VRTrader Update
Started by
TTHQ Staff
, Jan 11 2010 07:47 AM
No replies to this topic
#1
TTHQ Staff
-
- Admin
- 8,597 posts
www.TTHQ.com
Posted 11 January 2010 - 07:47 AM
TheVRTrader.com VR Silver Newsletter - Monday 1/11/2010
"Tools for the High Performance Trader"
Copyright ©2010, All rights reserved.
Redistribution in any form is strictly prohibited.
"Tools for the High Performance Trader"
Copyright ©2010, All rights reserved.
Redistribution in any form is strictly prohibited.
LEIBOVIT FILES | by MarkLeibovit
Leibovit Files
Monday, January 11, 2010
Market Up Fives As January Barometer Flashes Positive
The World Outlook Conference 2010
at the Sheraton Wall Centre in Vancouver, B.C., January 22-23, 2010.Don't miss it
http://www.worldoutlookconference.com/
---------------------------------------------
UPCOMING ECONOMIC RELEASES/MARKET EVENTS
JANUARY 11 - 15, 2010:
---------------------------------------------
MONDAY, January 11, 2010:
4-Week Bill Announcement
11:00 AM ET
3-Month Bill Auction
11:30 AM ET
6-Month Bill Auction
11:30 AM ET
Atlanta Federal Reserve Bank President Dennis Lockhart speech on theeconomy to the Rotary Club of Atlanta.
12:40 PM ET
10-Yr TIPS Auction
1:00 PM ET
---------------------------------------------
TUESDAY, January 12, 2010:
Turnaround Tuesday
ICSC-Goldman Store Sales
7:45 AM ET
International Trade
8:30 AM ET
Redbook
8:55 AM ET
4-Week Bill Auction
11:30 AM ET
52-Week Bill Auction
11:30 AM ET
3-Yr Note Auction
1:00 PM ET
Philadelphia Federal Reserve Bank President Charles Plosser speechon the economic outlook to the Entrepreneurs Forum of GreaterPhiladelphia
7:00 PM ET
---------------------------------------------
WEDNESDAY, January 13, 2010:
Bank Reserve Settlement
MBA Purchase Applications
7:00 AM ET
EIA Petroleum Status Report
10:30 AM ET
10-Yr Note Auction
1:00 PM ET
Beige Book
2:00 PM ET
Treasury Budget
2:00 PM ET
---------------------------------------------
THURSDAY, January 14, 2010:
Retail Sales
8:30 AM ET
Jobless Claims
8:30 AM ET
Import and Export Prices
8:30 AM ET
RBC CASH Index
9:00 AM ET
Business Inventories
10:00 AM ET
EIA Natural Gas Report
10:30 AM ET
3-Month Bill Announcement
11:00 AM ET
6-Month Bill Announcement
11:00 AM ET
30-Yr Bond Auction
1:00 PM ET
Fed Balance Sheet
4:30 PM ET
Money Supply
4:30 PM ET
---------------------------------------------
FRIDAY, January 15, 2010:
Options Expiration
Consumer Price Index
8:30 AM ET
Empire State Mfg Survey
8:30 AM ET
Industrial Production
9:15 AM ET
Consumer Sentiment
9:55 AM ET
---------------------------------------------
STOCKS - ACTION alert -
A late day rally pushed the market into positive territory butsector action reveals a very schizophrenic market. For the session theDow was up 11.33 at 10618.19, the S&P 500 was up 3.29 at 1144.98,and the Nasdaq Composite was up 17.12 at 2317.17. Volume decreased fromThursday and breadth was positive.
Friday was the fifth trading day of the year and it was positiveregistering bullishly under Yale Hirsch's "Early Warning System"indicator for the market at large. As I said Friday, however, we couldnow see a bit of a retracement here as we enter the fifth or sixth dayof trading.
The important Nasdaq 100 and the Dow Transportation Average failedto push to new highs on Friday. A little worrisome for traders?
Overall, unless we begin to see some pretty heavy downside volume, I amnot running for the hills. I still have the gnawing feeling that wecould see some type of retracement into March, but that's a long wayoff. Even so, I also feel we're coming out of it back to the upside.The Dow Industrials at 11,500 and the S&P 500 at 1275 are notunreasonable intermediate upside targets. If we can get through thoselevels, it may be a whole new ballgame to the upside, but let's crossthat bridge when we get to it. Recall, we have the Plunge ProtectionTeam, the banks, the financial press, and various government agenciesare all in cahoots supporting the markets - probably in the name ofnational security. It's better to tell a lie and massage the numbersand drive stocks higher I suppose than to have blood in the streets.Unfortunately, we may be delaying the inevitable come 2011-2013. In themeantime, however, it is premature to get bearish. If things change, Iwill let you kn ow.
The big story is not the stock market, it is the commoditiesmarkets. Precious metals, base metals, industrial metals, rare earthmetals, crude oil and agricultural plays is truly where the action liesin the months and years ahead. The striking gains in Palladium,Platinum and Copper in recent sessions cannot be ignored!
Check comments below for PAL in the Gold section.
Equities opened weaker following the release of the December jobsreport. Buyers soon stepped in, however, and the leadership of techstocks became apparent. The Nasdaq 100 gained 0.85% on the day,followed by the Nasdaq Composite (+0.74%), mid caps (+0.58%), and smallcaps (+0.40%). All the major indexes hit new recovery highs on Friday.
Friday was a very bipolar day in the market. The commodity sectors(XLB +1.39% and XLE +0.65%) rallied with both of them hitting newrecovery highs. Likewise, Industrials (XLI +1.60%) had a great day andalso hit a new recovery high. In contrast, the four-day rally inFinancials (XLF -0.59%) is over after Citigroup analysts reducedfourth-quarter profit estimates on Goldman Sachs, JPMorgan Chase andMorgan Stanley, citing a "substantial decline" in trading.Nevertheless, XLF still managed to gain 5.69% for the week.Additionally, the defensive Consumer Staples (XLP -0.34%) and Utilities(XLU -0.10%) also underperformed.
Steel stocks (SLX +2.58%) continued their torrid run as traderscontinue to price in further economic recovery. The Dow Transportsbenefited from raised earnings guidance from UPS as they gained 2.09%as a group.
The dollar bounced around Friday but ultimately settled weaker onthe day which aided industrials (XLI +1.60%), gold miners (GDX +1.51%),silver (SLV +1.45%), and to a lesser extent, GLD (+0.50%).
Homebuilders (XHB +0.43%) tacked on more gains after Thursday'spowerful advance. Energy (XLE +0.66%) also saw solid buying support.
For the first full trading week of 2009, the Dow gained 1.82%, theS&P 500 gained 2.68%, the Nasdaq Composite gained 2.12%, mid capsgained 3.50%, and small caps gained 3.07%. Not a bad start for the newyear.
--------------------------------------------
DOW TRANSPORTS - ACTION alert -
Raised guidance from UPS helped the Transports surge to a newrecovery high. The Dow Jones Transportation Average jumped 86.51 or2.09% to 4222.26, its highest level since October 2008.
UPS on Friday raised its fourth-quarter earnings forecast to a rangeof 73 cents to 75 cents a share from its prior estimate of 58 cents to65 cents a share, citing "better-than-expected results in both domesticand international operations and savings through cost management." Onaverage, analysts were expecting a profit of 64 cents a share. Thepackage-delivery firm also announced plans to cut about 1,800management and administrative positions across the country. Kurt Kuehn,UPS's chief financial officer, said the company sees "a gradualeconomic recovery with improvement more evident as 2010 progresses."UPS gained 4.81%.
Southwest Airlines said December demand rose 3% while it rolled backits capacity by 5.8%, when compared with year-ago levels. Load factorincreased to 76.2% from 69.7%, the Dallas-based carrier said. LUV fell2.24%.
---------------------------------------------
GOLD and METALS - ACTION alert -
Precious metals rallied Friday afternoon as the Dollar lost ground.Gold was up 7.50 to 1137.60. Silver was up 0.23 to 18.48. Platinum wasup 22 to 1577 and hit a new recovery high of 1585 this afternoon.Palladium was up 1 to 426.
Industrials metals did not fare as well with copper down 0.0265 to3.4005.
From the VR Gold Letter (www.vrgoldletter.com):
I recommended PAL on The Nightly Business Report Friday eveningSeptember 25 when it was trading at 2.68. The recent high of 4.20 wasposted on January 7. Looking at physical Palladium - it traded at a newrecovery high of 438 on January 7 up from its 162 bear market low(October 16, 2008). Back in March 7, 2008, Palladium traded as high as595. Back to PAL, we're looking at a stock that traded as high as 12.84back on March 31, 2006 and as low as 1.03 on March 12, 2009. My targetof 5.00 to 6.00 doesn't appear so far-fetched? An automobile boom isunderway in India and China with the production of new super low costvehicles. This should help both Platinum and Palladium as they are keyingredients in the catalytic converter. NAP is a precious metalscompany that owns the Lac Des Iles mine and the Sleeping Giant goldmine located in the Abitibi region of Quebec. Please visit www.nap.comfor more information.
The VR Gold Letter is available to Platinum subscribers for only anadditional $50 per month and to Silver subscribers for only $70 permonth. Email me at mark.vrtrader@gmail.com to sign up today!
---------------------------------------------
BONDS - ACTION alert -
Treasuries rose slightly on Friday after the weak employment reportand a Fed hawk said he was not worried about inflation. The long bondfuture gained 6/32 to 115 15/32.
There is "minimal" risk at the moment of inflation edging upward,said Jeffrey Lacker, the president of the Richmond Federal Reserve Bankon Friday. Lacker's comments are important as he is known as one of themore strident "hawks" on the central bank. Hawks are generallyperceived to be more worried about inflation relative to otherofficials at the Fed. Lacker said that inflation expectations haveremained fairly stable last year. "This has had an anchoring effect oncore inflation, which averaged 1.5% last year. In my view that's a verygood performance, and I hope it continues," Lacker said.
The 30-year bond rate hit a high of 4.761% Friday morning, itshighest level since June, before finishing virtually unchanged. Shortterm rates though hover around zero.
---------------------------------------------
CRUDE OIL - ACTION alert -
Oil moved down Friday morning after a weaker than expectedemployment report and worries about monetary tightening in China andits effect on commodity demand, but reversed losses in the afternoon asthe Dollar fell and finished with a small gain. Crude oil rose 0.09 to82.75.
Crude Oil touched a new recovery high on Wednesday at 83.52 onincreasing volume culminating a nine-day consecutive advance. Followinga retracement, I would look at Crude for a possible run into the high80s.
Natural gas settled down 0.057 at 5.749.
---------------------------------------------
US DOLLAR - ACTION alert -
The US Dollar Index fell Friday afternoon as closer scrutinyrevealed that the employment situation is still bleak. Even though theunemployment rate has held steady, employment was down more thanexpected last month and the participation rate (percentage of peoplewho can work that are) continues to fall. The US Dollar Index was down0.419 to 77.494.
The U.S. Dollar is terminal. This is all you need to know. So far,we've seen the US Dollar Index double-top at the 78.00 level. Bulls areeverywhere. Expectations are high the US Dollar will trade into the80s. Frankly, I don't see it. I see bear market rally that failed. UUP,the ETF for the U.S Dollar posted a Negative Volume Reversal ™ onFriday, so the burden of proof is clearl on the bulls here.
---------------------------------------------
URANIUM - ACTION alert
Ux U3O8 Prices* (Uranium)
January 4, 2010 Posting
Spot: $44.50 UNCHANGED. Bull market high in the cash market was$138.00.
The February Uranium Futures closed at $44.50. The current bearmarket low is $42.00. June 13, 2007 hosted the bull market high of154.95. Major support lies well under the market at $36.00.
The spot price of uranium quadrupled from 2004 to 2007. When it hit$138/lb, uranium became a certified bubble, which has now burst. Forinvestors, this is the best possible news, of course. Nuclear power isthe ultimate alternative fuel, as the French will tell you. You get allthe power, 84% cheaper than coal, with none of the politics of roguenations and none of the greenhouse emissions.
---------------------------------------------
ECONOMIC NEWS:
U.S. job losses resumed in December after revisions showed payrollsrose in November for the first time in nearly two years, the LaborDepartment estimated Friday. Nonfarm payrolls fell by a seasonallyadjusted 85,000 in December following a revised 4,000 gain in November.During 2009, payrolls fell by 4.2 million. The official unemploymentrate remained at 10% in December. Fewer industries were hiring inDecember than in October, and the number of discouraged workers rose by287,000 to 929,000. The employment-participation rate fell to 64.6%from 64.9% as the labor force fell by 661,000. Total hours worked inthe economy were unchanged. The average workweek was unchanged at 33.2hours. An alternative gauge of unemployment, which includes discouragedworkers and those forced to work part-time, rose to 17.3% from 17.2%.The report was generally weaker than expected by economists, who werelooking for 15,000 more jobs and an increase in the unemployment rateto 10.1%. Average h ourly earnings rose 3 cents or 0.2%, to $18.80.Average hourly earnings are up 2.2% in the past year, similar to therise in consumer price inflation.
The recovery in the labor market is likely to be slow coming out ofthe recession, said Eric Rosengren, the president of the Boston FederalReserve Bank on Friday. Rosengren said that experience shows thateconomies that experience significant banking problems have been slowto recovery "and that is likely to be true this time in the U.S."Consumers are likely to remain cautious, he said. In this weakenvironment, there is little risk of inflation pressure, Rosengrensaid. This gives the Fed room to keep interest rates low. "In my view,this should allow for accommodative monetary policy to continue tosupport the economy until the underlying demand of consumers andbusinesses becomes self sustaining," Rosengren said.
Unemployment in the 16-nation euro zone reached 10% in November, thehighest level in 11 years. According to data from Eurostat,unemployment rose to 10% from 9.9% in October. Economists had forecastNovember unemployment of 9.9%. The pace of the rise in unemployment at102,000, however, is well off the pace of around 500,000 seen at theheight of the recession. Over 15.7 million people were unemployed, andin the broader 27-nation European Union, there were 22.9 million peopleunemployed. Unemployment was a staggering 19.4% in Spain, which hasbeen reeling from the burst of a house price bubble. Irish unemploymentwas 12.9%, French unemployment was 10%, Italian unemployment was 8.3%while German unemployment was 7.6%.
Inventories held by wholesalers posted an unexpectedly strong gainin November while sales shot up by the largest amount in 10 months, twosigns that the economic recovery was gaining traction in the fall. TheCommerce Department said Friday that wholesale inventories rose 1.5percent in November, a much stronger showing than the 0.2 percent dropthat economists had expected. Sales jumped 3.3 percent, far better thanthe 0.9 percent rise that had been forecast. It marked the eighthconsecutive month that sales at the wholesale level have increased andwas the largest gain since last January.
China overtook the United States as the biggest auto market in 2009and automakers should see more strong growth this year, an industrygroup reported Friday. Boosted by Beijing's stimulus, 2009 passengercar sales soared to 10.3 million and total vehicle sales are estimatedat 13.6 million, the China Passenger Car Association said. Thatrepresents growth of about 45 percent from 2008. By contrast, U.S.sales of cars and light trucks plunged 21 percent in 2009 to 10.4million as a shaky economy kept buyers away from showrooms. It was thefirst time any country bought more cars than Americans.
CORPORATE NEWS:
Citigroup analyst Keith Horowitz cut his earnings estimates for someof the nation's largest banks, citing a slowdown in FICC --fixed-income, currency and commodities trading. "Our analysis points toa substantial decline in FICC trading in the fourth quarter of 2009,and then we are looking for industry fixed income trading to fall15%-20% in 2010," Horowitz wrote in a note. "We expect 2011 revenues toalso be under pressure due to the impact of regulatory reform, which wesee negatively impacting FICC revenue growth by 5%-10% in 2011," hetold clients. As a result, he trimmed estimates for Goldman Sachs (GS-1.9%), J.P. Morgan Chase (JPM -0.3%), Morgan Stanley (MS -2.0%), andBank of America (BAC -0.9%).
No. 1 U.S. electronics chain Best Buy said Friday that its Decembercomparable-store sales rose 8.2%, including a 9.3% increase in the U.S.Analysts had increased their estimates for the U.S. division be anaverage of about 7.9%, said Pali Capital analyst Stacey Widlitz. Totalsales in the month ended Jan. 2 rose 13% to $8.5 billion. Best Buy saidit's maintaining its annual sales and per-share profit forecast rangesbased on the December results. The company measures same-store sales asrevenue at stores, call centers and Web sites operating for at least 14months. BBY fell 3.9%.
J.P. Morgan downgraded shares of Coca-Cola to neutral fromoverweight on Friday because of weaker volume growth in developedmarkets, due most likely to higher unemployment, which led to lowerproduct prices. "Coke is trading at an 18% premium to the beveragegroup," the financial firm said in a note to investors. "We feel thispremium is warranted, but unlikely to expand from here." KO dropped1.9%.
Macquarie Equities Research downgraded shares of Boeing to neutralfrom hold on Friday, saying the stock's value has gotten ahead ofitself and now trades at a 13% premium relative to its peers. The stockis up some 20% in the last three months. "Although continuedimprovement in airline operating metrics has probably driven the moveover the past week, Boeing's 4Q09 earnings in a couple of weeks couldlend a dose of reality," the research firm said. "We think it unlikelythat 2010 guidance will provide much upside to current consensusestimates, with cashflow particularly challenged, and only cautiousoptimism about the current demand environment for new aircraft."Macquarie raised its price target to $66 from $60. BA lost 1.0%.
Apollo Group said profit jumped past expectations but said itreceived a Department of Education report regarding concerns about itshandling of federal funding. The operator of University of Phoenixschools said its fiscal first-quarter profit rose 33% to $240.1million, or $1.54 a share, in the year-ago period. Excluding one-timeitems, the for-profit education company would have reported earnings of$1.47 a share for the latest quarter. Revenue rose to $1.27 billion.Analysts were expecting a profit of $1.45 a share on revenue of $1.22billion. Also late Thursday, Apollo said it had received a preliminaryreport, containing six findings and one concern, from the Department ofEducation on its review of policies and procedures involving Title IVprograms. As a result of the findings, Apollo anticipates a liabilityof about $1.5 million. APOL declined 5.4%.
Needham & Co. upgraded Applied Materials to a buy rating Friday,citing a "strong cycle recovery" while cautioning that sales growthcould eventually slow in the second half of the year. In upgrading thecompany's rating from hold, Needham analyst Edwin Mok said the broadersemiconductor-equipment sector is "experiencing a strong cyclerecovery, driven by increased end demand and tight capacities." But Mokalso cautioned in a research note that the sector's momentum may slowdown later in the year. AMAT jumped 3.9%.
Steel makers are gaining on the triple prospect of price hikes, apotential uptick in global demand and relative scarcity following aperiod of production cuts. Some of the movement is being driven by aplan by China's Baosteel to increase prices for the third consecutivemonth, along with hikes by domestic firms as well. American steel firmswere also buoyed by a note from J.P. Morgan's Michael Gambardella, whoraised his profit estimates and price targets on the big three. AKSgained 9.3%, X rallied 7.3%, and MT was up 1.9%.
---------------------------------------------
The Annual Forecast Model (VR Forecaster Report) is now posted at thewebsite - so sign up today! Remember, there is no price too high forgood information! Don't make the mistake of not subscribing. Lastyear's AFM warned in January we were entering a multi-month bearmarket! Gold-bug? Check on the AFM for Gold!
https://www.vrtrader.com/subscribe/index.asp
---------------------------------------------
TIMER DIGEST signals for Stocks, Gold and Bonds are available toPlatinum subscribers on the Home Page.
TIMER DIGEST has named Mark Leibovit of VRTrader.com 'TIMER OF THEYEAR' for 2006 and was named the #2 Timer for 2007.
More kudos - Mark Leibovit was named the #1 Intermediate MarketTimer for the 10 year period ending in 2007; the #1 Intermediate MarketTimer for the 3 year period ending in 2007; the #1 Intermediate MarketTimer for the 8 year period ending in 2007; and the #8 IntermediateMarket Timer for the 5 year period ending in 2007. NO OTHER ANALYSTSURVEYED APPEARED IN ALL FOUR CATEGORIES FOR INTERMEDIATE MARKET TIMINGAS PUBLISHED IN TIMER DIGEST JANUARY 28, 2008!
Mark Leibovit was also named the #1 Gold Timer for the one-yearperiod ending March 25, 2008. Most recently, from: 12/26/08 to:03/27/2009, he is ranked in the #5 position for 3 month return.
Current TIMER DIGEST signals for stocks:
'Buy' signal March 4, 2009.
'Sell' signal May 27, 2009.
'Buy' signal July 21, 2009.
'Sell' signal September 2, 2009.
'Buy' signal September 3, 2009.
'Sell' signal October 15, 2009.
'Buy' signal November 13, 2009.
'Sell' signal November 30, 2009.
'Buy' signal December 1, 2009.
Current TIMER DIGEST signals for Gold:
'Sell' signal November 30, 2009.
'Buy' signal December 1, 2009.
Mark Leibovit is currently ranked the #2 Market Timer for the 3month period ending October 23, 2009.
---------------------------------------------
DAILY VR LIST:
Editors note: The Daily VR List here is abbreviated with the fulllist only available to Platinum subscribers by clicking on 'Current VRList' on the Home Page of VRtrader.com. Canadian shares are listed atthe bottom of each section with the title: 'XXX CANADIAN STOCKS XXX'.
Silver subscribers who find this useful should upgrade to Platinumwhere you can pull down VR charts for many securities and watch thepatterns unfold for yourself. There is no technical service on theplanet that posts Positive and Negative VR! Why? Because they areproprietary to VRtrader.com!
How do you use this list? VRs are buy and sell triggers and areparticularly useful in defining lows or highs in stocks and stockindexes. Traders find them particularly useful, especially coming offmarket extremes as an indication of a change of direction. Use the VRsin conjunction with your other technical indicators and you've added aunique technical tool to your arsenal.
What is a Volume Reversal ™? There are several proprietarysubtleties to the Volume Reversal ™ algorithm, but essentially aVolume Reversal ™ is a change from a Rally day to a Reaction dayaccompanied by a increase of volume or a change from a Reaction day toRally day accompanied by an increase in volume. Volume Reversals ™coming off intermediate lows or highs have greater significance inhelping to define those lows or highs and important pivot points in themarketplace. The Volume Reversals ™ presented here provide you witha unique research tool that may have trading (short-term) significance,but it also may have 'trend changing' (intermediate) significance aswell. The sector Volume Reversals ™ show where big money is possiblyaffecting an entire group of stocks. The stocks listed under the grouphave posted Volume Reversals ™ along with the group as a whole. Theindividual stocks listed have posted Volume Reversals ™ on their ownand are valid plays as well.
To see a visual representation of Volume Reversals ™, please go ourCurrent Portfolio section and click on any recommended stock. Or, ifyou would like to get a VR Chart for a specific symbol, please clickhere. Please note that not all symbols may be currently available:
http://www.vrtrader.com/vr_platinum/GetVRChart.asp
---------------------------------------------
---------------------------------------------
As goes January, so goes the rest of the year?
In the November 2008 update of their paper entitled "The IllusionaryMarket Timing Ability of the Other January Effect", Ben Marshall andNuttawat Visaltanachoti examine the ability of January returns topredict February-December returns and support a market timing strategyin the U.S. and other equity markets. They consider multiple robustnesstests to determine the statistical and economic significance of thisJanuary Barometer based on both equally weighted and value weightedreturns. Using U.S. stock return data spanning 1925-2007 (focusing on1940-2007) and stock return data for 18 other countries and the worldspanning 1970-2007, they conclude that:
On average, February-December U.S. stock market returns aresignificantly higher following positive Januaries than negativeJanuaries.
However, the difference between average February-December returnsfollowing up and down Januaries is statistically significant in onlyfour of 18 other countries.
Furthermore, a simple trading strategy based solely on the JanuaryBarometer underperforms a buy-and-hold strategy for U.S. equityindexes, international equity indexes and portfolios of stocks ofdifferent sizes (see the second chart below).
The January Barometer underperformance derives from: (1) the largeopportunity cost of missing abnormally high January returns whileawaiting January barometer readings; and, (2) the poor performance ofthe January barometer as a signal to short the market duringFebruary-December. The January Barometer has no predictive power whenapplied to individual stocks.
In summary, evidence indicates that an up/down January is predictiveof February-December outperformance/underperformance for the broad U.S.stock market (but not for most other equity markets). However, it maynot support an effective market timing strategy as a standalone signal.
---------------------------------------------
2010 Forecast: The Year of Uncertainty
by John Mauldin
Those who are invested in the idea of a "V"-shaped recovery becameexcited over the jobs report last month. Unemployment rose by only11,000 jobs, if you did not look at the underlying numbers or ignoredthe household survey. And the consumer confidence surveys have begun torise. The Index of Leading Economic Indicators has now risen for sixmonths in a row. Productivity is up. And surveys indicate that consumerspending is up. GDP growth in the fourth quarter looks to be in the3%-plus range.
All reasons to be bullish, if you are looking for a reason to bebullish. If you don't examine the underlying data, you can feel good.The problem is that when we look deeper into the data than just theheadlines, there are concerns.
For instance, take the contention that consumer spending is rising.I called Philippa Dunne at The Liscio Report. They survey the variousstates about taxes, among other things. "Sales taxes are not up and thecurrent survey we are doing is pretty bad." She used the word"horrified" when commenting on some of the respondees' replies at thevarious state tax offices. Further, today we find that credit cardlending dropped $17 billion last month, the largest drop in history.And this was during Christmas!
Savings are up. Credit is down. Where did the rise in consumerspending come from? Remember, these are mostly surveys and/orcomparisons with a disastrous 2008. And they compare same-store salesfor chains like Best Buy, which no longer competes with the bankruptCircuit City, or for chains that closed stores, forcing buyers to theremaining stores. The key to watch is sales taxes. When they arerising, consumer spending is rising.
Consumer confidence is rising, but from truly awful levels. Thelevels are still well below any level in previous recessions andcertainly do not indicate a robust economic rebound.
A challenged consumer confidence survey is not surprising, given thefact that roughly 8% of the working population is getting some form ofunemployment assisance. One in eight children in this country is livingon food stamps. By the way, the total number of people on unemploymentis about 300,000 worse than most media accounts report. The Extended(and Emergency) unemployment claims for those out of work more than 26weeks are not seasonally adjusted. To get the total number of people onunemployment insurance of all kinds, you have to add the non-seasonallyadjusted number of continuing claims, which is currently about 300,000higher than the seasonal adjustment. So, how is it that we see a risein the statistics?
First, year-over-year comparisons are looking better, since 2008 washorrific. Second, inventory levels are about as low as they will go. Inthe way GDP is figured, a reduction in inventory reduces GDP. That wasa negative figure for most of this recession. Simply becauseinventories not falling any more, it is easier to get a positive GDP.
Second, there are one-time benefits for GDP from the federalstimulus. Roughly 90% of the 2.2% growth in GDP in the third quarterwas attributable to the stimulus, and we will see a similar affect inthe 4th-quarter numbers and at least through the first half of nextyear.
A reduction in imports is also a positive for GDP. Ee are buyingless "stuff" from abroad, so that helps statistically.
Martin Feldstein, one of the great economists of our time, wasquoted last week as saying that the recession is not over. Indeed, ityou look at past recessions, it is not all that unusual (8 out of 11times) for there to be positive GDP quarters in the midst of an ongoingrecession.
So this is the backdrop as we look into the future. Unemployment isrising and is likely to remain stubbornly high (over 10%) for sometime, except for the few months this coming summer when the LaborDepartment will hire hundreds of thousands of temporary census workers.The savings rate is rising, and consumer spending is at the very leastchallenged. The stimulus starts to drop sharply in the latter half ofthe year. States, counties, and cities are short about $260 billion andwill either have to cut services (and thus jobs) or increase taxes.Housing is likely to get weaker, as there are large numbers of defaultscoming because of mortgage-rate resets this year and next (more on thatin a few weeks). Valuations on stocks are in the high range, and do notportend well for long-term returns.
Further - and this is the most important item to me - Congress islikely to allow the Bush tax cuts to expire and to add insult to injurywith some form of large tax increase for heath care. Between the local,state, and federal tax increases, we could see a massive increase intaxes of perhaps $500 billion in a $13-trillion economy, or about 4% ofGDP.
Think about that for a moment. It is likely we will begin 2011 withclose to 10% unemployment, if not higher. My contention is that if sucha tax increase is enacted all at once, the economy will at a minimumdip back into a nasty recession. If I am wrong, then I will have toabandon one of my long-cherished beliefs. I will have to stop arguingthat tax cuts are as important as I think. Right now, when I read thedata and studies, they confirm my tax-cutting bias. But I have to bewilling to change my mind if The Great Experiment proves me wrong.
But if you think unemployment is high now, you will really not likewhat happens if we dip back into recession. It could go a lot higher.They are truly risking a great deal if they decide to pursue thisexperiment.
As I have written for years, the stock market drops an average ofover 40% during a recession. If we go into a recession in 2011, it ishighly unlikely that there will be an exception to the bear marketrule. But this market seemingly wants to go higher.
The futures market is pricing in rate hikes from the Fed beginning thisfall. I highly doubt a politicized Fed will hike rates withunemployment over 10%, ahead of a November election. We are going tohave a very easy monetary policy for longer than most observers think.
The Fed has painted itself into a very tough corner. Raising ratesin a high-unemployment environment is risky. Bernanke knows whathappened in 1937 and does not want a repeat. But by keeping rates toolow for too long, they risk an asset bubble or two. And the federalfiscal deficit of over $1.5 trillion is not making their situation anyeasier.
The Fed has announced it is ending many of their various and sundryprograms in the first quarter. They have essentially been the mortgagemarket. What will happen to rates? I think that is one of the reasonswhy Geithner has essentially lifted any limit on explicit guaranteesfor Fannie and Freddie. It will be seen as higher-paying governmentdebt. It will also cost you, Mr. and Ms. Taxpayer, hundreds of billionsin increased deficits, as they are telling those entities to eat thelosses from large numbers of loan modifications. This is outrageous onso many levels. Congress should at least have to approve this.
As we face the next crisis - and we will (there is always anothercrisis) - we will find we have not fixed the causes of the last one. Westill have banks too big to fail, we have not put the credit defaultswaps on an exchange, we have not reinstated Glass-Steagall, BarneyFrank's bill (which was not the one that came out of committee) nowmakes it exceedingly more difficult to short stocks, we keep in powerthe same people who missed the problems the last time, and the list ofbad policies bought (typo intended) to you by bank lobbyists grows everlonger. If the current bill looks like it was written by the banklobby, that's because it was. But it means we will have to face thesame problems all over again. But that is another story for anotherday. Next week we look at the dollar and other currencies, gold,commodities, bonds, emerging markets, and more.
John Mauldin, Best-Selling author and recognized financial expert,is also editor of the free Thoughts From the Frontline that goes toover 1 million readers each week. For more information on John or hisFREE weekly economic letter go to:http://www.frontlinethoughts.com/learnmore
---------------------------------------------
Goldman Sachs's Director Conveniently Misses the Point 10 comments
Goldman Sachs (GS) director Bill George was recently discussed inthe Guardian for his assertion that GS employees are similar to starathletes and thus deserve to be compensated accordingly. This assertiondemonstrates that George has no true understanding of the benefit GSand other Too Big to Fail ("TBTF") institutions have over otherparticipants in the industry. GS, in particular, due to its reliance ontrading, may benefit the most of TBTF institutions.
George conveniently ignores the fact that GS is deemed TBTF and isthus backed by tax payers, whereby the company can aggressively gamblewith no significant consequence. This can be of particular benefit toGS because its financing costs are cheaper than comparable financialinstitutions. In addition, because GS relies significantly on itsprincipal trading, the benefit of being a TBTF institution exceeds thatof other TBTF competitors. GS may enjoy a 1-2% benefit compared tonon-TBTF financial institutions for financing costs.
For example, assume GS and a non-TBTF trading firm both have $1B inequity that they intend to deploy on a leveraged basis. GS, due to taxpayer largesse, can obtain financing for this capital at 4% while thenon-TBTF must pay 200 basis points more or 6%. This means that thenon-TBTF firm can leverage that $1B in equity by about 9.0x or $9B,working with a total of $10B in capital with funding costs of $540MM($9B x 6%). In contrast, GS can lever their equity by a factor of13.5x, raising 50% more in financing simply due to its status as TBTFas its funding costs would be identical ($13.5B x 4%) due to GS's TBTFstatus.
Now assume both firms have similarly skilled traders and deploytheir raised capital and both earn 15% on it in one year. For GS, thevalue of its total capital would be $16.7B while the non-TBTF firmwould have a capital account value of $11.5B. Both firms pay back thedebt, with GS repaying the $13.5B it raised and the non-TBTF repayingthe $9B it raised along with the same funding costs of $540MM for bothinstitutions. GS's equity account has increased from $1B to $2.64B($16.7B - $13.5B - $0.54) while the non-TBTF firm has an equity valueof $1.96B ($11.5B - $9B - $0.54).
The non-TBTF firm generated the same return as GS yet due to GSenjoying TBTF status, its lower funding costs allow it to obtain muchcheaper financing. Consequently, GS traders have generated a 164%return off their firm equity while the same skilled non-TBTF tradersgenerated a 96% return. GS directors and apologists want us to believethat this spread is due to talent but it's clearly due to tax payerlargess represented by lower funding costs. At year-end, when outsizedcompensation is distributed to GS traders, a good portion is simply dueto the TBTF status whereby US taxpayers backed GS trades.
For some reason George thinks this equates to talent when it clearlyequates to "favored status." GS not only employs some smart people buthas benefited from a number of former executives employed across avariety of government institutions. For example, during the marketmeltdown in fall of 2008, then-Treasury secretary Hank Paulson wasreported to have spoken frequently with GS CEO Lloyd Blankfein.Additionally, former GS Chairman Stephen Friedman served as Chairman ofthe NY Federal Reserve when key discussions were held regarding how toaddress counter party payments related to AIG and related parties suchas GS (Friedman also bought stock in GS at this time).
If George wishes to compare GS employees to athletes, he should drawthe comparison in a more accurate light. For example, would MannyPacquiao be considered that much better if every opponent he faced hadto tie their hands behind their back? Would Roger Federer be consideredmuch more talented if he was allowed to use the entire tennis court(doubles alleys) while opponents couldn't? Essentially, GS's level oftalent is the equivalent of allowing Tiger Woods to play every hole ona golf course 100 yards away while opponents must play each hole fromthe official tee off location and then pay Tiger 50% more than hisopponents when he wins a rigged game.
--------------------------------------------
<!--
WATCHLIST
-->
Leibovit Files
Monday, January 11, 2010
Market Up Fives As January Barometer Flashes Positive
The World Outlook Conference 2010
at the Sheraton Wall Centre in Vancouver, B.C., January 22-23, 2010.Don't miss it
http://www.worldoutlookconference.com/
---------------------------------------------
UPCOMING ECONOMIC RELEASES/MARKET EVENTS
JANUARY 11 - 15, 2010:
---------------------------------------------
MONDAY, January 11, 2010:
4-Week Bill Announcement
11:00 AM ET
3-Month Bill Auction
11:30 AM ET
6-Month Bill Auction
11:30 AM ET
Atlanta Federal Reserve Bank President Dennis Lockhart speech on theeconomy to the Rotary Club of Atlanta.
12:40 PM ET
10-Yr TIPS Auction
1:00 PM ET
---------------------------------------------
TUESDAY, January 12, 2010:
Turnaround Tuesday
ICSC-Goldman Store Sales
7:45 AM ET
International Trade
8:30 AM ET
Redbook
8:55 AM ET
4-Week Bill Auction
11:30 AM ET
52-Week Bill Auction
11:30 AM ET
3-Yr Note Auction
1:00 PM ET
Philadelphia Federal Reserve Bank President Charles Plosser speechon the economic outlook to the Entrepreneurs Forum of GreaterPhiladelphia
7:00 PM ET
---------------------------------------------
WEDNESDAY, January 13, 2010:
Bank Reserve Settlement
MBA Purchase Applications
7:00 AM ET
EIA Petroleum Status Report
10:30 AM ET
10-Yr Note Auction
1:00 PM ET
Beige Book
2:00 PM ET
Treasury Budget
2:00 PM ET
---------------------------------------------
THURSDAY, January 14, 2010:
Retail Sales
8:30 AM ET
Jobless Claims
8:30 AM ET
Import and Export Prices
8:30 AM ET
RBC CASH Index
9:00 AM ET
Business Inventories
10:00 AM ET
EIA Natural Gas Report
10:30 AM ET
3-Month Bill Announcement
11:00 AM ET
6-Month Bill Announcement
11:00 AM ET
30-Yr Bond Auction
1:00 PM ET
Fed Balance Sheet
4:30 PM ET
Money Supply
4:30 PM ET
---------------------------------------------
FRIDAY, January 15, 2010:
Options Expiration
Consumer Price Index
8:30 AM ET
Empire State Mfg Survey
8:30 AM ET
Industrial Production
9:15 AM ET
Consumer Sentiment
9:55 AM ET
---------------------------------------------
STOCKS - ACTION alert -
A late day rally pushed the market into positive territory butsector action reveals a very schizophrenic market. For the session theDow was up 11.33 at 10618.19, the S&P 500 was up 3.29 at 1144.98,and the Nasdaq Composite was up 17.12 at 2317.17. Volume decreased fromThursday and breadth was positive.
Friday was the fifth trading day of the year and it was positiveregistering bullishly under Yale Hirsch's "Early Warning System"indicator for the market at large. As I said Friday, however, we couldnow see a bit of a retracement here as we enter the fifth or sixth dayof trading.
The important Nasdaq 100 and the Dow Transportation Average failedto push to new highs on Friday. A little worrisome for traders?
Overall, unless we begin to see some pretty heavy downside volume, I amnot running for the hills. I still have the gnawing feeling that wecould see some type of retracement into March, but that's a long wayoff. Even so, I also feel we're coming out of it back to the upside.The Dow Industrials at 11,500 and the S&P 500 at 1275 are notunreasonable intermediate upside targets. If we can get through thoselevels, it may be a whole new ballgame to the upside, but let's crossthat bridge when we get to it. Recall, we have the Plunge ProtectionTeam, the banks, the financial press, and various government agenciesare all in cahoots supporting the markets - probably in the name ofnational security. It's better to tell a lie and massage the numbersand drive stocks higher I suppose than to have blood in the streets.Unfortunately, we may be delaying the inevitable come 2011-2013. In themeantime, however, it is premature to get bearish. If things change, Iwill let you kn ow.
The big story is not the stock market, it is the commoditiesmarkets. Precious metals, base metals, industrial metals, rare earthmetals, crude oil and agricultural plays is truly where the action liesin the months and years ahead. The striking gains in Palladium,Platinum and Copper in recent sessions cannot be ignored!
Check comments below for PAL in the Gold section.
Equities opened weaker following the release of the December jobsreport. Buyers soon stepped in, however, and the leadership of techstocks became apparent. The Nasdaq 100 gained 0.85% on the day,followed by the Nasdaq Composite (+0.74%), mid caps (+0.58%), and smallcaps (+0.40%). All the major indexes hit new recovery highs on Friday.
Friday was a very bipolar day in the market. The commodity sectors(XLB +1.39% and XLE +0.65%) rallied with both of them hitting newrecovery highs. Likewise, Industrials (XLI +1.60%) had a great day andalso hit a new recovery high. In contrast, the four-day rally inFinancials (XLF -0.59%) is over after Citigroup analysts reducedfourth-quarter profit estimates on Goldman Sachs, JPMorgan Chase andMorgan Stanley, citing a "substantial decline" in trading.Nevertheless, XLF still managed to gain 5.69% for the week.Additionally, the defensive Consumer Staples (XLP -0.34%) and Utilities(XLU -0.10%) also underperformed.
Steel stocks (SLX +2.58%) continued their torrid run as traderscontinue to price in further economic recovery. The Dow Transportsbenefited from raised earnings guidance from UPS as they gained 2.09%as a group.
The dollar bounced around Friday but ultimately settled weaker onthe day which aided industrials (XLI +1.60%), gold miners (GDX +1.51%),silver (SLV +1.45%), and to a lesser extent, GLD (+0.50%).
Homebuilders (XHB +0.43%) tacked on more gains after Thursday'spowerful advance. Energy (XLE +0.66%) also saw solid buying support.
For the first full trading week of 2009, the Dow gained 1.82%, theS&P 500 gained 2.68%, the Nasdaq Composite gained 2.12%, mid capsgained 3.50%, and small caps gained 3.07%. Not a bad start for the newyear.
--------------------------------------------
DOW TRANSPORTS - ACTION alert -
Raised guidance from UPS helped the Transports surge to a newrecovery high. The Dow Jones Transportation Average jumped 86.51 or2.09% to 4222.26, its highest level since October 2008.
UPS on Friday raised its fourth-quarter earnings forecast to a rangeof 73 cents to 75 cents a share from its prior estimate of 58 cents to65 cents a share, citing "better-than-expected results in both domesticand international operations and savings through cost management." Onaverage, analysts were expecting a profit of 64 cents a share. Thepackage-delivery firm also announced plans to cut about 1,800management and administrative positions across the country. Kurt Kuehn,UPS's chief financial officer, said the company sees "a gradualeconomic recovery with improvement more evident as 2010 progresses."UPS gained 4.81%.
Southwest Airlines said December demand rose 3% while it rolled backits capacity by 5.8%, when compared with year-ago levels. Load factorincreased to 76.2% from 69.7%, the Dallas-based carrier said. LUV fell2.24%.
---------------------------------------------
GOLD and METALS - ACTION alert -
Precious metals rallied Friday afternoon as the Dollar lost ground.Gold was up 7.50 to 1137.60. Silver was up 0.23 to 18.48. Platinum wasup 22 to 1577 and hit a new recovery high of 1585 this afternoon.Palladium was up 1 to 426.
Industrials metals did not fare as well with copper down 0.0265 to3.4005.
From the VR Gold Letter (www.vrgoldletter.com):
I recommended PAL on The Nightly Business Report Friday eveningSeptember 25 when it was trading at 2.68. The recent high of 4.20 wasposted on January 7. Looking at physical Palladium - it traded at a newrecovery high of 438 on January 7 up from its 162 bear market low(October 16, 2008). Back in March 7, 2008, Palladium traded as high as595. Back to PAL, we're looking at a stock that traded as high as 12.84back on March 31, 2006 and as low as 1.03 on March 12, 2009. My targetof 5.00 to 6.00 doesn't appear so far-fetched? An automobile boom isunderway in India and China with the production of new super low costvehicles. This should help both Platinum and Palladium as they are keyingredients in the catalytic converter. NAP is a precious metalscompany that owns the Lac Des Iles mine and the Sleeping Giant goldmine located in the Abitibi region of Quebec. Please visit www.nap.comfor more information.
The VR Gold Letter is available to Platinum subscribers for only anadditional $50 per month and to Silver subscribers for only $70 permonth. Email me at mark.vrtrader@gmail.com to sign up today!
---------------------------------------------
BONDS - ACTION alert -
Treasuries rose slightly on Friday after the weak employment reportand a Fed hawk said he was not worried about inflation. The long bondfuture gained 6/32 to 115 15/32.
There is "minimal" risk at the moment of inflation edging upward,said Jeffrey Lacker, the president of the Richmond Federal Reserve Bankon Friday. Lacker's comments are important as he is known as one of themore strident "hawks" on the central bank. Hawks are generallyperceived to be more worried about inflation relative to otherofficials at the Fed. Lacker said that inflation expectations haveremained fairly stable last year. "This has had an anchoring effect oncore inflation, which averaged 1.5% last year. In my view that's a verygood performance, and I hope it continues," Lacker said.
The 30-year bond rate hit a high of 4.761% Friday morning, itshighest level since June, before finishing virtually unchanged. Shortterm rates though hover around zero.
---------------------------------------------
CRUDE OIL - ACTION alert -
Oil moved down Friday morning after a weaker than expectedemployment report and worries about monetary tightening in China andits effect on commodity demand, but reversed losses in the afternoon asthe Dollar fell and finished with a small gain. Crude oil rose 0.09 to82.75.
Crude Oil touched a new recovery high on Wednesday at 83.52 onincreasing volume culminating a nine-day consecutive advance. Followinga retracement, I would look at Crude for a possible run into the high80s.
Natural gas settled down 0.057 at 5.749.
---------------------------------------------
US DOLLAR - ACTION alert -
The US Dollar Index fell Friday afternoon as closer scrutinyrevealed that the employment situation is still bleak. Even though theunemployment rate has held steady, employment was down more thanexpected last month and the participation rate (percentage of peoplewho can work that are) continues to fall. The US Dollar Index was down0.419 to 77.494.
The U.S. Dollar is terminal. This is all you need to know. So far,we've seen the US Dollar Index double-top at the 78.00 level. Bulls areeverywhere. Expectations are high the US Dollar will trade into the80s. Frankly, I don't see it. I see bear market rally that failed. UUP,the ETF for the U.S Dollar posted a Negative Volume Reversal ™ onFriday, so the burden of proof is clearl on the bulls here.
---------------------------------------------
URANIUM - ACTION alert
Ux U3O8 Prices* (Uranium)
January 4, 2010 Posting
Spot: $44.50 UNCHANGED. Bull market high in the cash market was$138.00.
The February Uranium Futures closed at $44.50. The current bearmarket low is $42.00. June 13, 2007 hosted the bull market high of154.95. Major support lies well under the market at $36.00.
The spot price of uranium quadrupled from 2004 to 2007. When it hit$138/lb, uranium became a certified bubble, which has now burst. Forinvestors, this is the best possible news, of course. Nuclear power isthe ultimate alternative fuel, as the French will tell you. You get allthe power, 84% cheaper than coal, with none of the politics of roguenations and none of the greenhouse emissions.
---------------------------------------------
ECONOMIC NEWS:
U.S. job losses resumed in December after revisions showed payrollsrose in November for the first time in nearly two years, the LaborDepartment estimated Friday. Nonfarm payrolls fell by a seasonallyadjusted 85,000 in December following a revised 4,000 gain in November.During 2009, payrolls fell by 4.2 million. The official unemploymentrate remained at 10% in December. Fewer industries were hiring inDecember than in October, and the number of discouraged workers rose by287,000 to 929,000. The employment-participation rate fell to 64.6%from 64.9% as the labor force fell by 661,000. Total hours worked inthe economy were unchanged. The average workweek was unchanged at 33.2hours. An alternative gauge of unemployment, which includes discouragedworkers and those forced to work part-time, rose to 17.3% from 17.2%.The report was generally weaker than expected by economists, who werelooking for 15,000 more jobs and an increase in the unemployment rateto 10.1%. Average h ourly earnings rose 3 cents or 0.2%, to $18.80.Average hourly earnings are up 2.2% in the past year, similar to therise in consumer price inflation.
The recovery in the labor market is likely to be slow coming out ofthe recession, said Eric Rosengren, the president of the Boston FederalReserve Bank on Friday. Rosengren said that experience shows thateconomies that experience significant banking problems have been slowto recovery "and that is likely to be true this time in the U.S."Consumers are likely to remain cautious, he said. In this weakenvironment, there is little risk of inflation pressure, Rosengrensaid. This gives the Fed room to keep interest rates low. "In my view,this should allow for accommodative monetary policy to continue tosupport the economy until the underlying demand of consumers andbusinesses becomes self sustaining," Rosengren said.
Unemployment in the 16-nation euro zone reached 10% in November, thehighest level in 11 years. According to data from Eurostat,unemployment rose to 10% from 9.9% in October. Economists had forecastNovember unemployment of 9.9%. The pace of the rise in unemployment at102,000, however, is well off the pace of around 500,000 seen at theheight of the recession. Over 15.7 million people were unemployed, andin the broader 27-nation European Union, there were 22.9 million peopleunemployed. Unemployment was a staggering 19.4% in Spain, which hasbeen reeling from the burst of a house price bubble. Irish unemploymentwas 12.9%, French unemployment was 10%, Italian unemployment was 8.3%while German unemployment was 7.6%.
Inventories held by wholesalers posted an unexpectedly strong gainin November while sales shot up by the largest amount in 10 months, twosigns that the economic recovery was gaining traction in the fall. TheCommerce Department said Friday that wholesale inventories rose 1.5percent in November, a much stronger showing than the 0.2 percent dropthat economists had expected. Sales jumped 3.3 percent, far better thanthe 0.9 percent rise that had been forecast. It marked the eighthconsecutive month that sales at the wholesale level have increased andwas the largest gain since last January.
China overtook the United States as the biggest auto market in 2009and automakers should see more strong growth this year, an industrygroup reported Friday. Boosted by Beijing's stimulus, 2009 passengercar sales soared to 10.3 million and total vehicle sales are estimatedat 13.6 million, the China Passenger Car Association said. Thatrepresents growth of about 45 percent from 2008. By contrast, U.S.sales of cars and light trucks plunged 21 percent in 2009 to 10.4million as a shaky economy kept buyers away from showrooms. It was thefirst time any country bought more cars than Americans.
CORPORATE NEWS:
Citigroup analyst Keith Horowitz cut his earnings estimates for someof the nation's largest banks, citing a slowdown in FICC --fixed-income, currency and commodities trading. "Our analysis points toa substantial decline in FICC trading in the fourth quarter of 2009,and then we are looking for industry fixed income trading to fall15%-20% in 2010," Horowitz wrote in a note. "We expect 2011 revenues toalso be under pressure due to the impact of regulatory reform, which wesee negatively impacting FICC revenue growth by 5%-10% in 2011," hetold clients. As a result, he trimmed estimates for Goldman Sachs (GS-1.9%), J.P. Morgan Chase (JPM -0.3%), Morgan Stanley (MS -2.0%), andBank of America (BAC -0.9%).
No. 1 U.S. electronics chain Best Buy said Friday that its Decembercomparable-store sales rose 8.2%, including a 9.3% increase in the U.S.Analysts had increased their estimates for the U.S. division be anaverage of about 7.9%, said Pali Capital analyst Stacey Widlitz. Totalsales in the month ended Jan. 2 rose 13% to $8.5 billion. Best Buy saidit's maintaining its annual sales and per-share profit forecast rangesbased on the December results. The company measures same-store sales asrevenue at stores, call centers and Web sites operating for at least 14months. BBY fell 3.9%.
J.P. Morgan downgraded shares of Coca-Cola to neutral fromoverweight on Friday because of weaker volume growth in developedmarkets, due most likely to higher unemployment, which led to lowerproduct prices. "Coke is trading at an 18% premium to the beveragegroup," the financial firm said in a note to investors. "We feel thispremium is warranted, but unlikely to expand from here." KO dropped1.9%.
Macquarie Equities Research downgraded shares of Boeing to neutralfrom hold on Friday, saying the stock's value has gotten ahead ofitself and now trades at a 13% premium relative to its peers. The stockis up some 20% in the last three months. "Although continuedimprovement in airline operating metrics has probably driven the moveover the past week, Boeing's 4Q09 earnings in a couple of weeks couldlend a dose of reality," the research firm said. "We think it unlikelythat 2010 guidance will provide much upside to current consensusestimates, with cashflow particularly challenged, and only cautiousoptimism about the current demand environment for new aircraft."Macquarie raised its price target to $66 from $60. BA lost 1.0%.
Apollo Group said profit jumped past expectations but said itreceived a Department of Education report regarding concerns about itshandling of federal funding. The operator of University of Phoenixschools said its fiscal first-quarter profit rose 33% to $240.1million, or $1.54 a share, in the year-ago period. Excluding one-timeitems, the for-profit education company would have reported earnings of$1.47 a share for the latest quarter. Revenue rose to $1.27 billion.Analysts were expecting a profit of $1.45 a share on revenue of $1.22billion. Also late Thursday, Apollo said it had received a preliminaryreport, containing six findings and one concern, from the Department ofEducation on its review of policies and procedures involving Title IVprograms. As a result of the findings, Apollo anticipates a liabilityof about $1.5 million. APOL declined 5.4%.
Needham & Co. upgraded Applied Materials to a buy rating Friday,citing a "strong cycle recovery" while cautioning that sales growthcould eventually slow in the second half of the year. In upgrading thecompany's rating from hold, Needham analyst Edwin Mok said the broadersemiconductor-equipment sector is "experiencing a strong cyclerecovery, driven by increased end demand and tight capacities." But Mokalso cautioned in a research note that the sector's momentum may slowdown later in the year. AMAT jumped 3.9%.
Steel makers are gaining on the triple prospect of price hikes, apotential uptick in global demand and relative scarcity following aperiod of production cuts. Some of the movement is being driven by aplan by China's Baosteel to increase prices for the third consecutivemonth, along with hikes by domestic firms as well. American steel firmswere also buoyed by a note from J.P. Morgan's Michael Gambardella, whoraised his profit estimates and price targets on the big three. AKSgained 9.3%, X rallied 7.3%, and MT was up 1.9%.
---------------------------------------------
The Annual Forecast Model (VR Forecaster Report) is now posted at thewebsite - so sign up today! Remember, there is no price too high forgood information! Don't make the mistake of not subscribing. Lastyear's AFM warned in January we were entering a multi-month bearmarket! Gold-bug? Check on the AFM for Gold!
https://www.vrtrader.com/subscribe/index.asp
---------------------------------------------
TIMER DIGEST signals for Stocks, Gold and Bonds are available toPlatinum subscribers on the Home Page.
TIMER DIGEST has named Mark Leibovit of VRTrader.com 'TIMER OF THEYEAR' for 2006 and was named the #2 Timer for 2007.
More kudos - Mark Leibovit was named the #1 Intermediate MarketTimer for the 10 year period ending in 2007; the #1 Intermediate MarketTimer for the 3 year period ending in 2007; the #1 Intermediate MarketTimer for the 8 year period ending in 2007; and the #8 IntermediateMarket Timer for the 5 year period ending in 2007. NO OTHER ANALYSTSURVEYED APPEARED IN ALL FOUR CATEGORIES FOR INTERMEDIATE MARKET TIMINGAS PUBLISHED IN TIMER DIGEST JANUARY 28, 2008!
Mark Leibovit was also named the #1 Gold Timer for the one-yearperiod ending March 25, 2008. Most recently, from: 12/26/08 to:03/27/2009, he is ranked in the #5 position for 3 month return.
Current TIMER DIGEST signals for stocks:
'Buy' signal March 4, 2009.
'Sell' signal May 27, 2009.
'Buy' signal July 21, 2009.
'Sell' signal September 2, 2009.
'Buy' signal September 3, 2009.
'Sell' signal October 15, 2009.
'Buy' signal November 13, 2009.
'Sell' signal November 30, 2009.
'Buy' signal December 1, 2009.
Current TIMER DIGEST signals for Gold:
'Sell' signal November 30, 2009.
'Buy' signal December 1, 2009.
Mark Leibovit is currently ranked the #2 Market Timer for the 3month period ending October 23, 2009.
---------------------------------------------
DAILY VR LIST:
Editors note: The Daily VR List here is abbreviated with the fulllist only available to Platinum subscribers by clicking on 'Current VRList' on the Home Page of VRtrader.com. Canadian shares are listed atthe bottom of each section with the title: 'XXX CANADIAN STOCKS XXX'.
Silver subscribers who find this useful should upgrade to Platinumwhere you can pull down VR charts for many securities and watch thepatterns unfold for yourself. There is no technical service on theplanet that posts Positive and Negative VR! Why? Because they areproprietary to VRtrader.com!
How do you use this list? VRs are buy and sell triggers and areparticularly useful in defining lows or highs in stocks and stockindexes. Traders find them particularly useful, especially coming offmarket extremes as an indication of a change of direction. Use the VRsin conjunction with your other technical indicators and you've added aunique technical tool to your arsenal.
What is a Volume Reversal ™? There are several proprietarysubtleties to the Volume Reversal ™ algorithm, but essentially aVolume Reversal ™ is a change from a Rally day to a Reaction dayaccompanied by a increase of volume or a change from a Reaction day toRally day accompanied by an increase in volume. Volume Reversals ™coming off intermediate lows or highs have greater significance inhelping to define those lows or highs and important pivot points in themarketplace. The Volume Reversals ™ presented here provide you witha unique research tool that may have trading (short-term) significance,but it also may have 'trend changing' (intermediate) significance aswell. The sector Volume Reversals ™ show where big money is possiblyaffecting an entire group of stocks. The stocks listed under the grouphave posted Volume Reversals ™ along with the group as a whole. Theindividual stocks listed have posted Volume Reversals ™ on their ownand are valid plays as well.
To see a visual representation of Volume Reversals ™, please go ourCurrent Portfolio section and click on any recommended stock. Or, ifyou would like to get a VR Chart for a specific symbol, please clickhere. Please note that not all symbols may be currently available:
http://www.vrtrader.com/vr_platinum/GetVRChart.asp
---------------------------------------------
---------------------------------------------
As goes January, so goes the rest of the year?
In the November 2008 update of their paper entitled "The IllusionaryMarket Timing Ability of the Other January Effect", Ben Marshall andNuttawat Visaltanachoti examine the ability of January returns topredict February-December returns and support a market timing strategyin the U.S. and other equity markets. They consider multiple robustnesstests to determine the statistical and economic significance of thisJanuary Barometer based on both equally weighted and value weightedreturns. Using U.S. stock return data spanning 1925-2007 (focusing on1940-2007) and stock return data for 18 other countries and the worldspanning 1970-2007, they conclude that:
On average, February-December U.S. stock market returns aresignificantly higher following positive Januaries than negativeJanuaries.
However, the difference between average February-December returnsfollowing up and down Januaries is statistically significant in onlyfour of 18 other countries.
Furthermore, a simple trading strategy based solely on the JanuaryBarometer underperforms a buy-and-hold strategy for U.S. equityindexes, international equity indexes and portfolios of stocks ofdifferent sizes (see the second chart below).
The January Barometer underperformance derives from: (1) the largeopportunity cost of missing abnormally high January returns whileawaiting January barometer readings; and, (2) the poor performance ofthe January barometer as a signal to short the market duringFebruary-December. The January Barometer has no predictive power whenapplied to individual stocks.
In summary, evidence indicates that an up/down January is predictiveof February-December outperformance/underperformance for the broad U.S.stock market (but not for most other equity markets). However, it maynot support an effective market timing strategy as a standalone signal.
---------------------------------------------
2010 Forecast: The Year of Uncertainty
by John Mauldin
Those who are invested in the idea of a "V"-shaped recovery becameexcited over the jobs report last month. Unemployment rose by only11,000 jobs, if you did not look at the underlying numbers or ignoredthe household survey. And the consumer confidence surveys have begun torise. The Index of Leading Economic Indicators has now risen for sixmonths in a row. Productivity is up. And surveys indicate that consumerspending is up. GDP growth in the fourth quarter looks to be in the3%-plus range.
All reasons to be bullish, if you are looking for a reason to bebullish. If you don't examine the underlying data, you can feel good.The problem is that when we look deeper into the data than just theheadlines, there are concerns.
For instance, take the contention that consumer spending is rising.I called Philippa Dunne at The Liscio Report. They survey the variousstates about taxes, among other things. "Sales taxes are not up and thecurrent survey we are doing is pretty bad." She used the word"horrified" when commenting on some of the respondees' replies at thevarious state tax offices. Further, today we find that credit cardlending dropped $17 billion last month, the largest drop in history.And this was during Christmas!
Savings are up. Credit is down. Where did the rise in consumerspending come from? Remember, these are mostly surveys and/orcomparisons with a disastrous 2008. And they compare same-store salesfor chains like Best Buy, which no longer competes with the bankruptCircuit City, or for chains that closed stores, forcing buyers to theremaining stores. The key to watch is sales taxes. When they arerising, consumer spending is rising.
Consumer confidence is rising, but from truly awful levels. Thelevels are still well below any level in previous recessions andcertainly do not indicate a robust economic rebound.
A challenged consumer confidence survey is not surprising, given thefact that roughly 8% of the working population is getting some form ofunemployment assisance. One in eight children in this country is livingon food stamps. By the way, the total number of people on unemploymentis about 300,000 worse than most media accounts report. The Extended(and Emergency) unemployment claims for those out of work more than 26weeks are not seasonally adjusted. To get the total number of people onunemployment insurance of all kinds, you have to add the non-seasonallyadjusted number of continuing claims, which is currently about 300,000higher than the seasonal adjustment. So, how is it that we see a risein the statistics?
First, year-over-year comparisons are looking better, since 2008 washorrific. Second, inventory levels are about as low as they will go. Inthe way GDP is figured, a reduction in inventory reduces GDP. That wasa negative figure for most of this recession. Simply becauseinventories not falling any more, it is easier to get a positive GDP.
Second, there are one-time benefits for GDP from the federalstimulus. Roughly 90% of the 2.2% growth in GDP in the third quarterwas attributable to the stimulus, and we will see a similar affect inthe 4th-quarter numbers and at least through the first half of nextyear.
A reduction in imports is also a positive for GDP. Ee are buyingless "stuff" from abroad, so that helps statistically.
Martin Feldstein, one of the great economists of our time, wasquoted last week as saying that the recession is not over. Indeed, ityou look at past recessions, it is not all that unusual (8 out of 11times) for there to be positive GDP quarters in the midst of an ongoingrecession.
So this is the backdrop as we look into the future. Unemployment isrising and is likely to remain stubbornly high (over 10%) for sometime, except for the few months this coming summer when the LaborDepartment will hire hundreds of thousands of temporary census workers.The savings rate is rising, and consumer spending is at the very leastchallenged. The stimulus starts to drop sharply in the latter half ofthe year. States, counties, and cities are short about $260 billion andwill either have to cut services (and thus jobs) or increase taxes.Housing is likely to get weaker, as there are large numbers of defaultscoming because of mortgage-rate resets this year and next (more on thatin a few weeks). Valuations on stocks are in the high range, and do notportend well for long-term returns.
Further - and this is the most important item to me - Congress islikely to allow the Bush tax cuts to expire and to add insult to injurywith some form of large tax increase for heath care. Between the local,state, and federal tax increases, we could see a massive increase intaxes of perhaps $500 billion in a $13-trillion economy, or about 4% ofGDP.
Think about that for a moment. It is likely we will begin 2011 withclose to 10% unemployment, if not higher. My contention is that if sucha tax increase is enacted all at once, the economy will at a minimumdip back into a nasty recession. If I am wrong, then I will have toabandon one of my long-cherished beliefs. I will have to stop arguingthat tax cuts are as important as I think. Right now, when I read thedata and studies, they confirm my tax-cutting bias. But I have to bewilling to change my mind if The Great Experiment proves me wrong.
But if you think unemployment is high now, you will really not likewhat happens if we dip back into recession. It could go a lot higher.They are truly risking a great deal if they decide to pursue thisexperiment.
As I have written for years, the stock market drops an average ofover 40% during a recession. If we go into a recession in 2011, it ishighly unlikely that there will be an exception to the bear marketrule. But this market seemingly wants to go higher.
The futures market is pricing in rate hikes from the Fed beginning thisfall. I highly doubt a politicized Fed will hike rates withunemployment over 10%, ahead of a November election. We are going tohave a very easy monetary policy for longer than most observers think.
The Fed has painted itself into a very tough corner. Raising ratesin a high-unemployment environment is risky. Bernanke knows whathappened in 1937 and does not want a repeat. But by keeping rates toolow for too long, they risk an asset bubble or two. And the federalfiscal deficit of over $1.5 trillion is not making their situation anyeasier.
The Fed has announced it is ending many of their various and sundryprograms in the first quarter. They have essentially been the mortgagemarket. What will happen to rates? I think that is one of the reasonswhy Geithner has essentially lifted any limit on explicit guaranteesfor Fannie and Freddie. It will be seen as higher-paying governmentdebt. It will also cost you, Mr. and Ms. Taxpayer, hundreds of billionsin increased deficits, as they are telling those entities to eat thelosses from large numbers of loan modifications. This is outrageous onso many levels. Congress should at least have to approve this.
As we face the next crisis - and we will (there is always anothercrisis) - we will find we have not fixed the causes of the last one. Westill have banks too big to fail, we have not put the credit defaultswaps on an exchange, we have not reinstated Glass-Steagall, BarneyFrank's bill (which was not the one that came out of committee) nowmakes it exceedingly more difficult to short stocks, we keep in powerthe same people who missed the problems the last time, and the list ofbad policies bought (typo intended) to you by bank lobbyists grows everlonger. If the current bill looks like it was written by the banklobby, that's because it was. But it means we will have to face thesame problems all over again. But that is another story for anotherday. Next week we look at the dollar and other currencies, gold,commodities, bonds, emerging markets, and more.
John Mauldin, Best-Selling author and recognized financial expert,is also editor of the free Thoughts From the Frontline that goes toover 1 million readers each week. For more information on John or hisFREE weekly economic letter go to:http://www.frontlinethoughts.com/learnmore
---------------------------------------------
Goldman Sachs's Director Conveniently Misses the Point 10 comments
Goldman Sachs (GS) director Bill George was recently discussed inthe Guardian for his assertion that GS employees are similar to starathletes and thus deserve to be compensated accordingly. This assertiondemonstrates that George has no true understanding of the benefit GSand other Too Big to Fail ("TBTF") institutions have over otherparticipants in the industry. GS, in particular, due to its reliance ontrading, may benefit the most of TBTF institutions.
George conveniently ignores the fact that GS is deemed TBTF and isthus backed by tax payers, whereby the company can aggressively gamblewith no significant consequence. This can be of particular benefit toGS because its financing costs are cheaper than comparable financialinstitutions. In addition, because GS relies significantly on itsprincipal trading, the benefit of being a TBTF institution exceeds thatof other TBTF competitors. GS may enjoy a 1-2% benefit compared tonon-TBTF financial institutions for financing costs.
For example, assume GS and a non-TBTF trading firm both have $1B inequity that they intend to deploy on a leveraged basis. GS, due to taxpayer largesse, can obtain financing for this capital at 4% while thenon-TBTF must pay 200 basis points more or 6%. This means that thenon-TBTF firm can leverage that $1B in equity by about 9.0x or $9B,working with a total of $10B in capital with funding costs of $540MM($9B x 6%). In contrast, GS can lever their equity by a factor of13.5x, raising 50% more in financing simply due to its status as TBTFas its funding costs would be identical ($13.5B x 4%) due to GS's TBTFstatus.
Now assume both firms have similarly skilled traders and deploytheir raised capital and both earn 15% on it in one year. For GS, thevalue of its total capital would be $16.7B while the non-TBTF firmwould have a capital account value of $11.5B. Both firms pay back thedebt, with GS repaying the $13.5B it raised and the non-TBTF repayingthe $9B it raised along with the same funding costs of $540MM for bothinstitutions. GS's equity account has increased from $1B to $2.64B($16.7B - $13.5B - $0.54) while the non-TBTF firm has an equity valueof $1.96B ($11.5B - $9B - $0.54).
The non-TBTF firm generated the same return as GS yet due to GSenjoying TBTF status, its lower funding costs allow it to obtain muchcheaper financing. Consequently, GS traders have generated a 164%return off their firm equity while the same skilled non-TBTF tradersgenerated a 96% return. GS directors and apologists want us to believethat this spread is due to talent but it's clearly due to tax payerlargess represented by lower funding costs. At year-end, when outsizedcompensation is distributed to GS traders, a good portion is simply dueto the TBTF status whereby US taxpayers backed GS trades.
For some reason George thinks this equates to talent when it clearlyequates to "favored status." GS not only employs some smart people buthas benefited from a number of former executives employed across avariety of government institutions. For example, during the marketmeltdown in fall of 2008, then-Treasury secretary Hank Paulson wasreported to have spoken frequently with GS CEO Lloyd Blankfein.Additionally, former GS Chairman Stephen Friedman served as Chairman ofthe NY Federal Reserve when key discussions were held regarding how toaddress counter party payments related to AIG and related parties suchas GS (Friedman also bought stock in GS at this time).
If George wishes to compare GS employees to athletes, he should drawthe comparison in a more accurate light. For example, would MannyPacquiao be considered that much better if every opponent he faced hadto tie their hands behind their back? Would Roger Federer be consideredmuch more talented if he was allowed to use the entire tennis court(doubles alleys) while opponents couldn't? Essentially, GS's level oftalent is the equivalent of allowing Tiger Woods to play every hole ona golf course 100 yards away while opponents must play each hole fromthe official tee off location and then pay Tiger 50% more than hisopponents when he wins a rigged game.
--------------------------------------------
<!--
WATCHLIST
|HIDE-WATCHLIST|
-->
Suggestions? Comments? on the newsletter service. We would liketo hear from each and everyone of our subscribers. Our email is mark.vrtrader@gmail.com.
DISCLAIMER
This newsletter is a publication dedicated to the education ofstock traders. The newsletter is an information service only. Theinformation provided herein is not to be construed as an offer to buyor sell securities of any kind. The newsletter picks are not to beconsidered a recommendation of any stock but an information resource toaid the investor in making an informed decision regarding trading instocks. It is possible at this or some subsequent date, the editors andstaff of VRTrader.com may own, buy or sell securities presented. Allinvestors should consult a qualified professional before trading in anysecurity. The information provided has been obtained from sourcesdeemed reliable but is not guaranteed as to accuracy or completeness.VRTrader.com staff makes every effort to provide timely information toits subscribers but cannot guarantee s pecific delivery times due tofactors beyond our control.
