Since the stock market rally reached a pinnacle nearly two weeks ago, the Dow Jones Industrial Average has lost about 3.3% while the Standard & Poor’s 500 Index has fallen about 3.7%. And if this week’s earnings report come in below expectations, the rally that helped stock prices surge more than 50% could come to an abrupt end.

Fortunately, many of the companies set to report earnings this week are traditionally strong performers and for the most part, companies that have weathered the financial crisis. But not all of them have met Wall Street’s expectations.

The quarterly results for five companies in particular – Yum! Brands Inc. (NYSE: YUM), Alcoa Inc. (NYSE: AA), Costco Wholesale Corp. (Nasdaq: COST), Monsanto Corp. (NYSE: MON) and PepsiCo Inc. (NYSE: PEP) – will of particular interest to investors.

Yum! Brands Inc.

Scheduled to report today (Tuesday), the Louisville, Ky.-based Yum! will be one of the first companies to report its quarterly take.

As owner of the Taco Bell, Kentucky Fried Chicken (KFC) and Pizza Hut brands, Yum! is the world’s largest restaurant company. Even more impressive, the company has beaten the market’s consensus forecast in the last four quarterly reporting periods.

Analysts’ estimates for the quarter ending September 2009 range from a low of 52 cents a share to a high of 63 cents a share, with a consensus of $0.59 a share. Yum will lean heavily on its international business if it’s going to continue its trend of topping analysts’ estimates.

Yum! is a well balanced company with about 41% of its 2008 operating profit coming from the United States and the rest from overseas – particularly China.

By 2013, China will account for 40% of Yum’s operating profit – up from 28% in 2008 – while the United States and the rest of the world will each account for a 30% share, according to company projections.

KFC, in particular, has long seen its most robust growth coming from China, with less than 10% of its franchises on the mainland accounting for more than a quarter of the company’s earnings.

Yum! added 328 new restaurants in the second quarter, including 118 in Mainland China.

“Yum!’s global growth potential, consistent performance and track record of generating strong free cash flow give us the confidence and ability to return significant cash to our shareholders even in these challenging economic times,” said Yum! Chief Executive Officer David Novak.

An analyst with Credit Suisse Group AG (NYSE ADR: CS) earlier this week told Barron’s that Yum! shares deserve a better premium because of its large international footprint and ongoing reallocation of capital.

Yum! shares should trade at a premium to their peer group and could climb nearly 25%, a the analyst said.

Shares of Yum! surged 5.13% yesterday to close at $34.85.

Alcoa Inc.

Though its release comes a day after Yum’s, Alcoa’s quarterly report marks the unofficial start of earnings season.

Hit hard by the collapse of commodities prices and sluggish industrial demand, Alcoa has missed earnings expectations in three of the past four quarters. And the company’s latest earnings report will likely show that its struggles continued, albeit at a slower pace.

Alcoa is expected to report a net loss of 12 cents per share for the three months that ended in September. That’s down substantially from a profit of 37 cents a share in the same period last year, but would be a marked improvement on the 32 cents a share loss the company posted in the second quarter.

Indeed, Alcoa’s earnings will provide an important look at just how far global demand for industrial metals has come. Hopes are high, as Alcoa stock has surged more than 143% since mid-March.

Deutsche Bank AG (NYSE: DB) analyst Jorge Beristain has increased his rating of Pittsburgh-based Alcoa to “Buy” from “Hold” and increased his price target to $17 from $12.

The upgrade partially reflects Deutsche Bank’s higher price projections for base metals. The bank sees base metal prices climbing an average of 31% next year, on account of strong third-quarter “price surges” and increased demand from China, Beristain said in a note to clients.

“China’s seemingly insatiable appetite for industrial raw materials has led to record high imports in many metals and a consequent tightening in market balances,” he said.

Alcoa’s stock rose 4.68% in trading yesterday, to close at $13.42 a share.

Costco Wholesale Corp.

Costco is the largest membership warehouse club chain in the world by sales volume. That makes it an ideal choice for cost-conscious consumers. Costco has enjoyed seven straight years of earnings growth, but the company’s past two quarters have disappointed investors.

The third time might be the charm for the nation’s largest warehouse chain. William Blair & Co. LLC analyst Mark Miller last month upgraded the stock to “Outperform” from “Market Perform” and after the company stepped up sales in August.

Sales at established locations declined 2%, beating Wall Street expectations for a larger 5.7% decline.

“With the step-up in sales during August and positive takeaways from our meeting last week with [Costco Chief Financial Officer] Richard Galanti and [Vice President of Financial Planning and Investor Relations] Bob Nelson, we are more confident that sales and earnings could meaningfully surpass Street expectations over the next year,” said Miller.

Like Yum!, Costco could receive a significant bump from its overseas operations, as recent store openings in Asia have been strong and the dollar has weakened.

For the third quarter, the average analysts’ estimate is for a profit of 76 cents a share – a 17% drop from the 92 cents a share it earned in the same quarter last year.

Costco CEO Jim Sinegal said earlier this month in an interview with Motley Fool that he expects his company to turn around regardless of whether or not the economy experiences a quick recovery.

“We can always blame bad sales on weather and on economic conditions and everything else,” he said. “But when we have the right merchandise out on the floor, it sells. … [We] don’t like the fact that the [average customer] basket is down, but we certainly like the fact that the customers are coming back more frequently and, as things turn, they will start to buy again. Now it is on us to get the hot merchandise.”

Costco stock edged up 0.73% yesterday to close at $56.88 a share.

Monsanto Co.

As the world’s largest producer of genetically modified seeds, Monsanto is a closely watched biotech bellwether. Like Alcoa, Monsanto was hit in recent quarters by a drop in commodities prices, as well as a drop in demand for its products.

However, the company announced an acquisition, a partnership, and a divestiture in its fiscal fourth quarter. It is expected to squeeze out a one cent per share profit, compared to three cents per share loss in the same quarter last year.

Monsanto’s acquisition of WestBred LLC – a Montana-based company that specializes in wheat germplasm – will bring wheat into its seeds and traits portfolio, and its joint venture with Dole Fresh Vegetables, Inc. will put more genetically modified vegetables on Monsanto’s plate. Meanwhile, Monsanto’s divestiture of its global sunflower assets to Syngenta brought in $160 million.

The company also shed 9,000 employees in a bid to cut costs, and despite being heavily targeted by anti-trust groups and chief rival E.I. du Pont de Nemours & Co. (NYSE: DD), Monsanto insists it’s on track to more than double its 2007 profit by the year 2012.

“We have committed to using our technology to double yields in our three core crops – corn, soybeans and cotton – by 2030, while reducing our use of key resources by one-third per unit produced,” said Monsanto Chairman and CEO Hugh Grant. “Innovation has us well on our way to achieving this, with our most robust pipeline ever. We’re on the verge of an unprecedented technology explosion that will deliver the types of products growers want most – those that offer greater yield and value.”

By 2012, Monsanto expects its gross profit from its core seeds and traits business to be between $7.3 billion and $7.5 billion – about 2.5 times its 2007 level. Grant said this increase will be facilitated by the development of seven new “high impact technologies” that by 2020 will boost revenue by $3 billion.

Monsanto has reported better-than-expected earnings in the past three quarters, and at Monday’s close of $74.85 a share is an undervalued stock according to Morningstar.

“Monsanto is a fierce competitor that continues to dominate a market that it essentially created more than a decade ago,” said Morningstar senior analyst Ben Johnson. “Through its ongoing commitment to research and development and assertive capital allocation, the company has positioned itself to grow value for its shareholders over the long haul.”

PepsicCo Inc.

Of all the companies reporting this week, PepsiCo has generated the most buzz. Bullish speculators yesterday piled into PepsiCo call options after Deutsche Bank raised its earnings for the salty-snack-and-soda giant.

Call volume surged by nearly 700%, according to optionMonster.

Deutsche Bank raised its price target for PepsiCo shares, which closed yesterday at $60.85, to $70 from $66. The bank maintained its buy rating on the stock, and said shares have been negatively affected by an “unwarranted deal overhang” related to the company’s acquisition of Pepsi Bottling Group Inc (NYSE: PBG).

PepsiCo in August said it would merge with Pepsi Bottling, as well as invest in Russia, during the three months that ended in September, and is expected to post a profit of $1.02 per share – four cents per share less than a year ago. Revenue for the quarter is expected to come to $11.3 billion, about the same as last year.

PepsiCo has only missed expectations in one of the past four quarters, and by just two cents at that.

Source: The Five Stocks to Watch This Week

Here are listed sales in the filing, courtesy of 24/7WallStreet.com:

· 7/20/09… 1,817,000 at $28.7269 average in open market sale.

· 7/21/09… 3,915,100 at $26.9188 average in open market sale.

· 7/22/09… 2,254,200 at $26.6425 average in open market sale.

What took Buffett so long to start selling Moody’s? We have no idea. Moody’s runs one of the biggest scams on Wall Street. It charges the companies whose securities it rates (just like Standard & Poor’s and Fitch also do).

So what do you think these ratings agencies did when presented with a whole load of junk mortgage-backed securities to rate? They assigned them investment grade status and pocketed the cash.

If these ratings agencies had instead acted honestly and responsibly (rather than pimping themselves out to the highest bidder) the whole subprime debacle and the ensuing credit crisis could have been avoided.

Buffett isn’t the only investment whizz who thinks Moody’s is heading for trouble. Hedge-fund legend David Einhorn of Greenlight Capital is selling Moody’s short.

Yesterday, Moody’s shares tumbled almost 4% on the news that the Buffett had began to unwind his position in the company. We’d like to see Moody’s go out of business. But that’s maybe wishful thinking. Make sure you don’t own any shares in Moody’s. And if you’re feeling speculative, consider going short Moody’s along with Einhorn.

One of the easiest ways of deciding what stocks you should own is by “standing on the shoulders of giants.” We’re no geniuses here at Notes. But at least we are smart enough to recognize it. And that’s why we track what people far smarter than us are doing with their money.

As of the end of the first quarter this year, this is how Warren Buffett’s holdings (via Berkshire Hathaway, his investment vehicle) looked like:

1. American Express Co. (NYSE:AXP) over 151.6 million shares, same as before.

2. Bank of America Corp. (NYSE:BAC) 5 million shares; same as last quarter.

3. Burlington Northern Santa Fe (NYSE:BNI) 76.77 million shares; HIGHER than 70.089 million shares of last quarter.

4. Carmax Inc. (NYSE:KMX) 12 million shares; LOWER than the 17.63 million and that is two straight quarters of declines.

5. Coca Cola (NYSE:KO) right at 200 million shares, still same as before.

6. Comcast (NASDAQ:CMCSA) 12 million shares, same as before.

7. Comdisco Holdings (NASDAQ:CDCO) roughly 1.5 million shares, same as before.

8. ConocoPhillips (NYSE:COP) is really lower than the 71.228 million shares reported as this has been used for cutting taxes, and we already know that the number is lower than what the filing says.

9. Constellation Energy Group (NYSE:CEG) was just updated this week so the number is actually about 12.4 million rather than what the filing shows as being 14.828 million shares.

10. Costco Wholesale (NASDAQ:COST) 5.254 million shares, same as before.

11. Eaton Corp. (NYSE:ETN) 3.2 million shares; looks like new holding but may have been missed before.

There’s a lot of talk these days about how Buffett has lost his touch. This may be so. But the guy remains the world’s most successful investor. If you have a medium- to long-term investment horizon, you could do a lot worse than consider following Buffett into some of these long positions. If you think you can outsmart the guy, go ahead. But we know who our money would be with…

The company released lower than expected earnings last week and the stock has lost some ground as a result. However, it hasn’t violated the consolidation pattern that’s it’s traded in since late March.

Subscribers to my 1-2-3 Trader service originally bought COST at $45 and some May calls on April 20. We took profits of 33% and 74% on the calls, but still own the stock.

As you can see, COST has solid support around the $45 area and if the stock tests that level again, it would represent another good buying opportunity for more calls.

If it doesn’t come back down to support, aggressive traders could buy the stock or some calls above the support level.

I expect the stock to reach at least the $50.50 area, possibly as high as $51.30, once it makes new highs.

Jim Stanton

Source: Ticker Of The Week: Costco (Nasdaq: COST)

GM has lost an aggregate $82 billion in the past four years even as it slashed production capacity, nameplate brands – and more than 100,000 U.S. jobs. It needs to cut another 19,000 workers by 2012 to bring its domestic employment down to 72,500 jobs.

GM on Saturday passed a major milestone ahead of a bankruptcy filing planned for today (Monday) as the deadline passed for bondholders to accept an exchange offer brokered by the Obama administration.

As of late Saturday night, GM would not comment on how many investors had tossed in their support for the debt-for-equity swap that would have them surrender $27 billion in corporate bond debt in return for as much as 25% of a restructured GM. However, the company did say this enhanced deal already had the support of investors who held 35% of GM’s bonds. The deadline passed at 5 p.m. Saturday.

Fund managers and analysts told Reuters that that it was possible that this enhanced  bond offer could have attracted a majority of the GM bond investors by the deadline. Under the new offer, bondholders would have a recovery of around 9 cents on the dollar, up from an estimate of zero to 5 cents under the previous offer. GM bondholders last week rejected a proposal that would have given them a 10% stake in a reorganized GM.

“The warrants and the improved capital structure make for an improved recovery for bondholders,” Brian Johnson, an analyst for Barclays Capital PLC (NYSE ADR: BCS), told the news service. “In terms of the bankruptcy process, we expect the likely bondholder assent to smooth the process.”

The United Auto Workers union (UAW) on Friday cleared the way to the bankruptcy filing when it overwhelmingly approved a new labor pact that lets GM slash costs.

GM has struggled in recent years to compete, hurt by its truck and SUV-dominated vehicle line-up and a deep plunge in U.S. vehicle demand.

Market Matters

In the holiday-shortened work week, investors searched for  the tonic needed to escape the “excessive” volatility that still exists in the markets.  How did that cure-all work out?  In three consecutive sessions, the Dow Jones Industrial Average jumped 193, plummeted 173, and finally rebounded 104 points.  Meanwhile, the yield on the 10-year U.S. Treasury, the perceived safe-haven for risk-averse investors, soared by 30 basis points during the week and its declining value prompted many to rethink their “flight-to-quality” strategies.  After the recent talks that Standard & Poor’s Inc. may cut its rating on UK debt, investors began speculating that the mass domestic borrowings (to rescue virtually every industry and near-bankrupt company) will take its toll on US debt ratings as well.  While Moody’s Investors Service Inc. (NYSE: MCO) offered a bit of confidence by proclaiming the Aaa rating remains “stable,” it did leave the door open for a future downgrade. Fortunately, the week’s treasury auctions were generally well-received, though investors remain cautious that demand may subside in the future as the deficit balloons.  Stocks followed bonds for a change as traders unloaded equities on weakness in fixed income, only to buy again after the favorable auctions (among other news).  And the volatility continued.

With its bankruptcy filing, GM is merely taking a step to following in Chrysler LLC’s footsteps. Chrysler hopes to move beyond its own bankruptcy as a judge considers its restructuring via the Fiat SpA (ADR OTC: FIATY) deal.

A Federal Deposit Insurance Corp. (FDIC) report showed that banks earned $7.6 billion in profits in the first quarter, rebounding from the first quarterly loss for the industry in 18 years.  Before executives could award themselves (excessive) bonuses, the report added that the number of institutions considered “problem” climbed from 252 to 302 and said that delinquencies rose across most loan types.

In other corporate news, Microsoft Corp. (Nasdaq: MSFT) is set to launch “Bing,” its upgraded search engine on June 3 and Yahoo! Inc. (Nasdaq: YHOO) remains open to a partnership (after last year’s failed buyout) if offered a “boatload of money.”  Costco Corp.’s (Nasdaq: COST) earnings fell by more than analysts expected; Dell Inc. (Nasdaq: DELL) continued to struggle from a decrease in IT spending; Time Warner Inc. (NYSE: TWX) plans to spin-off AOL by year-end.  The Organization of the Petroleum Exporting Countries (OPEC) met and held production levels steady, though crude prices surged above $66 a barrel for the first time in six months and prices now stand almost twice as high as its mid-February level.

Economically Speaking

A recent survey by the National Association for Business Economics showed that 93% of the respondents believe the recession will end in 2009, with almost 75% of them seeing a third-quarter recovery. Still, most feel the rebound will be slow to develop as unemployment continues to climb (the survey says it will average 9.1% this year).   The results also predict gross domestic product (GDP) to contract by 1.8% in the second quarter, before turning positive (though ever-so-slightly) over the latter six months of the year.  By comparison, the first quarter GDP revision was reported as down 5.7%, a modest rebound from the 6.1% initially released, though weaker than many prior forecasts and still reflective of some pretty dire domestic economic conditions.

Since the consumer accounts for two-thirds of the activity within the economy, analysts point to some favorable sentiment data as further proof that the recession is nearing an end.  In May, the Conference Board said that consumer confidence experienced its best showing in eight months, while the Reuters/U of Michigan Index also posted stronger results.  Renewed activities should be welcome news to retailers and manufacturers alike, some of whom will be counted on to resume hiring over the next few months as they reap some rewards to their bottom lines.

April housing data also highlighted the week’s economic releases as both new home (+0.3%) and existing home sales (+2.9%) posted gains.

However, the inventory of unsold properties continued to climb and the median sales prices fell from already weak levels.  Delinquencies remain on the rise as 12% of all homeowners have fallen behind on their mortgages and foreclosures rates on even the prime borrowers (with decent credit) have surged in recent times.  Even though housing still has a way to go before the “worst of times” officially will be considered over, some early signs of a rebound in activity may be emerging.

Weekly Economic Calendar

Source: Bankrutpcy Will Let General Motors Move Forward

This from Katharine Schildt of Investment U:

A new trend has emerged due to the current recession: frugality.

With jobs being lost every day, tighter credit and a weak housing market, consumers are pinching pennies in every way they can.

But for one store in particular, this hasn’t had the negative impact that most expected.

Children’s Place Retail Stores Inc. (Nasdaq: PLCE), a leading children’s clothing retailer, announced yesterday that its same-store sales for the month of February were flat.

Flat sales, doesn’t seem like something that we should be rejoicing over. But this beat Wall Street’s expectations of a 3.6% decline.

The important thing to remember here is that same-store sales are the best metric for measuring retail performance. So the fact that it managed to remain flat, rather than decline, points to good things in its future.

While most U.S. retailers saw lackluster same-store sales last month, The Children’s Place remained on top.

Aside from strong same-store sales, PLCE had net sales of $110.4 million for the four-week period ended February 28 – only a 1% decrease compared to the same four week period a year ago.

In a market where even discount stores – who have seen an increase in customers looking to save cash – are reporting disappointing results, that’s something to brag about. BJ’s and Costco, for example, have faced unexpected challenges in recent months.

The clothing retailer now expects quarterly earnings to come in at the high end of its outlook, somewhere between 65 and 70 cents per share.

It also adjusted its forecast for the year, changing earnings from $2.17 to $2.22

Retailers were expected to post an overall decline of 1.2% in February same-store sales on Thursday… That follows a 1.8% drop in January, which was the second-worst monthly same-store sales performance since 2000.

All of this good news bodes well for the company, especially considering it’s occurring while other retailers around it are struggling to even stay above water.

Children’s Place Retail Stores Inc. (Nasdaq: PLCE): Stock of the Day

• The Securities and Exchange Commission yesterday (Tuesday) charged Texas financier R. Allen Stanford and three of his firms with a “massive” fraud that centered around high-interest-rate certificates of deposit, and raided some of the companies’ offices, MSNBC reported.  In a complaint filed in federal court in Dallas, the Securities and Exchange Commission alleged Stanford conducted a fraudulent investment scheme in an $8 billion CD program that promised “improbable and unsubstantiated high interest rates.”

• Trump Entertainment Resorts Inc. (TRMP), the three Atlantic City casinos once run by Donald Trump filed for Chapter 11 bankruptcy protection yesterday (Tuesday) – for the third time. Trump was frustrated that bondholders and their allies on the board rebuffed his offer to buy the company and take it private. “Other than the fact that it has my name on it – which I’m not thrilled about – I have nothing to do with the company,” Trump told The Associated Press.

• American Express Co. (AXP) and Capital One Financial Corp. (COF) fell in trading yesterday (Tuesday) after they reported overdue loans and payments increased in January.  American Express, the biggest U.S. credit-card company by purchases, said defaults on loans packaged into securities rose to 8.29% from 7%, while payments at least 30 days overdue climbed to 5.28% from 4.86% in December. Capital One said that defaults rose to 7.82% and late payments reached 5.02%, Bloomberg reported.

• Wal-Mart Stores Inc (WMT) posted profits that beat Wall Street forecasts, and said it expects to outperform rivals as the global downturn forces shoppers to seek low prices, Reuters reported. Fueled by sales at its namesake U.S. discount stores, Wal-Mart has been outpacing competitors like Target Corp. (TGT) and Costco Wholesale Corp. (COST), as well as lower-priced department stores like J.C. Penney Company Inc. (JCP), in recent months as consumers stretch limited budgets by shopping its stores for necessities like food and medicine.

• Four executives at Research in Motion Ltd. (RIMM), the maker of the Blackberry phone, agreed to pay more than $2.2 million to settle claims by U.S. regulators that they backdated stock options for eight years, Bloomberg reported. The executives agreed to pay fines totaling $1.4 million and return more than $840,000, which represents the value of the backdated options they had exercised, the Securities and Exchange Commission said. By backdating options, companies retroactively change grant dates to periods when share prices were lower, boosting recipients’ profits while potentially distorting earnings.

• U.S. oil prices fell more than 7% yesterday (Tuesday) below $35 a barrel, as grim economic indicators battered markets and raised concerns about slumping demand, Reuters reported.  U.S. crude for March delivery fell to $34.82 a barrel, down $2.69 from Friday’s close. London Brent crude for April delivery dropped $1.91 to $41.37 a barrel. A report that eastern Europe’s economic slump will further drag down Western banks raised fears that emerging economies will deepen the recession in the U.S.

Source:Global Investment News Briefs Wednesday, February 18th, 2009

This dismantling of the so-called “New Federalism” will be readily apparent again this week as the federal government is once again at the forefront of the most-closely watched  crisis-fighting initiatives at hand: With Congress pushing forward on an $827 billion stimulus plan and the Treasury Department planning to unveil its new banking bailout blueprint on Tuesday, economists and other experts say the federal government is taking its biggest role in the economy in a generation.

States that once pushed away from the federal government as part of the New Federalism are now essentially begging it for financial support, banks and Big Business that once viewed near-total deregulation as Corporate America’s Holy Grail are now seeking federal financial aid and new regulatory protections (and in many cases are becoming actual business partners with the government), and individuals are asking for tax relief.

Alan Viard, a Bush administration economist now at the American Enterprise Institute, may well epitomize this reversal of thought: He’s one of the economists who initially rejected the need for a fiscal stimulus, stating that the right size for a government spending bill was “probably zero,” believing that federal interest rate cuts and existing unemployment benefits would be enough to do the trick. But he now sees the package as necessary.

“Things have gotten so bad so quickly,” Viard told The Washington Post. “We have now lost 3.6 million jobs, a stunning loss. But what’s more horrifying is that half that loss has occurred in the last three months. This is a severe recession.”

The exact shape and size of the package matters less than the timing, and any delay will be very damaging, economists say.

“Most of the things in the package, the big dollar amounts, are things that are pretty quick stimulus and need to be done,” Alice Rivlin, who was former president Bill Clinton’s budget director and a critic of aspects of the proposed stimulus, told The Post. “Is it a perfect package? Of course not. But we’re past that. Let’s just do it.”

Signs of the Stimulus

The U.S. Senate late Friday reached agreement on the estimated $827 billion stimulus bill, setting the stage for what’s expected to be some tough negotiations with the House of Representatives over tens of billions of dollars in aid to states and local governments, tax provisions, and programs focusing on education, health and renewable energy.

Congress is pushing hard to complete the legislation this week. But that figures to be a challenge. The House bill was passed without any Republican support, while the Senate version passed Friday night between Democrats and three moderate Republicans.

During a rare floor session on Saturday, Republican opponents continued to criticize the entire stimulus proposal – even though they clearly don’t have the votes to stop it. The bill is expected to be passed in the next few days.

The price tag for the Senate plan is only slightly more than the $820 billion measure adopted by the House late last month. Both plans seek to resuscitate the U.S. economy with similar one-two punch strategies:

• Fast-acting tax cuts designed to jump-start consumer and business spending.
• And longer-term – albeit slower-acting – spending on public works programs and other projects that are projected to create more than 3 million jobs.

Despite these seemingly similar philosophies, the two plans rely on approaches that are very different. The higher-priced House bill emphasizes help to states and municipalities that would otherwise be facing major cuts in services and layoffs of public employees, while the Senate slashed $40 billion of that kind of funding from its version of the bill.

The Senate plan focuses more on tax cuts, lowers a proposed increase in food stamps and provides health-care subsidies for the unemployed that are much less generous than the House version. The Senate plan also creates $30 billion in tax incentives to encourage Americans to buy homes and cars within the next year.

House Speaker Nancy Pelosi, D-Calif., said the emerging Senate cuts to the stimulus program “very damaging” and that she was “very much opposed to them.” But after the Senate reached a deal, Pelosi expressed resolve to complete the legislation in the days ahead.

U.S. President Barack Obama has made the economic recovery effort the centerpiece of his agenda since even before he officially took office. But President Obama now intends to get much more involved, and much more aggressive: He will conduct a “town-hall-style” meeting in Indiana today (Monday), followed by a formal “prime time” White House news conference – the first of his term – tonight.

The president will then pitch the plan again in Florida tomorrow (Tuesday) and again in Virginia on Wednesday.

Senate Majority Leader Harry Reid, D-Nev., said final passage of the Senate bill is expected Thursday, after which congressional leaders say they will hurry to get the House and Senate versions into conference with the hope that a passed bill can be sent to the White House by the end of week, the San Francisco Chronicle reported.

Banking Plan Overhaul Unveiling Tomorrow (Tuesday)

Busy new U.S. Treasury Secretary Timothy F. Geithner last week promised that the Obama administration would unveil its new blueprint for rescuing the U.S. banking system today. Over the weekend, however, the administration said the rollout would be delayed until Tuesday, so that the focus could remain on passage of the stimulus package, Bloomberg News reported.

But that doesn’t mean the banking bailout plan isn’t key.

According to a recent analysis, the Obama administration has a multi-pronged strategy for quelling the financial crisis, including:

• A program to insure banks against extreme losses on mortgages and other loans.
• A new round of investments in banks.
• Help for homeowners facing possible foreclosure.
• The broadening of a U.S. Federal Reserve program to ramp up lending.
• The Treasury Department could also look at purchasing toxic assets from banks – possibly with the aid of private-sector financing.

This would represent an overhaul of the $700 billion Troubled Assets Relief Program (TARP) initiated by the Bush administration. As the name implies, TARP was initially concerned with buying troubled assets – but it quickly evolved into a direct-government investment into the banks.

This new Obama plan reflects Geithner’s personally held view of how governments should respond to financial crises. Geithner believes all available financial tools should be used – and used aggressively. Any such effort would include direct efforts to deal with the financial sector’s massive losses, since that would help renew public confidence in the financial system.

Too small a government response during a crisis poses more risk than too much response, he said during his confirmation hearing.

Many of the details of what Geithner will announce remained in flux, although the broad outlines were becoming clear, published reports state. But one thing is certain: Even the ideas that are continuations of the initiatives started by former Treasury Secretary Henry M. “Hank” Paulson Jr. will have a unique Geithner twist.

One example: The government will almost certainly continue to invest in banks. But past investments consisted of a form of “preferred stock” that granted the federal government no say in how the bank was run, or how the money would be used.

As a Money Morning investigation revealed, that lack of control allowed banks to use taxpayer-provided TARP money as financing for buyouts. And then the banks refused to detail how they spent the money – and why not? They weren’t required to.

Under the new plan, there will still likely be new government investments in banks. But Geithner will likely call for those new investments to be convertible into common stock after some fixed period of time, perhaps seven years. If the banks are unable to raise private capital in that span, government control would escalate.

Banks receiving money also will probably have to report to the government and to the public, and the government is likely to insist that the new capital be used to expand lending.

Geithner has also been looking for a way to bring back the original TARP concept, which Congress passed on Oct. 3. Paulson pitched the plan to Congress as a program to buy troubled assets off of banks’ books, then shifted the plan and opted to invest directly into the banks instead.

Paulson’s chief worry – and the reason that he changed direction – was that asset purchases would involve too many technical complications, meaning it would take too long to enact. And that delay could be costly to a system where banks were teetering on the precipice of failure.

After struggling with those same issues, Geithner and his team appear to have settled on an approach that amounts to financial triage, meant to give investors confidence that banks will not encounter vast new losses so that they are willing to invest private money, The Post reported.

In addition to buying bad assets, the Fed and Treasury in the next few weeks are expected to expand a program that should jump-start lending outside the banking system. In November, the agencies launched a program – the “Term Asset-Backed Securities Loan Facility” – that would devote $200 billion for credit card, auto, student and small-business loans.

That program will be extended to include residential real-estate mortgages and into the commercial real estate sector. Geithner may also announce an initiative that would inject government money into companies known as mono-line insurers. These firms are key players for states and municipalities when it comes time for those state and local government bodies to borrow money. With the implosion of the housing bubble, and the subsequent implosion of the commercial real estate business, mortgage-related losses by the insurers have made it harder for states to issue the municipal bonds that would help them ride out the recession without aggressive tax increases or budget cuts.

Geithner is likely to roll out a plan, worth $50 billion to $100 billion, to encourage the modification of mortgages for homeowners who would otherwise likely face foreclosure. It could be based loosely on a strategy for foreclosure relief engineered by Federal Deposit Insurance Corp. (FDIC) Chairman Sheila C. Bair, when the FDIC took control of the failed bank IndyMac Bancorp Inc. (IDMCQ) last year.

Market Matters

On the corporate front, United Parcel Service Inc. (UPS) posted a profit (though revenue declined) and then announced new cost-cutting measures.  Motorola Inc. (MOT), The Walt Disney Co. (DIS), Time Warner Inc. (TWX), and Costco Wholesale Corp. (COST) reported disappointing results.  Visa Inc’s (V) earnings jumped by 35%, though management warned of tougher times ahead.

Bailout plan recipients have tried to cut back excessive spending (and the associated bad PR) as Goldman Sachs Group Inc. (GS) (Miami) and Well Fargo & Co. (WFC) (Las Vegas) canceled huge boondoggles. Bank of America Corp. (BAC) is selling off corporate jets, and Citigroup Inc. (C) may be attempting to get out of the $400 million marketing deal with the New York Mets.

C-SPAN must be enjoying stellar ratings as investors seem obsessed with the inner-workings of Congress and their debates on the stimulus and bailout.  The markets disregarded much of the dire earnings and economic data (terrible unemployment report…see below) and focused on the newfound optimism that politicos can work together to get the country moving in the right direction.

Economically Speaking

Just how long until a stimulus package starts creating jobs?  That answer can’t come soon enough for the almost 600,000 people who moved to the unemployment line in January, the most devastating month for job losses since 1974.  The unemployment rate climbed to 7.6%, forcing many economists to (upwardly) revise their projections for the rest of the year (and beyond).

Since the recession “officially” began in December 2007, the country has lost more than 3.6 million jobs, with most of the losses coming in the past three months.  The rest of the data released during the week did little to contradict the lousy unemployment picture.  Factory orders fell for the fifth straight month and the ISM index revealed that purchasing managers still look for contraction in the manufacturing sector. Though the services sector showed a slight rebound in its ISM survey, the index reported a fourth consecutive month of declining activity.  Residential construction spending experienced its worst annual decline ever recorded (since 1993), though optimists are hopeful that a stimulus package that focuses on infrastructure growth will prompt a renewal in non-residential building.

With the Fed stuck looking for creative ways to get involved (now that the benchmark Federal Fund rate stands at about 0%), its international counterparts took action (or inaction) of their own. The Bank of England (BOE) cuts its primary lending rate to a record low 1.0%, while the European Central Bank chose to leave its rate unchanged (for now) at 2.0%.

Weekly Economic Calendar

Source: As Stimulus-Package Debate Continues in Congress, New-Look Bank Bailout Plan is Set to Debut This Week

Even bellwhether Wal-Mart Stores Inc. (WMT), which had managed to dodge the cold winds of recession over the past year, was clobbered by the economic meltdown.

The discount retailer missed big on its December same-store sales numbers.  And across the board, a chorus of large retailers chimed in with similar, disappointing news.

Altogether, it may add up to the worst holiday-shopping season in four decades, as rising unemployment and tightening credit forced consumers to the sidelines during the all-important fourth quarter.

Citing the impact of slower than expected sales at its Sam’s Club warehouse stores and international units, the WalMart posted a 1.7% increase in same-store sales. The world’s largest retailer also cut its fourth quarter earnings forecast.

“The current economy remains challenging for all businesses, and retailers have already seen customers pull back on discretionary spending,” Tom Schoewe, Wal-Mart’s finance chief told the Financial Times. “Consumers are very focused on value and necessities.”

At first, consumers had crowded discount stores seeking lower-priced goods, but surprised investors must now cope with a retail environment where even Wal-Mart seems vulnerable.

“I am shocked and disappointed,” retail analyst Britt Beemer, chairman of America’s Research Group, told CNNMoney.com.  Because of its low prices and aggressive discounts, Beemer had pegged Wal-Mart as the clear winner of the holiday shopping season and was expecting the retailer to post a 3% sales gain in December.

Overall, same-store retail sales dropped 1.7% in December, the International Council of Shopping Centers reported. Same-store sales measure sales at stores open for more than a year, and are considered to be an important indicator.  Sales declined 2.2% in the last two months of the year – the biggest such drop since the group started tracking the data in 1970.

Damage was widespread and deep, pummeling not only discounters but high-end marketers. Same-store sales at luxury retailer Neiman Marcus Group Inc. sank 28% in December. Saks Inc. (SKS) posted a 20% sales decline, twice as large as analysts estimated, even after markdowns of as much as 70% on designer goods.

Macy’s (M) said same-store sales fell 4% and it will close 11 underperforming stores in nine states, affecting 960 employees. The department store chain expects to earn between 90 cents and $1 per share for the quarter ending Jan. 31, below the consensus estimate of $1.12.

“This has been the most challenging economic environment in memory,” Macy’s CEO Terry Lundgren said in a statement.

Any sales rebound in the coming year will have to weather strong headwinds from surging unemployment.  Although initial unemployment claims fell last week, they are still up 42% over 2007, the Labor Department reported.  Continuing claims rose by 101,000 to 4.61 million in the week ending Dec. 27, the highest level since November 1982.

The Labor Department is set to release the December jobs report today (Friday). Economists had expected a loss of 500,000 jobs last month, but many are revising forecasts upwards.  A report from payroll processor ADP projected job losses of 693,000 as reported by Money Morning on Thursday, capping what could be the worst year of job losses since the end of World War II.

And in more bad news on the unemployment front, Walgreen Co. (WAG) the nation’s No.2 drugstore chain said it is eliminating about 1,000 jobs, or about 9% or its work force.

“That does not bode well going into January-February, where we go into a lull period and there’s really no reason to buy until spring,” Adrienne Tennant, an analyst at Friedman, Billings, Ramsey & Co. (FBR) in Arlington, Virginia, told Bloomberg Television.

Even the good news was bad. J.C. Penney Co. (JCP) same-store sales fell 8.1%, better than it and analysts had estimated. Kohl’s Corp.’s (KSS) dropped 1.4%, helped by last- minute shopping and “strong post-Christmas business.” Analysts had anticipated a 5.9% decline.

But the lackluster results at most discounters were a huge, negative surprise.  Costco Wholesale (COST) reported a 4% drop in same-store sales for December, a bigger decline than the 3.7% analysts had expected.

Target’s (TGT) December same-store sales fell by 4.1%. The retailer said this was in line with their expectations but that it had to slash prices to clear inventory.

“These markdowns, combined with additions to our accounts receivable allowance, will put additional pressure on our profitability in the fourth quarter,” the company said.

“This kind of discounting is a big concern,” Retail Metrics President Ken Perkins told Bloomberg TV. “January will be a heavy clearance month, with further downward margins pressure, and we might see more forecasts cut.”

It’s almost like Pavlov’s dog,” said Craig Johnson, president of retail-consulting firm Customer Growth Partners LLC in New Canaan, Connecticut.  “Consumers have become so accustomed to markdowns that nobody wants to pay full retail anymore.”

Source:Blue Christmas for Retailers as Slumping Economy Hammers Sales

This from Smart Profits Report

A Healthcare Haven

It stands to reason that the sectors and companies that traditionally fare better during economic recessions are those that garner essential repeat business.

As my colleague Marc Lichtenfeld has pointed out many times here before, that includes the healthcare and biotech sectors. And far from procrastinating, Marc just issued his “Five Predictions For The Healthcare Sector In 2009″ for Xcelerated Profits Report subscribers in the January issue. If you’re not a subscriber, you should be! You can get more information on that here.

No matter what happens with the broader economy, people will still get sick and will still need drugs and medicines. With a growing population and people living longer, the long-term prospects for healthcare remain excellent.

But in a poor economic and investing climate, your best bet is to stick with the powerhouse pharmaceutical companies like Johnson & Johnson (NYSE:JNJ) and Proctor & Gamble (NYSE:PG), which are masters of the “razor-and-blade model” (basically, once a consumer buys a razor from the company, he/she needs to keep buying blades for it, thus generating repeat business). In the biotech world, look at big boys like Genentech (NYSE:DNA) and Gilead Sciences (Nasdaq:GILD).

Food, Glorious Food (And A Bunch Of Other Stuff, Too)

If people regularly require medicines and drugs, they need everyday essentials like food and drink even more. And while the retail sector is struggling overall, there are some companies that should fare well as the economy stumbles and consumers cut back.

You got it… discount retailers. Okay, so I know pretty much all retailers are slashing prices these days in a desperate bid to get folks to spend their hard-earned dough. But the ones who already boast a discount model as their bread-and-butter are better prepared. That includes sector bellwether Wal-Mart (NYSE:WMT), plus bulk goods stores like Costco (Nasdaq:COST) and BJ’s Wholesale Club (NYSE:BJ), which also offer a huge range of items at bargain-basement prices.

Switch On And Profit

Another favorite safe haven sector during economic downturns is utilities. Again, the companies within it produce goods that consumers can’t live without: Energy and power such as electricity.

The Dow Jones Utility Average (^DJU) includes major power producers like American Electric Power Company (NYSE:AEP), Exelon Corporation (NYSE:EXC), Consolidated Edison (NYSE:ED), and Southern Company (NYSE:SO), which generate reliable, repeat revenues and also pay hefty dividends.

And speaking of dividends, you could head to tiny Luxembourg this New Year and pick up a beefy one with steelmaker Arcelor-Mittal (NYSE:MT). A Business Week article cites the company as a potential turnaround performer next year, stating:
“Most analysts think it’s unlikely that Old World bourses will rally before the second half of 2009. Still, investors with more appetite for risk – and a willingness to pore over balance sheets – can find some good values even in cyclical businesses such as manufacturing. Bleak earnings outlooks have already been factored into many share prices.”

And having endured a brutal 2008, slumping from $78 to $24 a share, Arcelor-Mittal has announced widespread cost-cutting measures that includes shedding 9,000 jobs in a bid to save $1 billion. Its forward Price-to-Earnings ratio is just 2 and with Obama’s infrastructure revolution set to get underway in 2009, the global steel giant could be well poised to profit from it.

The “No-Hype” ‘09

As 2008 thankfully disappears, it will be more important than ever to stick to the tried-and-tested investing principles in 2009.

Right off the bat, that includes being very watchful for hype. In a down market, some companies will undoubtedly be keen to gloss over or downplay any bad news, for fear of causing harm to their stock prices in an already weak market.

Make sure the companies you invest in boast strong, honest management teams, with minimal spin and no excuses. It sounds simple, but look for companies with competitive advantages and which continue to grow revenues and earnings and even pay dividends as a key sign that they’re probably still in good shape.

Remember that with recession hanging over the economy – one projected to be the worst and longest since 1982 – upward momentum could be tough to achieve. Investors are still very skeptical and, among other things, are likely waiting for GDP growth to improve (or at least not be revised lower)… for corporate earnings to beef up… for job losses to ease… for Obama’s tax cuts… and to see what kind of effect Obama’s huge economic stimulus package proposal has. It will arguably take something around $750 billion to provoke much sustained, positive reaction.

So be very wary about bold statements, proclaiming that we’ve seen a bottom in the stock market. We probably haven’t yet. Meantime, consider some of the companies mentioned above and/or those that pay dividends.

Source: Three “Safe Haven” Sectors For Your 2009 Portfolio

The Fed extended the lives of recently initiated programs (lending facilities for investment firms, for instance) and is exploring additional moves (like Treasury purchases) aimed at reviving the credit markets.  Bernanke believes more needs to be done to slow the pace of foreclosures, especially since they jumped another 10% in September.

Meanwhile, the U.S. Treasury Department is working on a plan to rejuvenate the housing market by slashing mortgage rates to 4.5% on new purchases.  Experts say that at some point these stimuli must take hold, but that’s not necessarily true.

This week’s economic calendar is highlighted by two late-week releases that are sure to garner much analysis.  The producer price index (PPI) brings another look into the inflation picture, though the dramatic decline in energy prices may renew “premature” talks of deflation.  And November retail sales should offer few positive surprises for the holiday season.

Are there any 12-step programs for overcoming “gloom and doom?”

Market Matters

Black Friday has passed. And so has Cyber Monday (the Monday after Thanksgiving when online shopping begins in earnest).  So let the analysis begin.

While retailers continued to cry “gloom and doom,” the so-called experts did not appear to be quite as pessimistic.  According to National Retail Federation, holiday sales will climb by 2.2% from last year’s levels.  Research firm ShopperTrak claimed that sales on Black Friday rose by 3%, and ComScore Inc. (SCOR) said Monday’s online activity soared by 15% from 2007. Toys “R” Us Inc. execs “were definitely pleased with sales” during the initial holiday shopping weekend, and Internet data collector, Hitwise, revealed that web traffic increased by 21% at Amazon.com Inc. (AMZN).

While November sales remained bleak (see below), analysts point out Thanksgiving came late in the month (Nov. 27) and Cyber Monday actually fell in December.  The optimists (rare as they are) are hopeful holiday activity may be skewed with December faring far better than November.

Automakers returned to Capitol Hill. But for “Begging for a Bailout II,” the “Big Three” CEOs were smart enough leave their corporate jets at home and arrive in hybrid sedans.  Maybe next time they can carpool. But there’s a problem: Combined, the Big Three are this time are requesting $34 billion in loans, which is $9 billion more than they’d been lobbying for all along. Ford Motor Co. (F) implied its situation may be less dire and a mere $9 billion standby line of credit would suffice (assuming the others don’t fail).  The execs also expressed a willingness to operate under a federal oversight board, and even the unions offered concessions regarding health plans and the jobs bank.  While some politicos used scare tactics to predict even greater economic hardships should relief not be granted, others remained skeptical of the unlimited bailouts.  Mostly, they chose to grandstand and politicize the tragic times to win support at home (as if their constituents even watch C-SPAN).  Stay tuned…

In other corporate news, Goldman Sachs Group Inc. (GS) may be forging more into the banking world as it considers launching an Internet operation to increase its deposit base.  Meanwhile, analysts predict its fourth quarter loss could skyrocket to $2 billion.  Beezer Homes USA Inc. (BZH) and Blackberry-maker Research in Motion Inc. (RIMM) both lowered their quarterly outlooks and AT&T Inc. (T) became the latest domestic giant to announce layoffs.  While General Electric Co. (GE) believes its earnings will be weaker than initially expected, the company plans to maintain its dividend and solid commitment to shareholders.  Merrill Lynch & Co. Inc. (MER) shareholders approved its sale to Bank of America Corp. (BAC), though total valuation plunged to $20 billion (from $50 billion at announcement) as a result of the stock market decline.

Oil continued its never-ending decline below the $41 a barrel level, a point not seen in four years, while gas fell below $1.80 a gallon nationally. While winter weather generally means higher energy prices, the economic doldrums have more than offset the traditional trend.

Treasury yields plunged to historic lows on speculation that the Fed may purchase government securities to support the credit markets (as well as the ongoing “flight-to-quality” moves).  Stocks resumed their overall bearish ways on dramatic volatility, as investors grew more fearful about the economy before totally disregarding the awful unemployment data (see below) and staging a late-week “illogical” rally.  Then again, since when have markets been considered logical?

Economically Speaking

In what could one of the worst kept secrets of the year, the National Bureau of Economic Research (NBER) revealed the domestic economy has been in a recession since December 2007.  In the post-World War II era, the average length of recession has been 11 months, with the downturns of 1973-74 and 1980-81 lasting 16 months.

And the current recession will likely surpass the norm.  As the data gets weaker with each passing release, most economists expect this recession to last beyond the next four months and to set a new duration record in post-World War II times.

Then again, each new month means we are getting closer to the end; additionally, equity markets typically serve as leading indicators and begin to rebound months before a recovery starts – meaning we’ll see a bull market get under way while the economy is still in the depths of recession.

The weekly releases revealed that any pending rebound should remain on the back burner for some time.  In November, the unemployment rate jumped to 6.7% as the U.S. economy lost more than 500,000 jobs, the largest monthly decline in 34 years.  In the last three months alone, more than 1.2 million individuals have moved into the ranks of the unemployed.

November represented the 11th straight month of labor contraction.  Both the manufacturing and services sectors continued to struggle according to Institute for Supply Management and factory orders plummeted by the largest amount in eight years.  Retailers reported weak same-store sales numbers, with only Wal-Mart benefiting from the dire times.  Even Costco Wholesale Corp. (COST) experienced a steeper than expected decline.   And of course, dismal auto sales brought more ammunition to those Congressional hearings as General Motors Corp. (GM) (-41%) and Ford (-31%) were joined by Honda Motor Corp. (ADR: HMC) (-32%) and Toyota Motor Corp. (ADR: TM) (-34%) in the “if misery loves company” category.  Meanwhile, Bernanke and friends are hard at work dreaming up creative ways to shore up the economy, particularly after the Beige Book reported softer activity across the country.

Weekly Economic Calendar

Source: Fed Looking at Another Rate Cut, While Treasury Has New Plan for Housing