Personal Income for the month of October increased significantly, by $30.1 billion during the month, or by 0.2%, as was expected, and currently stands at the $12,142.9 billion seasonally adjusted level, following a 0.2% increase in September. Net of taxes, Disposable Personal Income increased by $45.7 billion, or 0.4 percent, in October, compared with an increase of $21.3 billion, or 0.2 percent in September. With the increase in incomes, Personal Consumption Expenditures increased by 0.7%, up $47.2 billion, to a seasonally adjusted annual flow of $10,166.7, better than the expected increase of 0.6%, after a decrease to the same effect in September, revised upward from an originally reported 0.5% decrease. With the increase in spending higher than the increase in income, the Personal Savings Rate decreased to 4.4% in October, from its September level of 4.6%.

Durable Orders decreased by 0.6%, $1.0 billion, during October to $166.2 billion, contrary to the expected increase of 0.6% gain, following a 2.0% increase in September and a 2.6% decrease in August. Machinery had the largest decrease, by 8.0%, $1.9 billion, to $21.8 billion, after two consecutive monthly increases. Over the past 12 months, Durable Orders have dropped by 23.0%.

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One of the arguments that Krugman makes is that, although the U.S. debt-to-GDP ratio is expected to double over a short period, the higher level would still be substantially below those currently observed in Italy and Japan, and only modestly above that of Belgium. Paul suggests that if these countries can run up debts of this magnitude without serious repercussions, so can the United States.

Source: Paul Krugman.

But European politics may not import all that well to this side of the Atlantic. Receipts of the U.S. federal government have never exceeded 21% of U.S. GDP, even at the height of World War II. A permanent move to taxation levels significantly above that would require a major shift in the political landscape, for which I see no consensus of support. To me that implies that any spending trajectory inconsistent with the long-established U.S. norm may be headed for a political brick wall.

Federal receipts and outlays as a percentage of GDP, 1970-2008 and 2009 estimates. Data source: OMB.

One of the ways I have suggested for personalizing this issue stems from the observation that $1 trillion is approximately the total personal income tax receipts collected by the U. S. federal government in 2006. So, to calculate what another trillion in deficits means for me personally, I take the amount I paid in federal income taxes that year and double it; $10 trillion in new debt will require 10 years at that higher rate to pay off. It's going to be a real problem for any politician who tries to service the growing debt burden by raising taxes. That's why I see troubles ahead for managing the federal cash flow.

But Paul feels I'm using an inappropriate metric:

Jim gets scary numbers about the debt burden by assuming that we'll have to pay off the debt in 10 years. But why would we have to do that? Again, the lesson of the 1950s-- or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels-- is that you need to stabilize debt, not pay it off; economic growth will do the rest.

Normally, you'd think that putting off repaying a debt does not make it any smaller. The federal government can (with my wallet) pay the trillion today, or it can wait 10 years to pay one trillion plus 10 years' interest, or wait 20 years to pay one trillion plus 20 years' interest. The present value of the service cost on one trillion dollars in debt is exactly one trillion dollars today, no matter how long you put off paying. My comments on how much a trillion really is are perfectly appropriate for discussion of any repayment timetable.

Perhaps Paul is suggesting that there may be a potential free lunch available from postponing payment in this case, arising from the fact that the economy's growth rate has historically exceeded the government's cost of borrowing. If I put off paying another year, with interest the amount I owe grows 2% in real terms, but my income grows 3%, so things get easier the longer I put it off.

Let me go on the record as favoring the consumption of truly free lunches. If everything the government buys really is free, then by all means, let's have them buy more, and more, and more, and rather than double my taxes, let's cut taxes all the way to zero. Unfortunately, I expect that Paul would agree with me that in fact there is a limit to just how much we can count on supersizing this particular happy meal. At least I know that he entertained such concerns, as Scrivener and Verdon note, when in March of 2003, Paul contemplated the implications of the debt-to-GDP ratio that was then reaching 40%:

we're looking at a fiscal crisis that will drive interest rates sky-high.... But what's really scary... is the looming threat to the federal government's solvency.

What I presume was producing Paul's concerns in 2003, and is giving rise to my concerns today as well, is the fact that the low cost of government borrowing relative to the economic growth rate-- which could produce the apparent free-lunch calculus-- is predicated on the historical political equilibrium, which Paul worried might not be continued after 2003, and I certainly worry might not be continued after 2009. Specifically, I would suggest that the low borrowing cost that the U.S. government traditionally faced was very much attributable to the responsible management of the debt. Once that responsibility becomes called into question, the U.S. will cease to enjoy that privilege. This kind of problem gets messier, not neater, the longer you put it off. And that's why you might not want to assume that an apparent free snack can be scaled up to an unlimited feast.

Which brings me to Paul's third argument:

Right now, however, the bond market seems notably unworried by deficits. Long-term interest rates are low; inflation expectations are contained (too well contained, actually, since higher expected inflation would be helpful). No problem, right?

Alas, I'm getting the sense that the Obama administration is intimidated all the same. We've got the president telling Fox News that he's worried about a double-dip recession if he doesn't reduce the deficit soon-- as opposed to the concern I and other have that he'll have a double dip if he doesn't provide more support. (And why is Obama talking to Fox News, btw?) And the buzz is that admin economic officials are telling him that the bond market needs to be appeased, even though rates are low.

This is truly amazing. It's one thing to be intimidated by bond market vigilantes. It's another to be intimidated by the fear that bond market vigilantes might show up one of these days, even though you're currently able to sell long-term bonds at an interest rate of less than 3.5%.

Paul is absolutely right that, at the moment, we're observing an amazing willingness of investors and foreign central banks to lend to the U.S. Treasury. On Monday the Treasury successfully auctioned $44 billion in 2-year notes paying the lowest yield on record, and last week the nominal yields on some bills on the secondary market actually turned negative-- people paying for the privilege of being able to lend to the government. So if the government were to borrow another dollar today, invest in anything with a positive rate of return, and repay the sum in two years, it would indeed be a great deal.

Those remarkably low yields at the moment in my mind are a result of a flight to safety. Many people are afraid to hold anything other than treasuries until there's some more clarity to the economic and financial landscape. It's not so much a market vote in favor of the U.S. Treasury as it is a market vote against everything else.

But the question before us is, what will the situation be another two years down the road, when the government will need to go back to bond markets to roll over the debt it issued on Monday along with new debt to cover the several trillion added to the federal debt between now and then? Krugman's position is that we should trust the term structure of interest rates to give us the answer. If markets anticipate an explosion of short-term interest rates a few years down the road, why is anyone today buying the longer term debt at such low yields?

If you thought that there is some chance that treasury yields will only rise slightly over the next few years, but also some risk of solvency problems and a panic flight from the dollar, what you might want to do is to take a long position in treasuries hedged with a long position in commodities. I agree with Paul that the long-term treasury yields are hard to reconcile with a market worried about the solvency risk. But I would add that the run-ups we've seen in commodity prices are hard to reconcile with a market sold on the deflation scare. What I see is investors buying both bonds and commodities, suggesting that people are spreading their money across a variety of strategies to be in position for several alternative scenarios from here.

Is it possible that some time within the next five years, the U.S. Treasury will run an auction in which there are not enough bids to roll over the debt? My answer is yes.

For other thoughtful perspectives, see Brad DeLong, Carlo Cottarelli, Dean Baker, Tyler Cowen, and Free Exchange.

• Goldman Sachs (NYSE:GS) increased its six-month price target for Amazon.com (NASDAQ:AMZN) from $125 to $146, maintaining its "buy" rating. Goldman said it believed online discount wars have added to its traffic flow, generating revenue gains. Fourth quarter estimates were raised from $8.9 to $9.1 billion

• Piper Jaffray (NYSE:PJC) reiterated its "overweight" rating on Dollar Tree (NASDAQ:DLTR), lifting its price target to $60 from $57, its fourth quarter estimates to $1.38 from $1.30, and its 2010 projection to $3.82 from $3.71

• Tiffany (NYSE:TIF) reported better-than-expected earnings of 33 cents a share, 9 cents above Zacks projections, on revenues of $598 million versus Zacks estimates of $575 million. For 2010 the firm projected $1.88 to $1.98 a share versus estimates of $1.77

• Deere (NYSE:DE) reported fiscal fourth quarter earnings of 23 cents a share, 20 cents above Zacks projections, on revenues of $4.73 billion, which bested estimates of $4.44 billion. However, for 2010, the firm expects a sales decline of 1%

• TiVo (NASDAQ:TIVO) reported an inline third quarter loss of 6 cents on revenues of $56.9 million, ahead of the $48 million expected

The markets only gathered steam in the afternoon after the Fed released minutes from its latest meeting.  While pledging to keep interest rates at record low levels, the Fed policymakers, however, noted record low interest rates could lead to excessive risk-taking in financials markets.  Nevertheless, the Fed raised its outlook for economic growth during the second half of this year, but said unemployment levels will remain high.  The Fed lowered its unemployment estimates to 9.3%-9.7% in 2010 from 9.5%-9.8%, noting the economy continues to improve.

On Tuesday, the Dow Jones industrial average fell 17.24 points, or 0.2%, to 10,433.71.  The Standard & Poor’s 500-stock index fell 0.59 points, or 0.1%, to 1,105.65, and the Nasdaq composite index fell 6.83 points, or 0.3%, to 2,169.18.  The CBOE Vix index dropped to its lowest in fourteen months, off 3.3% to 20.47.  On the NYSE volume dropped to 0.952 billion shares, with declining issues ahead of advancing shares by an eight to seven margin.

Tuesday saw volatile and a low volume trading, a trend that is likely to continue through the holiday-shortened week.  All financial markets are closed Thursday for Thanksgiving.

On Tuesday, healthcare companies helped offset drops in financial and industrial shares.  Medtronic Inc. (NYSE:MDT) jumped more than 7% after the medical device maker reported a surprise 59% increase in its quarterly profit and raised its full-year outlook.  Shares in the company rose $2.94, or 7.3%, to $43.25.

Among financial companies, JPMorgan Chase (NYSE:JPM) led the declining issues in the Dow average, falling 1.9% to $42.48.  Bank of America (NYSE:BAC) fell 1.2% to $16.10, while Morgan Stanley (NYSE:MS) dropped 1.5% to $32.12. Fifth Third Bancorp (NYSE:FITB) fell 1.6% to $10.01.

Safe-haven assets such as Treasuries and gold prices rose.  Treasuries performed well after the $42 billion auction in 5-year notes received a strong response.  Gold prices hit a fresh record close for the eighth consecutive day, closing up $1.90 at $1165.50 per ounce. 

Chicago, IL – November 25, 2009 – Zacks Equity Research highlights MEMC Electronic Materials, Inc. (WFR) as the Bull of the Day and Energy Transfer Partners (ETP) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ford (F), Whirlpool (WHR) and Wal-Mart (WMT).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

MEMC Electronic Materials, Inc. (WFR) produces the raw material wafers used by semiconductor manufacturers in the production of integrated circuits (ICs).

The decision to supply wafers to the solar industry paid huge rewards in 2007 and 2008, as demand for polysilicon raced ahead of supply. The Solar business and the 300mm business are both high-margin products. The spot price of polysilicon has been slashed from a peak of $400 per/kg to the $60-$70 per/kg range.

The stock is significantly undervalued. We are reiterating our Buy rating on the shares of WFR.

Bear of the Day:

Our Underperform recommendation on Energy Transfer Partners (ETP) units takes into account the bearish outlook for pipeline operators. While the partnership's liquidity position is sound, we continue to believe that the near- to medium-term outlook for its natural gas gathering and processing business remains weak.

Weighed down by these factors, Energy Transfer posted a third-quarter 2009 loss. The partnership's low growth and seasonal propane business also remain a major liability, in our view.

Given these headwinds, we expect Energy Transfer units to be under pressure in the medium- to long-term. The partnership's discounted valuation relative to the pipeline MLP group reflects its heightened risk profile.

Latest Posts on the Zacks Analyst Blog:

Consumer Confidence Increasing

The 5,000 households’ (that the Conference Board surveyed) assessment of the present situation fell ever-so-slightly to 21.0 from 21.1. That is a very bad reading, not too far from the record low set in February 1983 of 17.5%. Overall, 45.7% of consumers saw the current business conditions as bad, down from 46.7% in October, while 8.1% saw business conditions as good, up from 7.8% last month. Their view of the labor market continued to deteriorate, with 49.8 seeing jobs as hard to get, up from 49.4% last month. The percentage (of deluded people) who saw jobs as plentiful dropped to 3.2% from 3.5% in October.

While the better-than-expected consumer confidence reading for this month -- and the upward consumer confidence revision to last month -- are encouraging, the details of the report are not all that robust. In theory, higher consumer confidence should lead consumers to open up their wallets, something that is very important as the holidays approach. If consumers have confidence about the economy, they are more likely to buy big ticket items like cars from Ford (F) or major appliances from Whirlpool (WHR). Perhaps they might buy more impulse items at the checkout counter at Wal-Mart (WMT).

Historically though, the consumer confidence numbers, like the University of Michigan sentiment numbers, do not have a great track record of predicting how consumers will behave. So count this consumer confidence report as a minor positive. Changes in consumer spending generally have much more to do with changes in personal income than with this sort of survey data, and that data is due out tomorrow.

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.

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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.

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Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Salesforce.com (CRM), CA Inc. (CA), BMC Software (BMC), Microsoft (MSFT) and Oracle (ORCL).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s Analyst Blog:

Salesforce Partners with CA & BMC

Salesforce.com (CRM) entered into a number of strategic alliances that are expected to enhance the cloud computing service and solutions offered by it.

The first among these strategic alliances is with enterprise IT management company CA Inc. (CA). This partnership is expected to deliver agile development management in the cloud on the Force.com platform.

The CA Agile Planner on the Force.com site is targeted at small businesses and enterprises alike. The service is intended to accelerate development timelines while gaining control and visibility over all of the development initiatives. This innovative product will result in reduced time to market.

The second in the list is the agreement with BMC Software (BMC). This strategic alliance is expected to deliver BMC’s industry-leading IT management solutions on the Force.com platform. The joint offering is expected to address the overwhelming customer demand for critical service desk function and processes that are delivered through the cloud computing platform.

This new product is intended to help customers simplify and automate their IT process and at the same time fetch a quick return on their investment. These new collaborations are expected to help the company strengthen its position in the cloud computing market and attract additional customers by providing enhanced solutions.

Salesforce reported better than expected third quarter results, exceeding the Zacks Consensus EPS estimate. The company reported revenue of $330.5 million, an increase of 20.0% from the year-ago quarter and and over the guided range of $323-324 million. These encouraging numbers are illustrative of the fact that the company is constantly creating value for itself and its shareholders. We expect Saleforce to continue with the same trend going forward.

Although the company is growing exponentially in the cloud computing segment, Salesforce is expected to face stiff competition from big companies such as Microsoft (MSFT) and Oracle (ORCL).

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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=5517

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=5518.

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Contact:
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Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Citigroup Inc. (C), Intuit Inc. (INTU), ENI S.p.A (E), BP plc (BP) and Royal Dutch Shell (RDS.A).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s Analyst Blog:

Citi Expects Strong Economic Growth

Citigroup Inc. (C) forecasts strong economic growth in many countries in 2010. But although the company expects several countries to experience economic growth, it predicts that the growth will be somewhat uneven.

According to the annual report of Citi’s Investment Research and Analysis group, though growth will be strong and even across major economies in the beginning of the year, it will be uneven later. Citi expects Asia, excluding Japan, to experience sustained economic growth. Though the U.S. is expected to see fairly strong economic growth, the recovery will be more gradual in Europe and Japan.

Citi also upgraded its 2010 gross domestic product forecasts for the U.S., Japan, the U.K., Australia, New Zealand, Hong Kong, Korea, Argentina, Hungary, Poland, the Czech Republic and Turkey.

The report also suggested that Central Banks are unlikely to hike key interest rates through the next year. However, credit availability is expected to remain restricted at least for a year or two as banks seek to raise additional capital under regulatory pressure. Also, inflation on a global basis appears to be controlled. Additionally, countries will need to achieve fiscal sustainability to post strong economic growth.

Disappointing Forecast at Intuit

Intuit Inc. (INTU) recently reported results for the first quarter. Revenues increased 2% to $493 million, driven by growth in core businesses.

Revenues from Financial Institutions segment increased 7% while Employee Management Solutions Payroll service increased 9%.

Loss per share came in at 10 cents, much better than the Zacks Consensus Estimate of a loss of 22 cents per share, mainly due to cost control activities undertaken by the management. The company had postponed some of its marketing costs for the quarter.

During the quarter, the company repurchased $300 million worth of stock in the quarter, and the board has now approved a new repurchase program of $600 million. Intuit ended the quarter with more than $1 billion in cash and investments.

Going forward, management expects revenues between $3.3 billion and $3.43 billion in fiscal 2010, up 4% – 8%. Earnings per share are projected between 29 cents and 32 cents. Revenues for the second quarter are projected between $800 million and $835 million, up 1% – 6%. Earnings per share are expected to come between 15 cents and 18 cents.

The forecast was much lower than the street estimates, leading to a 2% fall in share price after the results were announced. On the conference call, management stated that the company is yet to find a significant improvement in business sentiment among small business customers who use the company’s flagship products such as QuickBooks software and Turbo Tax programs.

ENI Buys Uganda Blocks

ENI S.p.A (E) entered into a definitive agreement with Heritage Oil to buy the latter’s 50% interest in blocks 1 and 3A in Uganda . Total consideration for the contract is $1.35 billion. The contract also provides an additional consideration of $150 million, either in cash or in kind, on fulfillment of certain conditions in the future.

The company was pursuing an approach of sustainable development through its expertise and technologies in the African continent. And this transaction is part of this development strategy.

Located in the Lake Albert basin, blocks 1 and 3A have resources of more than 1 billion barrels of oil equivalent. Of this, nearly 70% has already been discovered with approximately 28 wells drilled in the area. The agreement is subject to approval by the competent authorities.

Eni has been producing in the African continent for a long time. The company is currently acting as an operator in many oil-producing countries such as Angola, Ghana, Nigeria, the Republic of Congo, Gabon and Mozambique. Total production per day from these regions currently amounts to about 450,000 barrels of oil equivalent.

Eni’s upstream portfolio spreads over a number of fields in several countries. Its lower reliance on a handful of large fields, both in its existing portfolio and its future growth pipeline, is in contrast to the growth profile of BP plc (BP) and Royal Dutch Shell (RDS.A), both of which are heavily dependent on the delivery of a few key projects.

In addition, Eni’s lack of exposure in the refining and marketing space is also a significant positive in the current compressed margin environment, in our view. We, however, believe that all these positives are already reflected in its valuation. As such, we recommend a Neutral rating for the stock.

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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=5517

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=5518.

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Contact:
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312-265-9380
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Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Affiliated Computer Services Inc. (ACS), Xerox Corp. (XRX), Expedia Inc. (EXPE), Orbitz Worldwide (OWW) and Priceline.com (PCLN).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s Analyst Blog:

Settlement in Xerox-ACS Merger

Affiliated Computer Services Inc. (ACS) announced that the complaint filed by ACS shareholders regarding its merger with Xerox Corp. (XRX) has been resolved. The plaintiffs have temporarily withdrawn their motion for an injunction to block the deal.

The lawsuit was filed in October in Dallas County, Texas as Xerox was struggling to convince its shareholders to approve the deal.

The plaintiffs agreed to drop the lawsuit only if ACS’s Board of Directors received a better proposal than Xerox’s current bid and Xerox did not force ACS’s Chairman Darwin Deason to exercise his voting power in favor of the Xerox acquisition. The previous agreement called for Mr. Deason to cast half his votes in favor of the Xerox bid. He controls 44% of the votes at ACS.

Xerox has also decided not to force ACS to hold a shareholder meeting to vote on the Xerox transaction, and if requested by the Xerox’s shareholders ACS will terminate the Merger Agreement. Xerox also said that a pension fund has dropped a lawsuit over the purchase of ACS. However, a separate shareholder class action lawsuit is still pending in Delaware.

In September, Xerox agreed to acquire Affiliated in a cash and stock transaction valued at $6.4 billion ($63.11 per ACS share in cash and Xerox stock). Affiliated shareholders will receive $18.60 in cash and 4.935 shares of Xerox for each ACS share. Xerox will also assume $2 billion of ACS’s debt and issue $300 million of convertible preferred stock to ACS shareholders.

Downgrading Expedia to Neutral

We are downgrading shares of Expedia Inc. (EXPE) from Outperform to Neutral.

The company reported strong results in the last quarter, but continued to benefit from promotional inventories provided by its hotel partners. When results are stripped off the benefits of promotional activities, a softer demand environment could become evident.

We also do not expect the company to report better than seasonal sales growth in the current quarter.

The company has sacrificed booking fees this year, which is telling on the average daily rates (ADRs). Therefore, ADRs could be the metric to watch rather than room nights at this point of time.

We are also concerned about the incidence of transient occupancy taxes. Although municipalities and governments have decided that they will recover occupancy taxes from hotels if they lose out to online travel companies, we note that Expedia has already lost in Georgia and the company is slated to pay out $55 million to the City of San Francisco.

A fresh suit has now been filed by Florida, and for the first time the company has been charged under the Florida Deceptive and Unfair Trade Practices Act. Five Florida counties have decided to charge Expedia, as well as other online travel companies such as Orbitz Worldwide (OWW), Priceline.com (PCLN) and Travelocity for recovery of transient occupancy taxes. The company made a hefty provision in the June quarter, but we fear that this could be insufficient if the cases continue. Fines of this magnitude have the potential to develop into a constant drain on cash.

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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.

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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=5518.

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Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bank of America (BAC), MGIC (MTG), Fannie Mae (FNM), Freddie Mac (FRE) and Hewlett-Packard (HPQ).

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Here are highlights from Tuesday’s Analyst Blog:

Home Prices Continue to Rise

It is encouraging to see home prices rise. If this continues, some of the people in underwater houses (meaning with a mortgage more than the value of the house) might just see the flood recede and regain some positive equity in the house. This would greatly reduce the number of foreclosures in the future. It would make it an economically rational thing for people to pay their mortgages again. As it stands today in big areas of the country, it isn’t.

As a result, mortgage delinquencies have been skyrocketing, and eventually those delinquencies will lead to foreclosures. That could reignite a vicious circle, where the foreclosed houses flood the market, once again depressing prices, which causes more people to think there are better places to put their money than paying their mortgages.

Rising home prices have the potential to turn that into a virtuous cycle. To the extent that happens, it has very positive implications for the entire mortgage complex, from the big banks like Bank of America (BAC) to the mortgage insurance firms like MGIC (MTG) to the wards of the state, Fannie Mae (FNM) and Freddie Mac (FRE).

However, I fear that the increase in home prices is only temporary. That it is the product of extraordinary government efforts to prop up home prices, and that those efforts can not be sustained forever. These include the tax credit (recently expanded to include move up buyers), which is scheduled to end at the end of April, and the Fed’s program of buying up $1.25 Trillion in mortgage-backed paper to manipulate mortgage rates lower. They should finish up their purchases by the end of March.

HP Revenue Down, EPS In-Line

Hewlett-Packard (HPQ) reported fourth quarter EPS of $1.14, exceeding the Zacks Consensus Estimate by a penny.

Revenue for the quarter came in at $30.8 billion, a decrease of 8.0% from the $33.6 billion reported in the year-ago period and down 5.0% on constant currency basis.

Revenue fell across all businesses, including servers and data storage systems, software, PCs and printers. The Americas reported a 3.0% decline in revenue to $13.6 billion. Revenue declined 17.0% in Europe, the Middle East and Africa (EMEA) to $11.7 billion and 1.0% in the Asia Pacific to $5.4 billion. Revenue from China increased more than 20% from the year-ago quarter.

International markets accounted for 64% of total revenue in the fourth quarter, with revenue in the BRIC countries (Brazil, Russia, India and China) declining 4.0% on a year-over-year basis and accounting for 10.0% of total HP revenue.

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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=5517

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=5518.

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

Investors can find such funds by checking out the entire list of theZacks #1 Rank Asset Allocation Balanced Funds.

3 Solid Samples

Hartford Balanced Income A A (HBLAX) seeks current income and long-term growth of capital consistent with reasonable risk. It was incepted in February 2001.

The fund seeks to achieve its investment objective by investing approximately 60% of its assets in stocks and other equity securities and approximately 40% in bonds and other debt securities rated at least Baa by Moody's or BBB by S&P or of comparable quality. While the allocation between equity and debt securities may vary, the fund will always invest at least 25% of its assets in debt securities. The fund ordinarily invests in equity securities of large companies having attractive valuations or the potential for future earnings growth.

The fund has an expense ratio of 1.25. As of July 2009, it has a portfolio turnover of 86%.

Lucius T. Hill, III has been lead manager of the fund since July 2006. Hill, III, has been with Wellington Management since 1993 and is a senior vice president with the firm.

Permanent Portfolio Fund (PRPFX) seeks to preserve and increase the purchasing power value of its shares over the long term. It was incepted in December 1982.

The funds invest a fixed target percentage of its net assets in gold, silver, Swiss franc assets, stocks of U.S. and foreign real estate and natural resource companies, aggressive growth stocks and dollar assets such as U.S. Treasury bills and bonds. The fund may invest in shares of companies of small or mid-capitalization companies.

Shareholders have to make a minimum initial investment of $1,000 to enter this Zacks #1 Rank ("Strong Buy") fund. The fund has an expense ratio of 0.84%.

Michael J. Cuggino has been lead manager of the fund since May 2003. Robertson is a vice president of T. Rowe Price Group and has been with the firm since 2002. Cuggino has been with the fund since its founding in 2002 and has held the positions of President and CEO.

Eaton Vance Emerging Mkts Loc Inc A (EEIAX) seeks total return. The fund is non-diversified and was incepted in August 2007.

The fund invests at least 80% of total net assets in securities denominated in currencies of emerging market countries, fixed income instruments issued by emerging market entities or sovereigns, and derivative instruments, denominated in or based on the currencies, interest rates, or issues of, emerging market countries.

The fund has an expense ratio of 1.25%. As of April 2009, it has a portfolio turnover of 38%.

Mark S. Venezia has been lead manager of the fund since June 2007. Venezia has been with Eaton Vance Management since 1984 and is a vice president with the firm.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

The fund invests primarily in shares of selected Delaware Investments Funds including equity, fixed-income and international funds. The fund invests at least 25% of its assets in fixed-income securities or fixed-income funds and typically invests between 5% and 20% of its assets in international funds and securities.

Shareholders have to make a minimum initial investment of $1,000 to enter this Zacks#1 Rank ("Strong Buy") fund. As of June 2009, its portfolio turnover was 262%.

Francis X. Morris has been lead manager of the fund since May 2004. Morris is a past president of the CFA Society of Philadelphia and the chief investment officer for Delaware’s Core Equity investments.

Delaware Core Plus Bond A (DEGGX) was incepted in August 1985. The fund's objective is to seek high current income consistent with safety of principal.

The fund invests in a mix of fixed-income securities, primarily those that are issued or guaranteed by the U.S. government. The fund also invests in U.S. Treasury bills, notes, bonds, mortgage related securities and other debt securities. The fund may invest up to 20% of the fund's assets in high quality, non-government fixed-income securities.

The fund offers dividends monthly and capital gains annually. It has an expense ratio of 0.98%.

Paul Grillo has been lead manager of the fund since February 1997. Grillo served as a mortgage strategist and trader at Dreyfus Corporation before joining Delaware in 1992

Delaware Pooled High-Yield Bond (DPHYX) seeks high total return. It was incepted in December 1996.

The fund invests at least 80% of its assets at the time of purchase in corporate bonds, securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, commercial paper of companies of comparable quality.

Shareholders have to make a minimum initial investment of $1,000,000 to enter this Zacks#1 Rank ("Strong Buy") fund. It has an expense ratio of 0.59%.

Chuck M. Devereux has been lead manager of the fund since May 2007. Devereux has been with Delaware Investments since 2001 and is a vice president and director of credit research with the firm.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

Company Description

DeVry is the parent company for several schools and other educational services including DeVry University, Apollo College, Becker Professional Education, and others.

Net Income Up 57%

The company released first-quarter results for fiscal 2010 on Oct 27 that included revenues of $431 million, a 42% jump. Net income also surged and was 57% higher to $54.7 million.

Earnings per share came in at 76 cents, 11 cents higher than the Zacks Consensus Estimate. This was the third consecutive earnings surprise.

Excellent Growth

President and CEO, Daniel Hamburger, commented on the great quarter. "Our financial results this quarter were driven largely by exceptional revenue growth," said Daniel Hamburger. He added, "Our institutions continue to experience strong enrollment and student retention..."

Rising Estimates

Full-year estimates are up for 2010 and 2011. Currently the Zacks Consensus Estimate for this year is $3.19, up from $3.01 over the past 2 months. Next year's projections are averaging $3.86, up from $3.63.

These levels represent year-over-year growth of 38% and 21%, respectively.

Valuation

Shares are trading at just 17 times forward earnings, not a bad value for such a hot sector. Also, the company's PEG ratio is 0.9 times, so the growth is reasonably priced.

The Chart

The Zacks Consensus Estimate has been climbing consistently for the past 5 years and shows no signs of slowing.

Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader serviceZacks Investment Research

Company Description

Jinpan International manufactures cast resin transformers for voltage distribution equipment in China and other countries. The company's medium voltage transformers are used in large infrastructure projects such as factories and real estate developments and in municipal projects like airports and subway systems.

Jinpan is one of only two UL certified cast resin transformer manufacturers in the world.

Jinpan Beats in the Third Quarter

On Nov 17, Jinpan reported third quarter results that blew by the Zacks Consensus Estimate by 125.49%. Only 1 analyst covered the company in the third quarter. Earnings per share were $1.15 compared to the Zacks Consensus of 51 cents. This was an improvement of 81.6% compared with the year ago period.

Sales, however, fell 1.8% to $43.9 million from $44.7 million in the third quarter of 2008 primarily due to a reduction of material costs that was passed onto customers in the form of lower unit prices.

The company has been growing its international business. In the third quarter, sales outside of China jumped 40% to $8.1 million. International sales accounted for 18.5% of net sales up from 13% of net sales in the year ago period.

Sales of cast resin transformers that benefit wind power applications boosted international sales in the quarter. International customers also bought traditional products for use in urban settings such as trains, subways and hospitals, in factories and in commercial settings such as data centers.

Wind energy applications are hot. Wind energy products accounted for 18% of net sales in the quarter while cast resin transformers made up the rest.

2009 Outlook

In the fourth quarter, Jinpan expects order volume to continue to grow but there will be pricing pressure due to lower raw material prices.

It forecasts 2009 sales to be in the range of $154 million to $159 million or basically flat to 3% higher compared to 2008 sales of $154 million. Earnings per share for 2009 are expected to be between $3.40 and $3.54.

Zacks Consensus Estimates Climb

Given the company's guidance, the 1 covering analyst for 2009 raised the estimate to $3.41 from $2.81 per share in the last week. Earnings per share are expected to grow by 40.33% in 2009.

There are 2 analysts covering 2010. 1 of them raised 2010 full year estimates in the last week. The Zacks Consensus rose by 5.3% to $3.56 from $3.38 in that time period.

Value Fundamentals

Jinpan International is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 2.5. The company has an excellent 1-year return on equity (ROE) of 24.75%. Shareholders are also rewarded with a dividend, which is currently yielding 0.60%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Zacks Investment Research

Company Description

Tupperware Brands Corporation is a global direct seller of premium, innovative products across multiple brands and categories through an independent sales force of over 2 million.

Product brands and categories include design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware brand as well as beauty and personal care products through its Avroy Shlain, BeautiControl, Fulller, NaturCare, Nutrimetrics, and Nuvo brands.

Bullish Forecasts and Strong Momentum

Analysts polled by Zacks are upbeat on TUP's earnings. The full-year Zacks Consensus Estimate of $2.90 per share is up from $2.66 over the past 60 days. For 2010, analysts are calling for earnings of $3.42, versus the 2 months-ago level of $3.05.

TUP stacks up well against the market, outpacing the S&P 500 by more than 150% over the past year. The company also saw a share price boost on strong third-quarter results, beating the market by about 8% since reporting.

A Stellar Third Quarter

The company reported third-quarter earnings of 54 cents per share, topping the Zacks Consensus Estimate by 29% and surpassing the previous year's 47 cents. Sales were up 9% in local currency.

The company also declared a dividend of 25 cents, representing a 14% hike. Tupperware stated that the dividend is payable on January 4 to shareholders of record on December 4.

The company pays an industry-leading dividend yield of 2%.

Favorable Industry Comparisons

The company offers a return on equity of 33%, well above the industry average of 19%. TUP's net profit margin of 8% doubles the industry average of 4%. The aforementioned dividend yield of 2% exceeds the industry average of 0.7%.

Alex Kolb is the Growth & Income Stock Strategist for Zacks.com. He also writes the popular daily commentary column for the ZacksElite.com service. Zacks Investment Research

The decision to supply wafers to the solar industry paid huge rewards in 2007 and 2008, as demand for polysilicon raced ahead of supply. The Solar business and the 300mm business are both high-margin products. The spot price of polysilicon has been slashed from a peak of $400 per/kg to the $60-$70 per/kg range.

The stock is significantly undervalued. We are reiterating our Buy rating on the shares of WFR.Zacks Investment Research

Company Description

Microstrategy Inc. provides business intelligence software worldwide. The company was founded in 1989 and has a market cap of $1.07 billion.

Shares of MSTR gapped higher on Oct 30 after the company reported better than expected Q3 results on strong sales and operational efficiencies.

Third-Quarter Results

Sales were up 15% from last year to $104 million. Earnings also came in strong at $1.73 per share, easily beating the Zacks Consensus Estimate of 94 cents.

The company noted that the increase in sales and earnings came on enhanced productivity, as operating expenses increased just 1% from the same period last year to $57.1 million. Microstrategy also strengthened its balance sheet, increasing cash and equivalents by $77.8 million from Dec. of 2008 to $200.7 million.

Estimates Jump

Estimates jumped higher on the good quarter. The current year added $1.09 and climbed to $4.82. The next-year estimate added $1.57 to $5.45, a 13% growth projection.

Valuation

The big upward revision in estimates has helped the valuation picture, with shares trading with a forward P/E of 18.5X.

The Chart

Shares of MSTR gapped higher on the strong quarter and higher estimates, hitting a new 52-week high just above $92. Take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service. Zacks Investment Research

We'll use an example of a spread position known as a vertical bull call spread to demonstrate these benefits. Below is a representation of the resulting stocks from a screen produced in the Research Wizard titled Price and Earnings Momentum. The price chart for the stock highlighted, Perfect World Co. Ltd. (PWRD) is shown below. At present this is a Zacks Rank #1 stock.

How much capital would be at risk for 100 shares of PWRD stock? At a purchase price of $21.47 X 100 = $2,147. The maximum gain potential is unlimited in this case. Now let's look at a call option for the same underlying. A July $17.50 strike price call costs $4.30 per share, or $430 for a 100 share contract. The amount at risk in this case is $430, the entire purchase price. The maximum gain potential is unlimited for a call option as the stock can in theory rise infinitely. For example, if the stock rises to $40 prior to the July expiration date, the contract will then be worth $22.50 per share ($40 - $17.50), or $2,250 for the contract. On the other hand, if the stock plummets to $10, the amount lost is $430. Compare that to the loss of $1,175 on the 100 shares of stock.

Let's construct a bull call spread.

Buy to Open July $17.5 Call for $4.30 per share, or $430 per contract
Sell to Open July $20 Call for $2.60 per share, or $260 per contract

What is accomplished in selling the $20 strike is both risk reduction as well as limiting the potential gain. As the entire investment amounts to $170, this would be the maximum loss. If the stock plummets to zero, both calls expire without any value and the maximum loss results. Contrast this to the maximum loss of $2,147 for the stock investor. On the other hand, if the stock continues rallying, the maximum gain is limited to $80. This results as follows:

The $17.50 call provides the right to buy shares at $17.50 while the sold call at $20 obligates the investor to sell shares at $20. In the event the stock closes at expiration anywhere above the strike price of the sold call ($20), the difference between these strike prices less the cost of the initial investment amounts to the maximum gain on this spread.

$20 - $17.50 = $2.50 - $1.70 = $80

Let's summarize with the following table:

An important item to note is the gain for the bull call spread that results with the stock not moving in price until July expiration. What's more, if the stock should move lower in price to $20, the bull call spread has still produced a maximum profit.

If you plan on using option spreads, you'll discover that they have some major advantages over other investing approaches, such as buying shares outright or buying calls or puts outright. As you have seen in this example, a trading advantage can be developed in the use of spreads given the leverage attained as well as the opportunity to profit even in the event the underlying drops.

You can learn more about different types of option strategies by downloading our free options booklet: 3 Smart Ways to Make Money with Options (Two of Which You Probably Never Heard About). Just click here.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Zacks Investment Research

On the eve of Thanksgiving, shares of this Zacks #1 Rank Top Performer are up about 8.5%. Despite what is normally a slow session, volume today is north of 6.2 million shares, which is well above the daily average of 1.67 million.

This marks the second time in a little over a month that J. Crew Group is being featured as a Top Performer. It was last mentioned on Oct 22 after raising its outlooks for the fiscal third and fiscal fourth quarters. Click here to read that commentary.

Earnings estimates since that time are up a little bit, but the 20 covering analysts for this fiscal year and next have yet to take the most recent report into account.

J. Crew Group is part of the retail - apparel/shoe industry. On today's Zacks #1 Rank List, there are 2 other names from this space: Limited Brands, Inc. (LTD) and Nordstrom, Inc. (JWN).

Fiscal Third Quarter

Yesterday, J. Crew Group announced fiscal third-quarter earnings per share of 67 cents, compared to the Zacks Consensus Estimate of 58 cents. That marks a surprise of more than 15.5%. Over the past 4 quarters, it has amassed an average surprise of 86%.

(The graph below does not take the most recent earnings surprise into account):

Equally as important was that revenues advanced 14% to $414.1 million from $363.1 million a year earlier. Same-store sales were up 8%. This is especially good news since at least part of J. Crew Group's earnings improvement appears to be based on sales growth, rather than just cost cutting.

For the fiscal fourth quarter, the company expects earnings per share between 37 cents and 42 cents. The Zacks Consensus Estimate is currently at 39 cents.

Earnings Estimates on J. Crew Group

The Zacks Consensus Estimate for this fiscal year, ending January 2010, is at $1.58 per share, marking a gain of more than 27% from 2 months ago. The past 30 days has seen an advance of 1.3% thanks to upward revisions from 2 analysts.

Meanwhile, the Zacks Consensus Estimate for the fiscal year ending January 2011 is at $1.93, up 26% in 2 months and 2.7% in 30 days. That guidance also suggests year-over-year profit growth of 22.2%.

Zacks Investment Research

Under the Lot 7 production contract, the company will build two Block 30 systems and three Block 40 systems for the Aeronautical Systems Group at Wright Patterson AFB in Dayton, Ohio. The award also includes a ground station consisting of a launch and recovery element and a mission control element, plus two additional sensor suites that will be retrofitted into previous production aircraft. The contract runs through 2011.

The company will deliver in 2010 the two Block 30 aircraft equipped with the Enhanced Integrated Sensor Suite (EISS) that provides electro-optical/infrared and synthetic aperture radar imaging capabilities. These aircraft will also be retrofitted to incorporate the production Airborne Signals Intelligence Payload.

The HALE UAS, Global Hawk can soar at altitudes of more than 60,000 feet for more than 32 hours and send near-real-time reconnaissance imagery and signals intelligence data to air, ground, and sea forces. It can fly three times as long and operates at a fraction of the cost per flight hour of its manned counterpart. Compared to other similar UAS, a single Global Hawk collects the same information as 18 smaller medium-altitude UAS.

Global Hawks are currently flown in four locations across the globe: Beale Air Force Base in Northern California, Edwards Air Force Base in Southern California, Patuxent River Naval Air Station in Maryland, and a forward operating location in support of Overseas Contingency Operations in the Persian Gulf.

Valero remains committed to its marketing businesses in the Northeast and will continue to reliably supply its customers, partially through higher throughput rates at the company’s other refineries.

The company expects to report a pre-tax charge of approximately $1.7 to $1.8 billion, or $2.00 to $2.15 per share after taxes in the fourth quarter of 2009, related primarily to asset impairment, employee severance and other shutdown costs. The company estimates the cash portion of the pre-tax charge to be in the range of $125 million to $150 million.

In 2010, the company anticipates the shutdown to reduce pre-tax operating expenses by about $450 million, including $125 million of non-cash costs, and reduce capital spending and turnaround costs by about $200 million. In addition, the company expects to receive after-tax cash flows in 2010 in the range of $600 to $700 million from inventory sales assuming current prices and other cash benefits from discontinued operations.

The company expects to improve the company’s financial position and cash flow for 2010, by this closure.

The energy that will be produced by EURUS is estimated to be sufficient to power a Mexican city of half a million inhabitants, reducing CO2 emissions by approximately 600 thousand metric tons each year, which is approximately 25% of the total emissions generated by such a community.
 
EURUS will be one of the largest wind farms in the world and the second largest in terms of emissions reduction registered under the Clean Development Mechanism of the United Nations (Kyoto Protocol). It will also have one of the largest emission reduction indexes per installed capacity in the world.
 
The wind farm represents a major contribution towards the global effort that Cemex is making to reduce its emissions footprint and to become more sustainable.

The recession is over! In the third quarter GDP grew by 2.8% (3.5%), slightly below (comfortably ahead) of expectations for 2.9% (3.0%) growth. This is a huge improvement over the 0.7% decline in the second quarter and the 6.4% plunge in the first quarter.

The internals of the report were strong as well, although it appears that much of the growth came from things like the Cash for Clunkers program and the extraordinary levels of support that are currently being given to the housing sector.

Growth Rates

The overall 2.8% (3.5%) growth of GDP was almost matched by its biggest component, Personal Consumption expenditures, or PCE, which grew 2.9% (3.4%), a big improvement over the 0.9% decline in the second quarter and the 0.6% increase in the first three months of the year.

It is important to note that during the recession, consumer spending declined far less than did overall GDP, especially in the first quarter, so the consumer was becoming a much bigger part of the overall economy. This is not healthy over the long run, but at this point I think people are happy to get some growth where ever we can find it

Now, you might wonder, what caused the recession to be so nasty last winter when Consumer spending wasn’t really all that bad? The answer is that Investment really fell of a cliff. The good news is that it is starting to come back.

Fixed investment is broken into two parts, Non-Residential or business investment and Residential investment, which is mostly homebuilding.

Overall Fixed investment rose by 0.3% (2.3%) following declines of 12.5% in the 2Q and 39.0% in the 1Q. Business investment, however, continued to decline, but at a much slower rate, falling 4.1% (2.5%) after 9.6% and 39.2% declines in the 2Q and 1Q, respectively. With massive amounts of unused capacity it is not surprising that businesses are cutting back on their capital spending still.

Spending on Equipment and Software (E&S) on the other hand is starting to come back, if only feebly, rising 2.3% (1.1%) after a 4.9% decline in the 2Q and a 36.4% plunge in the 1Q. Look for some stability in this line going forward as the new Microsoft operating system will probably generate a new PC cycle, but with capacity utilization still around 70% I would not expect a boom in orders for new factory equipment.

The real star of fixed investment though came on the residential side, which rose 19.5% (23.4%). This is the first increase in almost four years, and follows declines of 23.3% in the 2Q and 38.2% in the 1Q. The long string of declines had brought residential investment to a record low share of GDP. The extraordinary support of the housing sector by the government, including the first time buyer tax credit, the Fed buying up $1.25 Trillion of Fannie (FNM) and Freddie (FRE) backed paper to artificially suppress mortgage rates and the FHA acting like the old New Century Financial or Washington Mutual on their worst days have played a big role in the turnaround. I seriously question the sustainability of it after the support is removed, and I don’t think the support can continue indefinitely.

Government spending grew by 3.1% (2.3%) in the 3Q, a big slowdown from the 6.7% increase in the 2Q, but more than the 2.6% decline in the 1Q. It was all at the Federal level where spending rose at an annual rate of  8.3% (7.9%) down from a 11.4% increase in the 2Q, but up from the 4.3% decline in the 1Q.

Remember this measure of government spending does not include spending on transfer payments like Social Security and Medicare, which are largely captured in the consumption numbers. Defense spending was the big driver -- we are still a nation fighting two wars. It grew at an annual rate of 8.3% (8.4%) down from a 14.0% rate of increase in the 2Q but up from a 5.1% decline in the 1Q.

International trade has started to rebound, and we saw an increase in both imports and exports. Increasing exports are good for GDP and increases in Imports are bad for GDP, and unfortunately imports rose more than did exports. We were able to improve our overseas sales by 17.0% (14.7%) in the 3Q -- a nice turnaround from the 4.1% decline in the 2Q and the 29.9% plunge in the 1Q. Unfortunately we also increase what we bought from overseas by 20.8% (16.4%), a big turnaround from the 14.7% decline in the 2Q and the 36.4% plunge in the first three months of the year. Keep in mind that we import a lot more than we export, so not only was the percentage increase bigger for imports, it was coming off a higher base.

Contributions to Growth

Not all components of GDP are created equal.  Some are very big, and others relatively small. Some tend to be very stable over time, and some tend to swing violently from quarter to quarter. The bigger and more volatile they are, the more they will impact the overall growth rate of GDP. Thus looking at just the percentage changes in the componenets does not tell the full story. Of the 2.8% (3.5%) total growth, how many points were added or subtracted by each part of the economy?

The biggest part of the economy is the Consumer or PCE, over all it contributed 2.07 (2.36) of the 2.80 (3.50) points of total growth. In the second quarter it caused 0.62 of the 0.70 total decline in the 2Q. In the first quarter it actually offset 0.44 points of the 6.40 total decline. In other words, excluding the consumer the economy would have contracted 6.84% rather than 6.40%.

Within consumer spending, spending on goods added 1.60 (1.79) points after subtracting 0.71 points in the 2Q and adding 0.56 points in the 1Q. Spending on durables was the main driver, adding 1.34 (1.47) points after subtracting 0.41 points in the 2Q and adding 0.28 in the 1Q.  Non durable goods added 0.26 (0.31) points after subtracting 0.29 in the 2Q and adding 0.29 in the 1Q.

Investment spending was a big swing factor in the 3Q.  It added 0.91 (1.22) points to overall growth. That is a HUGE improvement over the 3.10 point subtraction in the 2Q and the 8.98 point implosion in the 1Q.  Unfortunately. 0.87 (0.94) points of that contribution came from inventories. Inventory investment is the “worst" type of GDP growth since large increases in one quarter are usually reversed in the next quarter, or in this case, large declines being reversed upwards. 

In the 2Q inventory investment subtracted 1.42 points from overall growth and in the 1Q they subtracted 2.36 points.  Even in the 4Q they subtracted 0.64 points from growth.  Three straight quarters of sharply lower inventories is highly unusual and we were due for a bounce.  Perhaps we have one more quarter of a solid contribution from inventory investment, but I would not expect it to last much beyond that. 

Overall fixed investment added just 0.04 (0.28) points to growth, but that sure was a nice improvement over the 1.68 point subtraction and the 6.62 point disaster that was the 1Q.

However, it was not coming from the business side.  Business investment subtracted 0.40 (0.24) growth points in the 3Q, so it is still very soft, but at least it is not imploding like it was earlier in the year.  In the 2Q it subtracted 1.01 points and in the 1Q it took away 5.29 growth points.  Within business investment it was spending on structures that caused the problem with a deduction of 0.55 (0.32) growth points while spending on E&S offset 0.15 (0.08) points of that.  In the 2Q both sides of business investment were drags on the economy with investment in Commercial real estate subtracting 0.69 growth points and spending on equipment deducting 0.32 points.  The 2Q was in turn a major improvement over the 1Q disaster where spending on structures subtracted 2.28 growth points and equipment spending subtracted 3.01 points.

Housing finally helped the economy in the 3Q, adding 0.45 (0.53) points to growth, after a string of 15 straight quarters where it was a drag on the economy.  In the 2Q it was a 0.67 point drag and in the 1Q it was a 1.33 point drag.  The long decline has, however, made housing a much smaller share of the overall economy.  In the 3Q residential investment totaled only $360.9 billion, or 2.52% of the overall economy.  At the peak of the housing bubble it represented 6.34% of the overall economy.  Thus the 19.5 (23.3%) increase in residential investment had far less of an overall impact than it did in the past.

Direct government spending had a small but positive impact on overall growth in the 3Q, adding 0.63 (0.48) points a fairly significant slowdown from the 1.33 contribution in the 2Q, but better than the 0.52 point drag in the 1Q.  All the help came from Washington , not city hall or the statehouse.

The Federal government added 0.65 (0.62) growth points, down from 0.85 points in the 2Q but up from a 0.33 point drag in the 1Q.  The Pentagon was the main factor in all three quarters, with defense spending adding 0.48 (0.45) points in the 3Q following a 0.70 addition in the 2Q and a 0.27 point drag in the 1Q.  Non-defense spending was sort of a non issue, adding just 0.17 (0.17) points in the 3Q, not much difference from the 0.15 point contribution in the 2Q, and up a little bit from the slight 0.06 point drag in the 1Q.

State and Local governments are not allowed to run operating deficits, and so when faced with declining tax revenues they have to cut back, unless Uncle Sam helps them out.  Well Washington is helping, but its not enough and S&L spending was a 0.02 (0.14) point drag in the 3Q.  The Federal help was enough in the 2Q and so the contribution to growth in the 2Q was a positive 0.48 points.  In the 1Q, before the stimulus package could get much traction S&L spending was a 0.19 point drag.

Net exports had been just about the only bright spot in the first half of the year, even though it came the wrong way, from both imports and exports plunging, only with imports falling more than exports did.  That reversed in the 3Q as both showed a nice expansion, but our appetite for foreign goods outstripping the desire for U.S. goods and services abroad.  The increase in exports added 1.71 (1.49) points to growth, but the increase in imports was a 2.53 (2.01) point drag, for a net negative contribution from net exports of 0.82 (0.52) points. In the 2Q falling exports subtracted 0.45 points but plunging imports added 2.09 points, for a net imports net help to the economy of 1.64 points.

Overall

Relative to the first cut at the data, the downward revisions were broad based, with smaller contributions from all major areas of the economy, with the exception of the government.  Of particular concern is that fixed investments contribution to growth virtually disappeared.

 
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.

Corporate profits increased $130.0 billion in the third quarter, compared with an increase of $43.8 billion in the second quarter.  Current-production cash flow, the internal funds available to corporations for investment, increased $41.6 billion in the third quarter, in contrast to a decrease of $30.5 billion in the second.

Consumer Confidence increased to 49.5 in November from 48.7 in October.  Appraisal of present day conditions were unchanged, as the short-term outlook improved slightly and the labor market outlook became less pessimistic.

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