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| Weekly Wrap Up |
Stocks posted the biggest gains of 2009 last week with a 4 day rally. It started on Tuesday when Citigroup (C: Charts, News, Offers) released news that it had been profitable in 2009 sending shares of the banking giant up by 36% and boosting the broader financial sector. Markets were nearly flat on Wednesday as the Dow Jones Industrial Average added a modest 3.91 points despite statements from the head of the SEC saying he is hopeful that the uptick rule will be reinstated next month. Stocks surged on Thursday with the Dow Jones Industrial Average adding 239.66 points and NASDAQ up 54.46. Upon news of a credit downgrade to AA+ from AAA, General Electric's (GE: Charts, News, Offers) shares added 12.7% as the downgrade was not as severe as some investors were anticipating. GE was not alone with its credit downgrade. Berkshire Hathaway's (BRK.A: Charts, News, Offers) credit rating was cut to AA+ from AAA by Fitch. A slew of pharmaceutical mergers and acquisitions were announced last week. Roche announced plans to buy the remaining 44% of U.S. biotech Genetech (DNS: Charts, News, Offers). Gilead Sciences (GILD: Charts, News, Offers) said that it will purchase CV Therapeutics (CVTX : Charts, News, Offers) for $1.4 billion. Drug giant Merck (MRK: Charts, News, Offers) is buying New Jersey company Schering-Plough (SGP: Charts, News, Offers) for $41.1 billion cash-and-stock deal. Gold prices ended the week up to $930.10 an ounce. U.S. light crude oil for April delivery was nearly flat for the week ending at $46.31 a barrel. More Market News
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| Economic News |
Billionaire Warren Buffett said unemployment will likely climb a lot higher depending upon how effective the nation’s policies are, but he remains optimistic over the long term. Buffett said the nation’s leaders need to support President Barack Obama’s efforts to repair the economy because fear is dominating Americans’ behavior and the economy has basically followed the worst-case scenario he envisioned. "It’s fallen off a cliff," Buffett said Monday during a live appearance on cable network CNBC. "Not only has the economy slowed down a lot, but people have really changed their habits like I haven’t seen." (Source: MSNBC) Full Story
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For the last six months, I have been arguing that, in spite of the sharp fall in U.S. and global equities, there were significant downside risks to stock markets. Thus, repeated bear market rallies would fizzle out under the onslaught of worse than expected macro news, earnings news and financial markets/firms shocks. Put simply: If you take a macro approach, earnings per share of S&P 500 firms will be--quite realistically in 2009--in the $50 to $60 range. (Some may even argue that in a severe recession they could fall to $40). Then, the question is what the multiple, i.e., the price-to-earnings ratio, will be on such earnings. It is realistic to expect that the multiple may fall in the 10 to 12 range in a U-shaped recession. (Source: Forbes.com) Full Story
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Lower tax revenue and massive government spending on the bank bailout pushed the federal deficit to $765 billion in the first five months of the budget year, well on its way to hitting the Obama administration's projection of a record annual imbalance of $1.75 trillion. The Treasury Department also said Wednesday that the February deficit reached $192.8 billion. That's a record for the month and up 10 percent from a year ago, but below analysts' expectations of $205.7 billion. With seven months left in the current budget year, which ends Sept. 30, the deficit already has shattered last year's record annual gap of $454.8 billion. (Source: TheStreet) Full Story
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| Business News |
Banking giant JPMorgan Chase (JPM: Charts, News, Offers)nnounced Feb. 23 that it would be cutting its quarterly dividend by 87% to a nickel per share. At face level, this sounds bad, but the savings will speed the process by which it repays TARP funds in order to avoid problematic government oversight; plus, the extra capital cushion puts the firm in a better position to make acquisitions of flagging competitors, should difficulties in the banking sector drag on. The JPMorgan example is important for reminding us that both individuals and companies frequently respond to economic difficulty in ways that ensure recessions are short-lived. To put it simply, when left alone, recessions tend to correct themselves. (Source: Forbes.com) Full Story
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Drug giant Merck (MRK: Charts, News, Offers) is buying fellow New Jersey company Schering-Plough (SGP: Charts, News, Offers)for $41.1 billion in the second major pharmaceutical merger of the year. The cash-and-stock deal, which values Schering-Plough shares at 23.61, is a 34% premium on Schering's Mar. 6 closing price. The deal--which had been rumored since Pfizer's Jan. 26 acquisition of Wyeth for $68 billion--is expected to help Merck weather patent expirations and buttress its research and development pipelines. The two companies had a combined $46.9 billion in 2008 sales, and have extensive portfolios in cholesterol, respiratory, infectious disease, and women's drugs. (Source: BusinessWeek) Full Story
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Embattled Citigroup Inc. (C: Charts, News, Offers)surprised Wall Street Tuesday with news that the bank company has operated at a profit in the first two months of the year. But despite the upbeat news, Congress and the Fed continue to review strategies for dealing with a further deterioration of the troubled global banking giant. Citigroup CEO Vikram Vikram Pandit said late Monday in a memo to employees and clients that the bank had an operating profit of $8.3 billion through February -- its best performance since the third quarter of 2007, when the credit crisis first triggered a wave of losses in the industry. (Source: MSNBC) Full Story
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| Technology Focus |
Google's (GOOG: Charts, News, Offers) stock fell decidedly below the psychologically significant mark of $300 per share Tuesday. The stock has fallen 60% overall from its high near $720 and sits near its 2004-2005 prices. Despite this, Google remains a global leader in search, internet advertising, and has its finger on the pulse of innovative web services. The bull cases for Google, which I’ve written about several times (Google's earnings power and Google's search share), remain intact in the long run. Does that mean the shares necessarily imply a great risk-reward tradeoff now? (Source: Seeking Alpha) Full Story
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Being able to focus at work is tough in any organization, but Microsoft's (MSFT: Charts, News, Offers) flat and freewheeling culture can make the problem especially acute. The sprawling company has so many intertwined product groups that keeping up with all the developments around campus can become a job in itself. "At Microsoft, e-mails fly around, and you get hooked into so many meetings electronically," says Eric Horvitz, a principal researcher at the company. "After a while, you realize you have no time to get anything done." So Horvitz has been spending some of the past year on a new research project called Achieve that aims to reclaim lost time. The software helps "book time with yourself" and can distinguish between intractable and nice-to-hit deadlines, and glean from e-mails promises employees make to one another about delivery dates for projects. (Source: BusinessWeek) Full Story
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IF YOU want to buy an electric car, you can. Tesla Motors, a firm based in San Carlos, California, will sell you a nifty open-top sports job for $109,000. Not cheap, admittedly, but cheap to run. Plugged in overnight, it can be refuelled for the equivalent of 25 cents a litre of petrol. The catch is, "plugged in overnight". Tesla's vehicles use standard lithium-ion battery cells. As any owner of a mobile phone or laptop computer knows, these take time to charge. If you use 6,831 of them, as a Tesla sports car does, that time does tend to drag on. Which is fine if you are not planning a long trip the following day, for a full charge will take you about 350km (220 miles). (Source: Economist.com) Full Story
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| Your Money |
Be it up markets or down markets, when stocks are moving powerfully in either direction lots of misinformation seeps into the public discussion. And with shares testing lows not seen since the '90s, it’s understandable that a number of wrongheaded assumptions would become conventional wisdom. The problem here is that a great deal of the 'settled logic' with regard to housing, recessions, the dollar, free trade, and debt has no basis in reality. (Source: Real Clear Markets) Full Story
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