Sunday, December 27, 2009

BAGAKOAA Dec 27, 2009 The week ahead


Dec 27, 2009 The week ahead

Last week it was prognosticated here that a weak GDP would hurt the market and despite the number coming in at a lackluster 2.2% well below the bottom estimates, (2.5%) the market picked up 50 points on the 22nd. In fact the market ignored the bad number so well you had to wonder if someone didn’t already know about the strong existing home sales report released later in the same day. If you remember the market was looking for 6.2 million units. It came in a 6.54 million keeping the market happy though finishing flat for the day. (Wednesday.) All of the income and pricing indexes came in just as expected so that was of little if no impact to the market. However, in a complete reversal of fortunes, new home sales sucked. If you remember the market was looking for a number about 440 thousand new homes. The number came in at a dismal 355 K. That should have sent some concern through the market, but again it did not. WHR, (Whirlpool-on my recovery watch list) came down a tad, and HD (I have some May $25 calls) wiggled a bit, but it could have and should have been worse. DJIA volume was light in the 450 million share range so maybe people had already settled in for the Holiday. Durable goods reported back in positive territory despite a Ryanair cancellation of 200 planes from Boeing. The .2% increase was a little below estimates, but positive. And to close the holiday week out we had another positive jobless claim report. The expectation was 472 K new claims and the number came in at 452 K. That is still very sad, but a trend is being supported.

Some of you reading this do not care for all the economic news you can read elsewhere. I only post it here for my own historical well of cause and effect data. Many would prefer just the stock information. It is difficult to segregate the two. For example the initial jobless claim figures are an economic indicator, but it is also a metric for payroll processing companies. If a trend is being established, especially a new trend you can make money or loose money being on the right side of a coin on a good or bad company. In this case, consider PAYX or ADP the top two payroll processing companies. PAYX is a well run company with little debt, but had a bad quarter reporting with profits down about 10%. They throw a nice dividend creating a nice 4% yield. ADP is a little cheaper (PE not Price) at a PE of 17 versus 22 for PAYX. They appear to be well run and have little or no debt. They also throw a dividend with a yield of 3.17. So you got two winners in a sector that has a positive trend. That trend is predicated upon people returning to work. Either could be a good play over the next 12-24 months. DO YOUR HOMEWORK. I do not own either, but have been watching both since June/July.

Ok now the week ahead. By the way I miss my Baron’s. I get it on my Kindle, but we are up in Utah and I missed picking it up out of the driveway at O Dark Thirty Saturday Morning. I need a life. So I am doing this the old fashion way, off the internet.

It looks like a quiet week ahead. If you are really board on Monday the Federal Reserve Board of Governors opens its check book as they do every week. If you ever want to bone up on early all US Economic indicators, please pick up a copy of The Trader’s Guide To Key Economic Indicators by Richard Yamarome. Anyway, the Fed’s Balance sheet report is quite a long boring read, but it shows where the money isn’t.

On Tuesday, you have two retail reports coming out (ICSC-Goldman SS and Redbook). It will guess at how well we all hit the malls last week. It does ignore on-line sales which is a big factor this year. (Again economic data relates to stock performance. Increase in on line sales means good things for brands with strong on-line presence and or products that lend themselves to on line sales as well as the companies shipping those products. Think AMZN, BBY, William Sonoma, AAPL, FDX, UPS, to name a few.)

Consumer confidence reports on Tuesday as well and people are expecting the number to get back above 50. Again, how do you play that. Over the last 12-24 months consumer have been paying down debt, saving like never before or at least since 1942, and buying everything on the cheap. That was good for all the discounters like Costco and Wal-Mart. If Consumer confidence improves and it probably will, some of those patterns will shift back to main stream retail like TGT, Macy’s, even Nordies again. Oh yeah, historically when consumer confidence returns people consider traveling for fun again. Think Priceline, Expedia, Orbitz.

On Wednesday you get the Mortgage Bank applications report for another tell on the housing market. No surprises are expected. Also that day we’ll get the Chicago Purchasing Managers Index, a regional pulse on manufacturing activity. The expectation is a reading of about 54 which will be down because there was huge spike in new orders last month. No one is expecting that level of activity to continue.

And Thursday brings another initial jobless claim report, but I can find no consensus figures available on this fine Sunday Morning.

Looking ahead to any interesting earnings reports, there are none. Delta reports on Thursday, BUT they don’t have any earnings to report. I will look out a week and see if there is anything worth noting for the first week of January and let you know. I think Monsanto and RPM, (Think caulking products) reports.

Salve Lucrum


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