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Friday’s Market Recap (06/05/09)

Bullish Bankers — Fri, 05 Jun 2009 23:35:41 +0000

The markets were off today as the Dow Jones Industrial Average was the only major index to be in the black, up 0.15% to a level of 8,763.13. The NASDAQ was down 0.03% closing at 1849.42 while the S&P 500 was down 0.25% ending at 940.09. The 10-year once again saw price down ending with a [...]

Fed Cuts Outlook, Keeps Chin Up – Analyst Blog

Dirk Van Dijk — Wed, 20 May 2009 21:43:42 +0000

Highlighted here is General Motors Corp. (GM).

The minutes of the Fed meeting of late April were released. They show that the staff economists there had cut their economic outlooks relative to January, but are still relatively upbeat. If the three most optimistic and the three most pessimistic forecasts are excluded (what the Fed terms the Central Tendency), then the range of GDP growth forecasts for 2009 is from -2.0% to -1.3%. This marks a significant downgrade from January, when the central tendency forecasts ranged from -1.5% to -0.5%.

Considering that in the first quarter the economy fell at an annualized rate of 6.1%, even the pessimistic end of the forecasts implies that we will have a near-term recovery. Down at an 6.1% rate means that the economy has already contracted by 1.5% this year, so we would hit the -2.0% for the year if second quarter GDP were down at a 2.0% annualized rate and the second half showed 0.0% growth. Given the industrial production, retail sales and housing starts numbers for April, being down at just a 2.0% rate in the second quarter looks rather optimistic to me.

I agree that the aggressive monetary moves and the fiscal stimulus will help improve the economic outlook in the second half, but the economy still faces major headwinds, not the least of which is that the rest of the world is also in a very deep recession. Further improvements in the Trade Deficit (net exports) seem to me to be required if we are only going to shrink 2.0% for the year as a whole.

However, a big part of the improvement we have seen so far has been because of the plunge in oil prices. Since then, oil prices have started to increase again, which should limit further gains on the trade front. A rebound in inventory investment would also help a great deal.

To be fair, those numbers came out after the Fed meeting, so they may have further revised their outlooks downward. Unemployment is expected to average between 9.2% and 9.6%, up from the previous outlook of between 8.5% and 8.8%. With Unemployment already at 8.9% in April, and new claims for unemployment insurance still above 600,000 a week, this looks extremely optimistic to me.

On the other hand, we are talking about the average for the year, not the peak level. We will probably be above the low end of that range by the time the May numbers are released, and at the high end by June. They are moving in the right direction, but in my view, they still have further to go. With the very likely bankruptcy of General Motors (GM) coming in the next few weeks, I fear unemployment could have a very significant further upward spike.

Looking out to 2010, the central tendency forecasts now range from growth of 2.0% to 3.0% for the year, down from the January outlook for growth between 2.5% and 3.3%. This would still imply slightly below-trend growth of about 3.0%. The stimulus spending and the very accommodating monetary policy will still be playing a major role, but by that point some pent up demand will start to kick in.

Spending on big ticket items like autos will start, since the current sales rate is about 3 million units per year below the scrape rate. It would be downright un-American to have the population of cars on the road actually fall significantly, well at least historically unprecedented (with the exception of WWII). Eventually, the inventory overhang in housing will get worked off, although with the next wave of foreclosures upon us, it seems unrealistic to expect it to happen by 2010. Used homes make pretty good substitutes for new homes, and there will plenty of them on the market for the foreseeable future.

As for unemployment next year, the forecasts increased to a range of between 9.0% and 9.5%, up from 8.0% to 8.3% in January. This implies a peak in unemployment sometime in the first half of 2010. That may well be the case, but I suspect it will be at a much higher level than the Fed is expecting. On the other hand, even I could be optimistic here, since in the last two recessions unemployment has continued to rise well after the end of the recession.

If we are really at the end of the official recession right now (possible given the new claims for unemployment insurance, but certainly no slam dunk either -- the number will come out tomorrow morning), then it would be reasonable to expect a peak in unemployment in mid-2010. If the recession does not officially end until well into the fourth quarter, then expect a continued rise in unemployment through 2010.

Looking ahead to 2011, the outlook was also shaved, but more moderately, to a range of plus 3.5% to 4.8%, down from a 3.8% to 5.0% range in January. Significantly above-trend growth is normal coming out of a recession, and by that point, the recovery should be self-sustaining. However I still harbor doubts, given the ongoing need of the consumer to deleverage themselves. Compared to the last 30 years, a far larger percentage of any incremental income that consumers get will be going to paying down debt and building up savings.

I suspect they may be a bit optimistic here as well. They forecast unemployment to continue to decline in 2011, but remain high by the standards of the last 20 years or so. The range of expected unemployment was 7.7% to 8.5%. That is up from a range of 6.7% to 7.5%. To put that level of unemployment into perspective, the peak level of unemployment associated with the last recession was 6.3% in June 2003, 19 months after the recession officially ended.

In the recession before that, unemployment peaked at 7.8% in June 1992, 15 months past the official end of the recession in March of 1991. Thus, if we follow the pattern of the last two downturns, if the recession were to end June 1st, then we could expect a peak in unemployment between September and December 2010.

On the other hand, recessions prior to 1990 almost always saw unemployment peak right at the end of a recession. I think the change in the timing of unemployment peaks to the end of a recession is strongly related to how less significant manufacturing is to the overall employment picture now relative to the past. That trend has only continued, and would suggest that the lag could be even longer this time than it was in the 2001 recession.

For another take on the Fed notes, please see Charles Rotblut's blog from earlier today.
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Toyota to Slash 2009 Sales Outlook, Cut Costs

Contrarian Profits — Tue, 16 Dec 2008 13:30:50 +0000

pToyota Motor Corp. (ADR:a href="http://finance.google.com/finance?q=NYSE:TM" target="_blank"TM/a) may not need a government bailout, but it’s hurting badly. The world’s top automaker said it will announce a revised 2009 sales forecast at its end-of-the-year news conference Dec. 22. The company is expected to slash a href="http://www.reuters.com/article/ousiv/idUSTRE4BE1MN20081215" target="_blank"at least 1 million cars/a from its original forecast of 9.7 million units, strongemReuters /em/strongreported. /p pIt’s also expected to outline cost cutting measures that could include laying off employees, suspending plant operations, delaying the opening of new plants, and cutting the budget for research and development./p pAccording to several Japanese media outlets, Toyota plans to eliminate bonuses for its executives and is expected to post a second-half loss./p pOne analyst believes the company’s dividend also could be on the chopping block./p p“We anticipate that#8230;/p

Toyota to Slash 2009 Sales Outlook, Cut Costs

Money Morning — Mon, 15 Dec 2008 16:50:19 +0000

By Mike Caggeso Associate Editor Money Morning Toyota Motor Corp. (ADR:TM) may not need a government bailout, but it’s hurting badly. The world’s top automaker said it will... Money Morning is here to help investors profit handsom...

Global Investing Roundups Wednesday, October 15th, 2008

Contrarian Profits — Wed, 15 Oct 2008 14:58:36 +0000

Visa and MasterCard Settle Up; Daimler’s Plant Closures; Apple’s Christmas Bargain; Johnson Controls’ Weak Outlook; Gas Prices Down 23% From July; U.S. Budget Deficit the Highest Ever; Pepsi Fizzles

Visa Inc. (V) and MasterCard Inc. (MA) have settled an antitrust suit with Discover Financial Services Inc. (DFS) rather than go to trial, sending Discover shares up almost 13% yesterday (Tuesday). Discover had filed a lawsuit against the two credit card processors seeking $6 billion in damages. The suit alleged that MasterCard and Visa prevented member banks from issuing Discover cards, Reuters reported.

Daimler AG (DAI) yesterday (Tuesday) announced it would cut 3,500 jobs and close two North American plants in response to declining sales growth. The German automaker also plans to discontinue its Sterling-brand truck line, MarketWatch reported. The plant closures will affect Daimler’s St. Thomas, Ontario and Portland, Oregon plants.

Apple Inc. (AAPL) will for the first time sell a MacBook for less than $1,000 during the coming holiday season, Chief Executive Officer Steve Jobs announced yesterday (Tuesday). “Demand is going to be good,” Jobs said of the MacBooks, Bloomberg News reported. “We’re making a lot of them.”

Johnson Controls Inc. (JCI) yesterday (Tuesday) projected a 16% decline in earnings over the next fiscal year. The Milwaukee-based company manufactures car batteries and seats and has suffered as auto sales declined in the United States and abroad. “While we believe recent economic weakness was clearly partly priced in, our sense from management is that automotive on both sides of the Atlantic is proving much tougher than expected,” JPMorgan Chase & Co. (JPM) analyst Himanshu Patel said in a research note Tuesday, The Wall Street Journal reported.

Light, sweet crude for November delivery yesterday (Tuesday) fell $2.56 to settle at $78.63 on the New York Mercantile Exchange, amid signs of dwindling world energy demand. Gasoline prices have followed oil’s precipitous decline, falling 23% from the record average of $4.14 a gallon reached July 17 to $3.163, according to auto club AAA.

The Bush administration said yesterday (Tuesday) that the deficit for the budget year ended Sept. 30 was $454.8 billion – more than double the $161.5 billion recorded in 2007. It surpassed the previous record of $413 billion set in 2004. Some analysts believe that next year’s deficit could easily top $700 billion, according to The Associated Press.

PepsiCo Inc. (PEP) said yesterday (Tuesday) that it would eliminate 3,300 jobs and close down six plants in an effort to save $1.2 billion over the next three years, The Associated Press reported. The announcement came as the company reported a 9.5% drop in third-quarter profit. The job cuts equate to roughly 1.8% of Pepsi’s global work force of about 185,000 employees.

SOurce: Global Investing Roundups Wednesday, October 15th, 2008

Nikkei Weekly Outlook: Eyes on I-banks, Inflation, Yen (EWJ)

Steven Towns — Mon, 16 Jun 2008 00:36:33 +0000

The Nikkei had a rough go last week indeed, losing 3.6% and the 14,000-level (13,973.73); TOPIX fell to 1,371.57 after a short-lived recovery of 1,400 two weeks ago. No worries though, as Chicago Nikkei 225 futures not only held 14k, but added 140 points to the upside (14,220) setting the stage for a gap up [...]

Nikkei Weekly Outlook: Tough Week Ahead (EWJ)

Steven Towns — Mon, 09 Jun 2008 00:34:33 +0000

The Nikkei 225 had a positive week, up a modest 1% to 14,489.44, its highest close since early January, but fell short of its calendar year high of 14,691. Remember, keeping things in perspective is important because the N225 opened the year at 15,155 and was trading 18,000-plus last year. In spite of recent resiliency [...]

Nikkei Weekly Outlook: Testing Dubious Highs (EWJ)

Steven Towns — Sun, 01 Jun 2008 22:40:34 +0000

Last week’s question of resiliency or reluctance at 14,000 for the Nikkei 225 Stock Average was answered, somewhat predictably, with another late-week rally. The Nikkei ended the week higher by 2.3% to 14,338.54 and the broader TOPIX, which rose by the same amount, recouped the 1,400-level (1,408.14) for the first time since January 10th. This week, [...]

Wal-Mart 2008 outlook cautious and down we go

Stockmasters Staff — Tue, 13 May 2008 16:24:56 +0000

Wal-Mart Stores, Inc. (NYSE:WMT) the world's largest retailer said the U.S. economy is playing a critical factor in 2008 and the stock is down 2% and falling. Stocks are taking a hit today and down the ship goes.