Friday January 9, 2009
Navivest

The news of the day today will be the unemployment rate, which we will be getting from the Labor Department at 8:30 AM.

This will most likely set the tone for the stock market today. A higher than expected number could send stocks on a downward spiral, while if the number comes lower than expected or even just matches consensus, we could see a huge rally in the stock market, as most expect that the number will be very bad.

What would be interesting to see, is whether stocks ignore the news if it is bad, as has been happening of late.

Yesterday, payroll processing company ADP (ADP) issued a report that showed that the private sector lost 693,000 jobs in December, giving us a preview of what to expect.

In November, the economy lost 533,000 jobs, according to the Labor Department. That followed losses of 320,000 in October and 403,000 in September. As can be seen from these numbers, we are currently in an up trend in terms of the number of jobs the economy loses each month.

Economists on average, are looking for the number to come in at 523,000. If we get that, the economy would have lost 1.77 million jobs in the last four months and more likely than not, January will be worse.

Tags: Unemployment Rate  The Economy  Recession

Wednesday January 7, 2009
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With the deteriorating economy wreaking havoc across Corporate America, rumors are circulating that IBM may soon announce it will eliminate up to 4% of its global workforce. That would amount to 16,000 employees.

While the rumors remain just that, IBM with its huge workforce has in past economic downturns, cut its headcount in rather noticeable numbers.

On 01/06/09, Alcoa, another Dow Jones Industrial component, announced that it will be eliminating 13,500 positions and this morning, payroll processor ADP, put out a report that showed the private sector lost 693,000 in December.

With no signs of a turnaround yet for the economy, these numbers are destined to get worse before they start showing improvement.

On Thursday, we will be getting Initial Jobless Claims numbers for the week ending 01/03/09 from the Department of Labor. Economists are forecasting the number of new filers for employment benefits to come in at 590,000.

Tags: IBM  Alcoa  Economy  Jobless Claims  Unemployment

Wednesday January 7, 2009
Navivest

Considering the current economic climate and the forecast calling for an even rougher keel ahead, its amazing that stocks have held their own and have seemingly found a floor, or as the technicians might say, a support level.

On September 30th, 2008, the Dow Jones Industrial Average closed at 10,850.66 to close out the third quarter, after hitting an intra-day low of 10,371.58. That was after hitting an intra-day high of 11,139.62, the day prior.

Since then, we hit a five year low of 7,392.27 on November 21st, but have since rallied back to yesterday’s closing price of 9,015.10.

The bounce back and holding at current levels has had the pundits calling a bottom for the stock market.

That begs the question; if stock market levels are a function of the prices of the underlying stocks that make up an index, and if the prices of the underlying stocks are a function of forward earnings, to the extent that earnings, going forward, are set to decline from current levels, how can anyone predict higher stock prices? Especially since the earnings picture looks bleak.

On 01/05/09 for instance, fertilizer company Mosaic (MOS) released its Q2 2009 earnings in which it said that because of falling demand, it cut phosphate production “by approximately one million tonnes through December 2008” and plans to reduce production by up to an additional one million tonnes through fiscal 2009.

The company also stated that “deteriorating market conditions and rapidly declining raw material costs caused phosphate selling prices to decline sharply toward the end of the quarter and were the primary causes of an inventory valuation write-down totaling $293.5 million.”

With 9.1 million tons of phosphates sold in fiscal 2008, the 1 million ton cut that the company plans to implement in its phosphates production, represents an almost 11% production cut. Factor in the expected reduction in prices, and the problem is further exacerbated.

Note: Mosaic does have other product lines, such as potash.

On October 7th, Dow component, Alcoa (AA) announced that its Q3 2008 profit fell 52%. Yesterday, the company announced that it will be cutting aluminum production by 18% on an annual basis.

These are not isolated cases. The Q4 2008 earnings season starts on January 12. It is a safe assumption that the news coming out of corporate America during this period will be dire. Even the companies that do beat expectation, will probably either guide future earnings lower, or worse, suspend providing guidance altogether.

In such an environment, is it realistic to assume that the worst is behind us?

On January 20th, the Obama administration takes over. To the extent that the new president wants to stimulate the economy by boosting infrastructure spending, we do expect an Obama bounce/rally possibly starting next week as savvy traders start positioning themselves in infrastructure plays, but at some point, reality should set in and we should get some sort of correction.

For whatever reason, the stock market has managed to ignore bad economic news of late, to the extent that we even get rallies on days when such news is released. But that cannot go on indefinitely.

There is only so much pain that individual investors will put up with, before they decide they’re better off putting their money under the mattress, and start pulling money from mutual funds in droves.

Of course, when that happens, there are those that will say that’s a sign of a bottom.

Tags: Alcoa  Mosaic  Bear Market Earnings

Tuesday January 6, 2009
Navivest

Alcoa (AA) today, announced a series of planned actions, that it hopes will help it weather the economic downturn.

Some of the actions the company plans on undertaking, include the reduction of aluminum smelting output by 750,000 metric tons, which is roughly 18% of its annual production, the elimination of 13,500 positions, or 13% of its global workforce and 1,700 contractor positions, reduce capital expenditures by 50% and the sale of four “non-core” business units. The company will also put in place, a hiring and salary freeze.

Alcoa expects to take after-tax charges of $900-$950 million in the Q4 2008 period. 80% of this charge is expected to be non-cash.

Alcoa deems these steps necessary, as according to the company President and CEO Klaus Kleinfeld, “these are extraordinary times, requiring speed and decisiveness to address the current economic downturn, and flexibility and foresight to be prepared for future uncertainties in our markets.”

The four non-core businesses to be divested, include the well-known aluminum foil division, as well as the company’s electrical and electronic systems, cast auto wheels, and transportation products Europe divisions.

These businesses had combined revenues of $1.8 billion in 2008 and an estimated after-tax operating loss of approximately $105 million. Alcoa expects to realize net proceeds of $100 million from the sale of these units.

Tags: Alcoa  Economy

Wednesday December 31, 2008
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The number of newly unemployed that applied for benefits fell by a surprising 94,000, to 492,000 for the week that ended on December 27. This came in well below the 592,000 that forecasters had been expecting.

Despite the unexpected drop, the number is still 45.1% higher than a year ago.
Continuing claims, that is already unemployed people who continue to collect benefits however, jumped from 4.366 million to 4.506 million, an increase of 140,000. This is the highest level since December 1982.

The good news however came with a grain of salt, as the drop was attributed to seasonal factors as well as the possibility that some people might not have made it in time to the unemployment office in time, because of the Christmas holiday.

Tags: Unemployment Claims  Economy  Jobless Claims

Tuesday December 23, 2008
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While it is possible we could see a holiday rally and stock futures are currently indicating a slightly higher open at 6 AM, there is still a very bearish overcast on the markets.

Volume will be light and we will be hearing how much of a poor retail environment this is this holiday, which could put pressure on retail stocks. Walmart is the one bright spot, as consumers look to stretch their spending dollars.

Today, we get more economic news that will show the fragile state of the economy. Among the economic news due out, are GDP and New and Existing Home Sales numbers.

On an annualized basis, forecasters are looking for existing homes sales of 4.93 million and 420,000 for new homes.

Mortgage rates have been trending downward, with the curve steepening in the last month. So there is a chance that that could have drawn buyers into the market. However most gains in home sales of late have come from the foreclosure market so perhaps it might be too much to hope for that we get an upward surprise in the numbers.

Tags: Existing Home Sales  New Home Sales  Stock Market  Trading Day

Tuesday December 16, 2008
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Today will be an interesting one for the stock market. We could possibly see a move to the downside in early trading, followed by a very nice move to the upside in later trading.

The monetary policy setting arm of the Federal Reserve, the Federal Open Market Committee, will be announcing its latest interest rate decision, after meeting yesterday and today. Most analysts and forecasters are expecting that they will cut interest rates further, with some looking for a cut of as much as half a point.

Before we get the decision on interest rates, which does not come out until 2:15, we have some economic news due out today that should dictate the early tone of the markets.

At 8:30 AM, we will be getting Building Permits numbers, CPI numbers and Housing Starts. There is a very good chance that the housing related numbers could come in worse than expected, so unless the stock market decides to trade higher on bad economic news, we may drift lower at the open.

In addition to the interest rate decision news, will be getting news from OPEC, which is expected to cut oil production perhaps by as much as two million barrels a day. That should help send oil and commodity stocks higher.

We are also awaiting word from the Whitehouse, with regards to help for General Motors (GM), Ford (F) and Chrysler. While we don’t know whether that news will come this week, next week or even later, we know news is on the way.

President Bush leaves office on January 20th, so we are looking for that announcement to come in the next two weeks. To the extent that the automakers are operating on fumes with just weeks’ worth of cash on hand, we could possibly get the news this week.

With all the news that’s due out, we are recommending traders take long positions today. Once the market opens, gauge to see if we have decisive trading or if the market is just treading water. If we are definitely heading down on the economic news, then wait until at least 10:30 AM or so, then start buying.

Trading psychology will come into play today. If stocks are moving to the downside early, don’t be scared to get in. If later on we do get the upside move, then buying on a dip enables traders to extract maximum gains.

If stocks are just drifting, you can start entering into positions around 10 AM. Some oil and commodity stocks that we like are Apache (APA), Anadarko (APC), Devon Energy (DVN), Mosaic (MOS), Agrium (AGU) and Bucyrus (BUCY). We also like the Proshares Ultra Dow 30 (DDM), which is a great play if the stock market is heading higher. While we prefer these names, if we do get a move to the upside, it would be a broad based rally.

If we are fortunate enough to have stocks move to the upside in the latter part of the trading day, then exit today and lock in profits.

Navivest, through our subscription based services, provides trading advisory services for traders. We currently offer two distinct products. These are The Options Capitalist service for options traders and Navivest Equity Trader for short to intermediate term stock traders. If you would like a free two-week trial to either service, click here.

Tags: Stock Recommendation  Trading Ideas  GM  Ford  Interest Rates  FOMC

Monday November 24, 2008
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With the rumored appointment of Tim Geithner, the current New York Federal Reserve President, as Obama’s Treasury Secretary, stocks turned around late Friday and staged an impressive rally.

We expect that we will get some strong follow through on that today and won’t be surprised if we see gains for most of the Thanksgiving shortened trading week as there is some major news coming out of the Obama camp, with regards to the economy.

Today, we will be getting actual word of the make up of Obama’s economic team and hopefully, the team passes muster with Wall Street and stocks shoot up further.

On Sunday’s Meet The Press, a member of Obama’s transition team, William Daly, suggested that because of the current economic climate, Obama may not only be willing to hold of on raising taxes, but also letting President Bush’s tax cut, which favors those in higher income brackets, expire in 2011 when George Bush planned, instead of eliminating them early as he said he would do.

Since this was one big issue Wall Street had with Obama, hopefully, this piece of news serves to send stocks higher as well.

Obama has also stated his intention to embark on a 2-year stimulus plan that creates 2.5 million jobs by 2011. He his hoping congress starts work on this as soon as he assumes office. With a democratic controlled congress, this should not be a problem.

Again, to the extent that this should help spur the economy, it is something else that should help stocks today. That is, if Wall Street which seems very hard to please these days, does not start complaining about big government.

Tags: Tim Geithner  Obama Economic Plan  Obama Economic Team  Stock Market

Sunday November 23, 2008
Navivest

With the government seizure of three banks on Friday November 21, the number of banks that have failed this year in the U.S, now totals 21. This compares to three last in 2007 and four in 2006.

On Friday, PFF Bank and Trust, Pomona, CA and Downey Savings and Loan, Newport Beach, CA were both taken over by the FDIC.

In a transaction that was facilitated by the FDIC, the banking operations, including all the deposits, of Downey Savings and Loan Association, F.A. of Newport Beach, CA, and PFF Bank & Trust of Pomona, CA were sold to US Bancorp. The combined 213 branches of the two banks will reopen as branches of U.S. Bank.

Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion. PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion. These will all be assumed by U.S. Bank.

U.S. Bank has also agreed to assume the first $1.5 billion and $0.1 billion of expected losses on the assets of Downey Savings & Loan and PFF Bank & Trust, respectively. Any losses in excess of these amounts will be subject to a loss sharing agreement with the FDIC.

The Community Bank of Loganville, GA was closed by the Georgia Department of Banking and Finance and the Federal Deposit Insurance Corporation was named Receiver.

The FDIC entered into a purchase and assumption agreement with Bank of Essex, which will assume all of the deposits of The Community Bank. The four branches of The Community Bank will reopen as Bank of Essex branches on Monday.

According to the FDIC, as of October 17, 2008, The Community Bank had total assets of $681.0 million and total deposits of $611.4 million. Bank of Essex purchased approximately $84.4 million of The Community Bank’s assets, and paid the FDIC a premium of $3.2 million for the right to assume the failed bank’s deposits. The FDIC will retain the remaining assets for later disposition.

Tags: Bank Failures  PFF Bank  U.S Bank  Downey Savings

Monday November 17, 2008
Navivest

It was not too long ago that the investment community was actively debating whether the Federal Reserve would raise rates or not at their next scheduled meetings.

That debate is now off the table as the economy has cooled substantially and if anything, the debate is now whether the feds will continue to cut rates to spur the economy.

Tomorrow, we get the Producer Price Index numbers for October. The PPI measures the price of goods at the wholesale level.

With the state of the economy and the drop in oil prices of late, we expect to see a tame PPI.

Investors watch the PPI numbers as it helps portend the direction of interest rates.

One thing we would like to know is what Dallas Fed President Richard Fisher is thinking now. At the August 5th meeting when the FOMC voted to keep interest rates unchanged, he dissented and voted to raise rates.

We wondered then whether he could not see what was beginning to happen to the economy and that things would get worse. To us, this lack of foresight disqualifies him for his job.

Tags: PPI  Economy  Interest Rates