Alcatel-Lucent shares were trading up at 10.10.
Tuesday, September 25, 2007
Alan Mulally,CEO of Ford Motor Company(F),still expects the automaker to reach profitability in 2009.Speaking yesterday at a plant opening in Nanjing,China,Mulally said the housing slump will likely slow the economy.Ford is keeping a close eye on the situation.No doubt it is also carefully watching General Motors Corporation (GM) negotiate with the United Auto Workers union,with which it also needs to deal.For the first time since 1976,GM workers went on nationwide strike in the midst of talks yesterday.UAW president Ron Gettelfinger bitterly criticized GM,accusing it of conducting a one way negotiation,to the disadvantage of the workers.From Thursday to Friday,GM made only one concession-regarding a cap on profit-sharing.The UAW had constantly worked with GM over recent years,so it was disappointing to see them act as if they really didn't care about the strike deadline.While the strike continues,GM stands to lose 100 million dollars a day.It has 32 billion in cash on hand.As 12,200 vehicles a day are not produced,Canadian plants will have to shut down by Thursday or Friday,and Latin American plants by Saturday.In the U.S.,73,000 workers are idle,drawing 200 dollars a week from the UAW.The main problem in the talks seems to be the UAW's insistence on job security,which is difficult for GM to commit to for years in advance.David Reilly of Rydex Investments thinks the strike would have to go on for a long time before the stock market to be affected.Yet with the credit crunch and slowing economic growth,defensive caution is warranted by investors.Consumer staples and utilities look safe to him.Investors might consider Procter and Gamble (PG) and Duke Energy (DUK) in those sectors.Among automakers,Ford shares rose yesterday,while GM shares fell.
Tuesday, September 18, 2007
As many Wall Street observers see it,a bear market has begun already;what is more,there is little the Federal Reserve can do about it.This runs counter to the perceptions of traders who insist a cut in the Federal Funds rate will save the stock market.Robert Arnott of Research Affiliates thinks we are in a bear market now.Three-quarters of mortgage resets are ahead of us.This will damage the stock market,which doesn't appreciate how bad the tightening of credit has become.Paul Desmond of Lowry's Reports believes this is the early stages of a bear market.Bear markets run in a four year cycle,and the last market bottom was in October 2002.The current bull market has lasted longer than most,which,in the past,has led to a more intense bear market.Bear markets are characterized by a series of 90 percent downside days.The top of this bull market was July 19.By July 23,we had the first 90 percent downside day.From 1973-74,there were fourteen 90 percent downside days.Investors should get to the sidelines and wait out the decline.In the view of Stan Weinstein of Global Trends Alert,an important turning point was reached in July.Now two-thirds of the market is in a bear market.It is the most volatile market he has ever seen.It should be treated with great caution and selectivity.Robert Reich,who was an economic advisor to President Clinton,notes an undercurrent of fear.Lenders and investors are reluctant because they can't gauge risk.A rate cut at 2:15 PM eastern today may be greeted with a lot of happy talk,but could ultimately fall short of resolving this confidence issue or staving off a consumer-led recession.Hudson City Bancorp(HCBK)is one haven for investors,who have noted that the regional bank has kept its distance from subprime mortgages.
Tuesday, September 11, 2007
Rite Aid Corporation(RAD)is celebrating its 45th anniversary this week.To mark the occasion,the pharmacy chain is having a big sale.Rite Aid is even giving three name brand products away,through its Single Check Rebate program.Halloween candy is on sale,along with raisins and chicken noodle soup.There is also a rebate on Dunkin' Donuts coffee.Besides the relationship with Dunkin' Donuts,Rite Aid has ties to GNC(General Nutrition Center).Many Rite Aid stores have a GNC Location within them.Seniors are prime pharmacy customers,and Rite Aid caters to them with its Living More program.Registration in the program entitles seniors to 10% discounts on health-related items.A Rite Aid I recently visited is a free-standing store.It has a pharmacy drive-up window and plenty of parking.In spite of all the merchandise,the interior isn't junky.The store is bright,neat and well-organized.Health care is unmistakably what it's about.Rite Aid continues to absorb the Eckerd and Brooks stores it recently acquired.The branding process will be complete within sixteen months,resulting in a chain of 5,000 stores in 31 states.Mary Sammons is CEO of the expanding business.
Tuesday, September 4, 2007
As Wall Street goes back to work after Labor Day,the outlook of many analysts remains one of dislocation and danger.Martin Weiss of Martin Weiss Research thinks we've seen just the first shock of the mortgage earthquake.We are only beginning to see a scarcity of credit.We don't have data until it's too late.The mortgage crunch is occurring right now.There has been a blow to the gut of the economy,and it is unlikely the government can stop it.Frank Cochrane of Market Timing Consultants says the market will rally,then fall.The market is seizing on a Federal Reserve rate cut,but it probably won't happen,and the market will fall.We will head down for the next 6-9 months.Michael Metz of Oppenheimer sees the U.S. economy slowing dramatically.There will be a recession because there is a big overhang of debt instruments,and the leverage market has a lid on it.Richard Iley of BNP Paribas notes that we are years away from a housing recovery.The Federal Reserve has underestimated the downturn,and there will be a drag on the economy until 2008.It is the biggest housing slump since World War II.How bad can things get? Between 2000 and 2002,the S and P 500 index fell 47%.Many portfolios lost half their value.One approach for concerned investors is to hedge every stock purchase with a bond fund purchase or savings account deposit.BlackRock's Income Opportunity Trust(BNA) is a broadly based bond fund.Branch Banking and Trust(BBT) offers an eSavings account that yields 4% and includes an ATM card,as well as free online and telephone banking.
Tuesday, August 28, 2007
Sun Microsystems(JAVA)is expecting double digit growth in China sales within the next fiscal year.It is providing new products to Asia as the market in the U.S. and U.K. decline,hit by slowing economic growth and the credit crunch.By the fourth quarter,Sun is expecting a 4% increase in profits,and a 10% increase within three years.Kohlberg Kravis Roberts,a private equity firm,has made a large purchase of Sun Micro corporate bonds,which amounts to a big vote of confidence.Sun is the fourth largest producer of server computers.With the aggressive development of virtualization and online telephony,Sun's products will be in growing demand.Sun's earnings rose to .09 cents a share,versus an estimate of .05 cents.Revenue in the software segment was up 6%.Revised profit was 329 million dollars.With the striving for efficiency,its Solaris operating system is especially relevant.The big search and internet companies are likely to demand Sun's products.Sun's expanded margins took the cost of doing business down.With much cash on hand,the company is on the lookout for good acquisitions.The KKR position is not CEO Johnathan Schwartz's focus;his focus is growing Sun,which posted its third consecutive quarterly profit.The firm is based in Santa Clara,California.
Tuesday, August 21, 2007
Many Wall Street thinkers continue to be troubled by financial conditions,in spite of recent attempts by the Federal Reserve to calm the markets.The credit problems are so complex and widespread,that recession seems more likely.Investors should contemplate the possibility of an extended bear market.As Brian Wesburg of First Trust Advisors sees it,the Federal Reserve actions do not resolve the long term policy issues of housing,housing finance,and the debt tied to it.Housing is 10% of the economy,yet with the leverage attached to it,it is 50-60% more significant.The credit issue will not go away overnight.We have seen early week rallies followed by sell-offs.Lyle Gramley of the Stanford Washington Research Group notes that the mortgage and mortgage securities markets have seized up,increasing the odds of a recession to 50-50.Richard Bove of Punk Ziegel sees serious systemic problems that will not go away.The bad loans are still out there and must be repaid.The deal market won't soar again,and loans won't be paid off.To Liz Ann Sonders of Charles Schwab,the credit market's seizing up calls economic growth into question.The economy is sound right now,but recessions usually start while rosy numbers are posted,as these figures are lagging indicators.The iShares Lehman Brothers treasury funds,such as SHY,TIP and TLT,are attractive to many of those who are seeking higher ground.
Tuesday, August 14, 2007
Rough seas have reached Wall Street.There seems little chance of a quick return to the bull market of July,when the Dow Jones Industrial Average crested the 14,000 mark.On Monday,the world's central banks continued to inject liquidity into the credit market.The European Central Bank gave 65 billion dollars,while Japan chipped in 5 billion and the U.S. Federal Reserve added 2 billion more.This succeeded in arresting the decline of stock prices in the short run.Just how the market will progress remains unclear.Robert Stovall of Wood Asset Management says we are in a small credit crunch.This could continue into the fall.Michael Metz of Oppenheimer predicts that institutional investors will shift from elite funds to big cap stocks.U.S. spending has exceeded income,so there will be a major tempering of spending,causing a recession by early 2008.Mark Sunshine of First Capital sees a lot of risk ahead,on account of years of over-leveraging and under-capitalized lending.Many funds were invested in the lowest form of securities.In consequence,fund redemptions will cause downward pressure on stock prices.There could be a series of big redemptions over the next 6-9 months as investors flee to quality.ING Direct offers a no-minimum savings account that is currently yielding 4.52%.Among stocks,Johnson and Johnson(JNJ) and Honeywell(HON) are also good options.
Tuesday, August 7, 2007
According to two surveys taken by the Institute for Supply Management,the U.S. economy is slowing.The ISM,a purchasing managers trade group,released its manufacturing and non-manufacturing indexes last week.The manufacturing index,a survey of factories and utilities,dropped from 56 in June to 53.8 in July.In a recession,the index could drop below 50.The non-manufacturing index showed a decline from 60.7 in June to 55.8 in July.Since the service sector represents 80% of the U.S. economy,this number is even more significant.The drop in these indexes parallels the slowing in job creation reflected in last Friday's employment report.The U.S. economy had been widely expected to cool off in the second half of 2007.This points investors to multinational firms that are not so reliant on U.S. profits,such as United Technologies(UTX) and 3M(MMM). Investors should be cautious today.The Federal Reserve issues its interest rate decision and remarks at 2:15 PM EST.If the market doesn't like them,it could take a tumble.
Tuesday, July 31, 2007
While most stocks were plummeting last Thursday,Ford Motor Company was gaining.That is why CEO Alan Mulally was smiling.Ford had just posted its first profit after 7 consecutive quarters of losses.The soft-spoken leader said he wasn't really surprised by the results,and he was cautiously optimistic about reaching a deal with the United Auto Workers union.Although there could be setbacks ahead,by the end of 2009,Ford should be back in the black for good.The automaker is exploring the sale of its Jaguar and Land Rover divisions,and conducting a strategic review of its Volvo unit.Sixteen plants are to be closed,paring 45,000 jobs.The Ford Edge is the best-selling crossover vehicle,and 14 Ford vehicles recently won J.D. Power quality awards.Ford was the most actively traded stock on Monday.This morning,General Motors(GM) also released good second quarter numbers.
Tuesday, July 24, 2007
Despite the euphoria which earnings season can spark,many analysts see trouble around the bend.Bill Fleckenstein of Fleckenstein Capital says he is on red alert.Turmoil in the junk bond market may halt the buyout boom and hurt stocks.Richard Bove of Punk Ziegel is sure of his bearish scenario.The underwriting of both corporate bonds and mortgages has been very poor.This definitely trickles down to buyout bonds.With banks only willing to loan 60-70% of buyout costs,rather than 90% as formerly,deals will have to be pulled.They will slow to a trickle,and so will the boost they give to stocks.Phillip Roth of Miller Tabak sees a ragged,maturing trend in this cyclical bull market.A stock market decline will ultimately come because of higher interest rates.The tip-off will be an unexpected financial event.Zachary Oxman of Wisdom Tree Investments would avoid large equity allocations.He sees the subprime mortgage crisis peaking in late 2007-2008.Tech stalwarts such as IBM and Intel(INTC) are still worth considering,as are industrials such as Honeywell(HON) and General Electric(GE).Their global exposure makes them better prospects than companies strictly tied to U.S. consumption.
Tuesday, July 17, 2007
Genentech(DNA)has raised its earnings forecast for 2007.The biotech colossus has boosted its projection from 2.80-2.90 a share to 2.85-2.95 a share.In the second quarter of 2007,profits increased 41%.Sales were led by Rituxin,a treatment for non-Hodgkin's lymphoma,which brought in 582 million dollars-a gain of 11%.Its lung and colorectal cancer drug Avastin realized a 33% increase,to 564 million.Sales of Herceptin,a breast cancer treatment,rose 11%,while its macular degeneration drug Lucentis went from 10 million in 2006 to 209 million this year.With the graying of the population,there will be a considerable need for Genentech's medications in the years ahead.In addition to its cancer and blindness treatments,DNA has recently partnered with Tercica(TRCA)to develop two drugs for metabolic disorders.Chris Raymond,senior biotech analyst with Robert W. Baird and Co.,noted that the stock has been playing defense lately,because a European study shows Avastin may be better in a lower dosage;yet this may benefit Genentech in the long run,as it could quiet price critics.
Tuesday, July 10, 2007
Kinross Gold Corporation(KGC)is on course to increase its production of gold and silver.The Canadian mining firm has exploration,construction and production projects from Brazil to Russia.The Brazilian Paracatu project will increase gold production from 174,254 ounces in 2006 to 557,000 ounces in 2008.The Buckhorn project in Washington state will yield 160,000 ounces of gold annualy beginning in 2008.In the Russian Far East,the Kupol project will yield 418,000 ounces of gold per year beginning in 2008.It also contains more than 40 million ounces of silver.Kinross acquired Bema Gold in early 2007.It is headed by CEO Tye W. Burt in Toronto.As of this morning,the price of gold was up,as were shares of KGC.
Tuesday, July 3, 2007
Several leading money managers have expressed a guarded attitude toward the stock market.Brian Gendreau of ING cited credit tightening and bonds being pulled as worrisome.He looks for a tougher second half,though the market will end a little higher.There is an unquantified risk in the subprime mortgage market.In consequence,he is buying bonds and large companies,which are less dependent on credit.Christopher Ailman of CalSTRS is rebalancing the huge pension fund.He is unwilling to take risks until the subprime fog clears up.Mr.Ailman is concerned about high yield debt and alt A mortgages.Beginning in August,400 billion in loans will reset.This pressure could cause more problems such as those at Bear Sterns(BSC).Thomas Melcher of PNC's Hawthorn is waiting to see how much of the mortgage market is enveloped by distress.Consumer spending and possibly more hedge funds could be affected.A bond fund such as Lehman Brothers' TLT will be a popular haven until the fog lifts.Happy Independence Day,American readers.I am starting to feel heat because you aren't showing interest in the ad links.
Tuesday, June 26, 2007
Wall Street is wrestling with the subprime mortgage problem.Subprimes,issued to borrowers with flawed credit,have been defaulting at a high rate.Bonds which are backed by subprimes have consequently been put at risk.Bear Stearns(BSC),a leading investment firm,has had to scramble to save two hedge funds that contain these bonds,which are called collateralized debt obligations(CDOs).Many prominent firms,such as J P Morgan Chase(JPM),Merrill Lynch(MER)and Deutsche Bank(DB),held over 20 billion dollars in such securities.The fear that the subprime failure will spread to corporate credit is adding to market nerves.It is a climate of complexity,uncertainty and leverage,according to Jay Mueller of Wells Fargo.In such times,investors might consider quality income funds such as Blackrock's BNA or Lehman Brothers' AGG.
Tuesday, June 19, 2007
Rite Aid Corporation(RAD) has closed on its acquisition of 1854 Eckerd and Brooks drugstores in 18 states,as well as 6 distribution centers.The pharmacy chain,based in Camp Hill,Pennsylvania,plans to open 1,000 new stores as well.Led by CEO Mary Sammons,whose photograph is sometimes featured in Rite Aid circulars,the firm's marketing is characterized by a rebate program,as well as "buy one get one free" promotions.Rite Aid's logo is a red,white and blue shield that is more striking than the logos of rivals CVS and Walgreens.Rite Aid is the third largest drugstore chain behind Walgreens and CVS.
Tuesday, June 12, 2007
Two key readings on inflation will be released Thursday and Friday.Should there be a pronounced uptick in the core Producer Price Index(PPI) and Consumer Price Index(CPI),stocks may be expected to decline.Any such indication that the Federal Reserve will be more likely to raise interest rates in order to rein inflation in,will bring the bears out in force,resulting in a wave of selling.Stocks are already under pressure from a rise in government bond yields.One approach to this danger is to keep new money in money market funds through at least the weekend.
Tuesday, June 5, 2007
As treasury bond yields near 5%,many are wondering if stocks will decline as a consequence.Investors could settle for the certainty of the bonds,rather than the bumpy ride of a stock.Ten year government bond rates are rising worldwide.The U.S. ten year is at a nine-and-a-half month high.Charlie Smith of Fort Pitt Global Group says corporate earnings are driving bonds up,but they will not be attractive below 5.75%.Smith Barney's John Manley thinks rates are probably finding their top now.If they do crest 5%,though,this will eventually harm the stock market.
Tuesday, May 29, 2007
What does the summer hold for Wall Street?There is a widespread belief that the market is in for another 5-10% correction in the near future-similar to what happened in February.It has just been too hot recently.Bolstered by liquidity,mergers and acquisitions rather than fundamentals,it is on thin ice.The slightest jolt could send it into freefall.Investors must double-check for quality and diversity in their holdings,if they hope to weather the nearing storm.
Tuesday, May 22, 2007
Alcatel-Lucent(ALU),the Franco-American telecom colossus,has been upgraded to "outperform" by Credit Suisse.ALU's first quarter as a merged corporation was a difficult one.Although the company sustained a net loss of 8 million euros(10.8 million dollars),its cost-cutting plans impressed Credit Suisse.Alcatel-Lucent is one of the most actively traded stocks.Its CEO,Patricia Russo,sees revenue growth for the rest of the year,based on a good flow of orders.
Tuesday, May 8, 2007
In the world of mining and minerals,consolidation is king.That is why Alcoa(AA) is courting its Canadian rival Alcan.It would be the second-largest deal ever in the sector.Alcoa is offering 73.25 a share,plus stock.The total value of the deal is thirty-three billion in cash,stock and debt.According to Alcoa,the transaction would result in one billion in savings.Alcoa recently closed a plant in Frederick County,Maryland because of its inability to find cheap electricity.To satisfy Canadian regulators,the company would maintain headquarters in both New York and Montreal.
Tuesday, May 1, 2007
As Wall Street looks forward to summer,it has warnings of recession in its face.David Rosenberg,Chief North American Economist of Merrill Lynch,points out some startling signs of a downturn.For the past four quarters,the U.S. economy has registered annualized growth of less than 3%.In the past sixty years,this has always foreshadowed recession.Similarly,the Conference Board's Leading Economic Indicators have declined on a year-to-year basis for three straight months.Every time it did that for the past fifty years-except in 1967-recession followed.Jim Hatzius,Chief U.S. Economist of Goldman Sachs,thinks there is a 25% chance of recession,citing the housing downturn as a burden on the economy.It would seem wise,then,to augment defensive holdings such as consumer staples and health care.
Tuesday, April 24, 2007
A survey of businesses just released by the National Association of Business Economists reveals a gently slowing economy.While seventy-eight percent of the firms met or exceeded their goals,the survey also showed slower momentum for the first quarter,with lower hiring and less of an increase in capital spending.Higher materials costs and wage inflation were cited as hindrances.There is a cautious outlook for the near term.This caution reminds investors to diversify their holdings.
Tuesday, April 17, 2007
As of the closing bell on April 16,the stock market had fully recovered from its February 27 correction.Indeed,the S&P 500 index stood at a six and a half year high.According to Jason Trennert,Chief Investment Strategist of Strategas Research Partners,the economic fundamentals are the same as they were at the end of February.Interest rates are stable,and many companies are supporting stock prices by buying back their own shares.Serat Sethi of Douglas C. Lane Associates remains cautious,however.He advises a broad-based allocation to protect against risks which many may have already forgotten about.
Tuesday, April 10, 2007
Genentech(DNA),the largest biotech company in terms of market capitalization,has a vast pipeline.It is currently developing thirty new drugs and has an inventory of thirteen new molecules.These prospects follow the blockbusters Herceptin(breast cancer),Avastin(late stage colon cancer) and Lucentis(macular degeneration).The latter drug can literally restore sight to the blind.To accomodate its research,DNA is erecting eleven new buildings on its San Francisco Bay Area campus.The volume of its quality work looks to ensure continuing benefit to the chronically ill,as well as its shareholders.
Tuesday, April 3, 2007
Tuesday, March 27, 2007
Alcatel-Lucent(ALU),the Franco-American telecom giant,has landed a huge contract with Verizon Communications.It is a three year,six billion dollar network expansion and improvement deal.ALU offers an encyclopedic array of products and services worldwide,but its stock has been pummeled because of a low earnings forecast on account of merger costs.Late last year,the Paris-based Alcatel completed its merger with Lucent Technologies,the former Western Electric component of the old Bell System.Alcatel-Lucent is headed by American CEO Patricia Russo.
Tuesday, March 20, 2007
There seems to be a consensus on Wall Street that the correction will go on.Just how long it will is unclear.Andrew Siebart of Stewart Capital feels the rest of the year will be choppy.Sarat Sethi of Douglas C. Lane thinks the volatility will continue for a few more months.According to Steve Hochberg of Elliot Wave,we have gone from a rally phase to a declining phase,a sea change in the market.There was a rally yesterday,but the volume was thin.The market is still weak,and those who have been shaken need a lot more firmness before they will come back.
Tuesday, March 13, 2007
Is the stock market correction over,or will another shoe drop? There are analysts on both sides of the issue.It has only been two weeks since the precipitous decline,however,so it does seem to be premature to be declaring victory.As Mark Arbeter of Standard and Poors noted yesterday,trading volume during the partial recovery has been light,casting doubt on its authenticity;nor have there been any shocks to put the market to the test.If a surprising piece of significant data is weathered,then we might breathe easier.Until then,many investors are holding back in bonds and cash.
Tuesday, March 6, 2007
A number of bond funds are available to investors at this time of crisis.They include the iShares Lehman Brothers TIP,TLH,SHY,TLT,IEI,IEF and AGG funds.Black Rock offers the BFK and BNA funds.One option is to put new money in these funds,while holding on to good equity positions.It could be weeks or even months before the market regains its composure.In the meantime,bond funds provide some stability and income to beleaguered holdings.
Tuesday, February 27, 2007
According to the National Association of Business Economists,the U.S. economy is expected to remain on an even keel in 2007.While personal spending is expected to rise slightly,Gross Domestic Product,the value of goods and services,will fall slightly.Corporate profits will drop sharply,but the Federal Reserve will hold interest rates steady until 2008,when it will make one .25 cut.Nonetheless,any of a number of wild cards,such as war with Iran or a bad hurricane season,could upset the equilibrium forseen by these economists.
Tuesday, February 20, 2007
A disturbing trend in corporate behavior has emerged.Several big companies have been veering over the tax line.As a result,the likes of KPMG,Glaxo-Smith Kline and General Electric have had to pay penalties recently.According to the Internal Revenue Service,they had been improperly sheltering assets.Their end runs have ended up at a dead end.
Monday, February 12, 2007
The instant CNBC's Jim Cramer mentions a stock-sometimes even if he doesn't like it-viewers start purchasing it after hours,according to the ticker scrolled during his Mad Money program.Jim hates this,but nothing he says does any good.These viewers worship him and exercise no judgement whatsoever.What will they do when Cramer retires? And Cramer can be wrong about stocks.These viewers can lose money right now. Is Cramer doing more harm than good? No one has done a study to this point.We can only pray that isn't the case,since Jim is the channel's most original host.
Tuesday, February 6, 2007
Based in Morristown,New Jersey,Honeywell International,Inc.(HON) has many frying pans in the fire.With seven operating divisions,this multinational competitor makes everything from fire alarms to antifreeze.Its global reach and diversity help HON to have something going for it most of the time.And as a defense contractor,Honeywell stands to profit from the hefty military spending in a time of war.
Wednesday, January 31, 2007
Just one day after posting its worst ever loss of 12.7 billion dollars,Ford Motor Company(F) began attracting renewed support.The stock started back uphill despite the slide of the previous quarter.This was a vote of confidence in new CEO Alan Mulally,whose Boeing turnaround is much admired.In addition,it was a realization that GM had experienced a similar blow,but was now on the way back,and F should follow suit.It was also a statement of national pride.No American wants to see this storied company fail,for it would be a tragedy to lose a part of our past.
Wednesday, January 24, 2007
Emerson gets the WSW nod for 2006 Business Commercial of the Year.The company's employees are waiting for clients at various spectacular locations,such as the Chilean Andes.When the clients arrive,they are warmly greeted.This is the kind of service we all long for,yet seldom find in our era.
Tuesday, January 23, 2007
Del Monte Foods(DLM) has been upgraded to "outperform."The company has been quietly adding name brands to its portfolio-especially pet food.Milk Bone and Meow Mix are among its latest acquisitions,boosting its prospects significantly.We might deprive ourselves,but we will never deny our pets.As well,the concern over fresh food safety can't hurt their hallmark canned food business.One of mom's old brands is a real bargain today.
Wednesday, January 17, 2007
Genentech(DNA) has reported strong fourth quarter earnings and projected a good 2007.It's been a long wait,but the good feelings investors got made it worth it.They were vindicated.Even more important to them is the benefit that patients got from DNA's drugs.Investors helped to make it possible.Since the earnings were reported,the stock has continued to climb out of the funk it had been in for so long.Good earnings are good medicine.