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| Weekly Wrap Up |
The equity markets showed quite a bit of resilience last week as traders took a couple of negative stories in stride. Falling commodity prices and the strengthening of the dollar were the two main factors supporting Wall Street. The broad S&P 500 rose 1.89 points or 0.15% while the tech-heavy NASDAQ jumped 1.59%. The DJIA was in the red though, slipping about 74 points or 0.63%. Due to the year-long decline in financials and the rise in energy stocks on the back of the rally in crude oil, the latter now have a greater influence on the overall Dow Jones Industrial Average because the index is weighted by share price. But last week, energy stocks were the ones showing weakness due to oil sliding down (after reaching an all-time high in mid-July), hence, putting the Dow in red. The conflict between Russia and Georgia which has the potential to impact oil supply and a 5.6% year-over-year rise in the consumer price index (which translates into a 17 year inflation high) did not have as much of a negative impact on the stock markets as you might expect as traders chose instead to focus on the rally in the greenback. The dollar is being pushed up on the belief that parts of the rest of the world (e.g. the Euro Zone) are heading into a recession and since the US has already started the down cycle, it could emerge from it faster, making the dollar a smart bet. Financial stocks remain volatile as they continue to offer up surprises such as JP Morgan (JPM: Charts, News, Offers) disclosing in an otherwise routine SEC filing last Monday that it has lost $1.5 billion since the end of the second quarter. The University of Michigan consumer sentiment index rose slightly as inflation expectations start to moderate. Looking ahead, this week will see the release of more inflation data as the producer price index is due out Tuesday, weekly jobless #s are due Thursday and some the companies slated to report earnings this week include Home Depot (HD: Charts, News, Offers), Target (TGT: Charts, News, Offers), Gap (GPS: Charts, News, Offers) and Barnes & Noble (BKS: Charts, News, Offers). More Market News
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| Economic News |
From "you and us" to "us and them". UBS (UBS: Charts, News, Offers), a dishevelled Swiss bank, announced on August 12th that it was stepping away from its integrated model and establishing its investment-banking, wealth-management and asset-management divisions as stand-alone entities. UBS's management scoffs at the idea that this will lead to the sale of the investment bank, but a break-up is precisely what many inside and outside the bank think is needed. The problem, they say, is that big banks like UBS and America's Citigroup (C: Charts, News, Offers) have got the wrong model.
It is true that risk-loving investment bankers and stability-prizing private bankers make unlikely bedfellows. The recklessness of UBS's investment bankers has made the bank the credit crunch’s biggest total loss-maker to date. Clients of its private bank are spooked: the wealth-management arm suffered an overall loss of deposits in the second quarter. (Source: Economist) Full Story
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Lo and behold, Team Obama is moving toward the supply-side and pivoting toward the political center on key aspects of its tax policy. Writing in Thursday's Wall Street Journal, Obama advisors Jason Furman and Austan Goolsbee outlined a plan that would only raise tax rates on capital-gains and dividends from 15 percent to 20 percent for individuals making more than $200,000 and on family incomes above $250,000. Prior to this, investors worried that Obama would double the 15 percent tax rate on cap-gains and bring the 15 percent rate on dividends back to 40 percent.
Can investors take some relief from this? I reckon they can. And key Obama advisors say these investment tax rates will be consistent with the economic and stock market boom of the 1990s. That's their trump card in all this. (Source: National Review Online) Full Story
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Oil prices sank Friday as the dollar continued to climb and investors feared that weak economic growth would translate into lower crude demand worldwide.
U.S. crude for September delivery touched a low of $111.34 a barrel - the lowest level since April. But the market regained some ground later in the session and oil settled down $1.24 at $113.77 a barrel on the New York Mercantile Exchange.
Oil futures have tumbled about 33% since striking an all-time high of $147.27 a barrel last month.
Dollar strength: The U.S. dollar charged higher, pressuring many investors to pull money out of oil. (Source: CNN Money) Full Story
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| Business News |
JPMorgan Chase (JPM: Charts, News, Offers) is demonstrating to Wall Street that, even after a year of credit difficulties, the pain just keeps coming back.
Late Monday, the bank revealed another big loss in its mortgage investments via a filing with the U.S. Securities and Exchange Commission. JPMorgan Chase said the ugly credit markets had caused it to lose about $1.5 billion, after hedges, in its mortgage-backed securities and loans to date in the July-to-September quarter. That is more than the $1.1 billion markdown the bank took in its investment banking portfolio during the second quarter.
As of June 30, the New York-based bank had $19.5 billion in exposure to prime and Alt-A mortgages, $1.9 billion in exposure to subprime mortgages and $11.6 billion in exposure to commercial mortgage-backed securities. Alt-A mortgages are not subprime grade but are classified below "prime." (Source: Forbes) Full Story
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U.S. inflation hit a 17-year high last month, underscoring the pressure on Americans who face soaring gasoline and food costs while their job prospects dim and incomes shrink.
A series of bleak reports on Thursday spotlighted the dilemma faced by Federal Reserve policy-makers who have little room left to lower interest rates to help a weak economy and are hoping for price relief to avoid the need to raise rates soon to tamp down inflation.
The Labor Department said its Consumer Price Index, the most commonly used inflation gauge, rose 0.8 percent in July and year-over-year jumped 5.6 percent, the strongest 12-month advance since January 1991 when the first Gulf War was under way. (Source: Reuters) Full Story
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CVS Caremark Corp. (CVS: Charts, News, Offers) last week solidified its national presence with its announced purchase of Longs Drugs Stores Corp. (LDG: Charts, News, Offers), a 521-store chain that dominates Northern California and other Western retail markets.
Woonsocket-based CVS has been pushing outside the Northeast for a decade, accelerating its growth in the last four years.
The purchase of Longs is its 10th acquisition in a decade, a series of takeovers that has pushed it past its chief drugstore rival, Walgreen Co. (WAG: Charts, News, Offers), positioned CVS Caremark deeply into health-care management services and vaulted the company onto the list of the nation's 20 largest public corporations. The Rhode Island company now employs 190,000 people nationwide. It will add another 22,000 Longs workers when it completes the acquisition later this year. The company’s revenues last year hit $85 billion.
CVS is now the nation’s top provider of prescription medications, filling or managing 1.2 billion prescriptions a year. (Source: The Providence Journal) Full Story
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| Technology Focus |
Oh, no Netflix!
Close to three million disappointed Netflix (NFLX: Charts, News, Offers) customers went to their mailboxes this week to find that their red, DVD-filled envelopes were nowhere to be found.
Because of an unspecified technology glitch, the online DVD rental service said on Thursday that a severe system outage was preventing shipments of discs from some distribution centers, impacting about a third of its 8.4 million customers.
A blog posted Tuesday night by Andy Rendich, head of operations for Netflix, said, "We received and were able to process incoming DVDs this morning but, due to a technology issue, we weren't able to send emails confirming DVD receipt and we won't ship any DVDs today (Tuesday). Our goal is to resume shipping tomorrow (Wednesday)." (Source: Forbes) Full Story
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Complaints over dropped calls and choppy Web connections on Apple's iPhone 3G have sparked a wave of debate in the blogosphere over the root cause of the problems. Two well-placed sources tell BusinessWeek.com the glitches are related to a chip inside Apple's music-playing cell phone. The sources add that Apple (AAPL: Charts, News, Offers) plans to remedy the problems through a software upgrade rather than through a more disruptive step, such as a product recall.
The news reinforces analysis by Richard Windsor of Nomura Securities, who said in an Aug. 12 report that the problem involves a communications chip made by Munich-based Infineon Technologies (IFX: Charts, News, Offers). Faulty software on the chip causes problems when the iPhone needs to switch from wireless networks that allow for faster Web downloads to slower ones, the people say. (Source: BusinessWeek) Full Story
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Next time you're stuck in traffic on the way to an unfamiliar destination, navigation device pointing the way, look around.
Chances are, there are other drivers just like you, staring back and forth between the tail lights ahead and the little screen with a digital map instructing you to stay on the road - a road often clogged with bumper-to-bumper traffic.
A new wave of personal navigation devices, led by TomTom of the Netherlands, promises smarter, more reliable traffic information to help motorists avoid road congestion and find alternate routes to their destinations. (Source: MSNBC) Full Story
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| Your Money |
If you're a value investor, you like bargains. What if you could buy a value fund at a discount? That would be like a clearance sale at Costco (COST: Charts, News, Offers) or 50 cents off from the dollar store. But you can now buy several value funds at a discount price, and a few of them are genuine bargains.
Value investing is a school of stock analysis based on a few fairly simple propositions. The first is that stock prices can rise and fall dramatically over time. The second is that sometimes they do so for fairly stupid reasons, giving investors a chance to buy the stocks of good companies cheaply.
For example, Apple (AAPL: Charts, News, Offers), creator of the iPod, the iPhone and the Apple computer, cost $194.84 on Jan. 2, before swooning to $119.15 by Feb. 26, a 39% decline. The stock now sells for about $179, or 9% less than its starting point this year.
Was Apple really worth 39% less in February than it was in January? Not likely. (Source: USA Today) Full Story
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Hard times and higher fuel prices will follow kids back to school this fall.
Children will walk farther to the bus stop, pay more for lunch, study from old textbooks and wear last year's clothes. Field trips? Forget about it.
This year, it could cost nearly twice as much to fuel the yellow buses that rumble to school each morning. If you think it’s expensive to fill up a sport utility vehicle, try topping off a tank that is two or even three times as big. At the same time, costs for air conditioning and heating, cafeteria food and classroom supplies are mounting, all because of the shaky economy. And parents have their own tanks to fill. (Source: MSNBC) Full Story
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The most important economic news of recent weeks is the recovery of the long-comatose dollar. On a single day this month it recorded its biggest jump against the euro in eight years, before retreating a bit. That sounds like unambiguous good news, since a stronger dollar might lower import prices, which have risen 21.6% in the past year. But economics is never that simple. Here's why.
The good news is that the dollar is showing signs of strength. American consumers, who needed $200 to buy a pair of Italian shoes, can now step into that footwear for about $180. And that £200 British cashmere sweater that set American customers back $400 only a few weeks ago, can be had for about $370, assuming hard-hit retailers pass on the savings they rack up when buying abroad. The lower prices resulting from the dollar’s strength make it easier for Federal Reserve Board chairman Ben Bernanke and his monetary policy colleagues to resist pressures to raise interest rates, although Fed watchers are wondering whether that resistance will melt in the face of July’s rise in consumer inflation: prices soared at the fastest rate in almost 20 years. (Source: Times Online) Full Story
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