Powers Capital Investments

Wednesday, February 1 Market Recap

2012-02-02T13:46:00.000-08:00

WEDNESDAY (DJIA +84) Global purchasing managers indexes are ticking up, indicating the global economy is strengthening. Eurozone inflation is falling and came in at 2.7% for January. The ADP employment report came in at 170K new jobs vs. 182K expected; still a good number. The ISM manufacturing index was 54.1 vs. 54.5 expected, below expectations but still indicates an expanding economy. Chrysler reported its first profit in 5 years. Facebook filed for its IPO. Up 152 pts early, gains were pared as the day wore on.

Tuesday, January 31 Market Recap

2012-02-01T08:10:00.001-08:00

TUESDAY(DJIA -21) Asian markets rallied overnight and the Greek PM said progress is being made on debt talks. That and expectations for a substantially increased Euro bailout fund, propelled markets early. But, the Case-Shiller Home Price Index was-.7% vs. -.5% expected, and consumer confidence was 61.1 vs. 68.0 expected and 64.5 the previous month. Markets turned negative on the news, but then rallied a bit as the day wore on.

Monday, January 30 Market Recap

2012-01-31T12:04:00.000-08:00

MONDAY (DJIA -7) Down more than 1% in early trading, stocks recovered most of those losses as the day wore on. Volume was light ahead of important Euro meetings early this week, an expected deal on Greek debt, and the labor report on Friday. Consumer spending was flat in Dec.; +.1% was expected. Personal income was +.1%; +.4% was expected. All eyes are on the EU and they meet today to decide issues that are very important to the future of the EU. Chinese markets re-opened after taking a week off to celebrate the Chinese New Year. They played catch-up today, so the action is not too telling.

99 of the S&P500 firms report this week. So far, according to Merrill Lynch, 196 of the 500 have reported. 49% beat earnings estimates, 46% beat revenue estimates, and 32% beat both. Misses are largely attributable to financials, headwinds from a stronger $, low natural gas prices, and weakness in Europe. Tech, industrials and healthcare have posted the strongest performance. Telecom and utilities were the weakest. In total, profits are up 12% year over year.

Thursday, January 26 Market Recap

2012-01-27T09:46:00.001-08:00

THURSDAY (DJIA -22) December new home sales were -2.2% vs. +1.9% expected. It was a disappointment and contrary to other housing metrics which have been mostly improving. Durable goods orders in Dec. were up 3%; +2% was expected. Jobless claims were 377K for the week, a decent number. Leading Indicators rose .4% vs .7% expected and .2% the previous month. Earnings reports continue to be somewhat mixed.

Wednesday, January 25 Market Recap

2012-01-26T07:59:00.001-08:00

WEDNESDAY (DJIA +83) U.S. pending home sales fell 3.5% from last month, but that follows large upticks in the previous two months, so this may be payback. The impasse in Greek debt restructuring is weighing on markets a bit. Stock markets, down 96 early, turned around when the Fed said it would keep interest rates low until at least late 2014, and continued to rally after Bernanke’s press conference. Some called this move QE2.5. Apple’s blowout earnings report helped, German confidence improved, Italian retail sales were weaker than expected, and the UK GDP fell .2% in Q4.

Monday, January 23 Market Recap

2012-01-24T14:02:00.001-08:00

MONDAY(DJIA -12) 25% of the S&P500 has now reported Q4 earnings. 47% beat expectations, 22% were in-line, and 31% missed – a little bit disappointing so far. This week will be the busiest reporting week. Greece seems to be getting closer to reaching agreement on haircutting its debt with private investors. It seems they are still haggling over the interest rate Greece will have to pay from now on.

Thursday, January 12 Market Recap

2012-01-13T07:52:00.001-08:00

THURSDAY (DJIA +22) Jobless claims rose to a disappointing 399K – but still below 400K. Business inventories came in about as expected. Mario Draghi had positive comments about the improving stability of Europe. They are making progress in solving their problems. December retail sales were just a bit disappointing – up .1% vs. 3% expected.

Wednesday, January 11 Market Recap

2012-01-12T09:04:00.001-08:00

WEDNESDAY(DJIA -13) Fitch warned the ECB that more action is needed to shore up the Euro. Germany’s GDP contracted .25% Q4 and they may be on the verge of a mild recession. It was a mixed session with the S&P 500 and Nasdaq up a bit.

Tuesday, January 10 Market Recap

2012-01-11T08:14:00.001-08:00

TUE (DJIA +26) Stock markets started off hot on the backs of Asia and Europe. Fitch said they are not likely to downgrade France – a big surprise - and France’s industrial production unexpectedly rose. China’s trade surplus fell for the 3rd month in a row showing they are less dependent on exports. Investors are expecting economic stimulus from China.

Monday, January 9 Market Recap

2012-01-11T08:12:00.000-08:00

MONDAY (DJIA +33) The first 5 days of the new year were positive for stocks. When that happens, in only 6 of the past 39 years was the year not positive. Markets wandered most of the session, as Germany and France turned up the heat on Greece. But, there seems to be increasing optimism about US economic prospects.

Thursday, January 5 Market Recap

2012-01-06T10:26:00.001-08:00

THURSDAY (DJIA -3) The ADP employment report showed a very robust 325K jobs created in Dec - way above the 178K consensus – but the Dec number may be technically flawed and overstating job growth. We will know tomorrow. Initial claims for unemployment came in at 372K last week – a decent number. The ISM services index came in at 52.6 vs. 53.0 expected; still a good number showing expansion. A resilient stock market bounced back from early declines to close mixed. We think Europe entered into a recession in Q4 on the basis of recent economic data, but they may be out of it before summer.

Wednesday, January 4 Market Recap

2012-01-06T10:25:00.000-08:00

WEDNESDAY (DJIA +21) Factory orders for Nov. were just slightly below estimates, growing at 1.8%. According to Goldman Sachs, Q4 GDP is still tracking 3.3%. Dec. auto sales were good. The stock market was in negative territory most of the day, but ended up keeping all of yesterday’s gains – a positive sign. Industrials were particularly strong; defensives such as staples and utilities were weak.

Tuesday, January 3 Market Recap

2012-01-03T14:38:00.000-08:00

TUESDAY (DJIA +180) Markets in the U.S. got off to a very strong start, taking cues from Europe and its better than expected economic news yesterday. The U.K.’s and India’s PMI data were also better than expected. The Institute of Supply Management’s manufacturing index for Dec. came in at 53.9, slightly higher than the 53.4 expected. It indicates that manufacturing in the U.S. is growing. The Fed is going to start publishing interest and economic forecasts in February. Should be interesting! Gold is back up to $1605.

Wednesday, December 28 Market Recap

2011-12-29T09:12:00.001-08:00

WEDNESDAY (DJIA -140) The Euro fell below $1.30 and weighed on markets as that makes U.S. goods more expensive to buy in Europe. The market is worried that liquidity provided to Euro banks is staying on their balance sheets and not being lent out (sound familiar?). The market is also nervous about an important 10yr bond auction in Italy Thursday.

Tuesday, December 27 Market Recap

2011-12-28T08:42:00.000-08:00

TUESDAY (DJIA -3) The Case-Shiller Home Price Index fell .6% in Oct vs. the -.7% expected. The overall price decline year over year has been 3.4%. The Conference Board Dec. Consumer Confidence Index shot up to 64.5 vs. the 55.2 expected. It is the 3rd highest number this year. Q4 GDP is tracking in the 3.5% range. Oil hit $101/bbl. Gold fell $12.

Thursday, December 22 Market Recap

2011-12-23T10:06:00.001-08:00

THURSDAY (DJIA +62) Q3 GDP was revised downward from 2.0% to 1.8%. Initial jobless claims were 364K; that is 2 weeks in a row that we have had a much better than expected number. Congress finally reached an agreement to extend the payroll tax cut for a whole 2 months. Investors seem immune to the dysfunction. Leading indicators rose for the 7th straight month and consumer confidence continues to rise.

Tuesday, December 20 Market Recap

2011-12-21T08:21:00.001-08:00

TUESDAY (DJIA +337) The market got off to a great start on better than expected housing starts in the U.S. (+9.3% in Nov), much better than lately bond auctions in Spain, and some positive business confidence news out of Germany. Plus, the market was ready for a bounce after the recent weakness.

Monday, December 19 Market Recap

2011-12-20T08:15:00.000-08:00

MONDAY (DJIA -100) ATT dropped its attempt to buy T-Mobile. It just was not going to get FCC approval. U.S. banks got hammered. BofA was down 4.1%, closing below $5. Reports about the Fed requiring higher capital reserves for banks caused the pressure. Some gloomy comments by ECB president Draghi weighed on markets, as well. €150M of bailout capital from countries outside of Europe has been raised, but that is short of the €200M desired. Volume was light.

Monday, December 12 Market Recap

2011-12-13T09:05:00.001-08:00

MONDAY (DJIA -163) Credit rating agencies lamented the lack of a bazooka or the ability to go into markets in force if the crisis worsens. They said the negative outlook for credit rating downgrades was not changed. Nevertheless, we think last week’s accords were a big step in the right direction, with liquidity concerns being diminished and everyone clearly focused on solving the crisis and displaying uncommon unity. The DOW was down 244 pts at one point, but recovered quite a bit into the close. Gold fell 2.8% to $1664.

Thursday, December 8 Market Recap

2011-12-08T15:37:00.001-08:00

THURSDAY (DJIA -199) The ECB lowered its refinancing interest rate by .25% to 1.75%, as expected. It also is allowing banks to borrow money from it for 36 months. The reserve requirement for banks was cut to 1% from 2%, and the types of collateral accepted were expanded. All of these are positive, liquidity creating moves. Initial jobless claims fell to a much better than expected 381K last week. But, the ECB disappointed markets by indicating that it had not committed to wholesale buying of Euro bonds in order to backstop those markets. The market was expecting otherwise.

Wednesday, December 7 Market Recap

2011-12-08T07:22:00.000-08:00

WEDNESDAY (DJIA +46) All eyes are on the Euro summit meetings tomorrow and Friday. Markets seemed to rise and fall on every utterance by Euro officials. Expectations are running high and setting up markets for likely disappointment. We are hoping that a disappointment dip gives us a buying opportunity.

VOLATILITY

2011-12-07T08:04:00.002-08:00

This year has been extraordinarily turbulent. In fact, 2011 ranks “among the most volatile market years on record,” says Oppenheimer. When you look at the average absolute daily price changes of the S&P 500, the period from July through the middle of November 2011 averaged 1.8 percent. This is about a percent higher than the 60-year average (0.8%), and just barely above 2008’s daily price changes (over the course of the entire year).

Tuesday, December 6 Market Recap

2011-12-07T08:04:00.001-08:00

TUESDAY (DJIA +52) After the markets closed yesterday, S&P put the ECB and 15 of the 17 Euro currency countries on negative credit watch. This indicates a 50/50 chance of a downgrade within the next 90 days. Everything depends upon action taken by political leaders, and this week is a critical week. The ISM Non-Manufacturing number for Nov. was positive, but a little lower than expected. The market rose on light volume after a report that that second Euro bailout fund might be created in order to add bailout firepower.

Tuesday, November 29 Market Recap

2011-11-29T14:16:00.001-08:00

TUESDAY (DJIA +33) Housing prices continued to decline in Sept as the S&P Case Shiller Index was down -3.6% year over year. Yesterday, new home sales were up 1.3% in October, but revised downward for previous months. The U.S. AAA credit rating was maintained by Fitch. Consumer confidence rebounded to 56.0 in Oct from 40.9 in Sep and the 44.0 expected. Yesterday’s market gains held up.

Monday, November 28 Market Recap

2011-11-29T08:35:00.001-08:00

MONDAY (DJIA +291) European leaders are looking for creative ways to solve the financial crisis. Now they are looking at treaties to cover budget oversight and fiscal and monetary management, as well as the possibility of cross-country guarantees of debt. This would be easier to implement than seeking constitutional revisions. The market really rallied on the news, helped by blowout Black Friday weekend sales.

Friday, November 25 Market Recap

2011-11-25T10:56:00.001-08:00

FRIDAY (DJIA -26) AT&T withdrew its plan to merge with T-Mobile because of FCC concerns. AT&T may have to pay T-Mobile a $4 billion break-up fee! Italian bond yields rose to 7.8%. Belgian bonds were downgraded to AA from AA+. Black Friday sales appear to be good.

Tuesday, November 22 Market Recap

2011-11-23T12:47:00.001-08:00

TUESDAY (DJIA -54) Q3 GDP’s revised estimate came in at a disappointing 2.0%, the best quarter YTD, but below the 2.5% first reported and expected. Some key European bond yields continued to rise. Midday, a report came out about an IMF backstop facility and the market went positive until it was realized that all was not as it seemed. Shows how jumpy the market is right now.

Monday, November 21 Market Recap

2011-11-22T07:52:00.000-08:00

MONDAY (DJIA -249) The Super Committee failed to come to an agreement on a path to deficit reduction. As a result, we will now have to live through perhaps a year of Congressional wrangling on the issues before an automatic deficit reduction plan goes into effect in Jan 2013. Both S&P and Moody’s said the Super Committee failure would not necessarily affect the US credit rating.

Thursday, November 17 Market Recap

2011-11-17T14:40:00.001-08:00

THURSDAY (DJIA -135) Risk was off today as U.S. stocks fell to their lowest level in a month even in the face of better than expected housing starts for Oct., a gradual decline in jobless claims, and a Philly Fed survey whose results show that we are still in a modest expansion phase in the manufacturing sector, albeit slower.

Wednesday, November 16 Market Recap

2011-11-16T14:29:00.001-08:00

WEDNESDAY (DJIA -190) U.S. markets accelerated to the downside after Fitch warned that contagion to U.S. banks from Europe poses a risk. A bit late with the news as financial stocks have already been hammered this year and the credit market pressures are already reflecting this risk. The Consumer Price Index in October was roughly in line with consensus estimates. Core CPI (excluding food & energy) increased by .1% to 2.1% primarily driven by rent inflation.

Tuesday, November 15 Market Recap

2011-11-15T14:41:00.000-08:00

TUESDAY (DJIA +17) It was a choppy day in the markets as stocks were under pressure early on from rising yields in Spain & Italy after poor debt auctions. But friendly data from U.S. retail sales (+.5% month-over-month), a decline of Oct. Producer Price Index (-.3% month-over-month), and an increase in the Empire index during Nov. helped provide a broad lift. Share volume has been anemic for the past couple of days and has not broken above 800M.

Friday, November 11 Market Recap

2011-11-11T13:37:00.001-08:00

FRIDAY (DJIA +260) What a wild week! We erased the losses for the week and all of the major US indices are now up for the year. Optimism out of Europe helped US markets extend yesterday’s gains. Greece ushered in the new Prime Minister, Italy passed the much needed austerity measures, and there were rumors that the ECB was buying Italian bonds bringing the yields back below the 7% level. Consumer confidence was also better-than-expected for November per the MI Univ. Consumer Confidence report.

Wednesday, November 9 Market Recap

2011-11-09T14:52:00.001-08:00

WEDNESDAY (DJIA -389) Europe’s issues dragged down the major indices; the S&P 500 had its biggest one-day drop since August. Fears of an Italian rescue were on investor’s radars as the yields on the 10 yr. Italian government bond spiked to 7.25%. In Greece, talks fell apart between the country’s two main political parties. If Greece can’t get its house in order, the next installment of emergency loans may not be received to avoid default. The expected volatility of the S&P 500, the VIX, spiked 32% to close at 36.16. Since its inception in 1990, the VIX has closed above 40% only 3% of the time. More than 80% of those occurrences took place after 2008 (Source: GSAM).

Monday, November 7 Market Recap

2011-11-07T14:51:00.001-08:00

MONDAY (DJIA +85) The market averages were in the red for most of the day as European fears continue to drive the day-to-day market movement. Italy’s bond yields continue to climb and the spread of the yields of Italian government bonds vs. German bunds are at levels that are making it difficult to roll-over their debt. Over the weekend, Greece’s two main political parties agreed to share power and thus the next tranche of money to Greece was agreed to be released by European finance officials which helped the major indices stage a late rally.

Friday, November 4 Market Recap

2011-11-07T12:23:00.000-08:00

FRIDAY (DJIA -61) 80K non-farm payrolls were added in Oct, lower than expected, but large upward revisions in prior months pleased markets. The unemployment rate fell to 9.0%. The G20 met in Cannes today, but there were no major announcements. Italy agreed to IMF supervision and Greek politics is settling down.

Thursday, November 3 Market Recap

2011-11-04T09:22:00.000-07:00

11/03/11 THURSDAY (DJIA +208) Mario Draghi surprised markets by cutting ECB interest rates by 0.25% to stimulate their markets. Greece abandoned its plans to hold a referendum on the bailout, though the survival of Papandreou is still in question. Jobless claims were just slightly lower than expected. The ISM services index fell just 0.1 from September to October to 52.9. Productivity was up a very solid 3.1%.

Wednesday, November 2 Market Recap

2011-11-04T09:20:00.000-07:00

11/02/11 WEDNESDAY (DJIA +178) Greece’s Cabinet unanimously approved having a referendum, which actually boosted markets Wednesday after hurting them on Tuesday. The market began thinking this might not be such a wacky idea after all if it serves to get voters firmly behind the austerity plan. ADP estimates private sector hiring in October might have been better than expected. The labor report will be released on Friday.

Tuesday, November 1 Market Recap

2011-11-02T09:32:00.001-07:00

11/01/11 TUESDAY (DJIA - 297) China’s October Purchasing Managers index fell slightly, indicating a soft landing for their economy (good news). Our ISM manufacturing index for October came in at 50.8, just slightly below expectations and the report was better than the number would indicate. The disaster of the day was Greece calling for a referendum on the Euro bailout, which threw markets into a tizzy. MF Global problems didn’t help.

Monday, October 31 Market Recap

2011-11-02T09:29:00.000-07:00

10/31/11 MONDAY (DJIA -276) MF Global, a major Wall St. broker/dealer, filed for bankruptcy after leveraging up 40:1 to make risky bets, that went bad, on sovereign debt. Good riddance! We expected a bumpy ride after last week’s bailout agreement, but didn’t expect the honeymoon to end this quickly. Nevertheless, October ended up 9.5% and was the third best October in the 115 year history of the DJIA.

Wednesday, October 26 Market Recap

2011-10-27T08:34:00.001-07:00

WEDNESDAY (DJIA +162) Durable goods orders fell .8% in Sept (vs. consensus of +1%), but the report was much better than it looked. New home construction was up a shocking 5.7% in Sept (vs. consensus of 1.7%). Consumer confidence is also very, very low at 39.8 compared to 46.4 last month. The market opened up slightly negative and bounced around until a rumor that China was going to contribute to the Euro bailout fund crossed the wires. The market popped 100 pts and held its gains into the close.

Reports coming out of Europe late Wed. indicated that negotiations of the basic elements of the bailout package were very difficult, let alone crafting the details of the agreement. The outcome of these meeting remains very uncertain.

Friday, October 21 Market Recap

2011-10-21T14:20:00.001-07:00

FRIDAY (DJIA +267) Merrill Lynch raised their Q3 GDP estimate from 1.8% to 2.7% on the basis of consistently better than expected economic data recently, but they think it likely that GDP growth slows in 2012. There will be no definitive resolution of the Euro crisis this weekend, as a statement has been put off until Wed. We have to remember that this is a process (but we are making progress). Stocks rose on good earnings reports and a whole lot of hope that this weekend’s meetings turn out well.

UP, DOWN, UP

2011-10-18T08:00:00.000-07:00

During the first 4 months of this year through 4/29/11, the S&P 500 gained +9.1% (total return). From 4/29/11 to 10/03/11 (i.e., approximately the 5 months that ended just 2 weeks ago), the S&P 500 lost 18.6%. But in the last 9 trading days through last Friday (10/14/11), the stock index gained +11.5%. The net YTD result for the S&P 500: down 1.1% as of 10/14/11.

If you were out of the market for the 3 worst trading days of 2011, your YTD gain is +16.5%. If you were out of the market for the 3 best trading days of 2011, your YTD loss falls to 12.7% (source: BTN Research).

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market.

Friday, October 14 Market Recap

2011-10-14T15:11:00.001-07:00

FRIDAY(DJIA +166) Retail sales for Sept. were much better than expected (+1.4% vs. +.7% consensus). That bodes well for Q3 GDP, which is now expected to come in above +2.5%. Economic data is definitely improving after slowing during the summer. Consumer confidence as measured by the Univ. of Michigan fell from 57.5 in Oct. from 59.4 in Sept. Markets meandered all day and once again did not break out. A surge right at the end of the day pushed the DJIA into positive territory for the YTD.

Thursday, October 13 Market Recap

2011-10-14T10:48:00.001-07:00

THURSDAY (DJIA -41) Close to a breakout, but no cigar as the markets closed mixed, but below the ceiling of the trading range. Volume all week has been low. Investors are still very cautious. The VIX (a measure of volatility and risk) is still above 30, but it is declining (a good sign). Google posted a blowout quarter after the close (profit up 26% yoy). GAP is closing 21% of North American stores!

On Munis from Merrill Lynch

2011-10-13T09:27:00.001-07:00

In the last 39 years, only 0.09% of all municipal debt has defaulted within 10 years of its issuance, while 11.06% of corporate debt has defaulted. In other words, if muni debt defaults 100 times more than normal, it will still perform better than the average for corporate credit.

Wednesday, October 12 Market Recap

2011-10-13T09:24:00.001-07:00

WEDNESDAY (DJIA +103) It looked like just maybe we could finally break through the top of the trading range we have been in since 8/8, but the market just couldn’t do it once again, and sold off at the end of the day, falling over 100pts in the last hour. The advance has been on real light volume all week, and that is a sign of little conviction. Investors are just not going to put cash to work until they see a breakout of the trading range and a decrease in the VIX (a measure of volatility).

Monday, October 10 Market Recap

2011-10-10T13:50:00.001-07:00

MONDAY (DJIA +330) Merkel and Sarkozy pledged to come up with a plan by the end of the month to more or less resolve Europe’s debt problems over the long run. There were no details, but speculation is that a recapitalization of banks will be part of the solution and the market jumped to a solid +200pt gain at the open and stayed there most of the day until a rally the last 10 minutes propelled the DJIA to a 330pt gain. But it was Columbus Day and bond markets were closed. We will see what they have to say on Tuesday.

Nevertheless, the market is making another attempt to run to the top of the trading range (11,613 on the DJIA) and perhaps break out. We have been at these levels four other times since August 8th, and every attempt to breakout has failed. With the VIX (a measure of volatility and fear) still over 30 (33 today) it would be pretty surprising for this attempt to succeed.

Wild Ride

2011-10-03T16:23:00.001-07:00

The S&P 500 has experienced a 1-day change of at least 1% on a total return basis (either a gain or a loss) in 27 of the last 44 trading days (i.e., the trading in the 2 months of August and September) or 61% of the days. The stock index had 75 “1% change days” in all of calendar year 2010, i.e., 75 out of 252 total trading days in the year or 30% of the days (source: BTN Research).

Monday, October 3rd Market Recap

2011-10-03T15:04:00.000-07:00

Monday (DOW -258) The DJIA fell today on continued worries about a Greek default and contagion in spite of some good economic news. The ISM manufacturing index was 51.6, better than the consensus expectation of 50.5 and indicating continued expansion in the manufacturing sector. Construction spending increased a much better than expected 1.4% in Sept., and Chrysler sold 27% more cars in Sept 2011 than in Sept. 2010. Q3 GDP growth seems to be tracking modestly above 2%.

The possibility of an American Airlines bankruptcy filing clobbered AMR stock in spite of denials from AMR. AMR is the only major airline to have avoided a bankruptcy to allow for restructuring of pension and employ benefits liabilities, and therefore they have a higher cost structure than others. Investors seem to think it is only a matter of time before it is necessary for AMR to restructure.

History Argues they Bounce

2011-09-29T07:22:00.001-07:00

15: the number of quarters since 1964 in which S&P500 has lost 10% or more (it’s down 12.8% this quarter). In 12 out of the 15 subsequent quarters the S&P500 rallied, with an average return of 10%. (Source: ML Macro: Q4 by the Numbers)

Why Growth is Needed

2011-09-27T08:48:00.000-07:00

An individual living on a fixed income over the 20 years from the end of 1990 to the end of 2010 would have suffered a 39% loss of purchasing power over the 2 decades using the CPI as a gauge of his/her inflation (source: Department of Labor).

Summer Gas Expenditure Savings

2011-09-06T10:20:00.000-07:00

Since every 1 cent decrease in the price of gasoline saves Americans $3.4 million a day, the 16.3 cents a gallon decrease during the 3 summer months of 2011 is equal to a daily gas expenditure decrease of $55.4 million for US consumers as of 9/01/11 when compared to 6/01/11 (source: AAA, Fortune).

Taxable & NonTaxable

2011-08-30T15:12:00.001-07:00

In 2009, Americans filed 140.5 million individual tax returns. 58% of those returns (81.9 million returns) paid 100% of the federal income tax paid by all taxpayers ($866 billion of tax was paid). 42% of those returns (58.6 million returns) legally paid zero federal income tax (source: IRS). Source: ByTheNumber$

Not Normal

2011-08-26T07:55:00.001-07:00

As noted investment strategist Ed Yardeni told clients this week, “…during the first 17 trading days of August, the DJIA has been up during nine days and down during eight days. During the up days, it rose 1647 points, or 183 points per day on average. During the down days, it fell 2614 points, or 327 points per day on average. That’s not normal.”

SMALL BANKS WITH LESS

2011-08-23T08:03:00.001-07:00

As of 3/31/84 (i.e., 27 years ago), federally insured banks in the USA with less than $1 billion in assets represented 97% of all federally insured banks in the country and they held 40% of all the banking assets nationwide. As of 3/31/11, federally insured banks in the USA with less than $1 billion in assets represented 91% of all federally insured banks in the country and they held just 11% of all the banking assets nationwide (source: Federal Deposit Insurance Corporation).

Thursday, August 18 Market Update

2011-08-18T14:55:00.000-07:00

THURSDAY (DJIA -420) Europe was very weak as banks were sold off. We believe that the ban on short selling Euro bank stocks has done just the opposite of what was intended; holders of bank stocks that want to hedge their positions cannot do so by selling short, so they just liquidate their position. We think this selling will be short lived as these positions are unwound quickly. The effects spilled over into U.S. markets.

Also weighing on stock markets was a CPI that was higher than expected (core up 1.8% year over year), though it is expected to peak in Q4 and then start to retreat. Trading was messy today as traders squared up positions ahead of options expiration tomorrow. Initial unemployment claims went up above 400k again, to 408K for the week.

Wednesday, August 17 Market Update

2011-08-17T14:54:00.001-07:00

WEDNESDAY (DJIA +4) It was a very quiet day in the stock market (almost like a normal August day!). The VIX, a measure of stock market volatility (and fear) dropped just slightly to a still elevated 31, so caution remains the theme. Also pointing to a need for caution was that treasuries rose in price as yields fell, gold continued to rise, and defensive sectors of the stock market did best today.

Tuesday, August 16 Market Update

2011-08-16T16:07:00.001-07:00

TUESDAY (DJIA -77) The stock market trimmed early futures losses as industrial production came in at +0.9% for July vs. the +.5% expected – a very good number. Just before the open, Fitch reaffirmed its AAA crediting rating for the US, but said a return to negative watch was likely if the special Congressional committee cannot make progress on deficit reduction by the Thanksgiving deadline.

A weak +.1% Q2 GDP increase in Germany vs. an expectation of +.5% weighed on markets all day. Overall Eurozone Q2 GDP was just +.2% vs. expectations of +.3%. Year over year GDP growth was +2.8% for Germany and +.1.7% for the Eurozone.

They are calling the Sarkozy-Merkel meeting today the non-meeting as the participants are saying that what has been done to shore up the Eurozone credit situation is sufficient to do the job. The market would beg to differ and sold off in order to get its point across. In our opinion, some kind of Eurobond solution is almost inevitable in order to preserve the Euro. The cost of not doing so is just too high.

Monday, August 15 Market Update

2011-08-16T08:11:00.000-07:00

MONDAY (DJIA +214) The Dow is now up three days in a row for the first time in 6 weeks, and erased all of its losses from last week. Positive news was that Japan’s economy contracted -1.3% in Q2 vs. the -2.5% expected, in the aftermath of the tsunami. Merger announcements such as Google buying Motorola Mobility for $12.5B in cash helped also.

It was a fairly quiet day as trading volume was 4.5B shares, just slightly above its YTD 4.3B share average, and only ½ of the volume last Monday. Volatility is continuing to fall, and that is a good sign, but things could heat up a bit on Tuesday as Sarkozy and Merkel are meeting about Euroland problems and Spain’s Q2 GDP numbers will be released.

Of the 460 S&P 500 that have reported Q2 earnings so far, the average gain is +12%. If you were to take out banks, the percentage would be maybe 25% higher. Corporate America is doing well (at least large corporations).

An Encouraging Outlook

2011-08-11T07:53:00.000-07:00

It is easy to get discouraged on days like today. One can start to feel like the market will always go down and the catalyst for an upturn is hard to imagine. Here is a piece by Bob Doll, Chief Equity Strategist at BlackRock.

Economy on Stronger Footing This Year Than 2010

In these kinds of unprecedented times, we need to look at vital signs, particularly versus last year:

Summer 2010 Summer 2011
Money growth Flat Positive
Velocity of money Flat Modestly positive
Job growth Barely positive Somewhat positive
Loan growth Negative Positive

As you can see, overall we have a better scenario than last summer’s downturn. In
addition, to the above improvements this year, we have less pain at the pump, with further price declines to come given the recent decline in crude prices. This should add dollars for consumer discretionary spending. In addition, the supply chain disruptions from Japan have abated and the US consumer’s pace of deleveraging has been slowing, which leaves more money to either save or spend.

What Are the Catalysts for Upside and Downside?
What is the catalyst from here for a further decline or a rise? A continued market decline is likely if fear continues without anything stepping in the way.

An upside move comes:
1) if at the same yield, investors like stocks better than bonds, so they buy some stocks,
2) if we return to a couple of weeks ago when economic statistics were mixed, a sort
of muddle through environment, which is our main line scenario. We think the trend of
the last 10 days, which was more uniformly negative, is not likely to continue.
3) Another catalyst could be the European Central Bank changing direction from its tightening process and announcing that it is willing to expand its balance sheet. While perhaps not a high probability, with more negative days, its stance could change.
4) In addition, China could end tightening and begin to go to neutral or ease monetary policy, which would get a lot of attention.
5) Here in the US, we could see more quantitative easing — a mild sort where the Fed extends accommodation and/or talks about maintaining a full balance sheet wherein they reinvest. A larger action would mean something like QE1 or QE2, though we believe that is unlikely.
6) Most positive, but unfortunately the lowest probability, would be a bipartisan pro-growth policy to promote capital formation and, by extension, employment.
7) Some smaller items with higher probabilities include extension
of the payroll tax cut, extending unemployment benefits or a repatriation holiday.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of August 9, 2011, and may change as subsequent conditions vary. The information
and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily allinclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to
pass. Reliance upon information in this material is at the sole discretion of the reader.

The U.S. Content of “Made in China”

2011-08-08T14:09:00.001-07:00

Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling, and marketing goods carrying the “Made in China” label. Although the fraction is higher when the imported content of goods made in the United States is considered, Chinese imports still make up only a small share of total U.S. consumer spending. This suggests that Chinese inflation will have little direct effect on U.S. consumer prices. (Source: Federal Reserve Bank San Francisco 8/8/11 Economic Letter)

Wednesday, August 3rd Market Recap

2011-08-03T14:24:00.000-07:00

WEDNESDAY (DJIA +30) Oh what a day! It looked as if the S&P 500 was going to close lower for the 8th straight day but it moved off the lows of the morning and managed to finish in positive territory. 7 consecutive lower closes has only been accomplished 6 times in the past 30 years and never having extended past 8 sessions. The U.S. services sector index fell in July to its lowest level since February 2010, but still indicates an expanding economy, while new U.S. factory orders fell in June.

The Debt Ceiling

2011-08-03T07:25:00.000-07:00

On August 2, the President signed a bill to raise the debt ceiling. Key elements of the bill include:

•An immediate increase of the debt ceiling by $400 billion, followed by a second increase later in 2011 of $500 billion, subject to a Congressional vote of disapproval. This total increase of $900 billion is accompanied by about $1 trillion in spending cuts over the next 10 years.

•Formation of a special joint committee of 12 members of Congress, which must provide Congress with recommendations for an additional $1.5 trillion in deficit reduction by November 23, 2011. Those recommendations must be voted on by Congress by December 23, 2011.

•If Congress approves of the deficit-reduction recommendations from the special committee, then the debt ceiling can be increased by at least $1.2 trillion (and as much as $1.5 trillion) at that time, subject to a Congressional vote of disapproval.

•If Congress fails to approve the deficit-reduction recommendations from the special committee, than an increase in the debt ceiling of $1.2 trillion will be paired with $1.2 trillion in across-the-board spending cuts, with the cuts split equally between defense and non-defense programs. Social Security, Medicaid and veterans' benefits would be exempt.

•Both the House and Senate will hold a vote this fall on a constitutional amendment requiring a balanced budget.

Source: Schwab Center for Financial Research 8/2/11

Thursday, July 28 Market Update

2011-07-29T07:39:00.000-07:00

Thursday (DJIA -62) A rally precipitated by better than expected jobless claims evaporated as the stalemate in Washington continued. August 2nd is Tuesday and hopes for a constructive plan to raise the debt ceiling and pass a spending plan by then are fading. The debt ceiling has to be raised, in our opinion. There is no other practical option. But, it may not happen until after August 2nd and, if so, some pain will be felt as a result of the disruption.

Wednesday, July 27 Market Update

2011-07-29T07:38:00.001-07:00

Wednesday (DJIA -199) The stock market continued to drift down as negotiations continue in Washington on raising the debt ceiling and cutting spending. Earnings reports have, on the whole, been better than expected, with strong year over year gains. But, there have been some notable disappointments.

Tuesday, July 26 Market Update

2011-07-27T08:25:00.000-07:00

TUESDAY (DJIA -92) Right now, it does not look like either party has a plan that can win approval. Still no panic, but markets are getting jittery. Our worst case scenario is that the debt ceiling gets raised (they either have to, or need to cancel something like Social Security in its entirety, and that is just not going to happen), but a few days late and after a few payments to Americans are missed. We don’t think any debt payments will be missed (no default). We think there is now at least a 50/50 chance the credit rating will be lowered to AA, but maybe in a few months rather than this month. A downgrade will result in some market dislocations, but probably will not have anything but a short term affect on the stock market and a small rise in interest rates in nearly all credit markets. (If you are an AA borrower, you have to pay higher interest than an AAA borrower). Significant dumping of downgraded securities by investors does not appear necessary, desirable, or, very likely.

Monday, July 25 Market Update

2011-07-27T08:24:00.000-07:00

MONDAY (DJIA -88) Stocks fell as a result of the stalemate in Washington regarding raising the debt ceiling and reducing deficit spending. Negotiations collapsed Friday afternoon. If the problem is not solved soon (we mean this week), the result will be a more-likely-everyday downgrade in the U.S. AAA credit rating, a possible delay in much needed payments to Americans, such as Social Security checks and military payrolls, and maybe even a temporary default on U.S. debt! Markets are not at all showing panic, but investors are getting angry that we even have to go through these unnecessary gyrations.

Friday, July 22 Market Update

2011-07-25T09:05:00.000-07:00

FRIDAY (DJIA -43) Caterpillar’s 5.8% drop on an earnings miss accounted for all of the Dow loss. The Nasdaq and S&P500 closed up on the day. Techs were strong and gold was up $14.50 to $1601. After the market closed it was announced that the talks between House leadership and the White House on the debt reduction/deficit issues collapsed. We hope something can get done over the weekend, but in any event, Monday’s opening could be interesting. We believe the debt ceiling will get raised, but a rating downgrade is still possible.

Thursday, July 21 Market Recap

2011-07-22T08:34:00.000-07:00

THURSDAY (DJIA +153)
The stock market looked to open down as China’s Purchasing Manager’s Index flash reading fell to 48.9, below the 50 reading that marks expansion. But, Merkel and Sarkozy reached an agreement on another rescue plan ($144B) for Greece, and that caused the market to open up strongly. Jobless claims ticked up to 418K from 405K last week, as it is still difficult to get any traction on this front. Existing home sales fell 0.8% in June and the supply of unsold homes was 9.5 months.

There were reports all day that an agreement on the deficit/debt ceiling was near, but no announcement was made. Rumors are that it is $3B in cuts over 10 years, a tax overhaul, and raising the debt ceiling. August 2nd is fast approaching.

Wednesday, July 20 Market Recap

2011-07-21T08:09:00.000-07:00

WEDNESDAY (DJIA -15) The “Gang of Six” deficit reduction plan seems to be gaining traction, and offers light at the end of the tunnel. The stock market responded positively to that news and to very strong earnings reports from Apple and others, in the early morning, but gave back gains as the day wore on.

One thing many investors don’t seem to realize is that a downgrade of U.S. Treasury debt to AA from AAA would result in the automatic downgrade of all state and municipal debt, as well as, the debt of all AAA rated insurers! In addition, many pensions are required to invest significant portions of their assets in AAA rated securities. They would be required to sell those securities, causing a great deal of financial turmoil in both stock and bond markets. The outcome of a downgrade is unpredictable and full of unintended consequences.

Tuesday, July 19 Market Recap

2011-07-21T08:07:00.000-07:00

TUESDAY (DJIA +202) U.S. home construction rose 14.6% in June vs. May, and that news got the stock market off to a good start. The seasonally adjusted rate was 629K units vs. 549K units in May. To put these numbers in perspective, the average since 1975 has been 1.46M starts per year. We have a long way to go!

The BIG news was that there seems to be some real progress on the budget/debt ceiling limit issues. There is a bi-partisan proposal being actively discussed that cuts spending by $3.7T over 10 years and raises the debt limit. Let’s hope! Earnings reports on the day were mostly very good. AAPL announce a blow-out quarter after the close.

Monday, July 18 Market Recap

2011-07-19T09:36:00.000-07:00

MONDAY (DJIA -95) Lack of apparent progress in resolving global sovereign debt issues and the debt ceiling crisis weighed on markets Monday. European bank stress tests that were released late Friday were viewed as not being stringent enough. But, progress is being made, particularly regarding the debt ceiling and budget crisis. Gold reached $1600/oz, reflecting investor concerns. However, the market closed well off its lows.

Interesting Tidbit

2011-07-15T09:51:00.001-07:00

In 1945, foreigners owned just 1% of US Treasuries; today they own a record high 46%.

Source: Merrill Lynch “Global Strategy: The Longest Pictures” 7/14/11

Thursday, July 14 Market Recap

2011-07-14T15:45:00.000-07:00

THURSDAY (DJIA -54) Fed Chairman Bernanke dampened hopes for QE3, but stressed the importance of getting a deal done to raise the debt limit ceiling in comments to the Senate Banking Committee. Moody’s put the credit rating of the U.S. on review for possible downgrade yesterday, highlighting the importance of striking a deal. JP Morgan beat consensus earnings estimates and the bank rallied. Producer prices for June fell .04% from the prior month, retail sales for June were up .1%, and initial jobless claims for the week ended July 9 totaled 405K. None of the reports had any real impact on sentiment this session. Overseas, Italy announced its Senate passed a set of austerity measures, which helped ease contagion fears.

RAISING THE DEBT CEILING

2011-07-13T08:35:00.000-07:00

Goldman Sachs’ “US Daily: Q&A on the Debt Limit”, published on July 6, 2011, framed the debt limit situation very well, explaining why it is important, the various scenarios, and the likely outcomes. We have attempted to summarize the pertinent issues below. Frankly, we at Powers Capital are very encouraged by the ongoing negotiations, as the substantive issues are being discussed. Though there will still be much work to be done in the coming years, no matter the outcome of the current negotiations, we are hopeful that a big step forward in the process will have been taken by August 2nd.

Points of Interest:

• According to the Treasury Department, financing options will be exhausted by August 2nd if Congress does not raise the debt limit. Social Security payments due on August 3rd might still be made by drawing down the Treasury’s cash balance. However, the possibility of default on interest payments is a real threat if the debt ceiling is not raised by August 15th, when the next payments are due. Goldman believes that missing debt payments (a default) is a very unlikely possibility.

• According to Goldman Sachs, three potential scenarios could play out:

1. A deal is reached at the last minute – Ongoing negotiations to reach an agreement of $2.4 trillion in deficit reduction coupled with a $2.4 trillion increase in the debt limit have stalled recently because the White House wants roughly $400 billion in tax increases. In Powers Capital’s opinion, both sides will need to come to the table ready to compromise, if this is going to happen.

2. A short-term extension to September or October is enacted as negotiations continue. President Obama has said he will not agree to such an extension.

3. Borrowing authority lapses on August 2nd, with an agreement reached a few days later. Hopefully, this will not happen, but it is probably the worst case of the 3 potential scenarios, in Powers Capital’s opinion. There would be some short term financial chaos, and it would set a very unwelcome precedent for when we need to raise the debt ceiling in future years.

• Missing other non-interest payments would probably not be considered a default, but S&P has already put the U.S. on negative outlook and the other 2 rating agencies have indicated they will move to a negative outlook if no agreement is reached by August 2nd.

• Goldman Sachs estimates that the eventual agreement will create a drag on 2012 annualized quarterly growth of 0.8%. Powers Capital believes that the final agreement will likely be back-end loaded, with cuts and tax raises a couple of years down the road, so as to not stall the recovery.

Tuesday, July 12 Market Recap

2011-07-12T15:56:00.001-07:00

TUESDAY (DJIA -59) Major indices started off down in the early going, depressed by the euro-zone and debt ceiling situations. Indices recovered for a time on the release of the Federal Open Market Committee minutes, but fell again towards the end of the day after Ireland’s debt rating was cut to junk status by Moody’s. Oil prices finished higher on the back of a weaker dollar. The U.S. trade gap widened more than expected to $50.2B, due to higher oil prices.

CAN THEY TAKE ALL OF IT?

2011-07-12T14:01:00.000-07:00

To rank in the top 2% of all US taxpayers required an adjusted gross income (AGI) level of at least $253,197 for the 2008 tax year (i.e., the last year that tax data is available). This high-income group paid 46% of all federal income tax paid by individual taxpayers in 2008. If every individual taxpayer in this group paid federal income taxes equal to 100% of his/her AGI, an additional $1.633 trillion of federal income tax would have been raised. The Treasury Department estimates a $1.645 trillion budget deficit for fiscal year 2011, i.e., the 12 months ending 9/30/11 (source: Internal Revenue Service, Treasury Department).

Source: By The Number$ 7/11/11 Edition

There are three big advantages Italy has over the rest of peripheral Europe:

2011-07-12T08:06:00.001-07:00

(1) Italy has net foreign debt of only 21% of GDP (compared to 80% to 110% of GDP elsewhere in periphery). What does this mean? It means that even if Italy left the Euro it would not need to default. As net foreign debt would rise but still rise to levels that are relatively low.

(2) Italy has a low loan-to-deposit ratio of 120% (ex retail bonds) and in particular only Eu41bn of funding from the ECB (which amounts to 2.5% of GDP compared to 45% of GDP in Greece). Again this means that if Italy left the Euro, there does not need to be as big a contraction in assets of banks as elsewhere in the periphery.

(3) Most importantly, on IMF data, Italy is running a primary budget surplus of 0.2% of GDP and the IMF claim on a cyclically-adjusted basis this would be 1.7% of GDP. Elsewhere in periphery there are big primary budget deficits.

Source: Credit Suisse “First Edition – U.S. Alert” 7/12/11

Wednesday, July 6 Market Recap

2011-07-06T15:05:00.001-07:00

TUESDAY (DJIA +56) The market chopped around listlessly for most of the day and only slightly responded to a weaker than expected ISM Non-Manufacturing Index reading (53.3 vs. consensus of 54). Financials were weak globally in the wake of yesterday’s downgrade of Portugal’s debt and a report by Moody’s on China’s banks implying loans to local governments were underestimated. Gold outperformed on the day—up 1.13%.

Goldman Sachs posted an encouraging piece on the economy. A summary of it follows:

2011-07-06T10:08:00.000-07:00

After weeks of general gloom on the economic front, a little sun shone through the clouds this week. Better readings on US manufacturing activity and a short-term resolution to the sovereign debt crisis in Greece pushed equity markets—and interest rates—notably higher.
 Recent moves in asset markets and the real economy provide five hopeful, albeit still tentative, signs for second-half growth.
 First, commodity prices have eased. Using a standard seasonal adjustment procedure, retail gasoline prices are back to end-2010 levels (see top chart at right).
 Second, despite the increase in interest rates this week, financial conditions are easier than at any point in 2010. Bank lending standards remain tight, but these too are easing on the margin.
 Third, the decline in house prices may be abating. Although prices are down about 5% on a year-over-year basis, the latest monthly readings suggest more stability, and a pickup in non-distressed home transactions in the late spring and summer months should reduce the downward pressure from distressed sales.
 Fourth, vehicle production has rebounded following large disruptions due to the Japanese earthquake and tsunami (lower chart at right). This probably explains much of the sharp improvement in this week’s Chicago purchasing managers’ index, and perhaps also some of the pickup in the ISM manufacturing index.
 Fifth, labor market indicators seem to have stabilized after some worrying readings in late April and May, although we’ll have to wait until next Friday’s June employment report for a more definitive assessment.
(Source: US Economics Analyst 7/1/2011 Some Hopeful Signs for the Second Half)

Friday, July 1 Market Recap

2011-07-01T21:11:00.000-07:00

FRIDAY (DJIA +168.43) The catalyst for another great day in the stock market was a much better than expected June ISM manufacturing index number (55.3 vs. 52.0 expected and 5.35 in May). Anything over 50 shows manufacturing expansion and June’s number reduces worries about a soft patch.

However, before we get too excited, June purchasing manager index reports around the world showed modest declines in 16 of the 20 reporting countries. The Reuters/University of Michigan Consumer Confidence Index fell to 71.5 from 74.3 in May. It should rise next month if the stock market rally holds.

Thursday, June 30 Market Recap

2011-06-30T14:50:00.000-07:00

THURSDAY (DJIA +153) The S&P 500 closed out the month with a 4% gain so far this week and almost wiped out the Q2 loss (-0.4%). Greece voted today to implement its austerity plan. Data in the U.S. was mixed. The Chicago Purchasing Managers Index rose to 61.1, which was greater than the 54 that had been widely expected. Initial jobless claims for the week ended June 25 totaled 428K, greater than the 420K that was widely expected.

Wednesday, June 29 Market Recap

2011-06-29T15:13:00.001-07:00

WEDNESDAY (DJIA +73) In anticipation of the acceptance by Greece’s parliament of the country’s austerity plan tomorrow, stocks advanced for the 3rd straight day. The euro strengthened vs. the dollar and commodities rallied. Crude oil is back at the level it was trading at prior to the announcement of the release of the Strategic Petroleum Reserve ($95/bbl). The VIX index, the fear gauge, plummeted almost 10% to 17.27, a sign of reduced fear. In a sign that Japan is bouncing back from the March 11 earthquake, their industrial production rose 5.7% month-over-month in May.

Tuesday, June 28 Market Recap

2011-06-29T07:34:00.000-07:00

TUESDAY (DJIA +145) As progress continues on Greece’s austerity vote, the equity markets rallied. Word is that Germany backs France’s proposal to involve the private sector. Consumer confidence fell to 58.5 from 61.7 and labor market expectations deteriorated slightly. The S&P Case Shiller Home Price Index for April reflected a smaller decline year-over-year (-4%) and the first monthly gain in eight months.

Monday, June 27 Market Recap

2011-06-28T07:30:00.000-07:00

MONDAY (DJIA +109) Personal income rose .3% in May (.4% expected), but stocks rallied anyway on optimism about the Greece austerity vote beginning tomorrow, and relief that proposed new international capital requirements for banks were not as onerous as expected. May consumer spending was flat (.1% expected) and April’s real spending was revised down. Economists may slightly lower 2nd quarter GDP growth numbers with these disappointing numbers. Gold fell .3% to $1496.30/oz., its lowest number in over a month.

Led Zeppelin’s “Gallows Pole”

2011-06-24T09:52:00.000-07:00

After recently listening to Led Zeppelin III, I thought the lyrics perfectly described the current Greek crisis.

Hangman, hangman, hold it a little while, think I see my friends coming, riding a many mile. Friends, did you get some silver? Did you get a little gold? What did you bring me, my dear friends, to keep me from the Gallows Pole? What did you bring me to keep me from the Gallows Pole? I couldn't get no silver, I couldn't get no gold, you know that we're too damn poor to keep you from the Gallows Pole.

Thursday, June 23 Market Recap

2011-06-23T15:23:00.000-07:00

THURSDAY (DJIA -60) Negative news early on pushed the Dow down over 200 points. Jobless claims climbed to 429,000, which was greater than the 413,000 that was expected. Both the Eurozone manufacturing and service sector PMIs fell more than expected in June. Markets were able to recover a large portion of the early losses later in the day when news that Greece reached an agreement on austerity measures with the EU and IMF. Oil fell hard and settled at $91.02 on plans by the IEA to release international reserves including a draw of 30M barrels from the U.S. strategic reserve.

Monday, June 20 Market Recap

2011-06-20T14:55:00.001-07:00

MONDAY (DJIA +76) A technical bounce today as the S&P 500 rebounded off its 200-day moving average but on weak volume. In M&A news, PNC Financial agreed to acquire the U.S. retail banking operations of RBC for $3.5B. Crude oil finished up .3% to $93.26/bbl as the U.S. dollar traded in a tight range before the FOMC meeting this week.

Friday, June 17 Market Recap

2011-06-17T14:41:00.000-07:00

FRIDAY (DJIA +43) The Dow was able to post gains on the day on signs that Greece will get more loans. The EU and IMF need to ring-fence the Greece issue soon as spreads for the other peripheral European countries are widening due to concerns of contagion. Tech was weak as Research In Motion provided a weak forecast for the year. This appears to be more of a RIM specific issue rather than a broad industry issue.

Wednesday, June 15 Market Recap

2011-06-15T15:20:00.001-07:00

WEDNESDAY (DJIA -179) Not a good sign as all of yesterday’s gains were completely wiped out and then some on higher than average volume. Rioting in the streets of Greece and poor data out of the U.S. put market participants in a dour mood. May core CPI increased .3%, which was greater than the .1% increase that was expected stoking fears of stagflation (low growth and high inflation). The Empire Manufacturing Survey for June came in at -7.8. Much worse then the expected reading of 10. This is a poor data point ahead of the Philly Fed Index release tomorrow. The VIX Index, the fear gauge, finally jumped above the 20 level and settled near a 3-month high.

Tuesday, June 14 Market Recap

2011-06-14T14:16:00.000-07:00

TUESDAY (DJIA +123) It didn't take much to help the market bounce from short-term oversold levels (90% of stocks sported gains) as retail sales for May did not slip as much as expected. Excluding autos, retail sales actually increased by .3%. Best Buy also helped lend support to the consumer not being dead as they posted an upside earnings surprise. China is trying to engineer a soft landing as they hiked the reserve requirement ratio for banks by another 50 basis points to try to keep inflation at bay (CPI for May increased 5.5%). The 10-yr. Treasury Note yield broke back above the 3% level and finished at 3.10%.

Monday, June 13 Market Recap

2011-06-13T14:43:00.000-07:00

MONDAY (DJIA +1) A disappointing day as stocks were unable to bounce back from short-term oversold levels even with another round of M&A activity taking place. Weakness in tech stocks (which represent the largest sector by market weight) and energy pulled the major indices down after some early morning gains. A Greece default is almost certain according to Standard & Poor’s.

Sustainability of Corporate Operating Margins

2011-06-13T09:22:00.000-07:00

The quick recovery in S&P 500 net margins despite sluggish GDP growth after a severe recession has failed to convince investors in the margin mean reversion camp of a structural shift in S&P 500 net margins. Many investors confuse historical margin cyclicality as evidence of margin mean reversion. Margins are certainly cyclical, they will decline in the next recession, but we believe that the mid-cycle or normal S&P net margin has shifted up. This structural shift has been driven by changes in the S&P's sector/industry mix (more Tech), lower effective tax rates from earning more profits abroad, and less debt usage relative to sales and operating profits. Moreover, margin mean reversion is a conceptually flawed notion. Competitive forces influence returns on replacement capital, not margins. (Source: Merrill Lynch "Weekly Strategy Insights")

Wednesday, May 25 Market Recap

2011-05-25T13:51:00.001-07:00

WEDNESDAY (DJIA +38) A technical bounce today helped the markets rebound. April durable goods orders were weak, particularly with transportation orders. However, after taking in prior month revisions the report was only slightly worse than expected. Housing prices fell again in March but at a slower pace. The U.S. Treasury sold 200M shares yesterday of AIG at $29/sh. leaving the government with a 77% stake. Crude oil topped $100/bbl.

Tuesday, May 24 Market Recap

2011-05-24T15:23:00.001-07:00

TUESDAY (DJIA -25) Momentum continues to slow as the Philly Fed index joined in with the New York Empire index came in quite weak in May. The ISM may have peaked and we may be entering into the late expansion phase of the business cycle. Institutional investors have been rotating to less cyclically sensitive sectors of the markets (i.e.; healthcare, telecom, and utilities). April new home sales surprised to the upside, which improved to an annualized rate of 323K units. Oil bounced on a call by Goldman Sachs for higher Brent Crude oil prices for the next couple of years due to a “demand rationing”.

Friday, May 20 Market Recap

2011-05-20T14:19:00.001-07:00

FRIDAY (DJIA -93) More of the same today as the macro environment continues to drive the markets. The dollar strengthened as Greece was downgraded by Fitch. Notably, the spreads between Spain’s 10 yr. notes and German’s 10 yr. bunds widened back to December levels. Is Spain the next domino to fall? Japan as expected left its benchmark interest rate unchanged at .10%. Retail was weak due to the Gap lowering its full year earnings guidance.

Tuesday, May 17 Market Recap

2011-05-17T14:34:00.000-07:00

TUESDAY (DJIA -69) Housing remains in the doldrums. Housing starts for April declined driven by weakness in the multi-family sector. Industrial production momentum seems to be slowing as production for April was flat. Capacity utilization fell to 76.9% from 77.4% in March. This news, along with Hewlett-Packards disappointing forecast drove the major U.S. averages below their 50 day moving averages. However they gradually worked their way higher as the U.S. dollar weakened but the Dow still finished in the red.

Not Much Corn in Your Cornflakes

2011-05-16T11:49:00.000-07:00

Only 4% of the cost of your humble cornflakes is from actual food. The rest comes from processing, from the costs of the packaging, the gasoline to ship it from Michigan, and advertising fees for TV and magazine promotion. This isn’t just true for cornflakes - the average “food share” of all US foods (including unprocessed fruits and vegetables) is 10%. That is why large movements in commodity prices usually do not impact your grocery bill by as much. (Source: Payden&Rygel Q2 2011 Point of View)

Friday, May 13 Market Recap

2011-05-13T14:14:00.000-07:00

FRIDAY (DJIA -100) Heading into the weekend, investors did not want to be long the market with all that is going on in Europe with Greece & Portugal. Currencies and commodities were volatile again as a flight from risk continues. The U.S. dollar index is up 4% since its lows 2 weeks ago. Economic news was robust as CPI numbers were in-line and consumer sentiment improved according to the MI Consumer Sentiment Index.

Wednesday, May 11 Market Recap

2011-05-12T07:45:00.000-07:00

WEDNESDAY (DJIA -130) Stocks broke down along with commodities after a 3 day rally. A higher than expected March trade deficit slammed the brakes on what looked like was going to be another positive day for the major U.S. averages based on the pre-market futures. Inflation continues to be an issue in China based on their latest CPI read. Oil fell below $100/bbl.