On Friday, the Dow Jones industrial average rose 17.46 points, or 0.2%, to 10,023.42 and the Standard & Poor's 500 index added 2.67 points, or 0.3%, to 1,069.30.  The Nasdaq composite index advanced 7.12 points, or 0.3%, to 2,112.44.  For the week, the Dow and the S&P 500 index advanced 3.2%, while the Nasdaq rose 3.3%. 

On the New York Stock Exchange, 1.1 billion shares exchanged hands Friday as advancing shares narrowly edged ahead of those that declined in price.  Surprisingly, as investors' apprehension in front of the key economic and earnings data grew, the CBOE volatility index declined over 20%, closing at 24.19 on Friday.

Analyst upgrades helped a number of stocks Friday.  Analysts at Bernstein raised their ratings on both General Electric (NYSE:GE) and Amazon.com Inc. (NASDAQ:AMZN) to “outperform," sending shares in those companies up 6.2% and 4.6%, respectively, and helping give major averages a lift.  General Electric, which also received a rating upgrade from Oppenheimer, was the leading gainer in the Dow average as analysts saw reduced risks to its finance unit.  Lowe’s Cos (NYSE:LOW) jumped 4.3% and Home Depot (NYSE:HD) added 1.8% after analysts at Bank of America Corp. (NYSE:BAC) raised the two companies to “buy" from “underperform."

The coming week, though devoid of any substantial economic event, does contain a number of corporate posts that are likely to give an indication about the health of the consumer as markets enter the key holiday season.  Disney (NYSE:DIS) and Wal-Mart (NYSE:WMT) report their numbers on Thursday.  Wal-Mart (NYSE:WMT), which has not been posting monthly comparable sales reports, will be watched closely for how the retailer fared during the third quarter.  Kohl's (NYSE:KSS) also reports on Thursday, with Macy's (NYSE:M) numbers expected on Wednesday and JC Penney's (NYSE:JCP) on Friday.  Most analysts expect favorable results, as shoppers remain on a bargain hunting spree.  Setting the fire to the latest advance in stocks was the estimate-topping numbers from 80% of the S&P500 firms that have so far reported their numbers.

This morning’s futures suggest stocks are likely to open with gains of at least 1%.  The healthcare package passed the House by the narrowest of margins, with much wrangling still expected before any decision is reached within the Senate.  The G-20 meeting of Finance Ministers promised extended government stimulus measures.  Meanwhile, the Moody's Investor Services (NYSE:MCO) upgraded its rating on China and Hong Kong to positive from stable.

Fortunately during recessions, the federal government usually will step in and provide emergency extended benefits. However this recession has gone on for so long, and we have so many long-term unemployed, that millions were in danger of losing even those extended benefits. Fortunately the Senate finally got around to extending those benefits for up to another 20 weeks (depending on the overall level of unemployment in that state). Still, unemployment benefits only replace a fraction of what people were earning before they lost their jobs. This means that as soon as people get their pink slips, they will reduce their spending. However, depending on how long they expect to be out of work, they do not bring their spending levels down all the way to their new unemployment insurance income level. There are all sorts of spending categories that are at least semi fixed. If you think you will get a new job soon, you don't cancel little Jimmy's ballet lessons, or Betty's karate lessons. Instead you draw down your savings and use your American Express (AXP) card more.

However, as the weeks go by and you get no response from all the resumes you sent out, more and more things start to go by the wayside. But still does it make sense to quit the country club and lose the $20,000 initiation fee you paid, especially now that you actually have time to use it? Well after a few months you have to bite that bullet too. In the meantime, your non-retirement savings are probably about gone. Going into this recession the savings rate had been close to zero, so it is a pretty safe bet that most people did not have a lot of savings outside their 401-ks or IRAs. You have probably run up your balance on your credit card, but the card companies are getting wise to that and are starting to cut back the available credit limits for millions of accounts. That is a wise move on their part individually, but collectively for the economy, it acts to reduce overall demand.

Oh, and since a big factor in your credit rating is how much credit card debt you have relative to your available limit, both increasing your balance and the bank cutting back your maximum availability will conspire to knock off more than a hundred points from your FICO score. In past downturns, especially recent ones, if the unemployed person were a homeowner, he could tap the equity in the house. Now with millions and millions of homes worth less than the amount of the mortgage, or at least very close to it, that option is not open. Indeed this time around it seems that people are more likely to go in the other direction.

To survive, they are simply not paying on their mortgage and waiting for the sheriff to show up at the door to kick them out. Given the huge numbers of people who are falling behind on their mortgages, and to political efforts to slow the rate of foreclosures, this is actually a very rational strategy. In many parts of the country it has been possible to live rent and mortgage free for well over a year before actually getting kicked out of the house. That can free up a lot of cash to spend on other things. However, it is very bad news for the banks that lent the money like Bank of America (BAC) and Wells Fargo (WFC). It is also going to become a serious issue for the Federal Reserve since it is in the process of buying $1.25 trillion worth of mortgaged backed paper. True, the paper is guaranteed by Fannie (FNM) and Freddie (FRE), but since the taxpayers own 80% of both of them, what is the difference? People have to start tapping their 401-ks and IRAs. While the stock market has recovered nicely, it is still far below its peak, making that option even more painful, along with the 10% penalty imposed if you start to withdraw money from those accounts before retirement age.

By the time people have been out of work for six months or more, they have usually depleted their financial resources. Remember that on average, someone who is out of work has been out of work for 26.9 weeks now, and half of all the unemployed have been looking for work for more than 18.7 weeks. That smashes any record prior to this downturn. At the worst point in the Reagan recession, half of all the unemployed were out of work for more than 12.3 weeks. In fact, since the median duration started being tracked at the beginning of 1967, the median duration has only been in the double digits for 36 of those 502 months, and 14 of those have been during his downturn.

To those who say the stimulus bill has not helped, tell that to the almost 5.6 million people who have been out of work for more than six months. If not for the emergency benefits in that bill, they would be left with no income as soon as they passed that mark. I suspect that the vast majority of people who are in that category assumed that they would have found a new job by now when they first got laid off, and thus did not cut back their spending as fast as, in retrospect, they should have when they first got their pink 
slip.



It is long term unemployment that is the hallmark of a recession. The graph below shows the number of unemployed (in thousands) in each duration group back to 1960. This is not adjusted for the rather substantial increase in the total population over that period, so some upward trend to the numbers would be normal. Notice how stable the pink short term unemployment line is. There are always people getting laid off, and people getting hired. In good times, the number of people becoming unemployed does not really fall that much, it is just that they don't stay unemployed for all that long. They are either able to find a new job quickly, or in the case of many manufacturing jobs, get called back to work by their previous employer.

The light blue line of moderate length unemployment (5 to 14 weeks) shows a little bit more cyclical behavior, but nothing like the two longer term measures, the yellow 15 to 26 week group and the dark blue over 26 week long term group. What is striking about this recession is just how high that long term dark blue line has soared. While these graphs do not have the recession bars in, I would note that the level of long term unemployment usually continues to rise for many months after a recession ends. The shorter term groups tend to turn down well before the long term group does. This means that the situation is likely to continue to get worse before it gets better.



When these people do return to work, it is highly unlikely that they will be earning anything close to what they were earning before they got laid off. Many will be homeless, without any savings and in pretty desperate shape. We have already seen a steep rise in the poverty rate, which rose to 13.2% in 2008 from 12.5% in 2007 (see Census Bureau: Poverty Rising and Income, Poverty & Health Insurance).

Among children, the poverty rate rose to 19.0% in 2008 from 18.0% in 2007. I would be shocked if it does not exceed the one in five level when the statistics come out next summer for 2009. Since health care coverage is largely tied to employment in this country, the rising number of unemployed means that the number of people without health insurance, already at 46.3 million in 2008, is likely to jump further. While it is true that the stimulus package did subsidize COBRA insurance by as much as 65%, by the time people are unemployed for more than six months, it is very difficult for most of them to be able to afford even those subsidized premiums. When those people get sick, their only option is to go to the hospital emergency room, which is a very expensive and inefficient way of being treated. It is not free either, the hospital will try to bill them for the services, and even send debt collectors on them, although in most of these cases they will be trying to get blood from a stone.

For many, it simply means that they go without treatment, other than over-the-counter medicines they buy at Walgreen's (WAG). If it turns out to be something more serious, it very often results in death. A Harvard study recently estimated that 46,000 Americans die prematurely each year because of a lack of health care coverage. That is a national disgrace.

While unemployment is a lagging indicator of the economy, it does play a role in the economy going forward. It will be very hard to sustain the surprisingly strong growth we have seen in recent months if we don’t start to see some improvement in the employment picture. Yes, huge improvements in productivity are good, but people on the ground need jobs.

After the house vote, financials slumped 1.5% and led the decliners among the S&P 500 industry groups.  Analyst Meredith Whitney noted the biggest U.S. banks may face declining values on home-loan bonds with government backing as the Fed moves towards ending its $1.25 trillion purchase program.  Whitney said bank earnings are far from approaching "normalcy," and will reflect regulatory changes for an extended period.  JPMorgan (NYSE:JPM) fell 1.2% to $42.21 and Wells Fargo (NYSE:WFC) retreated 3.1% to $26.82.  Citigroup (NYSE:C) slipped 1.7% to $3.97.

On Wednesday, the 30-stock Dow Jones industrial average closed up 30.23 points, or 0.31%, at 9,802.14.  The broad Standard & Poor's 500-stock index edged was up 1.09 points, or 0.10%, at 1,046.50.  The tech-heavy Nasdaq ended the day almost unchanged.  On the New York Stock Exchange, eight stocks advanced for every seven that declined as volume slowed to 1.35 billion shares.

Meanwhile, gold prices continues their upward run and hit an intraday record high of $1098.50, before giving up most of that gain to settle at $1087.30.  The US dollar retreated 0.5% against a basket of currencies.

Yesterday, investors breathed a sigh of relief after the Fed’s announcement to keep interest rates near historically low levels for an extended period.  The Fed, in its policy assessment, noted the economic activity was likely to remain weak for some time and ruled out any plans of a premature exit.  As it continued with its highly accommodative monetary stance, the Fed offered a reminder that the current recovery still lacks strength to be self-supportive.

Healthcare shares Wednesday rose 1% and led the gainers within the S&P500 industry sectors as Republican gubernatorial wins were seen as votes against President Obama's healthcare initiative, likely to result in further delays to changes to the healthcare program. The Senate unanimously voted to extend jobless benefits and broaden homebuyer tax breaks, with the Congress expected to vote before week's end. Helped by the news housing shares finished higher, with Pulte Homes (NYSE:PHM) up 3.5%, Lennar (NYSE:LEN) up 3.4%, and DR Horton (NYSE:DHI) adding 3.2%.

Chicago, IL – October 30, 2009 – Zacks Equity Research highlights CarMax (KMX) as the Bull of the Day and Genomic Health Inc. (GHDX) the Bear of the Day. In addition, Zacks Equity Research provides analysis on J.C. Penney (JCP), Macy’s (M) and Bank of America (BAC).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676

Here is a synopsis of all five stocks:

Bull of the Day:

CarMax (KMX) focuses on penetrating new markets through store openings. The company has kept its inventories closely aligned with sales trends, which has allowed it to optimize gross profit per unit besides offering great value to customers. These have helped the company to maintain a favorable position among its peer group.

CarMax has reported profit in the second quarter, reflecting a significant improvement from the Zacks Consensus Estimate. It has experienced a significant rebound in CarMax Auto Finance income to $72 million in the quarter versus a loss of $7 million in the prior year quarter.

These lead us to upgrade the stock to an Outperform recommendation with a target price of $25.

Bear of the Day:

Genomic Health Inc.’s (GHDX) lead product is Oncotype DX, which is used for early stage breast cancer patients to predict the likelihood of cancer recurrence.

Even though sales of Oncotype remain robust and the company remains optimistic about its prospects, we are highly concerned about the company's reliance on the product for growth. We believe that Genomic needs to expand its product portfolio in order to sustain growth.

Furthermore, we are also concerned about the company's weak pipeline. These concerns have caused us to downgrade the stock to Underperform.

Latest Posts on the Zacks Analyst Blog:

Continuing Jobless Claims Fall

Continuing jobless claims dropped by 148,000 to 5.797 million, which is the biggest drop we have seen in this cycle. Even extended claims dropped by 71,000 to 3.893 million. Thus combined, there are now 9.69 million people getting unemployment benefits.

However, even extended benefits don’t last forever, and an estimated 7,000 people a day are losing that last lifeline. In Congress, the House has passed an extension, but the Senate continues to dither as the extension is being filibustered. After cloture is invoked, those senators who think that having millions of Americans suffering is a good thing (builds character, you know) plan to offer all sorts of unrelated amendments related to Acorn to further delay the bill.

This delay is not only callous as a humanitarian matter, but it is very stupid economic policy. If people have no income, and they have already run down their savings, they can either starve or turn to "extra-legal" ways of getting income. They certainly can’t be spending a lot of money at J.C. Penney (JCP) or Macy’s (M). The bank that becomes important to them is the local food bank, not Bank of America (BAC).

Extended unemployment benefits are among the best targeted stimulus dollars there are. They go directly to people who are in the most need, and to people who are likely to spend them quickly, thus creating a multiplier effect.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5508.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5509.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Chicago, IL – October 16, 2009 – Zacks Equity Research highlights Semtech Corp. (SMTC) as the Bull of the Day and Washington Federal (WFSL) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Bank of America (BAC), Hasbro (HAS) and Peabody Energy (BTU).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676

Here is a synopsis of all five stocks:

Bull of the Day:

Semtech Corp. (SMTC) is a fabless supplier of analog and mixed-signal semiconductor devices. Management has been diversifying the product portfolio, introducing new high-margin products and broadening the customer base.

July quarter results exceeded the consensus on both the top and bottom lines. Forward guidance is for 6-10% revenue increase in the October quarter.

Both revenue growth and margin expansion are expected to return in the second half of fiscal 2010 when the new product platforms gain traction. We are reiterating our BUY rating on SMTC shares.

Bear of the Day:

Washington Federal’s (WFSL) third quarter earnings were in line with the Zacks Consensus Estimate. However, the results significantly deteriorated from the prior-year quarter due to a huge increase in provision for loan losses, primarily in response to a deteriorating residential land and construction portfolio.

Credit quality drastically worsened during the quarter. However, declining deposit rates helped improve funding concerns to a great extent and capital position remained strong.

Though margin expansion and increased market share through acquisitions will be a great support going forward, we are concerned about the company's significant exposure to real estate markets and suspect that it will continue to experience credit quality deterioration. Therefore, we recommend the shares as Underperform.

Latest Posts on the Zacks Analyst Blog:

Initial Jobless Claims Fall Again

On the continuing claims front, there was also some apparent good news -- they fell by 75,000 to 5.992 million, the first time in many months that they have been below the 6 mlllion mark. However, the continuing claims only track regular state benefits, which run ot after 26 weeks. On average, people who are out of work have been looking for a job for over 26 weeks now, a situation that has not been seen since the end of WWII.

After the regular state benefits run out, then emergency Federal benefits kick in (a major element of the stimulus package). There are now more than 3.8 million people getting the extended benefits -- up 16,000 from last week (one week behind regular continuing claims, and two weeks behind inital claims). Anyone who claims that the stimulus is not working needs to be able to look at those 3.8 million Americans and their families and tell them that they would be better off if they had no income at all coming in right now -- that they are better off doing business at the local food bank rather than at Bank of America (BAC).

Even those extended benefits do not last forever, and people are starting to drop off the roles. Both the Senate and the House have passed measures to extend the benefits for a few more months, especially in high unemployment states, but they are still hammering out the differences in the bills, but it looks like something will be signed soon. Perhaps that will mean that their kids will get things for Chistmas made by Hasbro (HAS) and not Peabody Energy (BTU).

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5508.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5509.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Chicago, IL – October 9, 2009 – Zacks Equity Research highlights Valspar Corporation (VAL) as the Bull of the Day and Cadence Design Systems (CDNS) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Saks (SKS), Family Dollar (FDO) and Wal-Mart (WMT).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676

Here is a synopsis of all five stocks:

Bull of the Day:

We are upgrading Valspar Corporation (VAL) shares to Outperform with a target price of $32.00. The company's solid results and robust margin gains over the past few quarters reflect the dramatic raw material cost reduction, increasing product prices and productivity gains.

We expect the company's earnings momentum to remain in place over the next few quarters driven by volume increases in the Paint category. Robust growth in China industrial and consumer activity as well as structural and feedstock cost relief are expected to fuel margin expansion for Coating.

Not only were Valspar's recent quarterly earnings ahead of the Zacks Consensus Estimate, but the company has also raised guidance for the rest of the year.

Bear of the Day:

Cadence Design Systems (CDNS) reported weak results for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth.

3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company's ability to grow and show healthy fundamentals over the near term. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects.

Cadence recently came out with enhanced versions of its products, but it will take time for these to generate additional revenue. 2011 estimates have been added. We maintain an Underperform rating on the shares a six-month price target of $4.50.

Latest Posts on the Zacks Analyst Blog:

Initial Jobless Claims Fall

While the total number of people getting unemployment benefits is down, it is down by only 4,000, not the 72,000 that most of the financial press will report. The extended benefits do not last forever, and by the end of the year, 1.5 million people are scheduled to lose even those extended benefits, which will leave them with no income at all. The House has passed a 13-week extension for people who live in states with an unemployment rate of over 8.5%, but the Senate has yet to act on this matter.

So, do you think that in those households this Christmas is going to be one dominated by Santa or the Grinch? My bet is it will be pretty Grinchy. That means that people will not be going out to the malls and spending a lot of money at Saks (SKS). The discounters like Family Dollar (FDO) and Wal-Mart (WMT) might do OK as former high-end shoppers trade down, but the mall anchors and the higher end specialty stores are likely to face a very bleak and dreary Christmas season this year.

This will be the second weak holiday season in a row, so they will have relatively easy comps -- but even so, with unemployment still rising and those who are out of work being out of work for unheard of lengths of time, it is hard to see how people will open up their wallets very wide. Who knows, Christmas might even turn back into a predominately religious holiday…

Nah, that will never happen.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5508.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5509.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

First, I agree with Mark Thoma that Mr. Posner apparently has little understanding of macroeconomics, either of old-style Keynesian type, or the new(er) real business cycle type, or certainly New Keynesian approaches. His charge that her current pronouncements are at sharp variance with her earlier academic work really makes me wonder if he's read any of Dr. Romer's previous work. I suspect that he's taken at face value the conservative mis-apprehension that her tax cut paper contradicts the view that government expenditures can have an impact on growth. As I've explained in my responses to reader comments here, Romer and Romer (2008) provided estimates of tax cut multipliers, but no spending multipliers. Hence, a comparison of instrument efficacy is not feasible (comparing multipliers across methodologies can be done, but would be inappropriate).

Second, I would not pass a student out of intermediate macro who wrote in an exam:

The impact of the public-works program on investment is more complicated. But suppose, plausibly in a serious economic downturn such as the one that we're in at present (and that was even more serious back when the stimulus bill was enacted), that a great deal of investment is in the form of passive savings, such as demand deposits and Treasury securities, because people and companies are anxious about their economic prospects, and they want safe savings, rather than savings that would be at risk because invested in entrepreneurial projects.

As Mark Thoma points out, this is confusing a financial investment with physical investment in a NIPA sense.

This confusion tells me that anybody writing far outside their area of expertise should think twice, consult a textbook or two, before committing virtual pen to virtual paper. (I'm not saying one shouldn't write outside of one's area of research expertise on a weblog -- just one has to be careful).

Third, before he pontificates on what economists who work in the government should or should not be doing, I think Mr. Posner should read Martin Feldstein's discussion of how the CEA works ("The Council of Economic Advisers and Economic Advising in the United States," The Economic Journal, Vol. 102, No. 414 (Sep., 1992), pp. 1223-1234 [JSTORE pdf]; excerpt here). Here's a quote:

Although the CEA is physically as well as operationally part of the White House complex (CEA offices are in the Old Executive Office Building adjacent to the White House and within the same security cordon), the economic staff functions in a completely professional and nonpartisan way. My very able and distinguished staff included Larry Summers, who was prominent as chief economic adviser to presidential candidate Michael Dukakis.

The tradition of professionalist is so strong that even in a presidential election year the CEA chairman appoints members of the staff for the coming academic year with the clear understanding that they will continue to serve even if the party in power loses the presidential election. ...

My limited observations, having been a staff economist in the situation mentioned in the last paragraph, is that CEA members (nominated by the President and confirmed by the Senate) do not "leave behind their academic scruples" when they move from academia to government service. That doesn't mean that I think they're correct in their analyses -- just that what they believed when they came in is pretty close to what they say in public. (After all, silence is also an option.)

Fourth, I think any blog post (let alone paper) should be internally consistent. Consider Mr. Posner's (approving) statement:

Most economists, however, believe that it is unrealistic to suppose that people have enough information about the future to adjust their current behavior to expectations of higher taxes, inflation, devaluation, or other possible consequences of an increase in the national debt. There is too much uncertainty.

Then, he says two paragraphs later:

But Romer actually gives some credence to the unrealistic picture of the far-sighted consumer or businessman by arguing that recipients of tax credits authorized by the stimulus bill will spend rather than save the tax-credit money because they will assume that the credits are permanent.

But if in fact consumers do not look forward (as Mr. Posner argues, not as Dr. Romer argues), they will only respond to current changes in disposable income, and in fact the multiplier will look pretty big.

(Actually, I find the biggest problem with Mr. Posner's argument here is that the failure of consumers to respond in a fashion consistent with unencumbered intertemporal optimization w/perfect certainty is not due only to uncertainty, but also liquidity constraints, as well as possibly more exotic utility functions.)

Fifth, Mr. Posner should read a bit more widely. He states:

Romer argues in her talk that by the end of the second quarter of this year, $100 billion of stimulus money had been spent. That is a suspiciously round number, and it is unclear how it was arrived at; but let us assume it is accurate. She then argues that this small expenditure--about two-thirds of one percent of the Gross Domestic Product--is responsible for the fact that the decline in GDP fell (on an annualized basis) from 6.2 percent in the first quarter of the year to 1 percent in the second quarter (though the latter figure is likely to be readjusted upwards).

This assertion is groundless. No one has the faintest idea what effect the stimulus has had.

As someone who had to "fact-check" numbers going into White House policy documents and speeches on occassion, I can say that the numbers are verifiable regardless of Administration (whether they are interpreted in an appropriate fashion is a fair question).

But the more substantive question is whether the math is so nonsensical. As I showed quite clearly in this post, the number Dr. Romer obtained was easily calculated and plausible.

Sixth, my impression is that former CEA staffers and members that have become bloggers are pretty careful with the numbers and analytics -- certainly more so than Mr. Posner. These include Jeff Frankel, Paul Krugman (notwithstanding Mr. Posner's barbs), Andy Samwick, Diane Lim Rogers, and Nouriel Roubini. (see this post for former gov't/Fed economists who became bloggers.)

The broad-based S&P 500 index rose 13 points, or 1.3%, to its highest point since October 6 as the Labor Department noted nonfarm payrolls tapered off in July.  Results from a separate survey showed an unexpected decline in unemployment rate, indicating an improving employment picture.  The Dow Jones industrial average rose 114 points to 9,370.07 and the technology-laden NASDAQ rose 27 points, or 1.4%, to 2,000.25.  Volume remained moderate as 1.5 billion shares exchanged hands on the New York Stock Exchange where winners topped losers three to one.

The S&P 500 is now up 49.4% from its twelve-year lows hit on March 9.  Last week, the DJIA advanced 2.2%, for a 6.8% year-to-date climb; the NASDAQ tacked on 1.1% for a 26.8% gain on the year; the S&P500 rose 2.3%, now standing on a 11.9% increase in 2009.

Better-than-expected earnings reports from companies, manufacturing data and growing signs that the economy is on a path to recovery have boosted sentiments on the Street and indicated that a recovery might indeed be underway.  Then, Friday’s employment numbers positively surprised and indicated that the most vexing issue of the economy, unemployment, is showing some sings of moderation.  As President Obama happily noted after release of Friday's employment numbers, "the worst may be behind us."     

With $95 billion in Treasury auction slated for this week and investors turning to equities, US Treasuries lost their safety appeal.  Treasuries dropped to their lowest levels since October as prices marked their sharpest weekly fall in six years.  After a broad decline on the week, the US dollar jumped 95 cents to close at $79.105 against a basket of currencies, following bullish economic news on the employment front.  In another development, the Senate provided a $2 billion extension of the "cash-for-clunkers" program.

The coming week will provide more data on the consumer, with key retailers' results and July monthly sales figures. Among those firms, Wal-Mart (NYSE:WMT) will report results.  The major discounter had decided to eliminate release of monthly comparable sales numbers, so its numbers will be closely watched. Also on the docket are: Abercrombie & Fitch (NYSE:ANF), JC Penney (NYSE:JCP), Kohl's (NYSE:KSS), Macy's (NYSE:M), Nordstrom (NYSE:JWN), and Urban Outfitters (NASDAQ:URBN).

Lockheed Martin is focusing on F-35 as its primary growth driver in the Aeronautics segment to offset the loss of F-22. The Senate recently voted to stop production of the F-22 plane, putting it as too advanced for the recent trend of low-intensity warfare.

Subsequent to the end of the second quarter of 2009, Lockheed Martin's Aeronautics segmental order backlog was $27.9 billion. The F-35 is slated to replace the F-16 and A-10 fleets. As per media reports, the Pentagon will have to procure about 3,000 F-35 variants over the coming decade for the purpose. The F-35 has three variants, of which two of them are land based differing on the take-off and landing aspects, while the third one is a carrier-based variant.

Lockheed Martin is the primary player in the F-35 program along with industry peers, Northrop Grumman (NOC) and BAE Systems (BAE).

The focus of the Pentagon on the F-35 program is evident as, to date, two separate, interchangeable F-35 engines are under development. The two engines under development are Pratt & Whitney F135 and GE Rolls-Royce Fighter Engine Team F136. However, given the recent White House focus on fund conservation, the GE Rolls-Royce Fighter Engine Team F136 engine being developed by General Electric (GE) for the F-35 has come under a lot of scrutiny lately.

We reiterate our BUY rating on LMT.

Japan still retains its lead in engineering. A showroom at Panasonic's headquarters displayed a heated, multifunction toilet seat that conserves energy. (Wouldn't leaving the seat cold conserve even more?) The sleek Shinkansen bullet trains roll up to their appointed spots on time. TKX, an 87-year-old Osaka-based company that makes abrasives, has adapted its expertise to cutting silicon ingots into wafers for solar panels.

But social engineering is proving more challenging. Japan's population peaked in 2004 at about 127.8 million and is projected to fall to 89.9 million by 2055. The ratio of working-age to elderly Japanese fell from 8-to-1 in 1975 to 3.3-to-1 in 2005 and may shrivel to 1.3-to-1 in 2055. "In 2055, people will come to work when they have time off from long-term care," said Kiyoaki Fujiwara, director of economic policy at the Japan Business Federation.

Such a decline is cataclysmic for an indebted country that values infrastructure and personal service. (Who is going to maintain the trains, pay for social benefits, slice sushi at the Tsukiji fish market?) The obvious answers—encourage immigration and a higher birthrate—have proved difficult, even impossible, for this conservative society. In the United States, foreign-born workers make up 15 percent of the work force; in Japan, it's 1 percent. And, official protestations to the contrary, they're not particularly welcome. One columnist I met compared the standard Japanese attitude toward immigrants to that of French right-winger Jean-Marie Le Pen. In the 1990s, descendants of Japanese who had emigrated to South America early in the 20^th century returned to replace retiring factory workers. Now that unemployment is on the rise, Japan is offering to pay the airfare for those who wish to return home.

Japan doesn't particularly want to import new citizens, but it doesn't seem to want to manufacture them, either. It's become harder to support a family on a single income, and young people are living at home for longer. And Japan isn't particularly friendly to working mothers—pre-K day care is not widely available, and the phrase work-life balance doesn't seem to have a Japanese translation. (The directory of the Japanese Business Federation, a showcase of old guys in suits, makes the Republican Senate caucus look like a Benetton ad.) The upshot: a chronically low birthrate. Too often, demographic change was described to me as a zero-sum game—rather than being seen as potential job creators, women and immigrants are often seen as taking jobs from men.

As Gross goes on to argue, Japan seems awfully passive about this and while there is certainly merit in discussing whether the size of the Japanese population is moving in the right direction it is the composition which really matters here. You only need to move back one entry here at this space get some kind of indication of the outlook for Japan's population composition. There is really no need to get into the whole discussion about whether economic growth is a goal in itself or whether Japan shouldn't have the right to conduct the policies it wants. Evidently, it has. However, for all those who believe that aggressive population management is desirable either be it through deliberate policies (a la China) or by simply allowing the demographic transition to run its course (i.e. Germany, Japan etc) they should also provide an answer towards the question of what to do with the market economy defined, as it were, by a social contract between generations, some form of paygo pension system, as well as a wide batch of centrally provided goods.

Gross' analysis is not far from the view presented in a recent article by me and Edward published in the summer edition of JapanInc. In this article, we argue that Japan is dependent on exports and that this dependence is a function of its age structure.

We also emphasise that Japan, for all intent and purposes, may be stuck in so far as providing a strong response towards the challenge of ageing;

While it is certainly true that the Japanese economy is currently struggling, it is not entirely true that there is no line of defense. Japan still has both monetary policy and fiscal policy tools at its disposal. The problem is that having spent a decade and a half attempting to fight the twin problems of deficient internal demand and ongoing deflation, the force of these tools has been steadily ground down. Interest rate adjustments, after many years when Bank of Japan (BoJ) rates have been held near zero levels, have little additional push to offer, while less conventional tools (like simply printing even more money via quantitative easing) or strong fiscal stimulus face clear limits in a country where gross debt to GDP is forecast by the OECD to hit 193 percent in 2009. So what can Japan do? Well besides simply grinning and bearing it, the tragedy is that there is not a lot that can be done in the short term. Evidently the Japanese government should give what support it can through highly targeted spending programs. The Bank of Japan, meanwhile, should be moving ahead with an aggressive policy of quantitative easing to provide as much relief as possible to Japan’s struggling households and corporates. But the only real way forward here is to try to slow the rate of population aging, and that means a change in national discourse and priorities, giving more support to those Japanese women who want to have children and radically changing the mindset about the extent to which Japan needs to promote an active immigration policy.

However, if we can all agree that the situation is difficult, it is hardly an excuse for not moving forward on the issues which ultimately will need to be adressed. Japan will need to foster a more conductive policy for increasing fertility as well as a substantial changed is discourse is needed with respect to immigration.

Today's premarket futures suggest a mixed opening on news that Australian airliner Quantas Airways has canceled orders for 15 Boeing 787s, citing tough economic conditions. 

Lennar's (NYSE:LEN) report on order improvements suggested the housing scenario is improving.  Gains were broad-based yesterday as basic material shares jumped 3.0%, healthcare and consumer services were up 2.7%, industrials rose 2.5%, and oil and gas advanced 2.3%.  Commodity-related shares also rose and healthcare issues advanced on news that Senate negotiators had restrained the price tag on Obama's proposed healthcare reform bill to a target of $1 trillion over ten years.  DJIA components Merck (NYSE:MRK) rose 4.4% and Pfizer (NYSE:PFE) advanced 4.1%.  Technology issues advanced 2% after Micron (NYSE:MU) reported better-than-expected earnings and Palm's (NASDAQ:PALM) loss was smaller-than-expected.

As consumer spending is being increasingly considered as the cornerstone of an economic recovery, a 14% jump in Bed Bath and Beyond's (NASDAQ:BBBY) first quarter earnings and a JP Morgan (NYSE:JPM) upgrade of JC Penney (NYSE:JCP) to "overweight" with an increased price target of $33 from $28, provided a boost to retailers.  Shares of retailers advanced 3.8%, led by gains in Bed Bath and Beyond (NASDAQ:BBBY) of 9.5%, Saks (NYSE:SKS) of 6.7%, and JC Penney (NYSE:JCP) of 6.0%.

With the second-quarter scheduled to end early next week, most money managers have begun their window dressing by selling some equities on losses and buying this quarter's some of best stocks.  That is likely to increase volatility in the coming sessions.

However, at yesterday's congressional hearings the topic that drew the most fire was the idea of making the Fed the "systemic risk regulator." Clearly there is a need for such a regulator, so in my mind, doing nothing would be the worst possible option.

Then again, is putting the Fed in charge the right answer? As I see it there are four possible answers.

• 1) Put the Fed in charge
• 2) Form a new agency with those powers
• 3) Give those powers to another existing agency, for example the FDIC or the Comptroller of the Currency
• Have a committee of regulators do the job

There were several steps the Fed could have taken to have prevented the crisis or at least greatly minimized its impact.  Not all of them require remarkable 20/20 hindsight.  

On the other hand, the Fed does have considerable expertise in these matters, and proper supervision of banks is closely tied to monetary policy. The Fed already has some expertise in dealing with non-commercial banks -- for example the investment banks that are also primary dealers in government securities, such as Goldman Sachs (GS) and Morgan Stanley (MS). As both a plus and a minus, of all the regulatory agencies the Fed is the most independent and the least susceptible to political interference (and oversight).

Forming a new agency would take time to get it up and running, and would probably lead to turf battles between it and the existing and remaining bank supervisory role of the Fed. A reasonable case could be made for putting the FDIC in charge, and in the post mortem of the crisis, the FDIC will probably be regarded as the regulator that did the best job (talk about damning with feint praise).

However, the systemic risk regulator will have to deal with financial institutions that are not depository institutions, like banks or thrifts. The FDIC has no particular experience or expertise in dealing with them -- ditto for the Comptroller of the Currency. And the FDIC sort of has its hands full at the moment as it is.

Leaving it to a committee would simply defuse responsibility and accountability, and aside from doing nothing is the least appealing option.

Thus, I do come down on the side of giving the job to the Fed (but could be persuaded to give the job the FDIC). However, I would like to see it accompanied by several major changes at the Fed. The Fed is currently owned by the banks, (literally, not just figuratively) and they get to pick the regional presidents and make up the boards of directors.

This is an obvious conflict of interest. As part of the reform, the regional presidents should be appointed by the President and confirmed by the Senate. The term in office could be set so it is different from the presidential cycle.

The boards should include non-bank directors. There is also a bill moving through Congress to audit the Fed. This should be passed and the audits done, and released in an annual report to the public (and Congress).

Earlier in February, the $787B economic stimulus package was passed in the Senate and House. The $150B in planned healthcare spending will include $25B towards the expansion of COBRA, $20B for health technology, and $85B for Medicaid assistance to states. The package clearly aims to improve the infrastructure of the healthcare industry and ultimately lower costs and expand access to more Americans.

OPPORTUNITIES

Health technology holds promise of improved operating efficiencies for many parts of the healthcare industry, hospitals included. However, in the short term those that stand to benefit the most from the stimulus are the companies whose business models are based on information technology platforms.

One such company is BioScrip, Inc. (BIOS), a specialty pharmacy services provider and pharmacy benefit manager. Bioscrip operates two interrelated business segments, namely: Specialty Services, which is comprised of specialty pharmacy distribution and clinical management services; and PBM Services, which is comprised of pharmacy benefit management and traditional mail services. We currently rate the stock of Bioscip a Buy.

Despite our currently neutral stance on managed care providers overall, we continue to rate WellPoint (WLP) as a Buy given its broad product offering, geographic reach and potential for added synergy gains from relatively recent acquisitions. That said, we believe the recent action by CMS to suspend the company from enrolling new patients in the health insurance Medicare Advantage plan and the prescription drug benefit, Medicare Part D will add to negative sentiment in the short term. We believe the action by CMS is reversible and highlights operational issues that can be addressed by management in the short term.

Another current Buy recommendation is NovaMed Inc. (NOVA). NOVA is an emerging healthcare services company engaged in the operation of ambulatory surgery centers (ASCs) and the provision of optical products and services to eye-care professionals. We remain positive with the company's performance to date, given the continued strength of cash flows from operations and same facility revenue growth.

WEAKNESSES

Medicaid-focused managed care providers are, to some degree, countercyclical and often perform well in mild recessions. However, and despite the $85B allocated to Medicaid in the stimulus, we remain cautious at this point, given the severity of the current economic downturn and uncertainties surrounding healthcare reform. Unlike other managed care players, Medicaid managed-care companies are highly reliant on funding from state governments, which in turn are subject to budgetary constraints and policy changes at the federal level.

We expect hospitals to gain some relief from the $15B in Medicaid assistance earmarked for immediate distribution to help close budget gaps coupled with the expansion of COBRA. COBRA provides temporary continuation of health coverage in the event of a job loss.

However, we believe the hospital sector will remain under pressure for the remainder of 2009 given anticipated lower consumer spending, high unemployment, and shifts in payer mix further already weakening 4Q08 admission numbers and increasing bad debt levels. We note that hospitals by law must treat all patients in need of emergency care, regardless of whether they have insurance.

We currently rate both Community Health Systems (CYH) and Universal Health Services, Inc. (UHS) with Hold recommendations.Zacks Investment Research

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579.

Here are highlights from Wednesday's Analyst Blog:

Credit Card Reform Passes Senate

On Tuesday May 19, 2009, the Senate overwhelmingly voted to curtail credit card rate increases and excessive fees, in an attempt to give consumers (i.e. voting constituents) some latitude amid the current recession. It appears all that is needed is to have the executive branch sign off on it.

If enacted into law, the players in the credit card industry -- such as, but not limited to, Visa (V), MasterCard (MA), American Express (AXP) and Capital One (COF) -- would have less than a year to make changes. These changes would include card lenders having to post their credit card agreements on the Internet, and permit all customers the ability pay their bills online or by phone without an added fee, rationalize over-the-limit fees and provide 45 days notice and an explanation before interest rates are increased.

Petrobras in Brazilian Politics

Petrobras (PBR) is now the target of a Congressional commission in Brazil (CPI) in order to investigate supposed mismanagement. The main allegations are that (i) there were above normal expenses in the refinery project in the State of Pernambuco, North East Brazil, and (ii) some questionable accounting practices adopted by Petrobras during 2008 made it possible for the company to save around BRL4 billion (US$1.95 billion) in taxes.

As we have been saying for quite some time, as a state owned company, Petrobras is always a target for a political fight and short-term electoral interests that have nothing to do with corporate matters. In the particular case of this Congressional commission, what is really under discussion are the 2010 presidential elections.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=2677

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Yesterday the DJIA declined 0.3% and S&P was off 0.2%; tech-heavy Nasdaq managed a 0.1% gain. Among DJIA components, Citigroup (NYSE:C), Alcoa (NYSE:AA) and Hewlett-Packard (NYSE:HPQ) led the advancers with gains of 3.6%, 2.0%, and 2.4%, respectively.  Home Depot (NYSE:HD) shares declined 5.3%, after yesterday's 6.6% surge, as the company reported a decline in sales and margins, even though the company's earnings were above expectations.  American Express (NYSE:AXP), which said it is "very cautious about the economy" declined 5.1%, despite announcing cost-saving measures that include reduction of its workforce by 6%.  Moreover, the Senate approved a proposal to limit credit card companies' small-print ability to hike fees and rates.

Although the Obama Administration brought forth stricter fuel standards, General Motors (NYSE:GM) shares jumped 7.6%, even as CEO Henderson said auto sales is expected to remain weak. 

Morgan Stanley (NYSE:MS) said it raised $596 million through the sale of its former investment analysis unit.  Bank of America (NYSE:BAC) also said it raised $13.47 billion through a stock offering.  The bank, which has been told by regulators it needs $33.9 billion in fresh capital, has already raised $7.3 billion through the sale of China Construction Bank interest.  Yesterday's drop of 3-month Libor, which measures the cost of borrowing in dollars between banks, to 0.75% marks the 37th straight daily fall, according to Bloomberg.

Home Depot's (NYSE:HD) revenue declined 9.7%, although earnings of 35 cents a share beat Street estimates by 6 cents.  The company also reiterated its full-year earnings projections.

Housing scenario continues to remain grim with home construction unexpectedly declining in April. The Commerce Department said starts decreased 12.8% to a seasonally adjusted 458,000 annual rate compared with the prior month and widely missed estimates of 520,000. However, economists noted a 2.8% rise in single-family units, the second straight month of increases.  The leading indicator, housing permits, declined 3.3% to 494,000 units, also the lowest on record, off 50.2% y/y.

Today's key items include weekly crude stockpiles at 10:30 AM ET, with crude inventory estimated to have declined to 1.2 million barrels on the week, versus a 4.63 million fall prior.  Treasury Secretary Geithner is slated to speak at 9:30 ET.  Most importantly, the FOMC minutes of the April 29 meeting are due for a 2:00 PM ET release, expected to contain updates on the Fed's projections of growth, inflation and unemployment. Expectations are of a lowered GDP assumption to -1.2% from -0.9% in 2009, with 2010 unchanged at +2.9%, and 2011 increased to 4.2% from 3.9%.  Unemployment assumptions for 2009 may also have been increased to 9.4% from 8.7%. Any significant variation is expected to be market-moving.

"Looking forward, I believe a more macroprudential approach to supervision--one that supplements the supervision of individual institutions to address risks to the financial system as a whole--could help to enhance overall financial stability. Our regulatory system must include the capacity to monitor, assess, and, if necessary, address potential systemic risks within the financial system. Elements of a macroprudential agenda include:   

• "monitoring large or rapidly increasing exposures--such as to subprime mortgages--across firms and markets, rather than only at the level of individual firms or sectors;"

• "assessing the potential systemic risks implied by evolving risk-management practices, broad-based increases in financial leverage, or changes in financial markets or products;"

• "assessing the potential systemic risks implied by evolving risk-management practices, broad-based increases in financial leverage, or changes in financial markets or products;"

• "ensuring that each systemically important firm receives oversight commensurate with the risks that its failure would pose to the financial system;"

The solution to that is to make sure that no bank gets big enough to pose such a risk. It is time to break them up, both by function (i.e. reimpose a modern equivalent of Glass-Steagall) and perhaps by region. Ten mini Citigroups (C) would each would not pose an overall risk to the system if one of them were to fail.

Of course you would want to keep an eye on them, just as the military keeps an eye on its 1,000 lb conventional bombs. However, the consequences of one of those going missing is much less profound than a missing nuke warhead.

Unfortunately, in the largely ad-hoc response to the crisis, we have been moving in exactly the wrong direction. JP Morgan (JPM) swallows up Bear Stearns and Washington Mutual, Wells Fargo (WFC) takes over Wachovia, and Bank of America (BAC) now owns Countrywide and Merrill Lynch. All of them were too big to fail before this started, and now they are way too big to fail. Either we regulate them extremely closely -- to the point where they will be complaining that every credit card being issued has to be first cleared with the Federal Reserve Board of N.Y. (OK, I'm exaggerating for effect here) -- or we break them up.   

• "providing a resolution mechanism to safely wind down failing, systemically important institutions;"

Without being in bankruptcy, we had to honor the CDS contracts at 100 cents on the dollar. The result was a huge backdoor handout to the banks (a much bigger scandal than the bonuses, IMHO). This would have provided an intermediate step where the new 80% owners of AIG (aka the taxpayers) could have just returned the premiums on the CDS's and rewritten the bonus contracts when we came in.

We can do this with smaller banks, but not with big bank holding companies or huge non-bank financial firms. We need this, and we need it right away.   

• "ensuring that the critical financial infrastructure, including the institutions that support trading, payments, clearing, and settlement, is robust;"

• "working to mitigate procyclical features of capital regulation and other rules and standards;"

However, somehow I suspect that as soon as good times come back, the banks will flex all their political influence (they have a lot, as Sen. Durbin (D-Il) said of the bankers and the Senate, "they own this place") so the cushion is never built up in the good times. After all requiring more equity will result in a lower ROE, and that might result in bonuses that are only in the seven figures rather than in the eight figures. The horror, the horror!   

• "and identifying possible regulatory gaps, including gaps in the protection of consumers and investors, that pose risks for the system as a whole."

The OTS actively went looking for more institutions to fall under its supervision, and its key marketing policy was that it would be the most toothless and ineffective of regulators. It was the most gung-ho on deregulation, and many of the biggest failures were firms that it was the primary regulator for, including Washington Mutual, Indymac and of course AIG.

We have to find ways to stop shopping around for your regulator and regulatory capture. The Fed would be a very good place to start. It is not comforting that the head of the New York Fed comes from Goldman, and still holds over ten figures worth of Goldman stock when he is now the primary regulator of the firm. That is more than just an appearance of a conflict of interest.

The board of directors of each of the regional Federal Reserve Banks are all made up of bankers. That is because the Federal Reserve is not owned by the government, rather it is owned (literally, not just figuratively) by the banks. Perhaps it is time we reconsider that arrangement. 

The speech is a good start, but it does not go far enough. We need to return to the principals that were behind the financial regulatory reforms of the 1930's. The three-legged stool of good solid accurate information, including of potential conflicts of interest (the SEC), making it safe to keep your money in the bank (the FDIC) and making sure the bank does not take your money and use it to play the tables in Vegas (Glass-Steagall). The precise form will be different than the old regulations, but the new order should embody the same spirit.

PREPARING TO TRADE STOCKS AND OPTIONS WITH ABRAHAM LINCOLN

1. TRADING STOCKS AND OPTIONS LIKE A CHILD
2. TRADING OPTIONS WITH THE WISDOM OF MARK TWAIN.
3. THE ACCESSIBLE BATTLEFIELD TERRAIN: TRADING STOCKS AND OPTIONS IN A TRENDING MARKET

When President Obama's administration released the proposed budget for the upcoming fiscal year, drug stocks quickly dropped. Fears of socialized medicine, or "Hillary-Care 2.0" turned investors away from the sector.

Was the drop warranted?

There are 6 key components to healthcare reform that could have a meaningful impact on pharmaceutical and biotechnology companies in the near future.Four of these are potentially negative, whereas the other 2 are potentially positive.

First Potential Negative: Increasing Pricing Rebates

The new proposal calls for an increase in Medicaid rebates from the current level of 15% to 21%. This equates to a 6% decrease in pricing power by all the companies in our universe into the Medicaid market. If we delve deeper into the ramification of this action, we see that the potential earnings impact for most large pharmaceutical companies is in the area of 1%, at most.

Most pharmaceutical companies average roughly 5% to 20% of their U.S.business to Medicare / Medicaid. Some companies, including Wyeth (WYE), Pfizer (PFE), and Abbott Labs (ABT) are on the low-end, whereas others, such as Bristol-Myers Squibb (BMY), Eli Lilly (LLY), Merck (MRK), and Gilead (GILD) are on the high-end.

The overall impact to the top-line is muted significantly for companies with greater sales outside the U.S., including PFE, ABT and Johnson & Johnson (JNJ).

Notice Abbott and Pfizer are on the right side of that list twice, low exposure to Medicaid, high percent of sales outside the U.S. But nevertheless, we would classify the 1% EPS risk associated with increased pricing rebates as mostly bark, only a tiny bite.

Segment Analysis For Top Drug Companies
Company	% U.S. Revenues*	Est. % Govt. Biz	% At Risk Exposure
Abbott Labs	48%	~8%	~4%
Bristol-Myers	59%	~14%	~9%
Johnson & Johnson	51%	~9%	~5%
Merck & Co.	56%	~10%	~6%
Schering-Plough	30%	~8%	~3%
Eli Lilly & Co.	54%	~18%	~10%
Pfizer, Inc.	42%	~6%	~3%
Wyeth, Inc.	47%	~5%	~2%
*Revenues include all operations, not just Pharmaceuticals

Second Potential Negative: Biologic Generics

It is clear that we will have some sort of path to approval for generic biologic drugs, or "biosimilars," in the near-future. New draft legislation is expected to call for 10 years of market data exclusivity for new biologic drugs - a victory for the biotech industry as Representative Henry Waxman (D-CA), Chairman of the House Energy and Commerce Committee, recently introduced a bill calling for only 5 years of data exclusivity.

But biosimilars will not be as devastating to biotech products as generics were to small molecules. Manufacturing biologic drugs is significantly more cost prohibitive and knowledge intensive than small molecules.

Biotechnology companies themselves often struggle with manufacturing scale-up and meeting demand. Manufacturing Eli Lilly's Erbitux or Amgen's (AMGN) Enbrel is no easy task. There are few generic manufacturers with the necessary expertise, or capital required, to manufacture large batches of biosimilars.

And, there are significant additional hurdles. If the FDA will require proof of bioequivalency, then generic manufacturers will need to start doing costly large-scale clinical trials - something most will shy away from doing. Conversely, if the FDA does not require a bioequivalency study, we believe most doctors will shy away from using the "biosimilar" products because they know the complexity of the manufacturing process and have no proof that the generic Aranesp really is identical to the branded Aranesp.

It's a catch-22 that generic companies looking to break into the biologic market will have to deal with.

That being said, firms with potentially the biggest risk exposure to generic biologic legislation include Amgen and Biogen Idec (BIIB). Teva Pharmaceuticals (TEVA) is most likely the biggest winner.

Top Biologic Drugs And Their Patent Expiration
Neupogen (Amgen)	2013	Neulasta (Amgen)	2015
Aranesp (Amgen)	2014	Enbrel (Amgen)	2012
Myozyme (Genzyme)	2016	Fabrazyme (Genzyme)	2015
Herceptin (Roche)	2019	Avastin (Roche)	2018
Rituxan (Roche)	2018	Lucentis (Roche)	2018
Erbitux (Eli Lilly)	2017	Remicade (J&J)	2014
Humira (Abbott)	2016	Synagis (AstraZeneca)	2018

Third Potential Negative: Drug Reimportation

A consortium of 4 Senators (Dorgan D-ND, Stabenow D-MI, McCain R-AZ, and Snowe R-ME) introduced in early March 2009 the, "Pharmaceutical Market Access and Drug Safety Act." The bill would allow U.S.-licensed pharmacies and drug wholesalers to import FDA-approved medications from Canada, Europe, Australia, New Zealand and Japan - areas where drug prices are on average 35% to 55% lower than in the U.S. The legislation would also allow individual consumers to purchase prescription drugs for personal use from safe, reliable, FDA-inspected Canadian pharmacies.

The Congressional Budget Office (CBO) estimates the bill would save American consumers $50 billion over the next decade, including more than $10 billion in federal government savings. If we assume the savings are linear, or average roughly $5 billion per year, that represents approximately 2% of the total U.S. $250 billion pharmaceutical market. The EPS impact from a 2% haircut to the top-line of each pharmaceutical company, assuming drug reimportation hits everyone equally, is extremely manageable, and will most like average no more than 1% to 2% per company if enacted.

Fourth Potential Negative: Tax Reform

(This also the one with the most teeth.) .

Tax reform has little to do with fixing the healthcare system and more to do with closing loopholes and going after drug company's profits directly.  It is also by far the most socialistic approach to the problem, as we would classify drug reimportation and biosimilars as more capitalistic approaches.

Over the past several years large-pharmaceutical companies have gotten quite good at lowering their effective tax rates thanks to foreign subsidiaries and R&D credits. In fact, the average tax rate using the 14 largest U.S-based pharmaceutical and biotech companies in 2008 was 23%.

It is possible that the President's proposal could raise the effective rate for each firm to 30% by closing these loopholes and cutting R&D tax credits.

That equates to a 7% increase in effective tax rate for the average company, or as much as a 20% to 30% decrease in net income. The details on the tax reform aspect to President Obama's proposal have yet to be divulged, but this does have the potential to be a significant negative for our coverage universe.

2008 Tax Rates for Top U.S. Drug Companies
Abbott Labs	22%	Amgen	22%
Bristol-Myers	22%	Alcon, Inc.	15%
Genentech	36%	Biogen Idec	29%
Genzyme	34%	Gilead Sciences	27%
Johnson & Johnson	23%	Eli Lilly & Co.	21%
Merck & Co.	17%	Pfizer, Inc.	22%
Schering-Plough	15%	Wyeth, Inc.	30%

It's not all potentially bad news though with respect to healthcare reform.We see two potentially very positive changes that could emerge as a result of new legislation.

First Potential Positive: New Research Funding

In early March 2009, President Obama reversed a standing executive order from the previous administration by lifting the federal ban on human clinical testing of embryonic stem cells. This opens the door to potentially billions of dollars in government funding for this new, and potentially breakthrough, platform.

Stem cell companies, although mostly small and unprofitable, are the biggest direct beneficiary of the news. However, big pharmaceutical companies are clearly interested in stem cell research, and with a significantly more friendly administration in control, we may see a big push in this area in the coming years.

Besides opening up funding for stem cell research, the Obama administration has made it clear it wants to see additional increases in funding for infectious diseases such as HIV/AIDS and Hepatitis-C, as well as for cancer and obesity-driven diseases such as diabetes and cardiovascular disease.  At this point, similar to the proposed tax reform, the details are thin. How much money the government will spend and who will get the money remains to be seen, but Genzyme (GENZ) and Gilead would seem to be the two biggest beneficiaries of increased funding in their core areas.

Second Potential Positive: Increase Coverage

This is the "no-brainer" when it comes to how universal healthcare would benefit big drug companies. There are an estimated 40 million people living in the U.S. without health insurance. Opening up some sort of government sponsored program that would insure even half of these people would be a significant revenue driver. We would view this as a systemic benefit across the entire universe of healthcare companies.

Potentially another 20 million Americans looking to use prescription drugs could mean as much as another $25 billion in drug sales per year. That would equate to an increase of over 10% in 2010. Therefore, even if pricing drops by 6% and reimportation takes down sales by another 2-3%, the net top-line impact of Obama's healthcare reform may be negligible if the size of the target market increases.

Healthcare Reform Is Necessary

Fixing healthcare, or at least starting on a long-term solution, is at the center of President Obama's plans for the next 4 years, and for good reason.

According to the National Center for Policy Analysis, the unfunded liability associated with Medicare / Medicaid is roughly 7x that of the current unfunded liability for Social Security. By 2030, it grows to 15x the size.

Social Security may be the "third rail" in American politics, but Medicare / Medicaid is the train bearing down on the tracks.

Still Waiting on the Details

It is also critical to realize that many of the details to President Obama's proposal have yet to be ironed out. That debate will take place on the floor of the House and Senate over the next few months.

What was released last month was more a broad stroke, sweeping legislation, plan of action. The President called for a $634 billion healthcare reform reserve fund over 10 years aimed at fixing many of the problems that exist with the current system. This $634 billion is paid for through $318 billion in tax increases on Americans earning over $250,000 and $316 billion in savings to be squeezed from drug makers, hospitals and managed-care companies.

The net result of healthcare reform is likely to be limited on big pharmaceutical earnings.

As noted above, the effective tax rate change has the potential to take the biggest bite out of profits. What we may end up seeing is a small reduction in revenue growth rates for the largest firms by 2% to 4%, with almost this entire drop hitting the gross margin line. Operating margins are likely to remain stable as most of the company look to cut costs and synergize through mega-mergers (Pfizer-Wyeth, Merck-Schering, Roche-Genentech). The mega-merger trend should continue, with names like Bristol-Myers, Eli Lilly, Sanofi-Aventis (SNY), and AstraZeneca (AZN) most likely the next to jump into the fray. Net margins could take a hit if tax rates increase, which would certainly have a negative impact on earnings, but we expect that this type of broad-based impact to the entire sector will have only limited impact on applied valuation multiples.

When the President's budget is finalized we should get a better sense on how the above 6 forces will impact each name individually. At this point, the fear of healthcare reform seems entirely more bark than bite. Although there is bite, the Amex Pharmaceutical Index is now down 13% YTD, and our calculations show that the expected earnings hit, excluding the tax rate issue, is significantly less.

Wishing you luck,
Jason Napodano, CFA
Senior Analyst, Zacks Equity Research

Jason covers the pharmaceutical industry for Zacks Equity Research. His article on how health care reform may impact the drug sector helps us view certain stocks in a new light.For example, Teva Pharmaceuticals is identified as a potential big winner with new generic biologic legislation. If you'd like to see Jason's in-depth research report on TEVA issued April 1, you may download now by starting a free trial to our Zacks Premium service.

This 30-day free trial entitles you to much more than just the TEVA research report. You will also gain full access to:

• Buy, Sell, Hold ratings on 4400 stocks
• In-depth research reports from Jason and the other 50 analysts at Zacks Equity Research
• IndustryRatings: What industries are hot and which are not.
• New: Zacks Mutual Fund Rank with ratings on nearly 19,000 funds.
• And much, much more.

Learn more about the Zacks Premium Free Trial

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579.

Here are highlights from Monday's Analyst Blog:

Not So Nuts: K Supports New Bill

General Mills (GIS), Kraft Foods (KFT) and the Kellogg Company (K) are supporting legislation aimed at preventing tainted foods from entering the food supply. The 3 companies are supporting a bill introduced by Dick Durbin (IL-Democrat) and Judd Gregg (NH-Republican) into the Senate.

The bill (known as Food Safety Modernization Act) would give the FDA additional authority to mandate food recalls and food safety plans for manufacturers. This is a departure from the industry's prior stance of self-regulation and FDA inspections rather than the proposed mandated preventive measures.

The recent outbreak of salmonella from peanut paste supplier Peanut Corporation of America has negatively impacted the earnings of several food companies. The salmonella contamination sickened over 600 people and is linked to 9 deaths. Investigations revealed that the Peanut Corporation of America shipped salmonella-tainted peanuts at least a dozen times in the last two years.

Philip Morris Hacking Through

Philip Morris International (PM) has a history of strong operating and financial performance as part of Altria (MO). Management has a credible strategy of growing EPS in the range of 10% to 12% and returning a substantial portion of the company's cash flow to shareholders.

However, Philip Morris International has experienced an adverse mix shift as lower margin markets have grown faster than the company's average. In addition, the company is exposed to risks from litigation and increased smoking restrictions.

Lastly, the European Union tobacco market has remained weak. The Hold rating is maintained. Our current target price is $40.50.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=2677

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Earlier in February, the $787B economic stimulus package was passed in the Senate and House. The $150B in planned healthcare spending will include $25B towards the expansion of COBRA, $20B for health technology, and $85B for Medicaid assistance to states. The package clearly aims to improve the infrastructure of the healthcare industry and ultimately lower costs and expand access to more Americans.

OPPORTUNITIES

Health technology holds promise of improved operating efficiencies for many parts of the healthcare industry, hospitals included. However, in the short term those that stand to benefit the most from the stimulus are the companies whose business models are based on information technology platforms.

One such company is BioScrip, Inc. (BIOS), a specialty pharmacy services provider and pharmacy benefit manager. Bioscrip operates two interrelated business segments, namely: Specialty Services, which is comprised of specialty pharmacy distribution and clinical management services; and PBM Services, which is comprised of pharmacy benefit management and traditional mail services. We currently rate the stock of Bioscip a Buy.

Despite our currently neutral stance on managed care providers overall, we continue to rate WellPoint (WLP) as a Buy given its broad product offering, geographic reach and potential for added synergy gains from relatively recent acquisitions. That said, we believe the recent action by CMS to suspend the company from enrolling new patients in the health insurance Medicare Advantage plan and the prescription drug benefit, Medicare Part D will add to negative sentiment in the short term. We believe the action by CMS is reversible and highlights operational issues that can be addressed by management in the short term.

Another current Buy recommendation is NovaMed Inc. (NOVA). NOVA is an emerging healthcare services company engaged in the operation of ambulatory surgery centers (ASCs) and the provision of optical products and services to eye-care professionals. We remain positive with the company's performance to date, given the continued strength of cash flows from operations and same facility revenue growth.

WEAKNESSES

Medicaid-focused managed care providers are, to some degree, countercyclical and often perform well in mild recessions. However, and despite the $85B allocated to Medicaid in the stimulus, we remain cautious at this point, given the severity of the current economic downturn and uncertainties surrounding healthcare reform. Unlike other managed care players, Medicaid managed-care companies are highly reliant on funding from state governments, which in turn are subject to budgetary constraints and policy changes at the federal level.

We expect hospitals to gain some relief from the $15B in Medicaid assistance earmarked for immediate distribution to help close budget gaps coupled with the expansion of COBRA. COBRA provides temporary continuation of health coverage in the event of a job loss.

However, we believe the hospital sector will remain under pressure for the remainder of 2009 given anticipated lower consumer spending, high unemployment, and shifts in payer mix further already weakening 4Q08 admission numbers and increasing bad debt levels. We note that hospitals by law must treat all patients in need of emergency care, regardless of whether they have insurance.

We currently rate both Community Health Systems (CYH) and Universal Health Services, Inc. (UHS) with Hold recommendations.Zacks Investment Research

One of the reasons this is so outrageous is that the promise of such bonuses was in fact one of the very factors that caused our current problems, creating incentives for managers of AIG to get out of solid insurance underwriting and into hedge fund gambling. If anyone had supposed that AIG had "learned its lesson", this report seemed to dash that hope against the wall like a plate of china.

Some may argue that AIG's hands were tied by contracts the company offered employees in the spring of 2008 promising that 2008 bonuses would be 100% of 2007 bonuses. Or that the inability of the Treasury Secretary to override these bonuses was cemented by the following clause in the American Recovery and Reinvestment Act signed into law on February 17:

The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.

Fox News blamed the above de facto AIG exemption on Senator Christopher Dodd (D-CT), suggesting a possible connection to the fact that Dodd was the largest single recipient of 2008 campaign donations from AIG. But Jane Hamsher documents that the words above were inserted after the bill left the senate and went to conference committee. Hamsher proposes instead that pressure from Treasury Secretary Timothy Geithner and National Economic Council Head Larry Summers played a role in those words' appearance in the final bill.

I have yet to find a clear account with actual names of the representatives and senators who thought prohibiting restrictions on bonuses promised before February 11 was a good idea. But somebody put that clause in, and the claim that the legislators all are shocked-- shocked-- to find this is part of what they voted for is, if nothing else, Exhibit 9,247 for the case that legislation needs to be sufficiently short that everyone can be expected to read it.

But more shocking yet, at least if we measure these things in dollars and cents, is the amount of taxpayer funds that have gone to compensate AIG's counterparties for bets those counterparties never should have been allowed to make.

Source: Capital Chronicls

On Sunday Larry Summers offered this explanation for the bonuses:

We are a country of law. There are contracts.... Binding contracts were entered into long before the government put any money into AIG. We're not a country where contracts just get abrogated willy-nilly.

But here's the point. AIG may have entered into contracts with its managers and its counterparties, but the U.S. taxpayers did not. A precondition for infusion of taxpayer funds has to be sufficient restructuring of pre-existing commitments to ensure that any new funds delivered achieve their purpose rather than simply prolong the problem.

If Geithner and Summers feel they lack the legal authority to ensure that kind of constructive receivership status for recipients of bailout dollars, then they should have delivered proposed legislation to Congress providing such authority on day one.

Or, given that we missed that deadline, maybe they'd consider giving us a plan that works tomorrow.

Technorati Tags: macroeconomics, economics, credit default swaps bailouts, AIG

As fourth-quarter earnings season winds down, traders will be even more focused on the news coming out of Washington.

Congress will debate the president's budget proposal, which includes allocations for absorbing bank losses. There will also be ongoing discussion about the stress tests for banks. Not to mention speculation about whether the government will take a large ownership position in other financial companies, as it is doing with Citigroup (C). Finally, aid for auto parts suppliers and healthcare reform are on the agenda.

Economic data will also grab the attention of traders. The week's schedule includes the ISM manufacturing survey (Monday), the Beige Book (Wednesday at 2pm) and February employment data (Friday).

• Monday: February ISM manufacturing survey, January personal income and spending, January construction spending
• Tuesday: January pending home sales, February auto sales,
• Wednesday: February ISM non-manufacturing survey, ADP employment, Federal Reserve Beige Book, weekly crude inventories
• Thursday: Fourth-quarter productivity (revised), January factory orders, weekly crude inventories
• Friday: February unemployment and nonfarm payrolls, January consumer credit

Fed Chairman Ben Bernanke will testify before the Senate budget committee on Tuesday morning. He will speak about the impact of the economy on the federal budget. The fed chairman will speak again on Saturday, Mar 7, at a dedication ceremony in South Carolina.

Vice Chairman Donald Kohn will appear before the Senate's Committee on Banking, Housing, and Urban Affairs on Thursday. He will speak about American International Group (AIG) on Thursday.

As for earnings, we have confirmed reports from 204 companies. Included in this group are 8 S&P 500 members: American Capital Ltd. (ACAS), Autozone, Inc. (AZO), Ciena Corporation (CIEN), Costco Wholesale Corporation (COST), Edison International (EIX), H&R Block, Inc. (HRB), MBIA Inc. (MBI) and Pepco Holdings, Inc. (POM).

Stocks remain oversold, suggesting that a bounce should occur soon. However, both indexes and stocks can stay oversold (or overbought) for an extended period of time.

Companies That Could Issue Positive Earnings Surprises

During the past few weeks, 3 of the 18 covering brokerage analysts raised their fiscal second-quarter profit projections on Autozone, Inc. (AZO). The revisions pushed the consensus earnings estimate back up to $1.84 per share. The most accurate estimate is far more bullish, at $1.93 per share. AZO has beat expectations twice during the past 4 quarters, but also missed once. AutoZone is scheduled to report Tuesday, Mar 3, before the start of trading.

Fuel Systems Solutions, Inc. (FSYS) has topped expectations for 4 consecutive quarters. Ahead of the company's fourth-quarter report, 1 brokerage analyst raised his profit forecast, which helped the consensus earnings estimate rise back to 41 cents per share. The most accurate estimate is slightly more bullish at 50 cents per share. This is a volatile stock with the potential to respond to good earnings. Fuel Systems Solutions is scheduled to report on Thursday, Mar 5, after the close of trading.

Companies That Could Issue Negative Earnings Surprises

Earlier this month, Costco Wholesale Corporation (COST) warned that fiscal second-quarter earnings would be "substantially below" the consensus earnings estimate. The company blamed the economy, price-based promotions and lower gasoline profits for the warning. Nearly all of the covering analysts cut their projections in response, sending the average profit forecast 11 cents lower to 60 cents per share. Costco has historically met or topped expectations, so a miss may not occur. However, forecasts for the remainder of fiscal 2009 have been cut and it is probable that guidance for the second-half of the year will be disappointing. Costco is scheduled to report on Wednesday, Mar 4, before the start of trading.

Tech Data Corporation (TECD) has missed profit expectations for 2 consecutive quarters. Though earnings estimates are unchanged ahead of the company's fiscal fourth-quarter report, forecasts for fiscal 2010 are dropping. This suggests a strong possibility of disappointing guidance. Tech Data is scheduled to report on Tuesday, Mar 3, before the start of trading.

Charles Rotblut, CFA is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

Earnings Calendar

Here is a list of companies that we have confirmed will report during the week of Mar 2 - 6¹. Prices are as of Thursday's, Feb 27, market close.

Company	Ticker	Zacks Consensus Estimate	Year Ago Actual	Last Qtr Surprise	Report Date	Report Time	Price
ABM Industries	ABM	$0.20	$0.16	(2.7%)	3/2/2009	AMC	$16.50
Allied Cap New	ALD	$0.22	$0.37	(23.5%)	3/2/2009	BTO	$1.91
Alphatec Hldgs	ATEC	($0.06)	($0.05)	(66.7%)	3/2/2009	N/A	$2.41
Amer Cap Ltd	ACAS	$0.65	$0.89	5.7%	3/2/2009	BTO	$4.12
Ares Cap Cp	ARCC	$0.33	$0.37	(5.6%)	3/2/2009	BTO	$5.82
Atlas Pipln Hld	AHD	$0.03	($0.51)	163.0%	3/2/2009	BTO	$3.05
Atlas Pipln Ptr	APL	$0.35	$0.68	(8.8%)	3/2/2009	BTO	$7.45
Breitburn Egy	BBEP	$0.34	$0.31	(23.7%)	3/2/2009	AMC	$9.30
Brookdale Senr	BKD	($0.32)	($0.30)	(100.0%)	3/2/2009	BTO	$7.00
Carrols Restrnt	TAST	$0.21	$0.16	6.3%	3/2/2009	AMC	$3.15
Cellcom Israel	CEL	$0.59	$0.49	0.0%	3/2/2009	BTO	$21.82
Central Eur Dis	CEDC	$1.17	$0.74	(12.5%)	3/2/2009	N/A	$14.27
China Med Tech	CMED	$0.16	$0.48	15.1%	3/2/2009	BTO	$16.15
Clear Chanl Out	CCO	$0.10	$0.29	(53.9%)	3/2/2009	BTO	$5.67
Conseco Inc	CNO	$0.30	$0.11	18.5%	3/2/2009	BTO	$2.85
Crosstex Egy Lp	XTEX	($0.27)	$0.19	(47.1%)	3/2/2009	BTO	$5.01
Crosstex Energy	XTXI	($0.02)	$0.17	(75.0%)	3/2/2009	BTO	$4.00
Dish Network Cp	DISH	$0.49	$0.39	(37.9%)	3/2/2009	BTO	$13.22
Eagle Bulk Shpg	EGLE	$0.37	$0.35	11.4%	3/2/2009	AMC	$6.30
Echostar Corp	SATS	($0.17)	N/A	134.4%	3/2/2009	N/A	$14.80
Edison Intl	EIX	$0.66	$0.65	(4.0%)	3/2/2009	BTO	$33.74
Einstein Noah	BAGL	$0.37	$0.47	35.7%	3/2/2009	AMC	$7.56
First Indl Rlty	FR	($0.17)	$1.22	8.2%	3/2/2009	AMC	$6.50
Franklin Elec	FELE	$0.38	$0.28	8.8%	3/2/2009	AMC	$28.08
Fti Consulting	FCN	$0.55	$0.60	(15.0%)	3/2/2009	BTO	$42.21
Horsehead Hldg	ZINC	$0.20	$0.55	42.9%	3/2/2009	BTO	$4.60
Hospitality Prp	HPT	$0.96	$1.15	0.9%	3/2/2009	AMC	$15.11
Immersion Corp	IMMR	($0.12)	$0.02	(25.0%)	3/2/2009	AMC	$5.08
Ipc The Hospitl	IPCM	$0.24	$0.24	11.1%	3/2/2009	AMC	$18.99
Ipcs Inc	IPCS	($0.26)	($0.24)	(285.7%)	3/2/2009	AMC	$5.36
Kkr Finl Hldgs	KFN	$0.35	$0.55	(19.5%)	3/2/2009	BTO	$1.40
Leapfrog Entrps	LF	($0.11)	($0.51)	5.6%	3/2/2009	AMC	$2.23
Live Nation	LYV	($0.26)	($0.25)	32.8%	3/2/2009	AMC	$6.43
Maguire Pptys	MPG	$0.06	$0.14	0.0%	3/2/2009	AMC	$2.75
Markwest Egy Pt	MWE	$0.04	$0.94	(33.8%)	3/2/2009	AMC	$13.27
Mastec Inc	MTZ	$0.25	$0.15	12.5%	3/2/2009	AMC	$11.18
Mcdermott Intl	MDR	$0.23	$0.70	(47.9%)	3/2/2009	AMC	$11.50
Nelnet Inc Cl-A	NNI	$0.19	$0.34	38.2%	3/2/2009	BTO	$14.44
Osg America Lp	OSP	$0.24	N/A	72.2%	3/2/2009	BTO	$7.84
Overseas Shipho	OSG	$1.58	$0.67	33.0%	3/2/2009	BTO	$38.49
Pdl Biopharma	PDLI	$0.06	($0.01)	(66.7%)	3/2/2009	AMC	$6.54
Pepco Hldgs	POM	$0.31	$0.29	(16.9%)	3/2/2009	AMC	$18.15
Perfect World	PWRD	$0.32	$0.34	8.9%	3/2/2009	BTO	$14.92
Phh Corp	PHH	($4.54)	$0.21	(1081.8%)	3/2/2009	N/A	$11.16
Reliant Egy Inc	RRI	($0.25)	$0.09	60.0%	3/2/2009	N/A	$5.55
Rosetta Resrcs	ROSE	$0.18	$0.34	(15.9%)	3/2/2009	N/A	$6.46
Sun Hlthcr Grp	SUNH	$0.25	$0.20	5.0%	3/2/2009	AMC	$11.41
Supergen Inc	SUPG	($0.14)	$0.09	92.3%	3/2/2009	AMC	$2.25
Sykes Entrp Inc	SYKE	$0.31	$0.26	67.9%	3/2/2009	AMC	$18.00
T-3 Energy Svcs	TTES	$0.79	$0.67	12.1%	3/2/2009	BTO	$14.36
Tivo Inc	TIVO	($0.10)	($0.06)	83.3%	3/2/2009	AMC	$7.57
Tns Inc	TNS	$0.25	$0.18	27.3%	3/2/2009	AMC	$8.71
Tower Group Inc	TWGP	$0.81	$0.78	5.3%	3/2/2009	BTO	$26.14
Travelcenters	TA	($0.28)	($4.16)	1900.0%	3/2/2009	AMC	$2.40
Visionchina Mda	VISN	$0.22	$0.10	8.7%	3/2/2009	AMC	$6.80
Warren Rsrcs	WRES	($0.02)	$0.07	0.0%	3/2/2009	BTO	$2.00
Wendys/Arbys Gp	WEN	$0.05	$0.09	(380.0%)	3/2/2009	BTO	$5.33
51Jobs Inc-Adr	JOBS	$0.06	$0.10	66.7%	3/3/2009	AMC	$6.55
Adc Telecomm	ADCT	($0.13)	$0.20	41.7%	3/3/2009	AMC	$5.30
America Svc Grp	ASGR	$0.14	($0.13)	(54.6%)	3/3/2009	AMC	$10.74
Americas Car-Mt	CRMT	$0.34	$0.28	2.9%	3/3/2009	BTO	$10.34
Arena Resources	ARD	$0.30	$0.26	11.3%	3/3/2009	N/A	$26.73
Autozone Inc	AZO	$1.84	$1.67	1.8%	3/3/2009	BTO	$137.27
Bioscrip Inc	BIOS	$0.05	$0.06	20.0%	3/3/2009	BTO	$1.83
Blount Intl	BLT	$0.19	$0.19	55.0%	3/3/2009	BTO	$9.12
Chicos Fas Fnc	CHS	($0.17)	($0.12)	133.3%	3/3/2009	BTO	$4.33
Delta Pete Corp	DPTR	($0.17)	($0.21)	(1900.0%)	3/3/2009	BTO	$4.83
Energy Recovery	ERII	$0.08	N/A	0.0%	3/3/2009	AMC	$6.87
Ferro Corp	FOE	($0.15)	$0.06	15.6%	3/3/2009	N/A	$5.28
Finl Fed Corp	FIF	$0.45	$0.51	6.8%	3/3/2009	AMC	$22.90
Greatbatch Inc	GB	$0.38	$0.21	34.4%	3/3/2009	AMC	$24.08
Home Diagnostic	HDIX	$0.07	$0.11	26.3%	3/3/2009	BTO	$7.17
Inspire Pharma	ISPH	($0.23)	($0.51)	15.0%	3/3/2009	BTO	$4.05
Jackson Hewitt	JTX	$0.74	$0.61	5.3%	3/3/2009	BTO	$13.87
John Bean Tech	JBT	$0.22	N/A	N/A	3/3/2009	AMC	$9.99
Lemaitre Vasclr	LMAT	$0.00	($0.05)	50.0%	3/3/2009	AMC	$2.15
Masimo Corp	MASI	$0.18	$0.18	37.5%	3/3/2009	AMC	$28.69
Mbia Inc	MBI	($1.03)	($3.30)	(665.5%)	3/3/2009	N/A	$4.49
Monotype Imagng	TYPE	$0.09	$0.11	9.1%	3/3/2009	BTO	$6.22
Move Inc	MOVE	($0.02)	$0.01	0.0%	3/3/2009	AMC	$1.72
Netezza Corp	NZ	$0.05	$0.05	25.0%	3/3/2009	AMC	$6.22
Nmt Medical Inc	NMTI	($0.33)	($0.23)	5.7%	3/3/2009	BTO	$1.05
Plato Learning	TUTR	($0.13)	($0.16)	22.2%	3/3/2009	N/A	$1.36
Resource Capitl	RSO	$0.41	$0.43	N/A	3/3/2009	AMC	$3.38
Sciclone Pharma	SCLN	($0.01)	($0.08)	200.0%	3/3/2009	BTO	$0.83
Seaspan Corp	SSW	$0.29	$0.31	0.0%	3/3/2009	BTO	$13.00
Sonic Automotve	SAH	$0.06	$0.68	(26.5%)	3/3/2009	BTO	$2.23
Tech Data Corp	TECD	$0.73	$0.96	(42.2%)	3/3/2009	BTO	$19.89
Thomas Group	TGIS	($0.17)	$0.13	(66.7%)	3/3/2009	N/A	$0.58
Town Sports Int	CLUB	$0.06	$0.23	(5.6%)	3/3/2009	AMC	$2.27
Trina Solar Ltd	TSL	($0.04)	$0.61	(0.9%)	3/3/2009	BTO	$8.00
Verifone Hldgs	PAY	$0.11	($0.40)	(13.6%)	3/3/2009	AMC	$5.31
Virgin Mobile	VM	($0.09)	($0.30)	100.0%	3/3/2009	AMC	$0.80
Wonder Auto Tec	WATG	$0.12	$0.17	4.3%	3/3/2009	BTO	$2.38
Allion Healthcr	ALLI	$0.12	$0.06	20.0%	3/4/2009	AMC	$4.66
Almost Family	AFAM	$0.55	$0.37	26.7%	3/4/2009	BTO	$32.98
Altra Holdings	AIMC	$0.22	$0.22	6.1%	3/4/2009	AMC	$7.43
Amer Comml Line	ACLI	$0.36	$0.45	5.9%	3/4/2009	AMC	$4.91
Amer Railcar	ARII	$0.28	$0.37	(11.8%)	3/4/2009	AMC	$9.05
Amer Safety Ins	ASI	$0.49	$0.61	0.0%	3/4/2009	N/A	$14.25
Ballard Pwr Sys	BLDP	($0.14)	($0.14)	(18.8%)	3/4/2009	N/A	N/A
Bj'S Wholesale	BJ	$0.86	$0.81	6.5%	3/4/2009	BTO	$30.56
Brown Shoe Co	BWS	($0.37)	$0.39	188.2%	3/4/2009	BTO	$5.53
Casella Waste	CWST	($0.08)	($0.18)	(11.1%)	3/4/2009	AMC	$3.31
Clarient Inc	CLRT	($0.03)	($0.05)	(50.0%)	3/4/2009	AMC	$1.37
Coldwater Creek	CWTR	($0.23)	($0.19)	87.5%	3/4/2009	AMC	$3.05
Costco Whole Cp	COST	$0.60	$0.74	4.8%	3/4/2009	BTO	$47.81
Cox Radio Inc	CXR	$0.18	$0.26	5.6%	3/4/2009	BTO	$5.37
Crm Holdngs Ltd	CRMH	$0.08	$0.30	(222.2%)	3/4/2009	N/A	$1.25
Cross Country	CCRN	$0.16	$0.23	0.0%	3/4/2009	AMC	$8.09
Dynamex Inc	DDMX	$0.22	$0.33	7.1%	3/4/2009	AMC	$11.20
Edgewater Tech	EDGW	$0.07	$0.09	200.0%	3/4/2009	BTO	$2.80
Exelixis Inc	EXEL	($0.35)	($0.30)	4.9%	3/4/2009	AMC	$5.30
Flamel Tech	FLML	($0.02)	($0.23)	41.2%	3/4/2009	AMC	$4.18
Foot Locker Inc	FL	$0.16	$0.23	(28.0%)	3/4/2009	AMC	$8.08
Fpic Insurance	FPIC	$1.16	$1.62	8.1%	3/4/2009	AMC	$40.01
Genesis Lease	GLS