Sunday, February 28, 2010

BAGAKOAA February 28, 2010 The week ahead


February 28, 2010 The week ahead

Wow what a weekend. It was great. Hope yours was as well. Besides riding a bike on the wave ruined byways of Dana Point and San Clemente, swimming for the first time in our new swimming treadmill, enjoying breakfast with the guys, and visiting a new church, I got to do a lot of reading about the market, the current dismal real estate and employment figures, the political maneuvers regarding health care and the global debt crisis. It was a good weekend.

First off, and I am trying very hard not to be political here, the round table (Actually Square) for the health care bill was a charade. It allows the Democrats to say they made a valiant attempt at bipartisanship. The game plan as admitted by Harry Reid was not to take any of the new ideas (Dems and Rep ideas) and change to bill before them, but to take it back to the Senate and perform the ancient act of “reconciliation” (from the latin to RamRod). And get the bill though despite the fact that only 41% of Americans (USA Today Poll) are in support of the Senate’s healthcare proposal.

However there is a strong voice against the health care bill, well not really the health care bill, but the tremendous addition debt to the country programs like the health care bill would bring. This is a very strong voice and it is not a republican voice it is a Democratic Voice. Any guesses? Well here is a hint, this Democrat had their own health care bill get trounced about 16 years ago? Oh yeah they tried again with a health care plan in 2007? Another hint, this person has been traveling the globe over the last couple of weeks letting countries know that The US must shore up it financial affairs to make the US dollar a safe haven again. Figure it out yet? That is right; our Secretary of State is openly criticizing the size of some of our social programs, but especially a 1+ trillion dollar health care plan. Ironically her 2007 health care reform bill was only 110 Billion for more than 10 years. Put the calculators away it’s more than a trillion.

One must ask why? Could it be she is trying to buy some faith in the almighty dollar from the countries she is visiting? Perhaps. Do you think that maybe she has found some fiscal conservancy as she has traveled the world and seen the devastating effects of true socialism? Perhaps. Or do you think that if a major political image plays middle of the road and supports senators who don’t want to end up out of office next November and who can help a more moderately positioned Hilary Clinton gain traction again in the Democratic party to run against a standing president? Perhaps. The only real chance Hilary would ever have as a contender to Obama’s run for a second term would be yet another failure to get some pentultimately important piece of legislation passed. Say perhaps a health care bill. And do you think that Hilary wants anyone to pass a health care reform bill when it all she could talk about for the last 16 years of her life? Perhaps not. Food for thought, but remember you read it hear folks.

So now what does this week bring us? First some of the economic information coming out this week. Personal income and spending comes out tomorrow and the consensus says a .4% increase is in the making. (BTW, I had 3 people in the last week say I am getting too technical in the blog and I apologize. I just went back over my last 15 or so posts and some of them did have a ring of too many hours in the financial sections of the journal and baron’s. My Bad. I will tone it down.) I think the spending and income number will reflect the bad consumer sentiment report we say last week and come in at .1% or .2% That will way heavy on the market tomorrow, but I still believe we are at the beginning of a two to three month 10-12% rally.

The Institute of Supply Management report comes out tomorrow. (Definition=The Institute for Supply Management surveys more than 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. A composite diffusion index of national manufacturing conditions is constructed, where readings above (below) 50 percent indicate an expanding (contracting) factory sector. Export orders, import orders, backlog orders and prices paid for raw and unfinished materials are also measured, but these are not included in the overall index. Courtesy, I hope, of Baron’s) Why should you care? The ISM is a good gauge of economic activity and how HOT the economy is or isn’t.) January’s 58.4% was a nice improvement. The expectation is 57.5% for February which won’t impress anyone. Actually we will need to see 60+ to get this sluggish market of its cash and bond positions. I don/t think we will see it and actually think the 57.5% is a stretch.

Construction spending has been improving since September 09 and should continue to improve with January reporting numbers. They are still in negative territory, but heading toward 0 here in the next month or so.

Tuesday is quiet with vehicle sales reporting and the Bank of Canada announcing no changes in interest rates. Ford should report well GM will show a little improvement and look for both to take market share from Toyota.

As a precursor to Friday’s Job report, look at Wednesday’s ADP report. ADP, being the country’s largest payroll organization has a good but not perfect handle on the employment situation. I am expecting more bad news and more bad news on Friday. The ISM, sale group as above reports on the service sector. Look for positive growth above the 50% range. Again anything above 50% is growth anything below is retraction.

On Thursday look for the Bank of England and the European Central Bank to leave rates alone. There is no inflation concerns out there so there is no GOOD reason to change rates. England is even worried about a deflationary spiral, but I will spend more time on that when I can explain what that might mean to the average investor.

Friday as I mentioned is the jobs report, could make the market ugly. Also consumer credit reports on Friday. Look for further reductions in consumer credit which should be good but when people are paying down their Master Card balance, they are not buying the PADI Open Water Course On line and a bunch of other stuff that could kick this economy and the market in the bottom.

OK I’m tired and I have a few earning reports to tell you about that your might care about. Overseas Shipbuilding Group, OSG reports on Monday. This is a huge oil bulk type shipping company. It is expected to loose another 1.25 a share. I think it will do better than that because their commodity is down which means revenues are down but so are their costs. We have seen oil raise up to the near 80 market so I think OSG will only loose 1.20 a share. If this news comes in nice and you see a few days of upward movement, the 60 a share some people are talking about (Cantor Fitzgerald, Jeffries and Dahlman Rose), could make sense. Here is one to put on your watch list. SUG, Southern Union Company gathers transports and processes Natural Gas. It’s been cold and I like LNG as a Commodity. Estimates are at 51-52 cents a share. If there is a whisper number, I can’t find it. I am thinking 55 a share and look for the stock to go up a buck to about 25 a share. Do your homework. The do have some debt but it seems manageable.

Quick Silver reports tommorow and even though I can’t excited about the brand or the stock. I think it will beat 25 cents a share and the stock could look goog with a coupld more up days. Later in the week we have Staples and Autozone and Costco and others, but I am ready to call it a night.

Before I go, Friday I got in to a July Call 27 dollar for Juniper Networks. I’ll keep you informed.

Salve Lucrum


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