Taking Stock Of Wall Street 2008-08-28
Today GDP was revised by 3.3% against the experts’ expectations of 2.7%. Those who were interested only in the headlines immediately set out and pushed the market up.
But, if you delve deep into the narrate, there is a disturbing admission that the GDP revision was partly due to an increasing inventory accumulation.
Okay, this is a government’s wealth statement. And government can print money. But if this was a business report from a company with no access to currency printing and stating it is accumulating unsold or unused inventory, the picture and the analysis would have changed dramatically.
Weekly jobless data conformed to the estimates. It declined by 10,000 from that of last week to 425,000. The four-week moving average fell to 440,250 from 446,250.
Any way, for a market maker, every day is the first day of the rest of his business life. His order book opens in the morning, closes in the evening. So he makes hay while the sun shines. To each day, its own. And market shot up with that GDP headline, without going deep any further into economics.
Market Snapshot
Dow goes up by 212.67 (1.82%) to 11715.18
Nasdaq up by 29.18 (1.21%) to 2411.64
S&P500 up by 19.02 (1.46%) to 1300.68
But, were the investors moved by all these hues and cries of the government and the market men?
No. They still prefer to remain on the sidelines. NYSE volume could not break the 1 bln barrier compared to yesterday’s 820 mln despite all that support from the government data. Nasdaq also didn’t trade more volume than the ordinary: 1.63 bln.
As is usual on a bullish day, more stocks advanced than those declined:
NYSE: 2485 v. 646, Nasdaq: 2078 v. 753
Today’s advance was spearheaded by the financials. The most prominent sub-sector were the insurers.
MBIA (MBI) set the ball rolling with the announcement of their intention to re-insure $184 billion municipal bonds already insured by the troubled Financial Guaranty Insurance Company. That deal is worth $741M in premiums.
MBIA’s (MBI) rally was soon followed by Ambac (ABK) and MGIC Investment (MTG).
Despite shaky bottom lines, Fannie Mae (FNM) and Freddie Mac (FRE) manage to remain in the limelight every day. Today it was Fannie’s turn to make news, about the shake-up in its top management.
Lehman (LEH) plans to layoff another 1,500 employees in addition to the 6000 laid off in June.
Another sector in turmoil are the airlines. Yes, they have made significant rallies from the precarious lows of last month. Yet, we unruffled hear of job losses and cutting down of flights and passenger amenities. The question is how frugal airlines can become against rising fares for the passenger. After all, airliners can’t be reduced to just flying buses.
United Airlines (UAUA) are cutting 1,550 flight attendant jobs and a total of 7,000 jobs by 2009.
COMPANY RESULTS
The companies that beat the earnings forecasts:
Energy Conversion Devices (ENER), Genesco (GCO), Marvel Technology (MRVL), Novell(NOVL), PETsMART (PETM), Royal Bank Of Canada (RY), Tiffany (TIF), Williams-Sonoma (WSM) and Zale (ZLC).
Those that reported earnings in-line with the forecasts:
Brown-Forman (BF.B), Del Monte Foods Company (DLM), Diageo (DEO), Fred’s (FRED) and Toronto Dominion Bank (TD).
These companies missed the forecasts:
Dell (DELL), China Mobile (CHL), China Telecom (CHA), PetroChina (PTR) and Sears (SHLD).
ANALYSTS’ RATINGS
The following companies received analysts’ upgrades:
Energen (EGN), Jo-Ann Stores (JAS), New York & Co (NWY), Tempur-Pedic (TPX) and Thompson Creek Metals (TC).
Today’s downgrades include:
Brown Shoe (BWS), Cell Genesys (CEGE), Centene (CNC), China Mobile (CHL), Cinemark (CNK), Coca-Cola (KO), Frontier Oil (FTO), Giant Interactive (GA), Gilead Sciences (GILD), SI International (SINT) and Warner Chilcott PLC (WCRX)
BUSINESS NEWS
Boeing (BA) made a final attempt to avoid the impending employee strike with a revised final offer.
Amazon.com (AMZN) ruled out the release of their new model Kindle any time this year.
GlaxoSmithKline (GSK) signs a $820 deal with Valeant Pharmaceuticals (VRX) for access to the latter’s experimental ant-epileptic research. This conforms to the new trend among big pharmaceutical companies to strike deals with smaller research and development firms.
U.S. District Believe James Selna found Qualcomm (QCOM) in contempt of the court’s injunction issued earlier in December,2007 against infringement of Broadcom’s three patents for WCDMA chips.
The SEC sets a provisional 2014 deadline for companies to change their accounting standards from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS).
JAPANESE TO GET THEIR STIMULUS PACKAGE
Japanese will be receiving their version of the stimulus package. Their government has budgeted 10 trillion yen (US$95 bln) for this purpose. They had a prolonged spiraling economic downturn and are just picking up – a rather painful, slow process.
Today in short:
Despite the commendable rise in GDP, consumer spending is not adequate to get the accumulating inventory off the shelves.
The investors hunch is correct. There is a 1.9% spread between GDI and GDP which is an early indication of future misfortune.
The improvement in job claims need to be read against the number of continuing claims that went up from last week’s 3.359 million to 3.423 million!
As for oil, 80% of production in the Gulf of Mexico may have to be halted, if Gustav strengthens before hitting our shores.
That US economy is resilient is proven before. But we will have to wait to see a repeat rise in third quarter GDP to confirm it this time.
Tomorrow, the stock market is scheduled to work normal hours despite some other exchanges closing earlier. Monday will be a holiday.
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Filed under Mechanical Breakdown Insurance by on Jan 23rd, 2012. 
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