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| Weekly Wrap Up |
Equities had their first down week in quite a while as traders realized that the recent rally may have gotten ahead of itself and while the economy is not worsening as quickly as it was during the heart of the recession a few months ago, things are still pretty weak and a turnaround will be gradual. In addition to that, profit-taking and the impending earnings season also resulted in investors taking a wait- and- see attitude, in contrast to the 'buy every stock that moves' approach of the last few weeks. The blue chip DJIA lost 2.9% during the week and the broader S&P 500 was off 2.64%. Weak economic data on industrial production, capacity utilization and manufacturing activity put stocks in red-digits to start off the week. A drop in the producer price index, while assuaging concerns about inflation that have taken center stage recently and heaped a lot of attention on the Treasury auction market, brought back some worries about a possible deflationary spiral that could further dampen production. Midweek saw some of the major banks finally pay back about $68 billion in TARP funds and this lead to a brief rally in the financials though overall the sector was weak based on concerns about the administration’s proposed overhaul of the financial sector regulatory framework. Some people believe it is too tough and will place an undue burden on the profitability of banks while others seem to think that it places too much power in the hands of the Fed and doesn’t address the key issues of the financial crisis (e.g. trading of credit default swaps). The market rebounded a little bit during the latter part of the week as health care stocks jumped on hopes that the administration's health-care reforms will still leave plenty of room for private medical enterprises to play in. A decrease in continuing jobless claims also lifted spirits although new claims rose and the employment picture continues to be very weak. Looking ahead, the focus is going to turn towards Q2 earnings reports which should start trickling out towards the middle of next month. Traders will look at corporate profits to see whether an economic rebound is indeed taking hold. More Market News
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| Economic News |
Last week the U.S. released an 85 page white paper on how it will change financial regulation. Why should we care? After all, the financial services industry is struggling and is not likely to add much more new damage to the stock market or the economy beyond the $30.1 trillion in wealth that it's destroyed and the $12.8 trillion of taxpayer money that has already been committed to bailing out its failures. Unfortunately, the plan adds a fresh coat of paint to a wobbly structure so when things get tough in the future we'll be in trouble. (Source: Daily Finance) Full Story
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Because of the magnitude of the recent downturn, experts say some of the statistics that are widely used to track the economy are now red herrings--misleading, at best, when it comes to predicting a rebound. Here are three indicators that could lead investors astray. Housing inventory measures the supply of unsold homes on the market. Right now it's high--a 10-month supply of homes, up from the average of about five--and conventional wisdom says the housing market won’t recover until it declines. This time around, however, waiting for "normal" could cost you. (Source: SmartMoney) Full Story
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The near-collapse of the financial system was supposed to have reminded the world about the hazards of chasing short-term gains at the expense of long-term stability. Another lesson we keep relearning is that investors' memories are short.
Look no further than the prospectus filed May 22 by PennyMac Mortgage Investment Trust, which was created only four days earlier. It has no operating history and no independent directors. As of May 19, its assets consisted of $1,000 in cash.
Eleven of PennyMac’s 14 senior managers are veterans of Countrywide Financial Corp., including Chief Executive Stanford Kurland, Countrywide’s chief operating officer until September 2006. PennyMac plans to hold its initial public offering this summer, assuming the Securities and Exchange Commission lets it. (Source: Bloomberg) Full Story
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| Business News |
With the end of the June quarter in sight, earnings will be the decisive factor for investor insight into the second half of the year, with some analysts in recent days hiking estimates for second-quarter results.
Still, average earnings on the S&P 500 are expected to decline more than 30% in the quarter that ends this month versus the year-ago period, and projected earnings per share have fallen nearly 4% from where expectations stood at the end of March, analysts said.
Earnings estimates fell rapidly in the first quarter and into the second, but have stabilized over the past few weeks, according to Howard Silverblatt, senior index analyst at Standard & Poor's. (Source: MarketWatch) Full Story
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Yesterday, 10 of the biggest, baddest U.S. megabanks proudly completed repayment of their $68.226 billion in $TARP, according press releases (and one exchange filing) issued by the firms. That boosts donations to the TARP-o-Meter up to $70.1 billion, a roughly 3,743 percent increase in the total-repaid category. Who said charities struggle in a recession?
The refunds mark the end of the megabanks' scramble to dodge more stringent regulations for banks with government money and shed the negative image hitched to the program. Like any good parent, the Treasury let all its favorite children more or less win by approving 10 major financial institutions to return their funds last week and allowing them to repay all at once. (That means none gets a significant public relations edge over the others and has the added benefit of fostering the perception that the economy writ large is back on track.) (Source: Reuters) Full Story
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Washington Redskins owner Dan Snyder would remain chairman of a newly organized Six Flags Inc., and senior management would stay in place under a bankruptcy reorganization plan filed with regulators Monday.
Six Flags is also seeking a $600 million loan, secured by its assets, and $150 million in a new revolving credit line. Six Flags operates Six Flags Over Texas and Hurricane Harbor in Arlington.
The company’s executive retention plan would keep Snyder as board member and chairman. CEO Mark Shapiro, CFO Jeffrey Speed and several other top management would also stay on in executive roles. (Source: BizJournals) Full Story
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| Technology Focus |
Apple (AAPL: Charts, News, Offers) says it sold more than a million units of its latest iPhone model in the first three days, making it the most successful model yet.
The iPhone 3G S went on sale Friday in the U.S. and seven other countries.
When Apple launched the previous model last year, it also sold 1 million units in the first three days, but that model launched simultaneously in 22 countries. Piper Jaffray analyst Gene Munster had expected the Cupertino, Calif., company to sell half a million 3G S in the first three days. (Source: MSNBC) Full Story
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Google (GOOG: Charts, News, Offers) and Facebook have rushed out services in Farsi. Twitter users have changed their home cities to Tehran to provide cover for Internet users there. Others have configured their computers to serve as relay points to bypass Iranian censorship.
In the aftermath of the disputed Iranian election, Internet companies and individuals around the world have stepped in to help Iranians communicate and organize.
Twitter delayed a scheduled maintenance shutdown so that people could continue to access the microblogging site while scores of Americans set up remote proxy servers so Iranians could access blocked Web sites from inside their country.
All week, Internet users in the U.S. and around the world fixed their eyes on the events unfolding in Iran, the way viewers might have been glued to their television sets 30 years ago. But unlike 30, or even five years ago, this time they could participate. (Source: Yahoo News) Full Story
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Years after cracking the very code of the Web to lucrative ends, Google may be in the midst of trying to conjure the most complicated algorithm yet: to wit, can goodness, or at least a stated intention not to be evil, scale along with the enterprise?
Among other adventures, Google’s motives were called into question after it scanned in millions of books without permission, prompting the Authors Guild and publishers to file a class-action suit. The proposed $125 million settlement will lead to a book registry financed by Google and a huge online archive of mostly obscure books, searched and served up by Google.
So is that a big win for a culture that increasingly reads on screen -- or a land grab of America's most precious intellectual property? (Source: NY Times) Full Story
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| Your Money |
In pushing for health care reform, President Obama has said problems with the current health care system are a big cause of our economic troubles. He's even called the system, with its spiraling costs and inconsistencies in the amount and quality of care people get, a "ticking time bomb" for the federal budget.
Just how serious is the problem? How big a role does health care play in the nation's economy?
Here are some questions and answers about the economic impact of health care. (Source: USA Today) Full Story
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Sadly, someday this recession is going to end.
After 17 months of steep decline, both the president's Council of Economic Advisors and the Federal Reserve now believe the economy will begin to recover sometime in 2009.
Great news, to be sure. But it's also a warning to consumers: The deals you're seeing on everything from houses and cars to televisions and furniture won't last forever. Luckily, for a host of goods and services, the sale of the century (literally) is still on. The reason is simple: no buyers. Personal savings in 2008 were nearly six times greater than in 2005, amounting to $191 billion or 1.8% of the nation's disposable income. In 2009, annualized savings for January and February exceeded $450 billion, or more than 4% of disposable income. (Source: MSNBC) Full Story
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