BROAD MARKET SUMMARY:
The economic data out last week made, by most measures, for a positive news environment. Too bad most traders aren’t economists and therefore concern themselves more with continued credit crises and fuel costs with no top in sight. Even increases in crude inventories couldn’t slow down the price of oil this week. A shrinking trade deficit only highlighted the weak U.S. dollar. With every upside on the economic front, there was a stifling reality check in the equity markets this week. Pair this ambiance with the notable lack of significant positive earnings announcements and the markets have a hard time keeping above key technical levels breached the week prior. The Dow Jones Industrial Average is back below 13,000 and the S&P500 stayed below the 1,400 mark after sinking down there on Wednesday. Even last week the world’s richest person said he believes the U.S. is currently in a recession. But what does Mr. Buffett really know about that anyway?
INDEX
5/09 Close
5/02 Close
% Chg
DJIA
12,745.88
13,058.20
-2.39%
S&P 500
1,388.28
1,413.90
-1.81%
NASDAQ
2,445.52
2,476.99
-1.27%
West Texas Intermediate Crude closed at $125.96/bbl. Gold Futures closed at $885.80/oz
Next FOMC Meeting:June 24 & 25, 2008 - Tuesday/Wednesday
Notable Economic Data This Week:
• The ISM survey showed expanding market activity measured at 52.0 vs. 49.6 last month and projections for 49.1.
• Crude inventories rose significantly and unexpectedly to 5.654m.
• Wholesale inventories fell, which is a positive report, by 0.1% compared to expectations for an increase of 0.5%.
• The U.S. trade balance fell significantly and by more than economists had even hoped for. NOTABLE ECONOMIC HIGHLIGHTS: Retailers were back at it in April after poor reports in March. Announcements that same store sales were better than experts expected were backed by consumers picking up bargains and warm weather goods. 55% of reporting retailers beat their estimates making this the biggest upside surprise since March 2007. Wal-Mart (WMT) and Target (TGT) reported good sales while Nordstrom (JWN) and Gap (GPS) missed.
A weak dollar continues to prove beneficial for domestic exporters, which helped to shrink the trade deficit from $61.7 billion in February to $58.2 billion in March. Economists were looking for a number this month around the $61.3 billion level. The weak dollar value effectively makes US-made goods more affordable on a global scale as the greenback is worth less compared to other world currencies. Also, Americans have cut back on purchases of imported goods which have conversely become relatively more expensive. While the report showed the deficit with China is shrinking, gaps with the European Union and Canada are increasing.
The closing price of crude oil set a new record each of the trading days of last week. With the price of the commodity rising to higher prices each day, the price finished out the week at $125.96/bbl. Concerns about the global supply and associated effects warranted a well-known oil analyst to put a $200 12 month price target out there. This comes from the same fellow that called the $100 oil price accurately. Continued strong oil prices were not derailed by a (sort of) positive Energy Department supply announcement. The government says crude oil and gasoline supplies surprisingly increased last week, but the price of oil continued higher. Reading below the headline, as many astute commodity traders do, you will find that inventories of diesel and heating oil unexpectedly fell in this report and gasoline demand is on the rise. Supply concerns are exacerbating the climb in oil price, that to some is simply trading on momentum.
INTERESTING TIDBITS: India has outpaced its peers in terms of dedicated funds raised and investments made, according to the Emerging Markets Private Equity Association. Private equity raised $4.6 billion for India-focused funds last year, $1.3 billion more than the amount raised for those directed at investment in China. Of the 22 funds raised for India, two were buyout focused, fifteen were growth capital vehicles, four were venture capital and one was a private investment in public enterprise vehicle. Firms completed $724m of deals in 2004 but this has risen 916% to $7.4bn last year. The $7.4bn invested last year trumped the $2.1bn deployed in China, the $3.2bn in Brazil and $924m in Russia.
The Bank of England and the European Central Bank left their respective benchmark interest rates unchanged early last week. The dollar held strong with the announcement of this news, as a increase in either of these rates would likely go against the greenback. With the U.S. FOMC recently cutting the domestic lending rates, a rise in overseas interest rates goes directly against the dollar’s relative value.
Continually increasing food and fuel costs will keep the Bush tax rebate checks from doing as much good in the economy as was originally hoped. With budgets getting squeezed tighter and tighter, most experts see the bulk of tax rebates going to savings or toward paying down debt. Either scenario isn’t likely to have a long term expansionary effect on the economic environment.
FINANCIALS - UNSURPRISING DISAPPOINTMENTS: Countrywide Financial (CFC) just isn’t what it used to be. At least that’s what Bank of America (BAC) is saying about the value of the firm. Analysts are expecting BAC to either renegotiate the deal, or walk away entirely. One analyst expects the new offer to be in the $0 to $2 per share range. The rapid depletion of CFC’s credit portfolio has caused a negative equity position as of late, which would be an immediate drag on earnings at BAC.
A Q1 loss of $10.97 billion dollars was posted by Swiss bank UBS (UBS) last week. Huge write downs due to the U.S. subprime crisis is mostly to blame for the poor performance, and is also causing the firm to cut 7% of its workforce totaling about 2,600 workers from its investment bank and 2,900 from other areas of the company.
AIG (AIG)reported it lost $7.81 billion, its second straight quarterly loss. The world's largest insurer, like many of its peers in the financial services sector, has seen its investments in the credit markets plunge in value. AIG had to write down assets linked to subprime mortgages and said it would raise $12.5 billion in new capital to strengthen its balance sheet. Another big financial company, Citigroup Inc (C), said it intends to shed roughly $400 billion of non-core assets in a bid to become more competitive.
Another financial company posts a large loss, cuts its dividend, and plans to raise capital. This week it was Fannie Mae (FNM). The Q1 loss was $2.51 billion and CFC plans to raise $6 billion. In a valiant attempt to stave off a huge selloff, company executives were optimistic that the worst is over. To date, financial services companies worldwide have written off more than $330 billion in soured mortgage securities and raised more than $200 billion to shore up depleted balance sheets.
SCANT POSITIVE EARNINGS REPORTS THIS WEEK: Two well known companies posted strong earnings last week, both topping estimates and bettering their quarterly results from a year ago. Cisco (CSCO)reported EPS of 38 cents per share for its Q3 excluding one-time charges, which was 2 cents above consensus estimates. Disney (DIS) also did well to report 58 cents, better than the expectations of 51 cents.
QUICK TECH DOWNLOAD: Yahoo’s (YHOO) CEO Jerry Yang thinks his company’s share price is fairly valued around $37 per share, so missed the opportunity to be bought by Microsoft (MSFT) for roughly $33 per share. Can you guess where the stock closed the day of this action: “$24.37”. As a big believer in a “market economy”, it is hard to see that the investing public agrees with Mr. Yang’s decision. Some say, however, that the stock price even held this level simply because there still is the likelihood that talks may resume someday soon. On the news of the collapsed deal, shares of Google (GOOG) rose proving the clear victor in this outcome.
Sprint Nextel (S) got good news last week from Europe. Rumor has it that Deutsche Telekom (DT), owner of T-mobile, is interested in buying the company. This juncture would created the largest mobile operator in the States, but many analyst holler “Antitrust!” While the possibility of a takeover or a merger is being mulled over, no official news is available on the topic.
Sprint made the news again last week with a little company its working with called Clearwire (CLWR). The two companies have formed a wireless broadband alliance where Sprint will own 51% and Clearwire will own 27%. The remainder of the ownership will be held by some pretty well-known equity investors who all together plunked down $3.2 billion of funding for the deal. Included in this syndicate are Google (GOOG), Intel (INTC), Time Warner (TWX), Motorola (MOT), Comcast (CMCSA), and Bright House Networks. Despite this sizable amount from this brand name investment group, some analysts say the new Clearwire could require $2 billion or more in additional funding for its buildout.
alex1bond
StockwireAdmin
Retailers were back at it in April after poor reports in March. Announcements that same store sales were better than experts expected were backed by consumers picking up bargains and warm weather goods. 55% of reporting retailers beat their estimates making this the biggest upside surprise since March 2007. Wal-Mart (WMT) and Target (TGT) reported good sales while Nordstrom (JWN) and Gap (GPS) missed. 
A weak dollar continues to prove beneficial for domestic exporters, which helped to shrink the trade deficit from $61.7 billion in February to $58.2 billion in March. Economists were looking for a number this month around the $61.3 billion level. The weak dollar value effectively makes US-made goods more affordable on a global scale as the greenback is worth less compared to other world currencies. Also, Americans have cut back on purchases of imported goods which have conversely become relatively more expensive. While the report showed the deficit with China is shrinking, gaps with the European Union and Canada are increasing.
The closing price of crude oil set a new record each of the trading days of last week. With the price of the commodity rising to higher prices each day, the price finished out the week at $125.96/bbl. Concerns about the global supply and associated effects warranted a well-known oil analyst to put a $200 12 month price target out there. This comes from the same fellow that called the $100 oil price accurately. Continued strong oil prices were not derailed by a (sort of) positive Energy Department supply announcement. The government says crude oil and gasoline supplies surprisingly increased last week, but the price of oil continued higher. Reading below the headline, as many astute commodity traders do, you will find that inventories of diesel and heating oil unexpectedly fell in this report and gasoline demand is on the rise. Supply concerns are exacerbating the climb in oil price, that to some is simply trading on momentum.
India has outpaced its peers in terms of dedicated funds raised and investments made, according to the Emerging Markets Private Equity Association. Private equity raised $4.6 billion for India-focused funds last year, $1.3 billion more than the amount raised for those directed at investment in China. Of the 22 funds raised for India, two were buyout focused, fifteen were growth capital vehicles, four were venture capital and one was a private investment in public enterprise vehicle. Firms completed $724m of deals in 2004 but this has risen 916% to $7.4bn last year. The $7.4bn invested last year trumped the $2.1bn deployed in China, the $3.2bn in Brazil and $924m in Russia.
The Bank of England and the European Central Bank left their respective benchmark interest rates unchanged early last week. The dollar held strong with the announcement of this news, as a increase in either of these rates would likely go against the greenback. With the U.S. FOMC recently cutting the domestic lending rates, a rise in overseas interest rates goes directly against the dollar’s relative value. 
Continually increasing food and fuel costs will keep the Bush tax rebate checks from doing as much good in the economy as was originally hoped. With budgets getting squeezed tighter and tighter, most experts see the bulk of tax rebates going to savings or toward paying down debt. Either scenario isn’t likely to have a long term expansionary effect on the economic environment.
Countrywide Financial (CFC) just isn’t what it used to be. At least that’s what Bank of America (BAC) is saying about the value of the firm. Analysts are expecting BAC to either renegotiate the deal, or walk away entirely. One analyst expects the new offer to be in the $0 to $2 per share range. The rapid depletion of CFC’s credit portfolio has caused a negative equity position as of late, which would be an immediate drag on earnings at BAC. 
A Q1 loss of $10.97 billion dollars was posted by Swiss bank UBS (UBS) last week. Huge write downs due to the U.S. subprime crisis is mostly to blame for the poor performance, and is also causing the firm to cut 7% of its workforce totaling about 2,600 workers from its investment bank and 2,900 from other areas of the company.
AIG (AIG) reported it lost $7.81 billion, its second straight quarterly loss. The world's largest insurer, like many of its peers in the financial services sector, has seen its investments in the credit markets plunge in value. AIG had to write down assets linked to subprime mortgages and said it would raise $12.5 billion in new capital to strengthen its balance sheet. Another big financial company, Citigroup Inc (C), said it intends to shed roughly $400 billion of non-core assets in a bid to become more competitive.
Another financial company posts a large loss, cuts its dividend, and plans to raise capital. This week it was Fannie Mae (FNM). The Q1 loss was $2.51 billion and CFC plans to raise $6 billion. In a valiant attempt to stave off a huge selloff, company executives were optimistic that the worst is over. To date, financial services companies worldwide have written off more than $330 billion in soured mortgage securities and raised more than $200 billion to shore up depleted balance sheets.
Two well known companies posted strong earnings last week, both topping estimates and bettering their quarterly results from a year ago. Cisco (CSCO) reported EPS of 38 cents per share for its Q3 excluding one-time charges, which was 2 cents above consensus estimates. Disney (DIS) also did well to report 58 cents, better than the expectations of 51 cents.
Yahoo’s (YHOO) CEO Jerry Yang thinks his company’s share price is fairly valued around $37 per share, so missed the opportunity to be bought by Microsoft (MSFT) for roughly $33 per share. Can you guess where the stock closed the day of this action: “$24.37”. As a big believer in a “market economy”, it is hard to see that the investing public agrees with Mr. Yang’s decision. Some say, however, that the stock price even held this level simply because there still is the likelihood that talks may resume someday soon. On the news of the collapsed deal, shares of Google (GOOG) rose proving the clear victor in this outcome.
Sprint Nextel (S) got good news last week from Europe. Rumor has it that Deutsche Telekom (DT), owner of T-mobile, is interested in buying the company. This juncture would created the largest mobile operator in the States, but many analyst holler “Antitrust!” While the possibility of a takeover or a merger is being mulled over, no official news is available on the topic.
Sprint made the news again last week with a little company its working with called Clearwire (CLWR). The two companies have formed a wireless broadband alliance where Sprint will own 51% and Clearwire will own 27%. The remainder of the ownership will be held by some pretty well-known equity investors who all together plunked down $3.2 billion of funding for the deal. Included in this syndicate are Google (GOOG), Intel (INTC), Time Warner (TWX), Motorola (MOT), Comcast (CMCSA), and Bright House Networks. Despite this sizable amount from this brand name investment group, some analysts say the new Clearwire could require $2 billion or more in additional funding for its buildout.