AND THAT’S THE WEEK THAT WAS…

For the Week Ended February 11, 2011

 

Market Matters…         

                           

Market/Index	Year Close (2010)	Qtr Close (12/31/10)	Previous Week (02/04/11)	Current Week (02/11/11)	YTD Change
Dow Jones Industrial	11,577.51	11,577.51	12,092.15	12,273.26	+6.01%
NASDAQ	2,652.87	2,652.87	2,769.30	2,809.44	+5.90%
S&P 500	1,257.64	1,257.64	1,310.87	1,329.15	+5.69%
Russell 2000	783.65	783.65	800.11	822.11	+4.91%
Global Dow	2,087.44	2,087.44	2,188.02	2,198.81	+5.34%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.31%	3.31%	3.65%	3.65%	+34 bps

 

Perhaps holding out for a better severance package and golden parachute, Egyptian President Mubarak  finally got the message from the violent protesters and stepped down after 30 years in office (so much for term limits).  While markets reacted positively to news that the “revolution” soon may be coming to an end, plenty of uncertainty remains for the region often known for its  geopolitical turmoil.  After all, Mubarak was a known commodity; his replacement may not be.

 

Closer to home, Prez O continued making nice with the biz community as he promised the US  Chamber of Commerce that he will “knock down government barriers that hamper business growth.”  A few days later, he outlined a plan to eventually eliminate Freddie Mac and Fannie Mae, two long-time whipping boys of his Republican rivals.  Any such move would dramatically alter the landscape of the $10.6 trillion mortgage market and could mean stricter lending requirements and higher borrowing costs for consumers seeking affordable home loans. 

 

Transactions highlighted the news of the week as boardroom confidence remains alive and kicking.  After a favorable pricing, Kinder Morgan became the largest US private equity-backed IPO at $2.87 billion.  A mega-exchange appears in the works as NYSE Euronext looks to join forces with German-based Deutsche Borse (anyone know how to make those two little dots over the “O” in Borse)?  British Ensco is buying Pride International for $7.3 billion to become the world’s second largest offshore drilling company.  AOL will acquire Huffington Post for $315 million as part of its ongoing transformation strategy.  Twitter may soon find itself part of a bidding war as Facebook and Google are among the companies that have made inquiries about a possible acquisition with valuations approaching $10 billion.  In earnings news, a couple of consumer companies, Disney and Coca Cola, both reported better-than-expected profits.  On the other hand, the Sysco/Cisco “twins” posted disappointing results as the food services giant (S) struggled with higher commodity costs and the network equipment company (C) faced continued growing competition for its services and may be forced to slash prices.  Nokia forged an alliance with Microsoft and will utilize Windows as its primary smart-phone platform, and Verizon officially started selling Apple iPhones in stores (though the turnout was rather disappointing).  Finally, the National Federation of Independent Businesses reported that small biz optimism reached a 3-year high, a favorable sign for this crucial component of the domestic economy. 

 

Oil prices dropped to below $86/barrel as the violent clashes in Egypt appeared close to ending.  Gasoline, on the other hand, jumped to around $3.12/gallon, some 49 cents above the levels seen last year this time (and raising new fears about inflation).  Stocks moved higher and the Dow  Jones even produced an eight-day winning streak (that came to a close) as the array of transaction news brought renewed investor optimism about the confidence of the biz community.  (In fact, anyone looking to hire a autocratic monarch with 30 years experience of guiding a failing and corrupt economy?  I believe a résumé is posted on Monster?) 

Economic Calendar

Date	Release	Comments
February 7	Consumer Credit (12/10)	1st increase in credit card debt since 2008
February 10	Jobless Claims (02/05/11)	Lowest reading since July 2008
February 11	Balance of Trade (12/10)	Exports and imports hit highest levels in 2 years
The Week Ahead
February 15	Retail Sales (01/11)
February 16	PPI (01/11)
	Housing Starts (01/11)
	Industrial Production (01/11)
February 17	CPI (01/11)
	Jobless Claims (02/12/11)
	Leading Indicators (01/11)

 

Fed Chairman Ben Bernanke went on the offensive this week in his address to Congress.  Realizing he is not the most popular guy to visit the Hill these days, Bernanke lashed out at politicos (at least the R’s) about their need to get the ballooning budget deficit under control or risk another financial debacle.  Facing questions from a not-so-friendly crowd, Dr. B. called the recent decline in the unemployment rate (to 9%) “grounds for optimism,” while still raising concerns about the slow pace of hiring (thus justifying the need for QE2).  He also stated that inflation remains well under control (gasoline prices notwithstanding).  Partner in crime (Fed Governor), Kevin Warsh announced that he will move on late in the quarter after ongoing speculation that he was not seeing eye-to-eye with his cohorts over the bond purchasing program.

 

A light week on the economic calendar brought a few encouraging signs about the recovery.  Consumer credit grew in December as credit card debt jumped for the first time in over two years.  Apparently, folks are feeling less stressed about their personal employment situations and more confident about opening their pocketbooks for more than just the necessities of life.  (Wasn’t too much debt/credit what got us into this mess in the first place?)   Jobless claims fell by a larger-than-expected number last week to its best reading since July 2008 as the labor markets continues to show some credible signs of rebounding.  Though the trade gap widened again in December, both exports and imports increased to levels not seen in two years as biz activity seemingly continued to thrive and the economy ended the year on a rather strong note.  Finally, the Reuters/U of Michigan sentiment index edged up again in its latest reading as “the return of the consumer” remains in high gear. 

 

Shifting abroad, China announced another rate hike, its first such move of 2011, in its ongoing battle to fend off an overheating economy and inflation.  Other emerging markets are expected to follow suit.  As demand increases in these markets, commodity prices have continued to surge and inflation could rear its ugly head back in the US as imported items reflect costs that must be passed along to domestic manufacturers and ultimately to consumers. 

 

On the Horizon…The economic calendar heats up again and investors get a glimpse of the follow-up to the holiday shopping season.  Often, January remains a solid month for retail sales as folks hit the malls with gift cards in hand and look to take advantage of such post-holiday deals.  Dismal winter weather struck during the month and many consumers may have been forced to stay at home (where Amazon.com and other e-tailers never close).  Additionally, a few retailers get into the earnings act as Abercrombie & Fitch (2/16) and Nordstrom (2/17) post quarterly results.  The inflation gauges take center stage, but Dr. B. has “promised” price pressures are far from a problem (except maybe that 50 cents more we are paying at the pump for a gallon of gas).  Housing and manufacturing data also lends more insight into the state of the economy and the index of leading economic indicators serves as a foreshadowing of things to come.  Any more preemptive tongue lashings, Dr. B?  

Brounes & Associates is a Houston-based consulting/marketing firm that performs research, marketing, and education projects for financial services companies and other professionals.  “And That’s the Week That Was” is a weekly market/economic commentary that is distributed each Friday afternoon.  Any financial professionals who have interest in rebranding the piece and sending to their investors should inquire to:

Ron Brounes

713-962-9986 (Direct)

ron@ronbrounes.com

(c) Brounes & Associates

www.ronbrounes.com