Interesting comments from Navellier:
Weekly Marketmail
Print Email Friday, January 09, 2009
Reno, NV (Marketmail) – U.S. stocks gave up most, if not all, of their early 2009 gains during the latter part of the week. Several bellwether stocks, including Alcoa, Intel, Time Warner, Boeing, Chevron, and many others, announced earnings warnings and/or job cuts.
The condition of the jobs market was a key subject throughout the week, ahead of the December employment report, which was released today.
December payrolls fell by 524,000, slightly less than expected (-550,000), but there was a -154,000 downward revision to the prior two months, so the net drop was actually -678,000. Moreover, the unemployment rate surged to 7.2%, well above the 7.0% consensus, and a 15-year high.
What’s worse, job losses could accelerate in the first half of 2009, and 2.59 million jobs were already lost in 2008, the most since 1945. In fact, President-elect Obama and his team think the unemployment rate could hit double digits this year if Congress fails to act swiftly with more stimuli.
“What we can’t do is drag this out when we just saw a half a million more job losses,” said Obama.
Obama is still crafting his stimulus plan, but he intends to create 3 million jobs by spending about $800 billion. And he pledged to ban earmarks.
He said his stimulus package will set a “new higher standard of accountability, transparency, and oversight. We are going to ban all earmarks, the process by which individual members insert projects without review.”
Speaking of accountability, Rep. Barney Frank, chairman of the House Financial Services Committee, today released an outline to increase transparency and close loopholes in the Treasury’s $700 billion Troubled Assets Relief Program (TARP).
(Reuters) -- Rep. Barney Frank, chairman of the House Financial Services Committee, said his bill included the following provisions and that he hoped to have a floor vote on it next week.
BANKS
* Allow smaller banks to participate in TARP on the same terms as big banks that have already received billions of dollars in federal money.
* Require quarterly disclosures by banks that receive TARP money about how they used the money and whether they increased lending.
* Require banks and their primary federal regulator to agree on how TARP funds are to be used and set benchmarks for the institution to meet in expanding the availability of credit to the U.S. economy.
* Require examinations by a bank's primary federal regulator to review use of TARP money and executive compensation.
* Prohibit the acquisition of a "healthy" institution by a bank receiving TARP funds. A bank must show that an intended acquisition could have been accomplished without funds provided under TARP.
EXECUTIVE COMPENSATION
* Prohibits incentives that encourage "excessive" risks by companies.
* Allows the claw-back of executive pay received that was based on inaccurate information.
* Bans all golden parachute payments for the duration of the U.S. government's investment in the company.
* Applies the same executive pay limits included in the Detroit automakers' bailout bill to any new recipient of TARP funds. These include a ban on bonuses or incentives for 25 highest-paid employees and ban on private airplanes or leases.
* Makes executive compensation restrictions retroactive for all existing recipients of TARP money.
OVERSIGHT
* Allows Treasury Department to have an observer attend board meetings of companies that receive federal money.
* Expands the Financial Stability Oversight Board to include the chairman of the Federal Deposit Insurance Corp and two other members to be appointed by the president and subject to Senate confirmation. The board will have the authority to overturn decisions of the Treasury Secretary by a two-thirds vote.
* Requires Treasury Department to obtain warrants in a recipient company equal to no less than 15 percent of any financing provided.
FORECLOSURE RELIEF
* Conditions the use of the final $350 billion funding for TARP on the program's use of at least $50 billion for foreclosure mitigation.
* Requires Treasury Secretary to develop foreclosure relief plan by March 15, begin committing TARP funds by April 1.
* Limits foreclosure relief to owner-occupied residences.
* Requires Treasury Department to use "some combination" of these alternatives: A guarantee program for qualifying loan modifications; covering fees or buying mortgages to bring costs of Hope for Homeowner loans down; paying down second lien mortgages that prevent a loan modification; payments to loan services linked to loan modifications; the purchase of whole loans for the purpose of modifying or refinancing the loans and allowing them to be delegated to the FDIC.
* Provides legal safe harbor from liability to loan servicers for modifying home loans.
* Requires Congressional Oversight Panel to report to lawmakers by July 1 on foreclosure relief measures taken and how successful they have been.
AUTO INDUSTRY
* Clarifies Treasury Department's authorization to help Chrysler LLC, General Motors and Ford Motor under TARP program and includes House auto bill provisions such as long-term restructuring requirements.
* Clarifies Treasury Department's authority to provide support to financing arms of automakers to ensure they can offer needed credit, including through dealer and other financing of consumer and business auto and other vehicle loans and dealer floor loans.
CONSUMER LOANS, COMMERCIAL REAL ESTATE, MUNIS
* Clarifies Treasury Department's authority to support availability of consumer loans such as student loans, and auto and other vehicle loans. Such support may include the purchase of asset-backed securities, directly or through the Fed.
* Clarifies Treasury Department's authority to support commercial real estate loans and mortgage-backed securities.
* Clarifies Treasury Department's authority to support issuers of municipal securities for new issuance or remarketing of existing auction rate securities.
HOPE FOR HOMEOWNERS PROGRAM
* Eliminates 3 percent upfront premium.
* Reduces 1.5 percent annual premium to a range between 0.55 percent and 0.75 percent, based on risk-based pricing.
* Raises maximum loan to value from 90 percent to 93 percent for borrowers above a 31 percent mortgage debt to income ratio or above a 43 percent ratio.
* Eliminates government profit sharing of appreciation over market value of home at time of refinancing.
* Allows payments to loan servicers participating in successful refinancings.
HOME BUYER STIMULUS
* Requires Treasury Department to develop a program outside TARP to stimulate demand for home purchases.
* Program must ensure availability of "reduced rate loans" through financial institutions that act as either originators or as portfolio lenders and to be offered in connection with the Hope for Homeowner refinancing program.
Conclusion
Next week could be another challenging week. Alcoa announces earnings after the bell on Monday, officially kicking off earnings season, and we wouldn’t be surprised if it’s a disastrous result. The aluminum business fell off a cliff in the fourth quarter, and Alcoa announced earlier this week that it is selling off assets and cutting 13% of its workforce.
Fourth-quarter earnings in general could have the biggest earnings surprises, both on the downside and upside, we’ve seen in a long time. At the start of the fourth quarter, analysts expected the S&P 500 to grow earnings by 48.7%. By the end of the quarter, it was -1.1%. That should give you some scope how treacherous the final quarter of the year was.
As such, earnings warnings are likely to be prevalent next week, especially since peak fourth-quarter earnings announcements will be from January 19-23. 68% of the S&P 1500, which includes all stocks in the S&P 500, S&P 400, and S&P 600, will announce earnings that week.
In a nutshell, the market could be on the verge of getting very narrow again, with few things working. Fortunately for us, narrow markets tend to be relatively good for us since such climates usually favor fundamentally superior stocks. Speculators do not like to roll the dice as much when the broad market is being challenged, and investors typically focus on companies that have solid earnings.
Now, if Obama gains headway with lawmakers next week, the broad market could take off again. At the moment, though, he is facing increasing opposition, even from Democrats.
For example, Budget Committee Chairman Kent Conrad from North Dakota is voicing concerns that Obama’s proposed tax cuts, $300 billion in cuts for middle- and low-income Americans, will not work.
And Congressional leaders are indicating that they will not finish working on Obama’s recovery plan until mid-February. That’s a long way off when you’re piloting through a storm of bad earnings announcements.
Then again, the market’s expectations might already be well below actual results, which could trigger a relief rally. Alcoa will be a good test on Monday. If its earnings are awful and the stock rebounds, that would be very encouraging. |
