Grappling With The Bear

Financial advisors are busy grappling with the economic bear.Extreme volatility may occur this week as the markets react to the Federal Reserve's interest rate decision on Wednesday and the employment report on Friday,as well as other data.Jessica Paige of Paige Capital Management advises staying in cash.The debt market is in a crisis,and many companies will file for bankruptcy.One that has already done so is Quebecor World(QBRWF),a Montreal-based printing concern.The company,which prints textbooks,books of the month,catalogs and pamphlets,cites a need to restructure itself.Local management in Fairfield,Pennsylvania says they will not be reducing staff or cutting wages and benefits.The firm has secured one billion dollars U.S. in financing from Morgan Stanley(MS) and Credit Suisse(CS).Ms. Paige observes the market is going through a transition phase right now.Anything you want to buy will be cheaper in six months.The S and P 500 index will drop to 1200 within 6-12 months.Robert Hormats of Goldman Sachs(GS) notes that the economy is heavily in debt-much of it bad.Decoupling of other economies from the U.S. economy hasn't happened.The financial and goods markets of the U.S. are very important to other countries.It is hard for them to grow robustly without the U.S. markets.Economist Ben Stein feels the market was ridiculously oversold by hedge fund traders.They are making a fortune by shorting the market.Three hundred trillion has been knocked out of the market.Federal Reserve chairman Ben Bernanke needs to fight them and be as ruthless as they are.Jim Awad of J.P. Stewart Asset Management says that it is the most volatile market in his forty years in the business.There is a fear of more write-downs,and it will take time to get over that.According to Joe Battipaglia of Stifel Nicolaus,the corrective process is well underway,but you still have to work through the credit mark-downs.We are one-third of the way through.The process has to unfold naturally.While this goes on,some investors are sheltering in tax-free money market funds such as Alpine Municipal MMF/Investor and Vanguard Tax-Exempt MMF.

Swedish Firm Rounds Out Sun Micro

The best thing I can do is publish the story I wrote,because it remains true.The companies I mentioned are open for business today,regardless of share prices.That should tell you something about today's flash in the market.Sun Microsystems(JAVA) has purchased Swedish firm MySQL for one billion dollars.MySQL is a vendor of open source database software.Its customers include Google(GOOG),You Tube,IKEA and Facebook.The software itself is free,but integration and maintenance services for it are not.It is with these that Sun,which has a deep commitment to the open source concept,intends to make a profit.MySQL provides platforms for the Web economy,and the Web's enabling of cost reductions and efficiency are making the Internet very attractive to consumers and businesses,according to Sun CEO Jonathan Schwartz.MySQL gives peace of mind to customers.The acquisition of MySQL make's Sun's Solaris the only operating system with database software.Together with Java technology,Solaris and MySQL give Sun a fuller circle of software products to complement its breadwinner server systems.Prior to acquiring MySQL,Sun relied on Oracle(ORCL) for databases.The open source concept championed by Sun is both more economical and flexible for Internet companies.Given these advantages,Sun expects to meet or exceed analysts' expectations for its fiscal second quarter earnings and revenue,which will be reported on January 24.Sun has seen 7% bookings growth,with real strength in Asia,Africa and the Middle East.Its products are in the right phase of their life cycles to generate profits as great as,or greater than,expected.Shares of the Santa Clara,California firm were among the best performers in last week's dismal market.

Far North Holds Fossil Fuels

Huge oil and gas projects are likely to commence in Canada and Alaska within the next 10 years.Some of the final frontiers in North American drilling are poised for extraction.In Canada's Northwest Territories,the Mackenzie Gas Pipeline is to wind 750 miles/1206.9 km along the Mackenzie River.The river is Canada's longest,with 1068 navigable miles/1718.7 km from Great Slave Lake to the Beaufort Sea.Just west of the river are the Mackenzie Mountains,which rise to over 9,000 feet/2743.2 km.The Mackenzie Valley is characterized by its boreal forest ecosystem.An estimated three billion birds breed in the forest,making it the motherlode of North American bird life.Many subsistence communities,the First Nations,live off this land,co-existing with wolves,moose and grizzly bears.Roads,compressor stations,processing plants,airstrips,feeder pipelines and housing for 8,000 construction workers need to be installed in order to build and support the pipeline,which will transport natural gas from a minimum of three production fields to points south,including the tar sands of Alberta.The tar sands plants heat the sands up with natural gas in order to extract the heavy crude oil contained in the sand.Big stakeholders in the tar sands include Suncor Energy(SU) and Marathon Oil(MRO).The pipeline project will cost an estimated 14 billion dollars U.S..Most of the First Nations along the Mackenzie support the pipeline,as they will get a one-third ownership stake.The territorial government is strongly behind it as well.Meanwhile,the U.S. Minerals Management Service will hold a lease sale on February 6 for 46,000 square miles/74,027.8 square km of outer continental shelf in the Chukchi Sea,which is off Alaska's northwest coast.The area contains an estimated 15 billion barrels of conventionally recoverable oil and 77 trillion cubic feet of conventionally recoverable natural gas.No drilling will occur within 50 miles/80.465 km of shore.The lease sale is supported by the state of Alaska,local officials and tribal leaders.The buffer will provide for wildlife migration and subsistence hunting.The Chukchi oil reserves are greater than those in Brazil's Tupi oil field,which contains about eight billion barrels.Companies such as Exxon Mobil(XOM) and Chevron(CVX) may be bidding for the leases.

Red Flags From Factories

As soon as Christmas was over,investors sat down and reviewed economic reports.The first to be scrutinized was the U.S. Commerce Department's Durable Goods report.Orders for these costly items,which are expected to last at least three years,rose just .1%,when they were expected to rise 2.2%.The factories report was down .7%-the second straight monthly decline.Capital goods ex-aircraft fell .4%,while business capital spending dropped .9%.These figures all indicate that businesses are being more cautious in capital spending.They aren't investing as much in the equipment that helps them grow.Next to be reviewed were the Institute for Supply Management's Purchasing Managers surveys.The Manufacturing Index fell to 47.7 in December from 50.8 in November.A number below 50 indicates the sector is contracting.It was the worst reading in five years.New orders plunged to 45.7 from 51.9.Production fell to 47.3 from 51.9.These results show that even strong exports aren't working anymore.Factories are feeling the credit crunch and flattening profits due to higher costs,as domestic businesses cut back on investments or put them off.Indeed,according to Morgan Stanley(MS),global manufacturing fell .8 to51.4-the lowest level in more than four years.Manufacturing was down in Canada,the U.K. and the Euro Zone.Finally,the busy investors pored over the U.S. employment report that was released last Friday.Unemployment rose to 5% in December from 4.7% in November-the steepest increase since the recession of 2001.An uptick of that magnitude is characteristic of recessions.New jobs created totaled a mere 18,000-the least since 2003.Small wonder that the investors saw red flags on the factories,or that many of them looked to bond funds such as Vanguard's Total Bond(BND) and iShares Lehman Brothers TIPS fund(TIP),or the TIAA-Cref Instit MMF/Retail,which offered the highest 12-month yield for a taxable money market fund in 2007,at 5.19%.

NASDAQ Top Three

The top three performers on the NASDAQ exchange for 2007 were Intuitive Surgical(ISRG),Foster Wheeler(FWLT) and Research In Motion(RIMM).All three are still highly regarded by many investors.Their work is admired worldwide,which is a key to success in today's variable markets.

Correction

The ticker symbol for Charles Schwab was misstated as SHWB in my last post.It is actually SCHW.

Leading Firm Predicts Trends

Global Insight,a leading consulting firm,has issued its forecast for 2008:1.The U.S. will come close to a recession.2.Global growth will slow.3.China will continue to grow rapidly.4.Oil prices will remain high.5.U.S. inflation will drop.6.The Federal Reserve will keep cutting interest rates.7.U.S. housing will bottom out.8.The U.S. trade deficit will improve.9.The U.S. dollar will strengthen.10.The U.S. economy will be vulnerable to shocks.In its weakened state,a shock such as a spike in oil prices or deeper subprime losses could tip it into recession.Phillip Roth of Miller Tabak,another prominent firm,says we are in the middle of a bear market.It is only an average bear,not a killer bear.We will take another hit in the first half of 2008.There will be cyclical leadership again,such as industrials,energy and agriculture.The market is adjusting to slower economic growth.You should have more than your usual amount in cash,so you can take advantage of opportunities that will arise in spring.Professionals didn't want to raise their cash levels,so we are stuck for now.They kept reinvesting their cash,and so there is little available to start a rebound.There seems to be a consensus that the first half of 2008 will see more of the same financial trouble,but we may hope for some improvement by the end of the year.Until then,one possibility for cash is a Charles Schwab(SHWB) no-minimum checking account,which is paying 4% and comes with a no-minimum brokerage account.Shares of Charles Schwab increased in value by 32% last year,leading the brokerages.

2007 Business Commercial Of The Year

My award for advertising excellence goes to Lockheed Martin(LMT).In an eloquent series of scenes,the defense contractor pays tribute to those who work in government and the military.Few can watch these patriotic messages unmoved."Whether you call it courage,or integrity,or sacrifice...a voice is calling,and you answer...every time." Last year's winner was Emerson(EMR).