25 November, 2008

Markets find 3rd day in the green. Thrice a trend?

For Wall Street the last month has been a mixed bag somewhere between bearish disaster and depression era sell-off, so when some optimism floats in Traders are left to revel within themselves whether the terms "turnaround" or "dead-cat bounce" are most appropriate.

On the heels of some optimistic news, which the market has used to bid up stocks, the Dow finished in positive territory for the 3rd day. It began with President-elect Barack Obama naming members of his economic team, initially naming New York Federal Reserve head Timithy Geithner as Treasury Secretary. This followed a weekend of talks that led to the $300Billion-plus Government guarantee of Citigroup (C) assets, sending Citi shares up 60% yesterday, finally culiminating in a subdued, yet rebound worthy, day for the markets as a new Fed stimulus plan hit the news-wires.

The Technology-laden Nasdaq was the only major to finish in the red, down about half a percentage point capping its 2 day rally to 11%, while the Dow and S&P extended their gains to 12% and 14% respectively over the 3 day period. So are traders seeing thrice as a trend and these extended government backed plans as a sign of turnaround hope? That's the question of the hour, and if the "bleeds it leads" media is to be believed it could very well be. To be sure the major media outlets aren't producing nearly as many gloomy headlines as in the past, however the news story is still mixed to say the least.

The Associated Press (Link) reported American consumer spending fell to the worse levels in 28 years during October, which was even worse than expected and initially extimated (3.7% spending decline versus an expected of a 3.1% fall). GDP was also worse than economists expected (0.5% drop in GDP versus an expected 0.3% decline), however initial reports of consumer confidence metrics for November were on the rise after all-time lows in October.

This is a significantly better sign to everyday market participants, compared to the non-stop bearish headlines that flew across magazines and newspaper for most of October and early November. Now can this translate into a December Santaesque Rally? While opportunities are certainly there for gains on over-sold stocks, to say this is a Bullish trend yet remains to be seen.

But with Obama capturing headlines for plans, partners and policies on "recovery", the mindset of the everyday consumer/investor will begin to shift from profoundly bearish to slightly bullish, and that's where the opportunity will lie. Notice how there's no more American Auto Industry on the verge of failure headlines just like that?

21 November, 2008

Markets let down by Washington as Lawmakers delay auto bailout for American Carmakers

For the second time a needed bailout that was, wasn't. Yesterday's market session traded higher by mid-day as Traders were looking for US lawmakers to outline a plan to bail out the American automotive industry. Instead they got grand-standing and lecturing from US senators bent on making automotive executives look foolish in the political spectrum.

A $25Billion package for the big 3 American automakers seems like small peanuts compared to the $700Billion package passed to bail out banks and mortgage lenders, however Ford (F), General Motors (GM) and Chrysler were forced to beg hat-in-hand at the feet of Washington's might.

It doesn't take a rocket scientist to see trends that had been developing in America. Big Trucks and SUVs selling furiously taking up all showroom space, and more importantly development time and dollars within American factories. All the while strong smaller Japanese and European models made their imprint within the buying habits of American consumers.

Then oil spiked higher and credit froze. The big 3 were unable to resell virtually any of their gigantic fleet of leased vehicles, mainly because even Americans were not buying Trucks with gas at $4/gallon. This led to substantial write-downs and quarterly losses, and a situation where the companies were burning through cash so quickly they are unable to sustain themselves any further. To complicate matters more, Union contracts that have been crippling the business slowly for years are now coming to the forefront showcasing just how much money is spent on pensions, insurance and benefits for American Autoworkers. Oh and then of course Americans went into full out Recession mode in October and stopped buying cars at all.

Chevrolet's answer to the problems, the Volt, coming in 2011, could be too little too late. Ford is trying to put "hybrid" on just about every model and seemingly can not find the wisdom to bring some of their more successful small European cars into the American market. All the while Toyota (TM) and Honda (HMC) continue to lead in fuel efficient vehicles while Germany's big 3 dominate mind-share in the luxury segment.

So Detroit went to Washington for help and got smacked around by lawmakers trying to look political as markets around them fell further with every word. The United States Auto Industry is broken, everyone knows it, Senators in a special session will not have uncovered the Lost Ark by saying so. The grand-standing under the guise of "protecting the tax-payer" is all well and good but wouldn't those tax payers be more concerned if their retirement packages, employee stock plans and investment accounts were worth half as much as they were last year?

Did these not people learn anything the first time around when the initial banking bailout failed to pass? Senators and Congress made a lot of speeches about concerned citizens calling worried about their tax dollars going to bailout Wall St. Then the market dropped 700 points in the span of a couple of hours and Joe Q. Public started calling not about his taxes but about his retirement account.

Now Lawmakers have every right to ask Detroit for a turn-around plan before they give them any handouts but this type of thing can not be all or nothing. Authorize an influx of $9Billion to keep the companies and all their workers solvent till the end of the year and then reconvene later to authorize another $16Billion contingent upon seeing evidence of new company direction in the face of a changing industry. And like everything political in America, of course the $25Billion in question had already been set aside for the Auto Industry to use for other means.

But Lawmakers did a lot of shouting and finger pointing but little else thus leading the S&P to an almost 50% decline year-to-date. Amonst the trillions in market losses already sustained by economic and recessionary pressures what's another $25Billion if it will instill some hope to the millions of workers employed by the industry, the markets and the US economy in general.

But then again gas prices fell below $2/gallon so maybe Trucks will sell again. Once this pesky recession subsides that is.

Disclosure: Author holds no position in any aforementioned companies

17 November, 2008

Citigroup brings out a bigger Ax

A shell of its former cash-loaded banking self, Citigroup (C) delivered another blow to its workforce today with the announcement of over 50,000 job cuts. The cuts are all part of an effort to reduce costs by 1/5th at the bank, which has seen its shareholders lose 67% of their value year-to-date.

CEO Vikram Pandit told reports of the plans to reduce company headcount to 300,000 in the "near-term". This latest round of cuts come on the heels of a worsening economic climate and an already slashed workforce by 23,000. The company which has struggled to capitalize itself amidst massive write-downs and losses paid only a $0.16/share dividend at the end of October. For comparison, the company paid $0.54/share in 2007 and $0.32/share earlier this year.

On the bright side for Citi, its situation is not unlike most other major banks over the course of the year. If that can even be considered a bright side. The turbulence in the credit markets and the sub-prime mortgage meltdown has left its fair share of well documented casulties. With Citi shares hovering under the $10 barrier Investors are sending a powerful message that something has to be done and soon or they will completely lose faith in the turn-around story Citigroup wants to champion in the years to come. If these drastic cuts are any indiciation, its that Citigroup is doing as much as it can to shore up its books, remain afloat, and capitalized enough to continue doing business well into the future.

Disclosure: Author owns C

13 November, 2008

Wal-Mart Optimistic on Economy as others slash outlooks

The clout and reputation of Wal-Mart (WMT) precedes it even in the most trying consumer and economic times. Not only is WMT the only component of the Dow to be in positive territory for the year it is one of those American bedrock companies that span the nation and its shopping consciousness.

With Wal-Mart reporting an almost 10% rise in year over year profit for the quarter it is becoming crystal clear that even a tight-wallet shopper needs the inexpensive wares provided by his or hers neighbourhood Sam's mega-store. Now not totally economy-proof, Wal-Mart was forced to make some forecasting concessions itself, however nothing in the drastic realm of Electronics retailer Best-Buy (BBY) from just a day ago.

Wal-Mart for the quarter earned $0.80/share ($0.77/share excluding items) compared to analyst expectations of $0.76/share. In the upcoming quarter Wal-Mart forecasts called for profit from $1.03-$1.07 per share, which came slightly below analysts average estimates of $1.11. However CEO Lee Scott's recorded comments of being "optimistic for the holidays" leads Investors to believe that the company banks on its pricing power and essential shopping wares as a way to flatten out the economic downturn.

Of course it is true that people will still have to buy all sorts of things! The positive for Wal-Mart is that it sells just about everything. As Best-Buy's economic comments put a damper on the future of electronic consumer spending, citing a "seismic" downturn of the consumer, no such epic troubles seem ahead for Wal-Mart stores across the country and abroad. Granted in trying times, shoppers on a whole may stall big-ticket item purchases but Wal-Mart's base of essential needs products and cost-effective middle-wares will likely attract shoppers who scale back from more boutique retailers.

While Wal-Mart may seem like one of those boring stocks, in this type of market boring is productive. A dividend yield of about 2% is sombering as other attractive companies being taken down by the stock market sell-off sit at yields in excess of 5-6%. The fact remains that Wal-Mart has been steady all year and will likely continue to be steady in the year to come.

Call it boring all you want, but in the down-turns its the tortoise that continues on less scathed.

Disclosure: Author is long BBY, holds no position in WMT

10 November, 2008

Stock Gains from China Economic Plan evaporate in Afternoon Trade

In this continuing seemingly unprecedented global crisis the next stimulus injection attempt is being carried out by the Chinese. China announced a $586Billion US stimulus package it will use to try to guide that nation through the perils of today and tomorrow's economic pressures. The package, which was designed to boost business and consumer confidence, and hence bolster the economy was seen as a light for Asian markets.

US stocks began the day climbing about 2% at the open, but those gains were short lived as the realities of the harsh conditions facing many of America's most fundamental and historic firms flew across the news wires.

AIG (AIG), which was the recipient of an already large bailout from the Government, got a revamped agreement that bolstered it's rescue package up to $150Billion. This coming on the reports that AIG's quarter swung from $3Billion in profit last year to a $24Billion loss in the current frame. Not to be outdone by the atrocious market conditions and poor financial performance of its peers the now-infamous mortgage house Fannie Mae (FNM) posted a $29Billion loss for its quarter and reported the need to tap into the Government funding that it had earlier received.

Things are just as rosy for the American Automakers, with Ford (F) struggling operationally, posting a quarterly loss of $3Billion and having its financial future in jeopardy. Economic pressures are keeping buyers away from big ticket items, and Ford's formerly successful fleet of gas-guzzling SUVs and Trucks now sit on lots unable to be sold at today's gasoline prices.

If Ford's troubles were the only problems facing GM (GM), management may be able to crack a smile or two, however General Motors is much worse off from an operational standpoint. The company says it may run out of cash by the end of the year and it just had a Deutsche Bank analyst downgrade the stock and set a price target of $0. The analyst projected a path for GM that ended with little option other than bankruptcy. GM stock fell to its lowest levels in over 60 years after getting trimmed by nearly 30%.

The American consumer is facing tremendous pressure and these type of headlines flying through the business pages just add to the hurt. With unemployment in the US at its highest in 14 years and the election behind the Country a new direction is needed, and needed quickly in order to restore some confidence and needed stability to the markets.

Disclosure: Author holds no position in the above mentioned companies.

04 November, 2008

Stocks Gain Early on Election Day

The moment of truth is here for Americans, as all over the nation blues and reds visit their polling stations to cast their ballot for the next 4 years of policy, control and decision making. While Democratica Senator Barack Obama continues to show a wide lead in National polls (almost 10 percentage points), Republican Senator John McCain is not giving up the fight just yet.

Stocks rallied this morning in anticipation of the election and what is represents as the closure of a long, stressful and attack-filled campaign. The richest political campaign in US history featured a little bit of everything including Senator Obama's half an hour television infomercial. Although the Republicans by all accounts have been badly outspent in this election they continue to move valiantly from city to city in battleground states in hopes of achieving a possible electorate number necessary for another 4 years in office.

Stocks gained ground on results from Mastercard (MA) as the world's second largest credit card company turned in an analyst-besting $2.37/share exclusing items, vs. the $2.25/share estimate. On the top line Revenue was $1.3Billion vs. the estimated $1.27Billion. Although seemingly every company reporting has a murky view of 2009, Investors are getting wise to the game and realizing that the kind of growth previously expected is just not viable in a down-trend given today's economic outlook. Mastercard was no different offering 2009 growth below their previous projections but by keeping expenses flat and under control MA was able to put a positive spin on next year. The stock rose nearly 11% in early trading.

What America needs and what the Stock Market needs is a decisive Presential victory so as to have the ability to set forth and push an agenda of economic and fiscal policy that will see growth return to the biggest market on the world stage. Judging by the National and State-wide polls, the electoral map and the market's advance, I would wager that the market will get its wish.

For investors, that wish needs to translate into a clear vision of recovery.

Disclosure: Author holds no position in MA