Friday, October 15, 2010
Biospecifics Technologies Corp (BSTC) goes negative
The intraday price for Biospecifics Technologies Corp has moved below its 200 period 30 minute moving average of 26.96. BSTC is around 26 bucks now.
Modine Manufacturing Co (MOD) goes negative
The intraday price for Modine Manufacturing Co has moved below its 200 period 30 minute moving average of 13.06. MOD is around 12 bucks now.
Anadarko Petroleum Corp (APC) goes positive by breaking intraday moving average
The intraday price for Anadarko Petroleum Corp has moved above its 200 period 30 minute moving average of 57.46. APC is near 57 bucks now. Breaking above the moving average adds to the positive trend in the price.The price is above the trend line, which is about $57. Falling below that might indicate a change in trend.
Epoch Holding Corp (EPHC) goes positive
The intraday price for Epoch Holding Corp has moved above its 200 period 30 minute moving average of 12.83. EPHC is near 12 bucks now. Breaking above the moving average adds to the positive trend in the price.The price is above the trend line, which is about $12. Falling below that might indicate a change in trend.
Saia Inc (SAIA) goes positive by breaking intraday moving average
The intraday price for Saia Inc has moved above its 200 period 30 minute moving average of 14.53. SAIA is near 14 bucks now. Breaking above the moving average adds to the positive trend in the price.The price is above the trend line, which is about $14. Falling below that might indicate a change in trend.
Friday, October 1, 2010
Stocks Turn Mixed After Tepid Economic Data
Stocks have turned mixed in mid-morning trading on Friday, as the markets are digesting a mixed batch of economic data. While consumer spending and income rose more than expected and construction spending picked up unexpectedly, manufacturing activity surprised to the downside.
The major averages are currently on opposite sides of the unchanged line, with the Nasdaq posting a modest loss. The Nasdaq is currently down 4.68 points or 0.2 percent at 2,363.94, the Dow is up 10.60 points or 0.1 percent at 10,798.65 and the S&P 500 is up 0.04 or less than 0.1 percent at 1,141.24.
A report released by the Institute for Supply Management on Friday showed a notable slowdown in the pace of growth in the manufacturing sector in the month of September, although activity in the sector still expanded for the fourteenth consecutive month.
The ISM said its index of activity in the manufacturing sector fell to 54.4 in September from 56.3 in August, but a reading above 50 indicates continued growth in the sector. Economists had been expecting the index to fall to a reading of 54.8.
Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said, “While the headline number shows relative strength this month as the PMI reading of 54.4 percent is still quite positive, the overall picture is less encouraging.”
Meanwhile, the Commerce Department released a report showing that construction spending rose by 0.4 percent in August to an annual rate of $811.8 billion after falling 1.4 percent to an annual rate of $808.6 billion in July. The increase surprised economists, who had expected spending to decrease by 0.5 percent.
A separate report released by Thomson Reuters (TRI) and the University of Michigan showed a notable upward revision to their reading on consumer sentiment in the month of September, but the index was still down from the previous month.
The report showed that the consumer sentiment index for September was revised up to a reading of 68.2 from the previously reported reading of 66.6. The index came in above economist estimates of 67.0, although it is down from 68.9 in August.
Before the start of trading, the Commerce Department reported that personal spending increased by 0.4 percent in August, matching the increase that was seen in July. The increase in spending came in slightly above the expectations of economists, who had expected spending to rise by 0.3 percent.
The report also showed that personal income rose by 0.5 percent in August after edging up by 0.2 percent in July. Economists had been expecting income to increase by 0.3 percent.
On the corporate front, Hewlett-Packard (HPQ) announced that it has appointed Leo Apotheker as CEO and president. Apotheker is the former CEO of German tech firm SAP AG (SAP).
Meanwhile, oil giant BP Plc (BP) reported that the total cost of the oil spill in the Gulf of Mexico has ballooned to $11.2 billion. The firm also said it has put up assets for collateral in regards to its $20 billion spill liability fund.
Technology outsourcing and consulting firm Accenture (ACN) said that its fourth-quarter profit surged 75 percent from last year, mainly due to the absence of restructuring charge that impacted prior year results.
Nearly every segment of Accenture recorded positive revenue growth, which led to its quarterly earnings exceeding analysts’ expectations. Further, the company’s board boosted its semi-annual cash dividend by 20 percent.
Sector News
Despite some of the recent downside, oil stocks remain elevated, with the NYSE Arca Oil Index posting a 1.2 percent gain. The advance has the index on pace for a five-month closing high, as the price of oil is up by $0.95 at $80.92 a barrel.
Software, airline and steel stocks also remain on the upside but have moved well off of their best levels of the day.
Meanwhile, notable weakness has emerged among railroad stocks, with the Dow Jones Railroads Index down by 1.6 percent. The decline is pulling the index down further off of last week’s two-year closing high.
Health insurance and healthcare provider stocks are also trading lower but are seeing less pronounced losses.
Stocks Driven By Analyst Comments
Electric utilities firm IdaCorp (IDA) is trading higher after being upgraded at KeyBanc Capital Markets from Hold to Buy. Shares are currently up by 1.3 percent after setting a two-month intraday high earlier.
Walgreen (WAG) is also on the upside after an upgrade at Morgan Stanley from Equalweight to Overweight. The stock is posting a 0.6 percent gain, challenging the four-month closing high set earlier this week.
On the other hand, JA Solar (JASO) is seeing notable weakness after being downgraded at Auriga from Buy to Hold. The stock is down by 5.3 percent, pulling back off of a two-year closing high set on Thursday.
Other Markets
Overseas, stock markets in the Asia-Pacific region ended mostly higher on Friday. Japan’s benchmark Nikkei 225 Index gained 0.4 percent, while India’s BSE 30 Index advanced by 1.9 percent. The Chinese markets were closed on the day.
Meanwhile, the major European markets are mixed. The U.K.’s FTSE 100 Index is up by 0.6 percent, while the French CAC 40 Index and the German DAX Index are down by 0.9 percent and 0.4 percent, respectively.
In the bond markets, treasuries are little changed. The yield on the benchmark ten-year note is holding near the flat line at 2.515 percent.
Currency, Commodity Markets
TSX Set To Open Higher Amid Firm Global Cues
Bay Street stocks may open higher Friday amid firm commodities prices after China reported a strong manufacturing growth in August. Positive cues from the global equity market might also lift trader sentiment.
On Thursday, the S&P/TSX Composite Index eased 14.16 points or 0.11% to 12,368.65, a day after rising to its highest level in 2 years.
The price of crude oil moved up to a fresh two month high after a reading on China’s purchasing managers’ index came in better than expected. Crude for November was up $1.35 to $81.32 a barrel.
The price of gold continued to move higher, hitting fresh highs amid a weak U.S. dollar. Gold for December was up $7.50 to $1,317.10 an ounce.
In the M&A patch, TD Bank said it has completed the acquisition of The South Financial Group, Inc.
Paper manufacturer Domtar Corp. said it would sell its Woodland hardwood market pulp mill and related assets to International Grand Investment Corp. for $60 million plus working capital of $4 million.
Telecommunications industry services provider EXFO Inc. announced that it has sold its Life Sciences and Industrial Division to a global private equity firm, The Riverside Company for $24.3 million in cash.
Entertainment technology company IMAX Corp. announced that it has expand its joint venture agreement with Regal Entertainment Group to include installation of an additional 16 to 25 new IMAX theatres in the U.S.
Energy sector seismic data services provider Pulse Seismic said it acquired the entire 2D and 3D seismic data library from Divestco Inc. to more than double the size of its 3D seismic data library from approximately 12,900 to 26,400 net square kilometres.
Precious metals miner Halo Resources said it has increased the size of its non brokered private placement up to 1.8 million units for a gross proceeds of C$450,000, mainly to fund an accelerated drill program at its West Red Lake Project Ontario
Gold miner Centerra Gold announced that production was suspended at its Kumtor Mine in the Kyrgyz Republic, due to labor strike.
Oil transportation pipes maker Yalian Steel said Lan Shangguan has been appointed as the CFO and corporate secretary effective immediately.
In economic news, Canadian consumer confidence fell significantly in August, the latest survey by the Royal Bank of Canada revealed. The Canadian Consumer Outlook Index fell to 94 in August from a reading of 108 in July, the bank said.
From south of the border, the Commerce Department said that personal spending increased by 0.4%in August, matching the increase that was seen in July. Economists were expecting the spending to rise by 0.3%. Additionally, the Department said that personal income rose by 0.5% in August after edging up by 0.2% in July. Economists had been expecting income to increase by 0.3%.
Elsewhere, China said its purchasing managers’ index rose to 53.8 from 51.7 in the previous month, beating economists’ expectation for a reading of 52.5.
Asia
Asian Markets End In Positive Territory
Asian markets open for trading on Friday, the first day of the new month and the fourth quarter, ended the trading session in positive territory on optimism about sustaining global economic recovery. Positive economic data in the US related to second quarter GDP and weekly jobless claims, as well as pick-up in manufacturing growth in the world’s second largest economy during September lifted market sentiment. The markets in China and Hong Kong were closed for a holiday. All the other markets, excluding Australian market, ended in positive territory.
In Australia, the benchmark S&P/ASX200 Index slipped 3.70 points, or 0.08%, and closed at 4,579 points, while the All-Ordinaries Index ended at 4,635, representing a loss of 2.20 points, or 0.05%.
On the economic front, a report released jointly by the Australian Industry Group and PriceWaterhouse Coopers revealed that manufacturing activity in the country fell into a state of contraction in September. As per the report, the group’s latest Performance of Manufacturing Index reading was 47.3 points, down 4.4 points from the August reading of 51.7. Readings below 50.0 indicate contraction of activity in the measured sector.
Light sweet crude oil futures for November delivery ended at $80.46 a barrel in electronic trading, up $0.49 per barrel from previous close at $79.97 a barrel in New York on Thursday.
Banks ended in negative territory. ANZ Bank slipped 0.72%, Commonwealth Bank of Australia shed 0.53%, National Australia Bank fell 1.34% and Westpac Banking lost 1.33%. Investment banker Macquarie Group was down 0.30%.
Mixed trading was witnessed among oil related stocks. Woodside Petroleum advanced 0.96%, ROC Oil Ltd surged up 3.95% and Oil Search Ltd gained 1.30%. However, Santos Ltd declined 0.78% and Origin Energy edged down 0.06%.
Resource related stocks also witnessed mixed trading. BHP Billiton gained 1.41%, Rio Tinto advanced 0.39%, Fortescue Metals gained 1.15%, Gindalbie Metals added 0.55%, Iluka Resources rose 0.50%, Macarthur Coal was up by 0.85%, Murchison Metals climbed 1.20% and Oz Minerals increased by 0.69%. Mincor Resources remained unchanged from previous close. However, Minara Resources bucked the trend and ended in negative territory with a loss of 1.31%.
In Japan, the benchmark Nikkei 225 Index rose 34.88 points, or 0.37%, to 9,404, while the broader Topix index of all First Section issues was up 0.46 point, or 0.06%, to 830.
On the economic front, a report released by the Ministry of Internal Affairs and Communications revealed that nationwide core consumer prices in Japan were down 1.0% on year in August, matching expectations following the 1.1% decline in July. Overall nationwide inflation was unchanged at -0.9% on year, again in line with forecasts. Overall inflation for Tokyo – considered a leading indicator for the nationwide trend, showed a 0.6% decline on year in September. Analysts had been expecting a 0.9% decline following the 1.0% contraction in August. Core inflation in Tokyo came in at -1.0%, matching forecasts after shedding 1.1% in August.
In a separate report, the Ministry of Internal Affairs and Communications revealed that average household spending in the country climbed 1.7% on year in August, standing at 293,361 yen. That beat forecasts for a 1.4% following the 1.1% gain in July. Wage earner household spending jumped an annual 2.7% to 323,758 yen. The report further noted that the propensity to consume added 1.6% points on year to 83.3%.
In yet another report, the Ministry of Internal Affairs and Communications revealed that the unemployment rate in the country came in at a seasonally adjusted 5.1% in August, in line with analysts’ expectations, easing from 5.2% reported for the previous month. As per the report, the number of unemployed persons in August was 3.37 million, a decline of 240,000 or 6.6% from the previous year. The number of employed persons was 62.78 million, down 180,000 or 0.3% on year. The report further noted that the job-to-applicant ratio was 0.54, matching expectations after showing 0.53 in July, and the labor force participation rate was 59.9%, down 0.3% on year.
Light sweet crude oil futures for November delivery ended at $80.46 a barrel in electronic trading, up $0.49 per barrel from previous close at $79.97 a barrel in New York on Thursday.
Real estate stocks led the gains in the market. Mitsui Fudosan gained surged up 3.69%, Mitsubishi Estate climbed 3.24%, Sumitomo Realty & Development advanced 0.58%, Tokyo Tatemono Co gained 2.19%, Tokyu Land Corp. added 1.16% and Heiwa Real Estate was up 1.01%.
Pharmaceuticals also advanced into positive territory. Astellas Pharma gained 1.82%, Takeda Pharmaceuticals advanced 0.78%, Dainippon Sumitomo Pharma climbed 3.43%, Daichi Sankyo added 1.35% and Chugai Pharmaceuticals was up 1.11%.
Adding to yesterday’s gains, the Indian market rose sharply on Friday, buoyed by positive global cues and strong growth in monthly sales numbers reported by auto makers like Tata Motors, Maruti Suzuki and TVS Motors. A split but pragmatic verdict on the Ayodhya dispute, data showing continued FII buying in Indian equities and a rise in India’s exports for the 10th consecutive month in August also underpinned sentiment, while investors shrugged off a survey report which showed a slowdown in India’s manufacturing sector growth in September.
The seasonally adjusted HSBC Purchasing Managers’ Index, which measures the overall health of the manufacturing sector, fell to 55.1 in September from 57.2 in August, as growth in overall new business intake slowed for a second successive month. Elsewhere, reports about stronger growth in Chinese manufacturing activity for September and upbeat U.S. data on second-quarter GDP, weekly jobless claims and Midwest business activity for September helped ease concerns over a double-dip recession in the world’s largest economy.
The 30-share BSE Sensex ended up about 375 points or 1.87% near the day’s high at 20,445 and the broader Nifty rose by 113 points or 1.88% to 6,143.
The markets in China and Hong Kong were closed for a holiday.
Among the other markets in the region, Jakarta Composite Index in Indonesia gained 45.82 points, or 1.31%, to 3,547, the Strait Times Index in Singapore advanced 33.27 points, or 1.07%, to close at 3,131, and Taiwan Weighted Index edged higher by 6.42 points, or 0.08%, to close at 8,244.
European Market Updates
The major European markets are trading higher on Friday, with the French CAC 40 Index rising 0.10%, while the German DAX Index and the U.K.’s FTSE 100 Index is rising 0.52% and 0.92%, respectively.
In economic news, Markit Economics reported that eurozone manufacturing activity fell to an eight-month low in September, whil e new orders received by manufacturers grew at the slowest pace in a year. The manufacturing purchasing managers’ index came in at a seasonally adjusted 53.7, down from 55.1 in August, but up from the preliminary estimate of 53.6.
Meanwhile, a separate report showed that the euro area’s unemployment rate stayed at a 12-year high of 10.1% in August. The unemployment rate had remained at this level since May.
German retail sales fell 0.2% month-over-month in August, according to a report released by the German Federal Statistical Office. Economists expected a 0.4% increase for the month. On a year-over-year basis, retail sales were up 2.2%, bigger than the 1.2% increase in July.
U.S. Economic Reports
Personal spending showed another moderate increase in the month of August, according to a report released by the Commerce Department, with the report also showing a notable increase in personal income during the month.
The report showed that personal spending increased by 0.4% in August, matching the increase that was seen in July. The increase in spending came in slightly above the expectations of economists, who had expected spending to rise by 0.3%.
Additionally, the Commerce Department said that personal income rose by 0.5% in August after edging up by 0.2% in July. Economists had been expecting income to increase by 0.3%.
Individual automakers are scheduled to release their monthly U.S. sales results for September. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month.
The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET. Economists expect the index of activity in the sector to show a reading of 54.8 for September.
The manufacturing purchasing managers’ index unexpectedly rose to 56.3 in August from 55.5 in July. The production index rose 2.9 points to 59.9, while the new orders index edged down 0.4 points to 53.1 and the order backlogs index fell 3 points to 51.5. On a surprising note, the employment index climbed 1.8 points to 60.4, a 27-year high. The inventories index also increased, rising 1.2 points to 51.4.
The Reuters/University of Michigan’s final report on the consumer sentiment index for September is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be upwardly revised to 67 from the mid-month reading of 66.6.
The Commerce Department’s construction spending report to be released at 10 AM ET is expected to show a 0.5% decline in spending for August.
Construction spending fell 1% month-over-month in July, steeper than the 0.7% decline expected by economists. Private as well as public construction spending declined from month-ago levels, dropping by 0.8% and 1.2%, respectively. In the private category, single-family and multi-family construction spending was down 2.5% each, while private non-residential construction rose 0.8%.
Stocks in Focus
Hewlett-Packard lost some ground in Thursday’s after hours session after it announced the appointment of Leon Apotheker, a former SAP executive, as its president and CEO, effective November 1st.
Accenture may see some buying interest after it reported that its fourth quarter earnings rose to 66 cents per share from 39 cents per share last year. Net revenues rose to $5.42 billion from the year-ago’s $5.15 billion. The company also increased its semi-annual cash dividend by 20% to 45 cents per Class A ordinary share. Analysts estimated earnings of 63 cents per share on revenues of $5.31 billion. The company expects first quarter revenues of $5.6 billion to $5.8 billion and fiscal year 2011 revenue growth of 7%-10% in local currency. Also, the company expects earnings of $3-$3.08 per share. The consensus estimates had called for full year earnings of $2.92 per share on 5.7% revenue growth.
Resource Connection could see some activity after it reported first quarter net income of 3 cents per share compared to a loss of 16 cents per share last year. The recent quarter’s results included a charge of 1 cent per share compared to 9 cents per share last year. Revenues rose 4.6% to $123.7 million. Analysts expected break-even results on revenues of $120.59 million.
Christopher & Banks may also be in focus after it reported a second quarter net loss of 7 cents per share, wider than the net loss of 6 cents per share last year. The recent quarter included a charge of 1 cent per share compared to a benefit of 2 cents per share last year. Net sales remained almost flat at $101.3 million. For the third quarter, the company expects a low single digit increase in comparable store sales. Analysts expected a loss of 5 cents per share on revenues of $105.38 million.
Lawson Software is likely to see some activity after it reported that its first quarter non-GAAP net income rose to 11 cents per share from 9 cents per share last year. Revenues climbed 3% to $174.66 million. The consensus estimates had called for earnings of 9 cents per share on revenues of $171.88 million. The company expects second quarter non-GAAP earnings of 11-12 cents per share on revenues of $184 million to $189 million. Meanwhile, analysts estimate earnings of 12 cents per share on revenues of $189.64 million.
United Natural Foods could react to its announcement that it has priced its previously announced public offering of 3.85 million shares at $33 per share.
Meanwhile, CLARCOR may move to the upside after it announced a 7.7% increase in its regular quarterly dividend from $0.0975 per share to $0.105 per share.
Merck is expected to see some activity after it announced that it would vigorously appeal a Massachusetts federal court jury verdict concerning allegations that a former subsidiary of Schering-Plough caused the Commonwealth of Massachusetts to overpay local pharmacists for prescriptions of albuterol.
The major averages are currently on opposite sides of the unchanged line, with the Nasdaq posting a modest loss. The Nasdaq is currently down 4.68 points or 0.2 percent at 2,363.94, the Dow is up 10.60 points or 0.1 percent at 10,798.65 and the S&P 500 is up 0.04 or less than 0.1 percent at 1,141.24.
A report released by the Institute for Supply Management on Friday showed a notable slowdown in the pace of growth in the manufacturing sector in the month of September, although activity in the sector still expanded for the fourteenth consecutive month.
The ISM said its index of activity in the manufacturing sector fell to 54.4 in September from 56.3 in August, but a reading above 50 indicates continued growth in the sector. Economists had been expecting the index to fall to a reading of 54.8.
Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said, “While the headline number shows relative strength this month as the PMI reading of 54.4 percent is still quite positive, the overall picture is less encouraging.”
Meanwhile, the Commerce Department released a report showing that construction spending rose by 0.4 percent in August to an annual rate of $811.8 billion after falling 1.4 percent to an annual rate of $808.6 billion in July. The increase surprised economists, who had expected spending to decrease by 0.5 percent.
A separate report released by Thomson Reuters (TRI) and the University of Michigan showed a notable upward revision to their reading on consumer sentiment in the month of September, but the index was still down from the previous month.
The report showed that the consumer sentiment index for September was revised up to a reading of 68.2 from the previously reported reading of 66.6. The index came in above economist estimates of 67.0, although it is down from 68.9 in August.
Before the start of trading, the Commerce Department reported that personal spending increased by 0.4 percent in August, matching the increase that was seen in July. The increase in spending came in slightly above the expectations of economists, who had expected spending to rise by 0.3 percent.
The report also showed that personal income rose by 0.5 percent in August after edging up by 0.2 percent in July. Economists had been expecting income to increase by 0.3 percent.
On the corporate front, Hewlett-Packard (HPQ) announced that it has appointed Leo Apotheker as CEO and president. Apotheker is the former CEO of German tech firm SAP AG (SAP).
Meanwhile, oil giant BP Plc (BP) reported that the total cost of the oil spill in the Gulf of Mexico has ballooned to $11.2 billion. The firm also said it has put up assets for collateral in regards to its $20 billion spill liability fund.
Technology outsourcing and consulting firm Accenture (ACN) said that its fourth-quarter profit surged 75 percent from last year, mainly due to the absence of restructuring charge that impacted prior year results.
Nearly every segment of Accenture recorded positive revenue growth, which led to its quarterly earnings exceeding analysts’ expectations. Further, the company’s board boosted its semi-annual cash dividend by 20 percent.
Sector News
Despite some of the recent downside, oil stocks remain elevated, with the NYSE Arca Oil Index posting a 1.2 percent gain. The advance has the index on pace for a five-month closing high, as the price of oil is up by $0.95 at $80.92 a barrel.
Software, airline and steel stocks also remain on the upside but have moved well off of their best levels of the day.
Meanwhile, notable weakness has emerged among railroad stocks, with the Dow Jones Railroads Index down by 1.6 percent. The decline is pulling the index down further off of last week’s two-year closing high.
Health insurance and healthcare provider stocks are also trading lower but are seeing less pronounced losses.
Stocks Driven By Analyst Comments
Electric utilities firm IdaCorp (IDA) is trading higher after being upgraded at KeyBanc Capital Markets from Hold to Buy. Shares are currently up by 1.3 percent after setting a two-month intraday high earlier.
Walgreen (WAG) is also on the upside after an upgrade at Morgan Stanley from Equalweight to Overweight. The stock is posting a 0.6 percent gain, challenging the four-month closing high set earlier this week.
On the other hand, JA Solar (JASO) is seeing notable weakness after being downgraded at Auriga from Buy to Hold. The stock is down by 5.3 percent, pulling back off of a two-year closing high set on Thursday.
Other Markets
Overseas, stock markets in the Asia-Pacific region ended mostly higher on Friday. Japan’s benchmark Nikkei 225 Index gained 0.4 percent, while India’s BSE 30 Index advanced by 1.9 percent. The Chinese markets were closed on the day.
Meanwhile, the major European markets are mixed. The U.K.’s FTSE 100 Index is up by 0.6 percent, while the French CAC 40 Index and the German DAX Index are down by 0.9 percent and 0.4 percent, respectively.
In the bond markets, treasuries are little changed. The yield on the benchmark ten-year note is holding near the flat line at 2.515 percent.
Currency, Commodity Markets
TSX Set To Open Higher Amid Firm Global Cues
Bay Street stocks may open higher Friday amid firm commodities prices after China reported a strong manufacturing growth in August. Positive cues from the global equity market might also lift trader sentiment.
On Thursday, the S&P/TSX Composite Index eased 14.16 points or 0.11% to 12,368.65, a day after rising to its highest level in 2 years.
The price of crude oil moved up to a fresh two month high after a reading on China’s purchasing managers’ index came in better than expected. Crude for November was up $1.35 to $81.32 a barrel.
The price of gold continued to move higher, hitting fresh highs amid a weak U.S. dollar. Gold for December was up $7.50 to $1,317.10 an ounce.
In the M&A patch, TD Bank said it has completed the acquisition of The South Financial Group, Inc.
Paper manufacturer Domtar Corp. said it would sell its Woodland hardwood market pulp mill and related assets to International Grand Investment Corp. for $60 million plus working capital of $4 million.
Telecommunications industry services provider EXFO Inc. announced that it has sold its Life Sciences and Industrial Division to a global private equity firm, The Riverside Company for $24.3 million in cash.
Entertainment technology company IMAX Corp. announced that it has expand its joint venture agreement with Regal Entertainment Group to include installation of an additional 16 to 25 new IMAX theatres in the U.S.
Energy sector seismic data services provider Pulse Seismic said it acquired the entire 2D and 3D seismic data library from Divestco Inc. to more than double the size of its 3D seismic data library from approximately 12,900 to 26,400 net square kilometres.
Precious metals miner Halo Resources said it has increased the size of its non brokered private placement up to 1.8 million units for a gross proceeds of C$450,000, mainly to fund an accelerated drill program at its West Red Lake Project Ontario
Gold miner Centerra Gold announced that production was suspended at its Kumtor Mine in the Kyrgyz Republic, due to labor strike.
Oil transportation pipes maker Yalian Steel said Lan Shangguan has been appointed as the CFO and corporate secretary effective immediately.
In economic news, Canadian consumer confidence fell significantly in August, the latest survey by the Royal Bank of Canada revealed. The Canadian Consumer Outlook Index fell to 94 in August from a reading of 108 in July, the bank said.
From south of the border, the Commerce Department said that personal spending increased by 0.4%in August, matching the increase that was seen in July. Economists were expecting the spending to rise by 0.3%. Additionally, the Department said that personal income rose by 0.5% in August after edging up by 0.2% in July. Economists had been expecting income to increase by 0.3%.
Elsewhere, China said its purchasing managers’ index rose to 53.8 from 51.7 in the previous month, beating economists’ expectation for a reading of 52.5.
Asia
Asian Markets End In Positive Territory
Asian markets open for trading on Friday, the first day of the new month and the fourth quarter, ended the trading session in positive territory on optimism about sustaining global economic recovery. Positive economic data in the US related to second quarter GDP and weekly jobless claims, as well as pick-up in manufacturing growth in the world’s second largest economy during September lifted market sentiment. The markets in China and Hong Kong were closed for a holiday. All the other markets, excluding Australian market, ended in positive territory.
In Australia, the benchmark S&P/ASX200 Index slipped 3.70 points, or 0.08%, and closed at 4,579 points, while the All-Ordinaries Index ended at 4,635, representing a loss of 2.20 points, or 0.05%.
On the economic front, a report released jointly by the Australian Industry Group and PriceWaterhouse Coopers revealed that manufacturing activity in the country fell into a state of contraction in September. As per the report, the group’s latest Performance of Manufacturing Index reading was 47.3 points, down 4.4 points from the August reading of 51.7. Readings below 50.0 indicate contraction of activity in the measured sector.
Light sweet crude oil futures for November delivery ended at $80.46 a barrel in electronic trading, up $0.49 per barrel from previous close at $79.97 a barrel in New York on Thursday.
Banks ended in negative territory. ANZ Bank slipped 0.72%, Commonwealth Bank of Australia shed 0.53%, National Australia Bank fell 1.34% and Westpac Banking lost 1.33%. Investment banker Macquarie Group was down 0.30%.
Mixed trading was witnessed among oil related stocks. Woodside Petroleum advanced 0.96%, ROC Oil Ltd surged up 3.95% and Oil Search Ltd gained 1.30%. However, Santos Ltd declined 0.78% and Origin Energy edged down 0.06%.
Resource related stocks also witnessed mixed trading. BHP Billiton gained 1.41%, Rio Tinto advanced 0.39%, Fortescue Metals gained 1.15%, Gindalbie Metals added 0.55%, Iluka Resources rose 0.50%, Macarthur Coal was up by 0.85%, Murchison Metals climbed 1.20% and Oz Minerals increased by 0.69%. Mincor Resources remained unchanged from previous close. However, Minara Resources bucked the trend and ended in negative territory with a loss of 1.31%.
In Japan, the benchmark Nikkei 225 Index rose 34.88 points, or 0.37%, to 9,404, while the broader Topix index of all First Section issues was up 0.46 point, or 0.06%, to 830.
On the economic front, a report released by the Ministry of Internal Affairs and Communications revealed that nationwide core consumer prices in Japan were down 1.0% on year in August, matching expectations following the 1.1% decline in July. Overall nationwide inflation was unchanged at -0.9% on year, again in line with forecasts. Overall inflation for Tokyo – considered a leading indicator for the nationwide trend, showed a 0.6% decline on year in September. Analysts had been expecting a 0.9% decline following the 1.0% contraction in August. Core inflation in Tokyo came in at -1.0%, matching forecasts after shedding 1.1% in August.
In a separate report, the Ministry of Internal Affairs and Communications revealed that average household spending in the country climbed 1.7% on year in August, standing at 293,361 yen. That beat forecasts for a 1.4% following the 1.1% gain in July. Wage earner household spending jumped an annual 2.7% to 323,758 yen. The report further noted that the propensity to consume added 1.6% points on year to 83.3%.
In yet another report, the Ministry of Internal Affairs and Communications revealed that the unemployment rate in the country came in at a seasonally adjusted 5.1% in August, in line with analysts’ expectations, easing from 5.2% reported for the previous month. As per the report, the number of unemployed persons in August was 3.37 million, a decline of 240,000 or 6.6% from the previous year. The number of employed persons was 62.78 million, down 180,000 or 0.3% on year. The report further noted that the job-to-applicant ratio was 0.54, matching expectations after showing 0.53 in July, and the labor force participation rate was 59.9%, down 0.3% on year.
Light sweet crude oil futures for November delivery ended at $80.46 a barrel in electronic trading, up $0.49 per barrel from previous close at $79.97 a barrel in New York on Thursday.
Real estate stocks led the gains in the market. Mitsui Fudosan gained surged up 3.69%, Mitsubishi Estate climbed 3.24%, Sumitomo Realty & Development advanced 0.58%, Tokyo Tatemono Co gained 2.19%, Tokyu Land Corp. added 1.16% and Heiwa Real Estate was up 1.01%.
Pharmaceuticals also advanced into positive territory. Astellas Pharma gained 1.82%, Takeda Pharmaceuticals advanced 0.78%, Dainippon Sumitomo Pharma climbed 3.43%, Daichi Sankyo added 1.35% and Chugai Pharmaceuticals was up 1.11%.
Adding to yesterday’s gains, the Indian market rose sharply on Friday, buoyed by positive global cues and strong growth in monthly sales numbers reported by auto makers like Tata Motors, Maruti Suzuki and TVS Motors. A split but pragmatic verdict on the Ayodhya dispute, data showing continued FII buying in Indian equities and a rise in India’s exports for the 10th consecutive month in August also underpinned sentiment, while investors shrugged off a survey report which showed a slowdown in India’s manufacturing sector growth in September.
The seasonally adjusted HSBC Purchasing Managers’ Index, which measures the overall health of the manufacturing sector, fell to 55.1 in September from 57.2 in August, as growth in overall new business intake slowed for a second successive month. Elsewhere, reports about stronger growth in Chinese manufacturing activity for September and upbeat U.S. data on second-quarter GDP, weekly jobless claims and Midwest business activity for September helped ease concerns over a double-dip recession in the world’s largest economy.
The 30-share BSE Sensex ended up about 375 points or 1.87% near the day’s high at 20,445 and the broader Nifty rose by 113 points or 1.88% to 6,143.
The markets in China and Hong Kong were closed for a holiday.
Among the other markets in the region, Jakarta Composite Index in Indonesia gained 45.82 points, or 1.31%, to 3,547, the Strait Times Index in Singapore advanced 33.27 points, or 1.07%, to close at 3,131, and Taiwan Weighted Index edged higher by 6.42 points, or 0.08%, to close at 8,244.
European Market Updates
The major European markets are trading higher on Friday, with the French CAC 40 Index rising 0.10%, while the German DAX Index and the U.K.’s FTSE 100 Index is rising 0.52% and 0.92%, respectively.
In economic news, Markit Economics reported that eurozone manufacturing activity fell to an eight-month low in September, whil e new orders received by manufacturers grew at the slowest pace in a year. The manufacturing purchasing managers’ index came in at a seasonally adjusted 53.7, down from 55.1 in August, but up from the preliminary estimate of 53.6.
Meanwhile, a separate report showed that the euro area’s unemployment rate stayed at a 12-year high of 10.1% in August. The unemployment rate had remained at this level since May.
German retail sales fell 0.2% month-over-month in August, according to a report released by the German Federal Statistical Office. Economists expected a 0.4% increase for the month. On a year-over-year basis, retail sales were up 2.2%, bigger than the 1.2% increase in July.
U.S. Economic Reports
Personal spending showed another moderate increase in the month of August, according to a report released by the Commerce Department, with the report also showing a notable increase in personal income during the month.
The report showed that personal spending increased by 0.4% in August, matching the increase that was seen in July. The increase in spending came in slightly above the expectations of economists, who had expected spending to rise by 0.3%.
Additionally, the Commerce Department said that personal income rose by 0.5% in August after edging up by 0.2% in July. Economists had been expecting income to increase by 0.3%.
Individual automakers are scheduled to release their monthly U.S. sales results for September. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month.
The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET. Economists expect the index of activity in the sector to show a reading of 54.8 for September.
The manufacturing purchasing managers’ index unexpectedly rose to 56.3 in August from 55.5 in July. The production index rose 2.9 points to 59.9, while the new orders index edged down 0.4 points to 53.1 and the order backlogs index fell 3 points to 51.5. On a surprising note, the employment index climbed 1.8 points to 60.4, a 27-year high. The inventories index also increased, rising 1.2 points to 51.4.
The Reuters/University of Michigan’s final report on the consumer sentiment index for September is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be upwardly revised to 67 from the mid-month reading of 66.6.
The Commerce Department’s construction spending report to be released at 10 AM ET is expected to show a 0.5% decline in spending for August.
Construction spending fell 1% month-over-month in July, steeper than the 0.7% decline expected by economists. Private as well as public construction spending declined from month-ago levels, dropping by 0.8% and 1.2%, respectively. In the private category, single-family and multi-family construction spending was down 2.5% each, while private non-residential construction rose 0.8%.
Stocks in Focus
Hewlett-Packard lost some ground in Thursday’s after hours session after it announced the appointment of Leon Apotheker, a former SAP executive, as its president and CEO, effective November 1st.
Accenture may see some buying interest after it reported that its fourth quarter earnings rose to 66 cents per share from 39 cents per share last year. Net revenues rose to $5.42 billion from the year-ago’s $5.15 billion. The company also increased its semi-annual cash dividend by 20% to 45 cents per Class A ordinary share. Analysts estimated earnings of 63 cents per share on revenues of $5.31 billion. The company expects first quarter revenues of $5.6 billion to $5.8 billion and fiscal year 2011 revenue growth of 7%-10% in local currency. Also, the company expects earnings of $3-$3.08 per share. The consensus estimates had called for full year earnings of $2.92 per share on 5.7% revenue growth.
Resource Connection could see some activity after it reported first quarter net income of 3 cents per share compared to a loss of 16 cents per share last year. The recent quarter’s results included a charge of 1 cent per share compared to 9 cents per share last year. Revenues rose 4.6% to $123.7 million. Analysts expected break-even results on revenues of $120.59 million.
Christopher & Banks may also be in focus after it reported a second quarter net loss of 7 cents per share, wider than the net loss of 6 cents per share last year. The recent quarter included a charge of 1 cent per share compared to a benefit of 2 cents per share last year. Net sales remained almost flat at $101.3 million. For the third quarter, the company expects a low single digit increase in comparable store sales. Analysts expected a loss of 5 cents per share on revenues of $105.38 million.
Lawson Software is likely to see some activity after it reported that its first quarter non-GAAP net income rose to 11 cents per share from 9 cents per share last year. Revenues climbed 3% to $174.66 million. The consensus estimates had called for earnings of 9 cents per share on revenues of $171.88 million. The company expects second quarter non-GAAP earnings of 11-12 cents per share on revenues of $184 million to $189 million. Meanwhile, analysts estimate earnings of 12 cents per share on revenues of $189.64 million.
United Natural Foods could react to its announcement that it has priced its previously announced public offering of 3.85 million shares at $33 per share.
Meanwhile, CLARCOR may move to the upside after it announced a 7.7% increase in its regular quarterly dividend from $0.0975 per share to $0.105 per share.
Merck is expected to see some activity after it announced that it would vigorously appeal a Massachusetts federal court jury verdict concerning allegations that a former subsidiary of Schering-Plough caused the Commonwealth of Massachusetts to overpay local pharmacists for prescriptions of albuterol.
Thursday, September 30, 2010
How to examine your ideas
“Think of and look at your work as though it were done by your enemy. If you look at it to admire it, you are lost”
A growing economy consists of prices falling, not rising.
The stock market does not work the way most people think. A commonly held belief — on Main Street as well as on Wall Street — is that a stock-market boom is the reflection of a progressing economy: as the economy improves, companies make more money, and their stock value rises in accordance with the increase in their intrinsic value. A major assumption underlying this belief is that consumer confidence and consequent consumer spending are drivers of economic growth.
A stock-market bust, on the other hand, is held to result from a drop in consumer and business confidence and spending — due to inflation, rising oil prices, high interest rates, etc., or for no reason at all — that leads to declining business profits and rising unemployment. Whatever the supposed cause, in the common view a weakening economy results in falling company revenues and lower-than-expected future earnings, resulting in falling intrinsic values and falling stock prices.
This understanding of bull and bear markets, while held by academics, investment professionals, and individual investors alike, is technically correct if viewed superficially but is substantially misconceived because it is based on faulty finance and economic theory.
In fact, the only real force that ultimately makes the stock market or any market rise (and, to a large extent, fall) over the longer term is simply changes in the quantity of money and the volume of spending in the economy. Stocks rise when there is inflation of the money supply (i.e., more money in the economy and in the markets). This truth has many consequences that should be considered.
Since stock markets can fall — and fall often — to various degrees for numerous reasons (including a decline in the quantity of money and spending), our focus here will be only on why they are able to rise in a sustained fashion over the longer term.
When the supply of goods and services rises faster than the supply of money — as happened during most of the 1800s — the unit price of each good or service falls, since a given supply of money has to buy, or "cover," an increasing supply of goods or services. George Reisman offers us the critical formula for the derivation of economy-wide prices:
In this formula, price (P) is determined by demand (D) divided by supply (S). The formula shows us that it is mathematically impossible for aggregate prices to rise by any means other than (1) increasing demand, or (2) decreasing supply; i.e., by either more money being spent to buy goods, or fewer goods being sold in the economy.
In our developed economy, the supply of goods is not decreasing, or at least not at enough of a pace to raise prices at the usual rate of 3–4 percent per year; prices are rising due to more money entering the marketplace.
The same price formula noted above can equally be applied to asset prices — stocks, bonds, commodities, houses, oil, fine art, etc. It also pertains to corporate revenues and profits. As Fritz Machlup states:
There are other ways the market could go higher, but their effects are temporary. For example, an increase in net savings involving less money spent on consumer goods and more invested in the stock market (resulting in lower prices of consumer goods) could send stock prices higher, but only by the specific extent of the new savings, assuming all of it is redirected to the stock market.
The same applies to reduced tax rates. These would be temporary effects resulting in a finite and terminal increase in stock prices. Money coming off the "sidelines" could also lift the market, but once all sideline money was inserted into the market, there would be no more funds with which to bid prices higher. The only source of ongoing fuel that could propel the market — any asset market — higher is new and additional bank credit. As Machlup writes,
Understanding that the flow of recently created money is the driving force of rising asset markets has numerous implications. The rest of this article addresses some of these implications.
A progressing economy is one in which more goods are being produced over time. It is real "stuff," not money per se, which represents real wealth. The more cars, refrigerators, food, clothes, medicines, and hammocks we have, the better off our lives. We saw above that, if goods are produced at a faster rate than money, prices will fall. With a constant supply of money, wages would remain the same while prices fell, because the supply of goods would increase while the supply of workers would not. But even when prices rise due to money being created faster than goods, prices still fall in real terms, because wages rise faster than prices. In either scenario, if productivity and output are increasing, goods get cheaper in real terms.
Obviously, then, a growing economy consists of prices falling, not rising. No matter how many goods are produced, if the quantity of money remains constant, the only money that can be spent in an economy is the particular amount of money existing in it (and velocity, or the number of times each dollar is spent, could not change very much if the money supply remained unchanged).
This alone reveals that GDP does not necessarily tell us much about the number of actual goods and services being produced; it only tells us that if (even real) GDP is rising, the money supply must be increasing, since a rise in GDP is mathematically possible only if the money price of individual goods produced is increasing to some degree.[5] Otherwise, with a constant supply of money and spending, the total amount of money companies earn — the total selling prices of all goods produced — and thus GDP itself would all necessarily remain constant year after year.
In an economy where the quantity of money was static, the levels of stock indexes, year by year, would stay approximately even, or drift slightly lower[6] — depending on the rate of increase in the number of new shares issued. And, overall, businesses (in the aggregate) would be selling a greater volume of goods at lower prices, and total revenues would remain the same. In the same way, businesses, overall, would purchase more goods at lower prices each year, keeping the spread between costs and revenues about the same, which would keep aggregate profits about the same.
Under these circumstances, capital gains (the profiting from the buying low and selling high of assets) could be made only by stock picking — by investing in companies that are expanding market share, bringing to market new products, etc., thus truly gaining proportionately more revenues and profits at the expense of those companies that are less innovative and efficient.
The stock prices of the gaining companies would rise while others fell. Since the average stock would not actually increase in value, most of the gains made by investors from stocks would be in the form of dividend payments. By contrast, in our world today, most stocks — good and bad ones — rise during inflationary bull markets and decline during bear markets. The good companies simply rise faster than the bad.
Similarly, housing prices under static money would actually fall slowly — unless their value was significantly increased by renovations and remodeling. Older houses would sell for much less than newer houses. To put this in perspective, consider that if our rate of inflation were high enough, used cars would rise in price just like new cars, only at a slower rate — but just about everything would increase in price, as it does in countries with hyperinflation The amount by which a home "increases in value" over 30 years really just represents the amount of purchasing power that the dollars we hold have lost: while the dollars lost purchasing power, the house — and other assets more limited in supply growth — kept its purchasing power.
Since we have seen that neither the stock market nor GDP can rise on a sustained basis without more money pushing them higher, we can now clearly understand that an improving economy neither consists of an increasing GDP nor does it cause the overall stock market to rise.
This is not to say that a link does not exist between the money that companies earn and their value on the stock exchange in our inflationary world today, but that the parameters of that link — valuation relationships such as earnings ratios and stock-market capitalization as a percent of GDP — are rather flexible, and as we will see below, change over time. Money sometimes flows more into stocks and at other times more into the underlying companies, changing the balance of the valuation relationships.
To the extent that some of us even come close to succeeding, we are still pushed further behind by having our "gains" taxed. The whole system of inflation is solely for the purpose of theft and wealth redistribution. In a world absent of government printing presses and wealth taxes, the armies of investment advisors, pension-fund administrators, estate planners, lawyers, and accountants associated with helping us plan for the future would mostly not exist. These people would instead be employed in other industries producing goods and services that would truly increase our standards of living.
For example, revenues and, particularly, profits, rise and fall with the ebb and flow of money and spending that arises from central-bank credit creation. When the government creates new money and inserts it into the economy, the new money increases sales revenues of companies before it increases their costs; when sales revenues rise faster than costs, profit margins increase.
Specifically, how this comes about is that new money, created electronically by the government and loaned out through banks, is spent by borrowing companies.[7] Their expenditures show up as new and additional sales revenues for businesses. But much of the corresponding costs associated with the new revenues lags behind in time because of technical accounting procedures, such as the spreading of asset costs across the useful life of the asset (depreciation) and the postponing of recognition of inventory costs until the product is sold (cost of goods sold). These practices delay the recognition of costs on the profit-and-nloss statements (i.e., income statements).
Since these costs are recognized on companies' income statements months or years after they are actually incurred, their monetary value is diminished by inflation by the time they are recognized. For example, if a company recognizes $1 million in costs for equipment purchased in 1999, that $1 million is worth less today than in 1999; but on the income statement the corresponding revenues recognized today are in today's purchasing power. Therefore, there is an equivalently greater amount of revenues spent today for the same items than there was ten years ago (since it takes more money to buy the same good, due to the devaluation of the currency).
In summary, credit expansion increases the spreads between revenue and costs, increasing profit margins. The tremendous amount of money created in 2008 and 2009 is what is responsible for the fantastic profits companies are currently reporting (even though the amount of money loaned out was small, relative to the increase in the monetary base).
Since business sales revenues increase before business costs, with every round of new money printed, business profit margins stay widened; they also increase in line with an increased rate of inflation. This is one reason why countries with high rates of inflation have such high rates of profit.[8] During bad economic times, when the government has quit printing money at a high rate, profits shrink, and during times of deflation, sales revenues fall faster than do costs.
It is also new money flowing into industry from the central bank that is the primary cause behind positive changes in leading economic indicators such as industrial production, consumer durables spending, and retail sales. As new money is created, these variables rise based on the new monetary demand, not because of resumed real economic growth.
A final example of money affecting the fundamentals is interest rates. It is said that when interest rates fall, the common method of discounting future expected cash flows with market interest rates means that the stock market should rise, since future earnings should be valued more highly. This is true both logically and mathematically. But, in the aggregate, if there is no more money with which to bid up stock prices, it is difficult for prices to rise, unless the interest rate declined due to an increase in savings rates.
In reality, the help needed to lift the market comes from the fact that when interest rates are lowered, it is by way of the central bank creating new money that hits the loanable-funds markets. This increases the supply of loanable funds and thus lowers rates. It is this new money being inserted into the market that then helps propel it higher.
(I would personally argue that most of the discounting of future values [PV calculations] demonstrated in finance textbooks and undertaken on Wall Street are misconceived as well. In a world of a constant money supply and falling prices, the future monetary value of the income of the average company would be about the same as the present value. Future values would hardly need to be discounted for time preference [and mathematically, it would not make sense], since lower consumer prices in the future would address this. Though investment analysts believe they should discount future values, I believe that they should not. What they should instead be discounting is earnings inflation and asset inflation, each of which grows at different paces.)[9]
There are two main reasons for this channeling of money into financial assets. The first is changes in the financial system in the mid and late 1980s, when an explosive growth of domestic credit channels outside of traditional bank lending opened up in the financial markets. The second is changes in the US trade deficit in the late 1980s, wherein it became larger, and export receipts received by foreigners were increasingly recycled by foreign central banks into US asset markets.[10] As financial economist Peter Warburton states,
One effect of the new money flowing disproportionately into asset prices is that the Fed cannot "grow the economy" as much as it used to, since more of the new money created in the banking system flows into asset prices rather than into GDP. Since it is commonly thought that creating money is necessary for a growing economy, and since it is believed that the Fed creates real demand (instead of only monetary demand), the Fed pumps more and more money into the economy in order to "grow it."
That also means that more money — relative to the size of the economy — "leaks" out into asset prices than used to be the case. The result is not only exploding asset prices in the United States, such as the NASDAQ and housing-market bubbles but also in other countries throughout the world, as new money makes its way into asset markets of foreign countries.[13]
A second effect of more new money being channeled into asset prices is, as hinted above, that it results in the traditional range of stock valuations moving to a higher level. For example, the ratio of stock prices to stock earnings (P/E ratio) now averages about 20, whereas it used to average 10–15. It now bottoms out at a level of 12–16 instead of the historical 5. A similar elevated state applies to Tobin's Q, a measure of the market value of a company's stock relative to its book value. But the change in relative flow of new money to asset prices in recent years is perhaps best seen in the chart below, which shows the stunning increase in total stock-market capitalization as a percentage of GDP (figure 1).
The changes in these valuation indicators I have shown above reveal that the fundamental links between company earnings and their stock-market valuation can be altered merely by money flows originating from the central bank.
Government spending harms the economy and forestalls its healing. The thought that stimulus spending, i.e., taking money from the productive sector (a de-accumulation of capital) and using it to consume existing consumer goods or using it to direct capital goods toward unprofitable uses, could in turn create new net real wealth — real goods and services — is preposterous.
What is most needed during recessions is for the economy to be allowed to get worse — for it to flush out the excesses and reset itself on firm footing. Broken economies suffer from a misallocation of resources consequent upon prior government interventions and can therefore be healed only by allowing the economy's natural balance to be restored. Falling prices and lack of government and consumer spending are part of this process.
Given that government spending cannot help the real economy, can it help the specific indicator called GDP? Yes it can. Since GDP is mostly a measure of inflation, if banks are willing to lend and borrowers are willing to borrow, then the newly created money that the government is spending will make its way through the economy. As banks lend the new money once they receive it, the money multiplier will kick in and the money supply will increase, which will raise GDP.
As for the idea that government spending helps the stock market, the analysis is a bit more complicated. Government spending per se cannot help the stock market, since little, if any, of the money spent will find its way into financial markets. But the creation of money that occurs when the central bank (indirectly) purchases new government debt can certainly raise the stock market. If new money created by the central bank is loaned out through banks, much of it will end up in the stock market and other financial markets, pushing prices higher.
A stock-market bust, on the other hand, is held to result from a drop in consumer and business confidence and spending — due to inflation, rising oil prices, high interest rates, etc., or for no reason at all — that leads to declining business profits and rising unemployment. Whatever the supposed cause, in the common view a weakening economy results in falling company revenues and lower-than-expected future earnings, resulting in falling intrinsic values and falling stock prices.
This understanding of bull and bear markets, while held by academics, investment professionals, and individual investors alike, is technically correct if viewed superficially but is substantially misconceived because it is based on faulty finance and economic theory.
In fact, the only real force that ultimately makes the stock market or any market rise (and, to a large extent, fall) over the longer term is simply changes in the quantity of money and the volume of spending in the economy. Stocks rise when there is inflation of the money supply (i.e., more money in the economy and in the markets). This truth has many consequences that should be considered.
Since stock markets can fall — and fall often — to various degrees for numerous reasons (including a decline in the quantity of money and spending), our focus here will be only on why they are able to rise in a sustained fashion over the longer term.
The Fundamental Source of All Rising Prices
For perspective, let's put stock prices aside for a moment and make sure first to understand how aggregate consumer prices rise. In short, overall prices can rise only if the quantity of money in the economy increases faster than the quantity of goods and services. (In economically retrogressing countries, prices can rise when the supply of goods diminishes while the supply of money remains the same, or even rises.)When the supply of goods and services rises faster than the supply of money — as happened during most of the 1800s — the unit price of each good or service falls, since a given supply of money has to buy, or "cover," an increasing supply of goods or services. George Reisman offers us the critical formula for the derivation of economy-wide prices:
In our developed economy, the supply of goods is not decreasing, or at least not at enough of a pace to raise prices at the usual rate of 3–4 percent per year; prices are rising due to more money entering the marketplace.
The same price formula noted above can equally be applied to asset prices — stocks, bonds, commodities, houses, oil, fine art, etc. It also pertains to corporate revenues and profits. As Fritz Machlup states:
It is impossible for the profits of all or of the majority of enterprises to rise without an increase in the effective monetary circulation (through the creation of new credit or dishoarding).[2]To return to our focus on the stock market in particular, it should be seen now that the market cannot continually rise on a sustained basis without more money — specifically bank credit — flowing into it.
There are other ways the market could go higher, but their effects are temporary. For example, an increase in net savings involving less money spent on consumer goods and more invested in the stock market (resulting in lower prices of consumer goods) could send stock prices higher, but only by the specific extent of the new savings, assuming all of it is redirected to the stock market.
The same applies to reduced tax rates. These would be temporary effects resulting in a finite and terminal increase in stock prices. Money coming off the "sidelines" could also lift the market, but once all sideline money was inserted into the market, there would be no more funds with which to bid prices higher. The only source of ongoing fuel that could propel the market — any asset market — higher is new and additional bank credit. As Machlup writes,
If it were not for the elasticity of bank credit … a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic.… Only if the credit organization of the banks (by means of inflationary credit) or large-scale dishoarding by the public make the supply of loanable funds highly elastic, can a lasting boom develop.… A rise on the securities market cannot last any length of time unless the public is both willing and able to make increased purchases.[3] (Emphasis added.)The last line in the quote helps to reveal that neither population growth nor consumer sentiment alone can drive stock prices higher. Whatever the population, it is using a finite quantity of money; whatever the sentiment, it must be accompanied by the public's ability to add additional funds to the market in order to drive it higher.[4]
Understanding that the flow of recently created money is the driving force of rising asset markets has numerous implications. The rest of this article addresses some of these implications.
The Link between the Economy and the Stock Market
The primary link between the stock market and the economy — in the aggregate — is that an increase in money and credit pushes up both GDP and the stock market simultaneously.A progressing economy is one in which more goods are being produced over time. It is real "stuff," not money per se, which represents real wealth. The more cars, refrigerators, food, clothes, medicines, and hammocks we have, the better off our lives. We saw above that, if goods are produced at a faster rate than money, prices will fall. With a constant supply of money, wages would remain the same while prices fell, because the supply of goods would increase while the supply of workers would not. But even when prices rise due to money being created faster than goods, prices still fall in real terms, because wages rise faster than prices. In either scenario, if productivity and output are increasing, goods get cheaper in real terms.
Obviously, then, a growing economy consists of prices falling, not rising. No matter how many goods are produced, if the quantity of money remains constant, the only money that can be spent in an economy is the particular amount of money existing in it (and velocity, or the number of times each dollar is spent, could not change very much if the money supply remained unchanged).
This alone reveals that GDP does not necessarily tell us much about the number of actual goods and services being produced; it only tells us that if (even real) GDP is rising, the money supply must be increasing, since a rise in GDP is mathematically possible only if the money price of individual goods produced is increasing to some degree.[5] Otherwise, with a constant supply of money and spending, the total amount of money companies earn — the total selling prices of all goods produced — and thus GDP itself would all necessarily remain constant year after year.
"Consider that if our rate of inflation were high enough, used cars would rise in price just like new cars, only at a slower rate."
The same concept would apply to the stock market: if there were a constant amount of money in the economy, the sum total of all shares of all stocks taken together (or a stock index) could not increase. Plus, if company profits, in the aggregate, were not increasing, there would be no aggregate increase in earnings per share to be imputed into stock prices.In an economy where the quantity of money was static, the levels of stock indexes, year by year, would stay approximately even, or drift slightly lower[6] — depending on the rate of increase in the number of new shares issued. And, overall, businesses (in the aggregate) would be selling a greater volume of goods at lower prices, and total revenues would remain the same. In the same way, businesses, overall, would purchase more goods at lower prices each year, keeping the spread between costs and revenues about the same, which would keep aggregate profits about the same.
Under these circumstances, capital gains (the profiting from the buying low and selling high of assets) could be made only by stock picking — by investing in companies that are expanding market share, bringing to market new products, etc., thus truly gaining proportionately more revenues and profits at the expense of those companies that are less innovative and efficient.
The stock prices of the gaining companies would rise while others fell. Since the average stock would not actually increase in value, most of the gains made by investors from stocks would be in the form of dividend payments. By contrast, in our world today, most stocks — good and bad ones — rise during inflationary bull markets and decline during bear markets. The good companies simply rise faster than the bad.
Similarly, housing prices under static money would actually fall slowly — unless their value was significantly increased by renovations and remodeling. Older houses would sell for much less than newer houses. To put this in perspective, consider that if our rate of inflation were high enough, used cars would rise in price just like new cars, only at a slower rate — but just about everything would increase in price, as it does in countries with hyperinflation The amount by which a home "increases in value" over 30 years really just represents the amount of purchasing power that the dollars we hold have lost: while the dollars lost purchasing power, the house — and other assets more limited in supply growth — kept its purchasing power.
Since we have seen that neither the stock market nor GDP can rise on a sustained basis without more money pushing them higher, we can now clearly understand that an improving economy neither consists of an increasing GDP nor does it cause the overall stock market to rise.
This is not to say that a link does not exist between the money that companies earn and their value on the stock exchange in our inflationary world today, but that the parameters of that link — valuation relationships such as earnings ratios and stock-market capitalization as a percent of GDP — are rather flexible, and as we will see below, change over time. Money sometimes flows more into stocks and at other times more into the underlying companies, changing the balance of the valuation relationships.
Forced Investing
As we have seen, the whole concept of rising asset prices and stock investments constantly increasing in value is an economic illusion. What we are really seeing is our currency being devalued by the addition of new currency issued by the central bank. The prices of stocks, houses, gold, etc., do not really rise; they merely do better at keeping their value than do paper bills and digital checking accounts, since their supply is not increasing as fast as are paper bills and digital checking accounts."An improving economy neither consists of an increasing GDP nor does it cause the overall stock market to rise."
The fact that we have to save for the future is, in fact, an outrage. Were no money printed by the government and the banks, things would get cheaper through time, and we would not need much money for retirement, because it would cost much less to live each day then than it does now. But we are forced to invest in today's government-manipulated inflation-creation world in order to try to keep our purchasing power constant.To the extent that some of us even come close to succeeding, we are still pushed further behind by having our "gains" taxed. The whole system of inflation is solely for the purpose of theft and wealth redistribution. In a world absent of government printing presses and wealth taxes, the armies of investment advisors, pension-fund administrators, estate planners, lawyers, and accountants associated with helping us plan for the future would mostly not exist. These people would instead be employed in other industries producing goods and services that would truly increase our standards of living.
The Fundamentals are Not the Fundamentals
If it is, then, primarily newly printed money flowing into and pushing up the prices of stocks and other assets, what real importance do the so-called fundamentals — revenues, earnings, cash flow, etc. — have? In the case of the fundamentals, too, it is newly printed money from the central bank, for the most part, that impacts these variables in the aggregate: the financial fundamentals are determined to a large degree by economic changes.For example, revenues and, particularly, profits, rise and fall with the ebb and flow of money and spending that arises from central-bank credit creation. When the government creates new money and inserts it into the economy, the new money increases sales revenues of companies before it increases their costs; when sales revenues rise faster than costs, profit margins increase.
Specifically, how this comes about is that new money, created electronically by the government and loaned out through banks, is spent by borrowing companies.[7] Their expenditures show up as new and additional sales revenues for businesses. But much of the corresponding costs associated with the new revenues lags behind in time because of technical accounting procedures, such as the spreading of asset costs across the useful life of the asset (depreciation) and the postponing of recognition of inventory costs until the product is sold (cost of goods sold). These practices delay the recognition of costs on the profit-and-nloss statements (i.e., income statements).
Since these costs are recognized on companies' income statements months or years after they are actually incurred, their monetary value is diminished by inflation by the time they are recognized. For example, if a company recognizes $1 million in costs for equipment purchased in 1999, that $1 million is worth less today than in 1999; but on the income statement the corresponding revenues recognized today are in today's purchasing power. Therefore, there is an equivalently greater amount of revenues spent today for the same items than there was ten years ago (since it takes more money to buy the same good, due to the devaluation of the currency).
"With more money being created through time, the amount of revenues is always greater than the amount of costs, since most costs are incurred when there is less money existing."
Another way of looking at it is that, with more money being created through time, the amount of revenues is always greater than the amount of costs, since most costs are incurred when there is less money existing. Thus, because of inflation, the total monetary value of business costs in a given time frame is smaller than the total monetary value of the corresponding business revenues. Were there no inflation, costs would more closely equal revenues, even if their recognition were delayed.In summary, credit expansion increases the spreads between revenue and costs, increasing profit margins. The tremendous amount of money created in 2008 and 2009 is what is responsible for the fantastic profits companies are currently reporting (even though the amount of money loaned out was small, relative to the increase in the monetary base).
Since business sales revenues increase before business costs, with every round of new money printed, business profit margins stay widened; they also increase in line with an increased rate of inflation. This is one reason why countries with high rates of inflation have such high rates of profit.[8] During bad economic times, when the government has quit printing money at a high rate, profits shrink, and during times of deflation, sales revenues fall faster than do costs.
It is also new money flowing into industry from the central bank that is the primary cause behind positive changes in leading economic indicators such as industrial production, consumer durables spending, and retail sales. As new money is created, these variables rise based on the new monetary demand, not because of resumed real economic growth.
A final example of money affecting the fundamentals is interest rates. It is said that when interest rates fall, the common method of discounting future expected cash flows with market interest rates means that the stock market should rise, since future earnings should be valued more highly. This is true both logically and mathematically. But, in the aggregate, if there is no more money with which to bid up stock prices, it is difficult for prices to rise, unless the interest rate declined due to an increase in savings rates.
In reality, the help needed to lift the market comes from the fact that when interest rates are lowered, it is by way of the central bank creating new money that hits the loanable-funds markets. This increases the supply of loanable funds and thus lowers rates. It is this new money being inserted into the market that then helps propel it higher.
(I would personally argue that most of the discounting of future values [PV calculations] demonstrated in finance textbooks and undertaken on Wall Street are misconceived as well. In a world of a constant money supply and falling prices, the future monetary value of the income of the average company would be about the same as the present value. Future values would hardly need to be discounted for time preference [and mathematically, it would not make sense], since lower consumer prices in the future would address this. Though investment analysts believe they should discount future values, I believe that they should not. What they should instead be discounting is earnings inflation and asset inflation, each of which grows at different paces.)[9]
Asset Inflation versus Consumer Price Inflation
Newly printed money can affect asset prices more than consumer prices. Most people think that the Federal Reserve has done a good job of preventing inflation over the last twenty-plus years. The reality is that it has created a tremendous amount of money, but that the money has disproportionately flowed into financial markets instead of into the real economy, where it would have otherwise created drastically more price inflation.There are two main reasons for this channeling of money into financial assets. The first is changes in the financial system in the mid and late 1980s, when an explosive growth of domestic credit channels outside of traditional bank lending opened up in the financial markets. The second is changes in the US trade deficit in the late 1980s, wherein it became larger, and export receipts received by foreigners were increasingly recycled by foreign central banks into US asset markets.[10] As financial economist Peter Warburton states,
a diversification of the credit process has shifted the centre of gravity away from conventional bank lending. The ascendancy of financial markets and the proliferation of domestic credit channels outside the [traditional] monetary system have greatly diminished the linkages between … credit expansion and price inflation in the large western economies. The impressive reduction of inflation is a dangerous illusion; it has been obtained largely by substituting one set of serious problems for another.[11]And, as bond-fund guru Bill Gross said,
what now appears to be confirmed as a housing bubble, was substantially inflated by nearly $1 trillion of annual reserve flowing back into US Treasury and mortgage markets at subsidized yields.… This foreign repatriation produced artificially low yields.… There is likely near unanimity that it is now responsible for pumping nearly $800 billion of cash flow into our bond and equity markets annually.[12]This insight into the explanation for a lack of price inflation in recent decades should also show that the massive amount of reserves the Fed created in 2008 and 2009 — in response to the recession — might not lead to quite the wild consumer-price inflation everyone expects when it eventually leaves the banking system but instead to wild asset price inflation.
One effect of the new money flowing disproportionately into asset prices is that the Fed cannot "grow the economy" as much as it used to, since more of the new money created in the banking system flows into asset prices rather than into GDP. Since it is commonly thought that creating money is necessary for a growing economy, and since it is believed that the Fed creates real demand (instead of only monetary demand), the Fed pumps more and more money into the economy in order to "grow it."
That also means that more money — relative to the size of the economy — "leaks" out into asset prices than used to be the case. The result is not only exploding asset prices in the United States, such as the NASDAQ and housing-market bubbles but also in other countries throughout the world, as new money makes its way into asset markets of foreign countries.[13]
A second effect of more new money being channeled into asset prices is, as hinted above, that it results in the traditional range of stock valuations moving to a higher level. For example, the ratio of stock prices to stock earnings (P/E ratio) now averages about 20, whereas it used to average 10–15. It now bottoms out at a level of 12–16 instead of the historical 5. A similar elevated state applies to Tobin's Q, a measure of the market value of a company's stock relative to its book value. But the change in relative flow of new money to asset prices in recent years is perhaps best seen in the chart below, which shows the stunning increase in total stock-market capitalization as a percentage of GDP (figure 1).
Figure 1: The Size of the Stock Market Relative to GDP
Source: Thechartstore.com
Can Government Spending Revive the Stock Market and the Economy?
The answer is yes and no. Government spending does not restore any real demand, only nominal monetary demand. Monetary demand is completely unrelated to the real economy, i.e., real production, the creation of goods and services, the rise in real wages, and the ability to consume real things — as opposed to a calculated GDP number.Government spending harms the economy and forestalls its healing. The thought that stimulus spending, i.e., taking money from the productive sector (a de-accumulation of capital) and using it to consume existing consumer goods or using it to direct capital goods toward unprofitable uses, could in turn create new net real wealth — real goods and services — is preposterous.
What is most needed during recessions is for the economy to be allowed to get worse — for it to flush out the excesses and reset itself on firm footing. Broken economies suffer from a misallocation of resources consequent upon prior government interventions and can therefore be healed only by allowing the economy's natural balance to be restored. Falling prices and lack of government and consumer spending are part of this process.
Given that government spending cannot help the real economy, can it help the specific indicator called GDP? Yes it can. Since GDP is mostly a measure of inflation, if banks are willing to lend and borrowers are willing to borrow, then the newly created money that the government is spending will make its way through the economy. As banks lend the new money once they receive it, the money multiplier will kick in and the money supply will increase, which will raise GDP.
"What is most needed during recessions is for the economy to be allowed to get worse — for it to flush out the excesses and reset itself on firm footing."
Tuesday, September 28, 2010
Traders Look Ahead With Hope to Consumer Confidence Data
The major U.S. index futures are pointing to a higher opening on
Tuesday, with sentiment likely to remain guarded ahead of the release of the consumer confidence report. Economic data from across the Atlantic has been encouraging, with Germany reporting a strong consumer confidence reading, while earlier in the day the Asian Development Bank gave an upbeat commentary on growth in developing Asian countries. Depending on how the U.S. consumer confidence index comes in, the markets may see a bounce or a retreat, although range bound trading is most likely.
U.S. stocks reversed course and ended Monday’s session on a moderately weak note, as traders showed indecision amid a lack of trading catalysts. The major averages opened lower and remained below the unchanged line for the better of the session before closing moderately lower.
With the markets trading at their highest levels in more than four months, uncertainty weighed on the averages and prevented any follow through buying. The Dow Industrials ended down 48.22 points or 0.44% at 10,812 and the Nasdaq Composite Index fell 11.45 points or 0.48% to close at 2,370, while the S&P 500 Index finished 6.51 points or 0.57% lower at 1,142.
Twenty-four of the thirty Dow components closed the session lower, with Alcoa (AA), Bank of America (BAC), General Electric (GE), JP Morgan Chase (JPM), Pfizer (PFE) and Travelers Co. (TRV) among the notable decliners. On the other hand, AT&T (T) rose over 1%.
Among the sector indexes, the NYSE Arca Biotechnology Index fell 1.27%, the KBW Bank Index slipped 1.87% and the NYSE Arca Disk Drive Index moved down 2.09%. However, the NYSE Arca Airline Index rose 1.84%.
Currency, Commodity Markets
Crude oil futures are moving down $0.70 to $75.82 a barrel after edging up $0.03 to $76.52 a barrel on Monday. Gold futures are currently receding $11.40 to $1,287.20 an ounce. In the previous session, the precious metal rose $0.50 to $1,298.60 an ounce.
Among currencies, the U.S. dollar is trading at 84.116 yen compared to the 84.2902 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is currently valued at $1.3468 compared to yesterday’s $1.3454.
Asia
The major Asian markets closed Tuesday’s session lower, as the negative lead from Wall Street overnight weighed on the averages. Negative sentiment prevailed despite the Asian Development Bank giving an upbeat outlook for the developing economies in Asia.
The 45 economies of developing Asia – spanning from countries in the Pacific to Central Asia – are now forecast to expand by an impressive 8.2%, well above the 5.4% growth recorded in 2009 and also above the 7.9% growth ADB forecast in July. The bank attributed the optimism to the region's strong export-based recovery, robust private demand, and the sustained effects of stimulus policies.
Japan’s Nikkei 225 average opened moderately lower and moved sideways until late trading before legging down further. The index closed down 107.38 points or 1.12% at 9,496. The general economic uncertainty and the yen’s strength along with the several stocks turning ex-dividend weighed on the index.
A majority of the stocks declined in the session, with Credit Saison, Eisai, Nippon Electric, Sky Perfect Jsat, Takeda Pharma, TDK and Trend Micro leading the slide. On the other hand, most resource and real estate stocks and some auto stocks closed the session higher.
Australia’s All Ordinaries languished in negative territory for the better part of the session amid some volatility to close down 5.20 points or 0.11% at 4,717. Material and energy stocks saw weakness, dragging the markets lower.
Hong Kong’s Hang Seng Index moved back and forth across the unchanged line in a very narrow range till the afternoon before pulling back sharply in the afternoon. The index closed down 230.89 points or 1.03% at 22,110.
Europe
The major European averages are trading Tuesday’s session on a mixed note, with the French CAC 40 Index and the German DAX Index are moving up 0.28% and 0.18%, respectively, while the U.K.’s FTSE 100 Index is retreating 0.19%.
In economic news, the GfK Institute said its forward-looking consumer sentiment indicator, based on a survey of about 2,000 Germans, jumped to 4.9 in October from 4.3 in September. This was well above analyst expectations for a score of 4.2 and represents a three-year high.
French consumer spending fell 1.6% month-over-month in August after increasing by 2.7% in July, a report from the statistical office INSEE showed. Economists had expected only 0.2% fall. Annually, consumer spending grew 1.2%, faster than the consensus forecast for 0.9% growth.
The U.K. Office for National Statistics reported that the U.K. GDP growth for the second quarter was confirmed at initial estimate of 1.2% compared to the previous quarter. On a year-over-year basis, GDP growth was 1.7%. Meanwhile, a separate report showed that business investment in the U.K. rose by a revised sequential rate of 0.7% in the June quarter.
U.S. Economic Reports
The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect a 3.3% year-over-year increase in the 20-city composite house price index for July.
The house price index rose 1.3% month-over-month in June, marking the third straight month of growth. On a year-over-year basis, house prices climbed 4.2%.
The Conference Board is scheduled to release its consumer confidence report for September at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index fell to 53 in September.
The consumer confidence index for August rose 2.5 points to 53.5, marking the first increase since May. The present situations index fell 1.5 points to 24.9, but the expectations index rose about 5 points to 72.5.
Stocks in Focus
Walgreen (WAG) is likely to move in reaction to its announcement that its fourth quarter net earnings rose to 49 cents per share compared to 44 cents per share last year. The recent quarter’s results included charges of 5 cents per share compared to 3 cents per share in the year-ago period. Sales rose 7.4% year-over-year to $16.9 billion. Analysts estimated earnings of 44 cents per share on revenues of $16.84 billion.
Jabil Circuit (JBL) receded in Monday’s after hours session after it reported fourth quarter core earnings of 52 cents per share compared to 16 cents per share last year. Revenues rose to $3.86 billion from $2.80 billion last year. Analysts estimated earnings of 49 cents per share on revenues of $3.89 billion. The company expects first quarter core earnings of 53-57 cents per share on revenues of $3.9 billion to $4 billion. The consensus estimates call for earnings of 53 cents per share on revenues of $4.09 billion.
Boeing (BA) may see some activity after it announced that Air China has ordered for four of its long-haul airplane 777-300Ers valued at $1.1 billion at current list prices.
Rackspace Hosting (RAX) is expected to gain ground after Standard & Poor’s announced that the company would replace AmeriCredit (ACF) in the S&P MidCap 400 Index after the close of trading on September 30th. Watsco (WSO) will replace Hewitt Associates (HEW) in the S&P MidCap 400 Index and Super Micro Computer (SMCO) will replace Watsco in the S&P SmallCap 600 Index. Additionally, Riverbed Technology (RVBD) will replace NBTY (NTY) in the S&P MidCap 400 Index.
Pfizer’s (PFE) stock may see some ripples after it announced that it will discontinue the Phase III trials for evaluating its prostrate cancer treatment SUN 1120 in combination with prednisone following an independent evaluation committee’s finding that the combination is unlikely to improve overall survival when compared to prednisone alone.
Research In Motion (RIMM) could see some buying interest after it introduced its version of the Tablet PC named ‘the PlayBook’ at its annual developers’ conference. The company also unveiled other services such as the opening of BBM as a social platform and a BlackBerry Advertising service.
Avis Budget (CAR) is also expected to be in focus after it sent a letter to Dollar Thrifty (DTG) stating that its offer provides shareholders an opportunity to participate in a larger share of the value to be created through a business combination. The company also announced two concrete proposals to counter any opposition posed by anti-trust concerns. Earlier, Dollar Thrifty’s board reaffirmed its support for the offer by Hertz (HTZ).
Valero (VLO) is likely to move in reaction to its announcement that it has signed an agreement to sell the ownership of its 185,000 barrels per day Paulsboro refinery to PBF Holdings for a net sales price of $360 million plus the value of net working capital and inventories.
Alcoa (AA) may see some strength after it announced that is has won a contract to supply alloy sheet and plate for shipbuilder AUSTAL’s vessels, including commercial ships and U.S. Navy ships. The contract will run through 2014.
United Natural Foods (UNFI) could come under selling pressure after it announced that it has commenced an underwritten public offering of 3.85 million shares of its common stock.
Peet’s Coffee & Tea (PEET) may react to its announcement that it will increase prices of most drinks by 10 cents and that of beans sold in Peet’s stores by an average of 8%, effective September 29th. The pricing action follows a 35% increase in green Arabica coffee prices.
Boston Properties (BXP) could see some activity after it said it would buy Bay Colony Corporate Center in Waltham, Massachusetts, for about $185 million.
Paychex (PAYX) is also likely to be in focus after it reported that its first quarter earnings rose 6% to 36 cents per share and revenues climbed 4% to %518.3 million. Analysts estimated earnings of 34 cents per share on revenues of $507.53 million. The company also said it expects net income for the fiscal year to improve over fiscal 2010, while analysts look for a modest rise in earnings to $1.36 per share.
Tuesday, with sentiment likely to remain guarded ahead of the release of the consumer confidence report. Economic data from across the Atlantic has been encouraging, with Germany reporting a strong consumer confidence reading, while earlier in the day the Asian Development Bank gave an upbeat commentary on growth in developing Asian countries. Depending on how the U.S. consumer confidence index comes in, the markets may see a bounce or a retreat, although range bound trading is most likely.
U.S. stocks reversed course and ended Monday’s session on a moderately weak note, as traders showed indecision amid a lack of trading catalysts. The major averages opened lower and remained below the unchanged line for the better of the session before closing moderately lower.
With the markets trading at their highest levels in more than four months, uncertainty weighed on the averages and prevented any follow through buying. The Dow Industrials ended down 48.22 points or 0.44% at 10,812 and the Nasdaq Composite Index fell 11.45 points or 0.48% to close at 2,370, while the S&P 500 Index finished 6.51 points or 0.57% lower at 1,142.
Twenty-four of the thirty Dow components closed the session lower, with Alcoa (AA), Bank of America (BAC), General Electric (GE), JP Morgan Chase (JPM), Pfizer (PFE) and Travelers Co. (TRV) among the notable decliners. On the other hand, AT&T (T) rose over 1%.
Among the sector indexes, the NYSE Arca Biotechnology Index fell 1.27%, the KBW Bank Index slipped 1.87% and the NYSE Arca Disk Drive Index moved down 2.09%. However, the NYSE Arca Airline Index rose 1.84%.
Currency, Commodity Markets
Crude oil futures are moving down $0.70 to $75.82 a barrel after edging up $0.03 to $76.52 a barrel on Monday. Gold futures are currently receding $11.40 to $1,287.20 an ounce. In the previous session, the precious metal rose $0.50 to $1,298.60 an ounce.
Among currencies, the U.S. dollar is trading at 84.116 yen compared to the 84.2902 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is currently valued at $1.3468 compared to yesterday’s $1.3454.
Asia
The major Asian markets closed Tuesday’s session lower, as the negative lead from Wall Street overnight weighed on the averages. Negative sentiment prevailed despite the Asian Development Bank giving an upbeat outlook for the developing economies in Asia.
The 45 economies of developing Asia – spanning from countries in the Pacific to Central Asia – are now forecast to expand by an impressive 8.2%, well above the 5.4% growth recorded in 2009 and also above the 7.9% growth ADB forecast in July. The bank attributed the optimism to the region's strong export-based recovery, robust private demand, and the sustained effects of stimulus policies.
Japan’s Nikkei 225 average opened moderately lower and moved sideways until late trading before legging down further. The index closed down 107.38 points or 1.12% at 9,496. The general economic uncertainty and the yen’s strength along with the several stocks turning ex-dividend weighed on the index.
A majority of the stocks declined in the session, with Credit Saison, Eisai, Nippon Electric, Sky Perfect Jsat, Takeda Pharma, TDK and Trend Micro leading the slide. On the other hand, most resource and real estate stocks and some auto stocks closed the session higher.
Australia’s All Ordinaries languished in negative territory for the better part of the session amid some volatility to close down 5.20 points or 0.11% at 4,717. Material and energy stocks saw weakness, dragging the markets lower.
Hong Kong’s Hang Seng Index moved back and forth across the unchanged line in a very narrow range till the afternoon before pulling back sharply in the afternoon. The index closed down 230.89 points or 1.03% at 22,110.
Europe
The major European averages are trading Tuesday’s session on a mixed note, with the French CAC 40 Index and the German DAX Index are moving up 0.28% and 0.18%, respectively, while the U.K.’s FTSE 100 Index is retreating 0.19%.
In economic news, the GfK Institute said its forward-looking consumer sentiment indicator, based on a survey of about 2,000 Germans, jumped to 4.9 in October from 4.3 in September. This was well above analyst expectations for a score of 4.2 and represents a three-year high.
French consumer spending fell 1.6% month-over-month in August after increasing by 2.7% in July, a report from the statistical office INSEE showed. Economists had expected only 0.2% fall. Annually, consumer spending grew 1.2%, faster than the consensus forecast for 0.9% growth.
The U.K. Office for National Statistics reported that the U.K. GDP growth for the second quarter was confirmed at initial estimate of 1.2% compared to the previous quarter. On a year-over-year basis, GDP growth was 1.7%. Meanwhile, a separate report showed that business investment in the U.K. rose by a revised sequential rate of 0.7% in the June quarter.
U.S. Economic Reports
The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect a 3.3% year-over-year increase in the 20-city composite house price index for July.
The house price index rose 1.3% month-over-month in June, marking the third straight month of growth. On a year-over-year basis, house prices climbed 4.2%.
The Conference Board is scheduled to release its consumer confidence report for September at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index fell to 53 in September.
The consumer confidence index for August rose 2.5 points to 53.5, marking the first increase since May. The present situations index fell 1.5 points to 24.9, but the expectations index rose about 5 points to 72.5.
Stocks in Focus
Walgreen (WAG) is likely to move in reaction to its announcement that its fourth quarter net earnings rose to 49 cents per share compared to 44 cents per share last year. The recent quarter’s results included charges of 5 cents per share compared to 3 cents per share in the year-ago period. Sales rose 7.4% year-over-year to $16.9 billion. Analysts estimated earnings of 44 cents per share on revenues of $16.84 billion.
Jabil Circuit (JBL) receded in Monday’s after hours session after it reported fourth quarter core earnings of 52 cents per share compared to 16 cents per share last year. Revenues rose to $3.86 billion from $2.80 billion last year. Analysts estimated earnings of 49 cents per share on revenues of $3.89 billion. The company expects first quarter core earnings of 53-57 cents per share on revenues of $3.9 billion to $4 billion. The consensus estimates call for earnings of 53 cents per share on revenues of $4.09 billion.
Boeing (BA) may see some activity after it announced that Air China has ordered for four of its long-haul airplane 777-300Ers valued at $1.1 billion at current list prices.
Rackspace Hosting (RAX) is expected to gain ground after Standard & Poor’s announced that the company would replace AmeriCredit (ACF) in the S&P MidCap 400 Index after the close of trading on September 30th. Watsco (WSO) will replace Hewitt Associates (HEW) in the S&P MidCap 400 Index and Super Micro Computer (SMCO) will replace Watsco in the S&P SmallCap 600 Index. Additionally, Riverbed Technology (RVBD) will replace NBTY (NTY) in the S&P MidCap 400 Index.
Pfizer’s (PFE) stock may see some ripples after it announced that it will discontinue the Phase III trials for evaluating its prostrate cancer treatment SUN 1120 in combination with prednisone following an independent evaluation committee’s finding that the combination is unlikely to improve overall survival when compared to prednisone alone.
Research In Motion (RIMM) could see some buying interest after it introduced its version of the Tablet PC named ‘the PlayBook’ at its annual developers’ conference. The company also unveiled other services such as the opening of BBM as a social platform and a BlackBerry Advertising service.
Avis Budget (CAR) is also expected to be in focus after it sent a letter to Dollar Thrifty (DTG) stating that its offer provides shareholders an opportunity to participate in a larger share of the value to be created through a business combination. The company also announced two concrete proposals to counter any opposition posed by anti-trust concerns. Earlier, Dollar Thrifty’s board reaffirmed its support for the offer by Hertz (HTZ).
Valero (VLO) is likely to move in reaction to its announcement that it has signed an agreement to sell the ownership of its 185,000 barrels per day Paulsboro refinery to PBF Holdings for a net sales price of $360 million plus the value of net working capital and inventories.
Alcoa (AA) may see some strength after it announced that is has won a contract to supply alloy sheet and plate for shipbuilder AUSTAL’s vessels, including commercial ships and U.S. Navy ships. The contract will run through 2014.
United Natural Foods (UNFI) could come under selling pressure after it announced that it has commenced an underwritten public offering of 3.85 million shares of its common stock.
Peet’s Coffee & Tea (PEET) may react to its announcement that it will increase prices of most drinks by 10 cents and that of beans sold in Peet’s stores by an average of 8%, effective September 29th. The pricing action follows a 35% increase in green Arabica coffee prices.
Boston Properties (BXP) could see some activity after it said it would buy Bay Colony Corporate Center in Waltham, Massachusetts, for about $185 million.
Paychex (PAYX) is also likely to be in focus after it reported that its first quarter earnings rose 6% to 36 cents per share and revenues climbed 4% to %518.3 million. Analysts estimated earnings of 34 cents per share on revenues of $507.53 million. The company also said it expects net income for the fiscal year to improve over fiscal 2010, while analysts look for a modest rise in earnings to $1.36 per share.
Subscribe to:
Posts (Atom)