Postmaster General John Potter bumped up his previous projection by a billion bucks yesterday, citing the growing expenses of six-day delivery and employee retirement/health care plans. Potter and his team are scrambling to cut costs left and right — from a yearlong hiring freeze to early retirement offers to branch closures. But we wonder… will it even matter?

The Government Accountability Office recently labeled the USPS a “high risk” federal program, and while we’re hard-pressed to think of any risk-free government program, we’re inclined to agree.

The Postal Service is facing a perfect storm of business risk: The business is already loaded up with debt. Minimum wage and benefit costs are rising while revenues are plummeting. For example, they are expected to handle at least 27 million fewer pieces of mail this year than in 2008. Is there any business in America that isn’t looking to cut shipping costs? (There’s this new technology we’ve heard about called “e-mail.”)

Then there’s UPS and FedEx (NYSE:FDX), two worthy private-sector rivals. And what about Peak Oil? A summer of 2008 redux could cripple the whole industry. Above all, the USPS is run by the government… c’mon.

Snail mail might not be dead, but we suspect the USPS is going the way of Amtrak, at best.

They can’t even deliver our mail without losing money, yet the public looks to the government to manage our health care? Oy…

Source: The Death of Snail Mail

Traders have grown increasingly fearful in recent weeks that the powerful surge in the three major U.S. stock indices – one of the strongest in history – may not have been justified because of an ongoing economic recovery that’s not as strong as originally believed.

“There’s no question in my mind that the economy is improving,” Phil Orlando, chief equity market strategist at Federated Investors, told The Associated Press on Friday. “But investors are betting on some sideways consolidation rather than a continuation of a sharp spike in share prices.”

All the major indexes closed the week down for the first time since the week of May 11. The Dow Jones Industrial Average lost 3%, theStandard & Poor’s 500 Index fell 2.6%, and the Nasdaq Composite Index 1.7%.

Stocks returned to the whipsaw trading pattern investors had grown wearily accustomed to in the months before the rally got under way.

Stocks fell early in the week as a handful of weak economic reports – including news that industrial production had fallen for the seventh straight month – contradicted other reports that seemed to depict a gradual improvement in the American economy.

But some modestly upbeat economic reports sent U.S. share prices up a bit on Thursday; one report demonstrated that the overall number of people drawing unemployment benefits fell last week for the first time since the start of January.

But it wasn’t until stocks finished the day mixed on Friday – with financial, retail and tech shares gaining, while energy and utility shares dropped – that the three major indices finished with their first weekly loss since the start of May.

Last week was a loss. And the week before the three key indices each rose less than 1%.

“It’s not going to be a one-way ride,” Keith Walter, portfolio manager of Artio Global Equity Fund, told reporters.

Since periods of powerful market overperformance are usually followed by a period of sharp underperformance, institutional players have been looking for a down week.  Usually, a 40% surge like the one seen in the S&P 500 index takes years to develop, not months.

But here’s the question: Does last week’s market pullback have more to go, or can it still move higher after two consecutive weeks of sideways trading?
The conventional wisdom is calling for a stretch of choppy trading that will last through the summer, a period during which there’s low volume, until July when Corporate America begins announcing second-quarter earnings.

Market Matters

As the Dow finished the week in the “red,” it also turns out that its push into positive territory for the year was relatively short-lived.  Just one trading session beyond the index’s surge into the “black,” traders surveyed the economic landscape, evaluated the new regulatory environment, reconsidered the ballooning deficit (not even including health care) and chose to book some profits.  While the other major indexes remain profitable year-to-date, many investors believe the markets stand at a crossroad as they attempt to determine whether the recent move has been:

• A mere blip on the radar screen, amid a much-longer bear market.
• A much-too-fast run-up for a rebounding economy that that still faces a plethora of challenges.
• The start of a new bull market that simply is taking a week off to digest all the “euphoric” news.

The analysts, TV pundits, and bloggers maintain no shortages of views about the markets’ future direction.  Only time will tell.

As expected, major financial institutions rushed to pay back $68 billion in Troubled Assets Relief Program (TARP) money and get out from under the strong arm of the government.

JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc. (NYSE: GS), and Morgan Stanley(NYSE: MS) highlighted the list, while Citigroup Inc. (NYSE: C), Wells Fargo & Co. (NYSE: WFC), and Bank of America Corp. (NYSE: BAC)are among those still seeking Uncle Sam’ approval for every action.
Meanwhile, Standard & Poor’s downgraded 18 related institutions, including a few that paid back the bailout money - BB&T Corp. (NYSE:BBT) and U.S. Bancorp (NYSE: USB) – and warned about the industry’s future

The Obama administration revealed plans for the most significant financial regulatory overhaul since the Great Depression.  The proposal expands the oversight role of the U.S. Federal Reserve, and includes higher capital and liquidity requirements, stricter reviews over hedge funds and certain derivative products, and the creation of a new consumer protection agency.  U.S. Treasury Secretary Geithner detailed the plan before the Senate and was met with mixed (but predictable) reactions…Republicans thought it was excessive, while Dems felt it didn’t go far enough.

If both sides dislike it equally, perhaps it’s a good plan?

Volatility returns to the markets as the VIX (Chicago Board Option Exchange Volatility Index) surged past the critical 30 mark early in the week, a sign generally associated with stock-market pessimism.  Bonds continued their ongoing roller-coaster ride as some fixed-income investors remained concerned about the global demand for U.S. debt, while others turned to the asset class as a flight-to-quality from riskier securities.

The worries continued as both China and Japan reportedly cut back their treasury holdings in April, a worrisome development considering the upcoming Treasury auctions will add a record $104 billion of government securities to the Street.

Oil hovered around the $70 a barrel level and gas prices increased for 52 straight days as consumers began to feel the pinch just in time for the summer holiday travel season.  Options expiration from “quadruple-witching Friday” brought additional volatility as each major equity index gave back some ground for the week on less-than-favorable reports from the likes of Best Buy Co. (NYSE: BBY) and FedEx Corp. (NYSE:FDX).

Market/ Index	Year Close (2008)	Qtr Close (03/31/09)	Previous Week (06/12/09)	Current Week (06/19/09)	YTD Change
Dow Jones Industrial	8,776.39	7,608.92	8,799.26	8,539.73	-2.70%
NASDAQ	1,577.03	1,528.59	1,858.80	1,827.47	+15.88%
S&P 500	903.25	797.87	946.21	921.23	+1.99%
Russell 2000	499.45	422.75	526.84	512.72	+2.66%
Global Dow	1526.21	1347.38	1,694.76	1,633.70	+7.04%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	2.68%	3.79%	3.79%	+155 bps

Economically Speaking

While U.S. Federal Reserve Chairman Ben S. Bernanke will be gaining enhanced powers under the federal financial system makeover, he must be wondering whether he will be around to experience them.  Despite the unprecedented challenges he has faced over the past few years, U.S. President Barack Obama has been tightlipped about whether he will reappoint Bernanke for another term when the central bank chairman’s current stint expires in January.

“Ben Bernanke has handled his position extraordinarily well under extraordinary circumstances…but I’m not going to make news on that right now,” President Obama said.

Some Fed watchers believe that President Obama has Lawrence Summers, the former U.S. Treasury secretary and present National Economic Council chairman, in mind for the position.

On the economic front, inflation data highlighted the week’s releases as both producer price index (PPI) and the consumer price index (CPI) for May were reported as below expectations.  While certain naysayers pressed forward on the scary “deflation” argument, other naysayers point to the rapid rise in energy prices as proof that the dreaded “I” word is merely lurking on the horizon.

For now, however, inflation is not considered “Public Enemy No. 1″ and economists will focus on housing, labor, and manufacturing for more signs of economic stability.

Turning to housing, new construction climbed by its largest amount in three months and even building permits jumped in May as prospects for the future look more promising.  Bear in mind, however, homebuilding activity still remains more than 45% below last year’s levels.

Industrial production fell more than 1% in May as automakers Chrysler Group LLC and General Motors Corp. (OTC: GMGMQ) continued shutting down plants and limiting production as they initiated their restructuring plans.  While initial jobless claims actually increased slightly in its most recent weekly release, total insurance claims actually fell for the first time in five months.  Still, the labor market remains the primary concern as the economy begins to show some signs of improvement.

On that note, the leading economic indicators (LEI), an index thought to forecast economic activity for the next three to six months, experienced its best showing since March 2004.

Weekly Economic Calendar

Source:  Market Stumble Heightens Worries That Economic Rebound May Not Be That Strong

• Inflation fears were quelled at least temporarily as U.S. consumer prices were raised only slightly last month, and actually experienced their biggest drop in almost 60 years. Higher gas prices contributed to the 0.1% increase in the Labor Department’s Consumer Price Index (CPI) versus the April’s CPI, which was flat. Financial markets had expected a 0.3% increase. The CPI fell 1.3% versus the same period last year, the largest drop since April 1950. “There is no sign that there has been widespread inflation because of the Fed’s quantitative easing regime. In fact, long-term inflation expectations haven’t budged and the Fed is still ahead of curve on inflation,” economic and investment strategist John Canally of LPL Financial told Reuters.

• Four of the nation’s largest banks repaid $54.7 billion to the U.S. Treasury’s Troubled Asset Relief Program (TARP), freeing themselves of government restrictions on lending and pay.JPMorgan & Chase Co. (NYSE: JPM) repaid $25 billion, andMorgan Stanley (NYSE: MS) and Goldman Sachs Group Inc.(NYSE: GS) repaid $10 billion each, Bloomberg News reported. As Money Morning’s Martin Hutchinson reported yesterday (Wednesday), the other two banks, U.S. Bancorp (NYSE: USB) and BB&T Corporation (NYSE: BBT) repaid their debts of $6.6 billion and $3.1 billion respectively. The banks are among 10 other that agreed last week to repay $68 billion in TARP funds,Bloomberg News reported. “Our strong capital position allowed us to pay back TARP in a very short amount of time,” BB&T Chief Executive Officer Kelly King said in the bank’s statement.

• Beleaguered outdoor clothing retailer Eddie Bauer Holdings Inc.(Nasdaq: EBHI) yesterday (Wednesday) filed for Chapter 11 bankruptcy protection and said it planned to sell itself to private equity firm CCMP Capital LLC for $202 million. The sale to CCMP, known as a 363 sale, means the sale needs the approval of a judge, and other bidders could emerge. CCMP is entitled to a $5 million breakup fee if it loses to a higher bidder. Court filings show that Bank of America Corp. (NYSE: BAC), General Electric Company (NYSE: GE) and CIT Group Inc. (NYSE: CIT) will provide up to $100 million in financing during the bankruptcy case,The New York Times reported. Eddie Bauer said its 371 stores in the United States and Canada are operating as usual.

• Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) options will begin trading on the Chicago Board Options Exchange (CBOE), enabling investors to bet on the company using a technique Chairman and Chief Executive Officer Warren Buffet has rejected, Bloomberg News reported. “Usually, if you want to buy or sell a stock, you should buy or sell the stock,” Buffett said last year on the weekend of the company’s annual meeting. “Using options, four times out of five you will be right, the last one you’ll miss. I’ve virtually never used options as a way to enter or exit a position.” CBOE will offer contracts on Buffet’s conglomerate starting today (Thursday).

• FedEx Corp.’s (NYSE: FDX) losses more than tripled in its last quarter, and the company said things won’t be much better in the near future, The Associated Press reported. The nation’s second-largest package shipper reported a loss of $876 million, or $2.82 per share in the quarter ended May 30. That compares to a loss of $241 million, or 78 cents per share in the same period last year. “The operating environment for our first two quarters in fiscal 2010 is expected to be extremely difficult,” Executive Vice President and Chief Financial Officer Alan B. Graf Jr. said. The company has not yet decided whether it will have to lay off more workers or make further cutbacks due to poor economic conditions, Graf said in a conference call with investors.

• Newly sold automaker Saab secured a key court ruling yesterday (Wednesday) to cut 75% of the more than $1.28 billion (10 billion in Swedish crowns) of debt after a vast majority of creditors approved the proposal, Reuters reported.  Sweden-based Saab was sold on Tuesday to fellow countrymen Koenigsegg Group ABby soon-to-be former parent General Motors Corp. (OTC:GMGMQ).

• The annual rise in gas prices entered its 50th straight dayyesterday (Wednesday) after crude prices bounced back after an initial slump in the beginning of this week, The Associated Pressreported. Pump prices are now at a national average of $2.67 per gallon. The rising crude prices and less production has added to the typical increase in demand in the late spring and summer months as more Americans take to the roads for vacation-related travel.

• After being dogged by reports of orderless days at the Paris Air Show, The Boeing Co. (NYSE: BA) finally got a $153 million order for two single-aisle planes, The Associated Press reported. But this order pales when compared to the $6.2 billion in orders already attained by rival Airbus S.A.S. Both aircraft makers are feeling the economic crunch by the worldwide recession.

• China will use part of its $200 billion sovereign wealth fund to invest in hedge funds, according to Felix Chee, who will initially run the fund. “We will have a preference for managed accounts,” he said in an interview with Bloomberg News Wednesday at the GAIM International hedge fund conference at Monaco’s Grimaldi Forum. “The platform would like a core of single-manager funds and fund-of-funds.” Chee, is a special adviser to the chief investment officer of China Investment Corp.’s hedge fund and proprietary trading effort, “It’ll be across the spectrum of strategies,” he said. “We’re looking for the best managers and a handful of fund of funds, and when I say handful I mean five or less.”

• A prominent Wall Street analyst sees the benchmark S&P 500 Index (NYSE: .INX) breaking its all-time record by the end 2012. JPMorgan Chase & Co. (NYSE: JPM) Chief U.S. Equity Strategist Thomas Lee said on Wednesday the index should surge back above 1,500, its October 2007 high in less than three years, provided the U.S. economy sees a V-shaped recovery.  “The global economy is in the midst of a synchronized recovery,” Lee said at the Reuters Investment Outlook Summit.  Lee also reiterated his year-end 2009 target of 1,100 for the S&P 500, saying the United States will likely come out of its recession some time this summer, followed by the rest of the developed world.

• Prices on Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE:FRE) mortgage securities rose for the fifth day Wednesday, pushing yields down as they tracked a drop in rates on benchmark U.S. Treasuries, foreshadowing possible further declines in borrowing costs for new home-loans. Yields on Washington-based Fannie Mae’s 30- year fixed-rate mortgage bonds fell by 0.02% to 4.56% in New York trading, the lowest since June 3, according to data compiled by Bloomberg. Treasuries and so-called agency mortgage bonds rallied after a government report showed the cost of living rose less than forecast in May. The mortgage-bond yields are down from 5.07% on June 10, the highest level since the Federal Reserve announced plans to buy home-loan bonds in November.

• Applications for mortgages fell for a fourth consecutive week, with overall demand plunging to its lowest level in nearly seven months, according to a report Wednesday from the Mortgage Bankers Association.  Rising interest rates have tempered demand for refinancings and new purchase applications, as the industry group’s seasonally-adjusted index fell 15.8% to 514.4 for the week ended June 12, the lowest since the week ended November 21, 2008.  Rates on 30-year fixed-rate mortgages averaged 5.50%, down 0.07% from the previous week, but significantly higher than the all-time low of 4.61% set in the week ended March 27,Reuters reported.

Source: Investment News Briefs Thursday June 18, 2009

If you want to run a multi-billion dollar international conglomerate these days, you had better have a few high-ranking friends in Washington. If not, this administration appears ready to do anything and everything it can to wipe you and your shareholders out.

The battle that is brewing between United Parcel Service (NYSE:UPS), FedEx (NYSE:FDX) and Capitol Hill is a perfect example.

While the two companies have business models that are very similar and are direct competitors with one another, their respective labor forces look quite different.

Because it started as an airline, FedEx and its nearly 100,000 hourly workers fall under the rules laid out by the Railroad Labor Act, a law designed to keep the nation’s skies and rails running smoothly despite labor disputes.

But UPS, on the other hand, must follow a different set of rules, the National Labor Relations Act (NLRA). Instead of forcing a synchronized nationwide vote to unionize, the NLRA allows workers to unionize one hub at a time, a much easier task.

Spreading unions like cancer

FedEx obviously knows the horrific damage that could be done to its bottom line if unions start calling the shots. That is why the company is preparing to spend millions of dollars promoting its “Brown Bailout” campaign designed to make current legislation, the FAA Reauthorization Act of 2009, appear to be designed solely to benefit, or bail out, FedEx’s chief rival, UPS.

In addition to the Web site, brownbailout.com, revealed today, get ready to see online ads, radio spots and television campaigns promoting the company’s lobbying initiative.

With few friends willing to fight for FedEx in a labor-friendly Washington, the company is hoping you and I will do some letter writing and phone calling. The company is hoping taxed-out taxpayers will buy the “bailout” message and join FedEx in a political battle.

As investors, FedEx is one to watch. While it is not in full-blown panic mode just yet, the company’s business model is likely about to change in a big way.

Already this year, the company is lagging Big Brown in share price performance. Over the past six months, shares of UPS are down by about 10%. Meanwhile, FedEx has lost over 20% of its value.

If union bosses start calling the shots and FedEx loses access to its cheap labor force, expect the divergence to grow even larger. There is a reason FedEx is spending billions and fighting so hard. It has a lot to lose.

As I told TFN Strategic Trader subscribers this morning, the market as a whole is a dangerous short position right now, but there are select stocks well worth selling now and buying later.

FedEx is a strong candidate.

A rough economy, surging fuel prices and political headwinds could stir big trouble.

Source: FedEx Needs You… Not the Unions

Unfortunately, you eventually have to open the sack full of angry cats to find out how it all comes out. And then there’s that part about going to jail (or hell) because you put cats in a burlap sack.

Not that I would ever do something like that. This is really just one of those mental exercises. But I do watch economists a lot. I guess someone has to.

The One Real Question

The big argument this week: “The V-shaped bottom” versus “The Second Valley.” I guess we should open the sack a bit and see who’s winning.

Adherents to the former believe that we have seen the worst that fate (or rather our own stupidity and credulity) can dole out. They connect the dots thusly:

1. Real estate crashed,
2. The banks crashed,
3. The market crashed,
4. We had a recession.

The Beginning of the End

Now they believe that the recession is drawing to an end. They know this because real estate is selling again (albeit at dramatically lower prices), the banks are being taken over by Washington, and American corporations are hemorrhaging just a tad less cash this quarter than they did in the last quarter of 2008 (or in the first quarter of 2008… or maybe the fourth quarter of 2007… whatever. It doesn’t really matter which, so long as the comparison makes the situation look less dire).

It’s kind of like the line from the old blues song: “I’ve been down in the gutter so long, the curb looks like up to me.” To these sunny-minded optimists, “a little less bad” is the new “good.”

They have even found a way to describe the bankruptcy of two-thirds of the American auto industry as “a good thing.” It’s all about “certainty,” you see. When we were only pretty damn sure GM and Chrysler were bankrupt, that was “uncertainty.” And everyone knows uncertainty spooks Wall Street.

Certain Losses

But now we are absolutely sure that bond and stockholders will lose billions of dollars, and that plants and dealerships across the country will close, destroying hundreds of thousands of jobs and evaporating even more billions in increasingly rare tax revenues.

Well, now we definitely have “certainty,” although perhaps not clarity.

And the conclusion the “V-Shaped Bottom” types draw from all this? Spring 2009 was the grand bottom. Now anyone who doesn’t buy shares indiscriminately will miss out on the chance of a lifetime.

The Ugly Truth

The “Second Valley” types are a hair less optimistic. As they see things, the victim of our little train wreck has stopped bleeding so much mainly because the patient is running out of blood. And all that is in that transfusion bag is plasma – a thin substitute for Type O.

Second Valleyers see the facts as somewhat more complex, and a good bit more disturbing. Here’s how they line up the dominoes:

1. For the better part of a decade, Washington pumped trillions of new dollars into the system. (Actually they have been doing that for several decades, but that is a different day’s rant.)
2. This made the market price for all sorts of things – stocks, real estate, oil, food, electricity and of course gold – go up. Not the value of any of these things, mind you. Just the number of dollars you might have to give up to get a unit of most anything.
3. Unfortunately, wages simply could not keep pace with this inflation without destroying Wall Street’s ostensible profits. Thus we see folks borrowing more and more, to buy fewer things worth even less.
4. Eventually folks began defaulting on those loans, be they credit cards, car loans or mortgages, beginning of course with the most vulnerable low-income types, with their “NINJA” loans (”No Income, No Job or Assets,” for those of you who missed out on this particular bit of accounting fraud) and such. For a while the middle class could act smug, but inevitably most all of the country proved to be somewhat over-extended.
5. Now we see the bubbles pop: Down comes real estate, down comes the banks, down comes Wall Street (whose delicate dollar-inflated profits were doomed after all), down comes oil and steel and pork bellies, the whole nine yards as it were.
6. And finally, to solve all this, in essence to re-inflate Wall Street’s bubbles, Washington proposes to pump trillions more fresh dollars into the system.

Highway Robbery

Second Valleyers tend to see that last item as a bit of a problem.

Okay, that’s an understatement.

Actually, they see it as a nigh-treasonous act of currency debasement, in essence, a secret tax on most every citizen who managed through common sense to avoid pouring their wealth down the toilet during this debacle. In the end, they warn that this sort of irresponsible pandering will lead to the collapse of the American economy.

Propping Up Zombies

What’s more, Washington’s dollars are propping up bad institutions that most probably ought to be allowed to fly or die on their own. Just look to the troubles Great Britain, Japan and South Korea had for decades when they refused to allow financial Darwinism to take its natural course.

But these are long-term issues, and the Second Valley theorem warns of far more immediate problems. It notes that more Washington dollars do not actually solve any of the endemic troubles that laid us low back in 2007.

In fact, it may even make many of them much, much worse.

Caught Between a Rock…

All those proliferating dollars are once again creating artificial new highs in all sorts of commodities. Cotton, copper, steel, and most especially oil are all hitting six-month highs.

Where once those same economists (you know, the ones we tied up in the burlap sack?) argued as to whether oil could beat $50 a barrel this year, now they are falling all over themselves to be the first to call for $70 oil next month.

The plain and simple immediate result? American business has yet to show a genuine recovery. Sales are still god-awful slow, and margins are stretched so thin as to be invisible. And now raw material costs are shooting up ahead of the curve.

… And a Hard Place

American families are caught in the same vise. Just as they figure “Maybe, just maybe we’ll pull through this,” their gas costs and food costs and who-knows-what-else costs are starting to climb right back toward the tipping point that put us all in the soup in the first place.

No wonder spending is down and savings are up. It’s the first rational act we’ve seen in over a decade.

The net result: next quarter’s profits are going to really stink. Probably worse than the previous quarter, and possible worse than most any quarter they try to find to make things look prettier.

Tipping Into the Second Valley

And when word gets out about it, you can just bet that stocks (at least the most vulnerable ones) will take it on the chin again too. Thus the sobriquet “Second Valley,” wherein both the economy and the stock market do a quick three-month gut check.

Now I must confess that I do believe in most all of the tenets of the Second Valley Theorem. But I am also a bit of a realist.

I don’t really know for a fact that the Dow will reach all the way back to 6,469 again. Perhaps it will just grind along around these levels for a month or three. I am even willing to concede that more than a few stocks will actually shine during this episode. However, I believe that they will be the exceptions rather than the rule.

Use the Pinch to Squeeze Gains out of Transports

And I certainly believe that certain companies are exceptionally exposed to downside during this period. For example, I asked my WaveStrength Options Weekly readers to purchase put contracts on FedEx (FDX:NYSE) last Tuesday, because the freight company is exposed on two fronts.

A slowdown this summer will reduce outright sales, while spiking oil will raise FDX’s chief costs – gas for local vans, diesel for long-haul rigs, and kerosene for jets – to untenable levels. We are looking forward to short- to mid-term gains of 44%-79% off this play.

I advise you to do something similar. Both FDX and UPS (UPS:NYSE) look like good short candidates right now. And if you are unwilling to short a company or speculate on downside with put contracts, at the very least, please purge any transports you may have picked up over the last few months.

Source: The Truth Behind the Second Valley Theorem

This from Taipan Daily:

Let me check my list:

The Olympics? Nubile Chinese child-athletes took the lion’s share of the medals, but Baltimore hometown hero Mike “The Fish” Phelps stood on the top tier more often than any other human ever.

The Presidential election? A done deal back in November. Heck, in my neck of the woods, sulky Republicans were already sporting “Impeach Obama” bumper stickers as early as October.

The Inauguration? In-the-tank reporters gushed on every cable channel over how Obama knew the oath of office better than Justice Roberts. (Oh, like he hasn’t been practicing in front of a mirror since he was five.)

So what’s left to hyperbolize over? I guess it’s time to write about the Super Bowl.

Vegas Forecasts a Lousy 2010!

Not only does this annual gladiatorial contest give columnists like me an excuse to moralize ad nauseum regarding our national obsessions with fame, violence, pulchritude and beer, the Super Bowl supposedly offers up an astonishingly accurate leading indicator for the stock market.

The idea is that an NFC win indicates a bull market in the coming year, while an AFC victory forecasts a bear market. Scoff if you will, but aficionados of Bowl Apocrypha and barflies across the country brag of 80% accuracy.

Correlate this trend with Vegas’ book making machine, add in a tumbler of single malt scotch, and one might even be tempted to push one’s forecast out years or even decades. Currently the odds on the New England Patriots winning a year from now are 6-1, indicating a miserable Christmas come 2010.

Can’t you just hear your grizzled old statistics professor ranting about undersized data pools and how “correlation does not equal causation?” He’s most probably right, so let’s set aside the whole notion of “Winner-As-Stock-Market-Indicator.”

A simple twist of fate could hand you a 57-to-1 return…

If you act now, you can be one of 997 folks who get “free slot” in our breakthrough new service (valued at $5,000)… absolutely free. Here’s how to avoid missing out…

The Beer Market Loses Its Fizz

Besides, the whole play-off structure pretty much guarantees that most of the country doesn’t give a fig who wins anyway, as their home team was most likely eliminated back in December. We all know that the real reason folks watch is the ads.

NBC Universal (PVT*) claims to have already sold some 85% of their available 30-second slots at some $3 million per ad. This actually beats last year’s $2.7 million price tag. That’s what they say anyway. I’d be curious to see how many of those ads were booked months ago by outfits that are now either dead or dying.

The two biggest categories of Bowl ads are cars and beer, a peculiar mix that would get one arrested on any other occasion. Beer is frequently described as “recession proof.” The folks in the corner suites at such outfits as SABMiller (LSE:SAB), Carlsberg A/S (Copenhagen:DCARLB) certainly wish that were true.

Unfortunately, this particular recession has taken the beery breeze out of even this sector’s sails. SABMiller reports a 1% drop in lager sales in the fourth quarter of 2008, while Carlsberg is cutting 274 jobs as a hedge against “uncertainty and risk”.

Will a flat beer market make for a dull Super Bowl? Those European folks at InBev NV/SA (PVT*) who bought up Anheuser Busch last year assure us that we will be treated to a veritable Clydesdales fest. The Bud Frogs? Not so much.

GM Goes MIA

There will be a few conspicuous absences this year. As I mentioned, car ads are the other major player. However, there is no way in hell you can describe folks like GM (NYSE:GM), Ford (NYSE:F) and Chrysler* as “recession proof” or even “recession resistant.” Sacrificial lambs would more apt. Or perhaps maybe “burnt offerings.”

Seeing as how GM is already making noises that it will need a great deal more government cash very, very soon if it is to survive till spring, it would seem somehow inappropriate for them to dole out their last few million on Super Bowl ads. Besides, the only ad they’ve got right about now brags as to how they only sell “manly” trucks, with none of the supposedly effeminate options Ford carries – for the same money.

So, GM will pass on the Bowl this year for the first time in decades. They are also skipping out on other high-profile, high-priced events like the Emmys and the Oscars.

On the one hand, this is probably a prudent thing to do. On the other hand, my experience as a business owner tells me that companies that stop advertising are pretty much screwed.

FedEx Is Absolutely Positively in Trouble

Another major player who will not be advertising during this Bowl year is FedEx (NYSE:FDX). After two-odd decades of pounding its “we deliver it yesterday” message, the shipper has announced “times have changed.” It is also cutting top exec pay and scotching contributions to the employee 401(k) fund.

Again, I note that while these are all prudent – perhaps even overdue – measures, they are also indicators of extreme distress. With this weakness in mind, both FedEx and GM are on my short list at WaveStrength Options Weekly. The former position is showing 55% gains already – with a strong possibility of doubling that in the near future – and the latter is ripe for entry as I sit to write.

*= Privately Held Companies

Source: Guess Who’s Skipping the Next Big Party?

For optimists, the message here is that all hope for holiday retail sales is not yet lost. A National Retail Federation survey showed that only 47% of consumers have finished their holiday shopping and another 19% have not even started.  As a dismal 2008 comes to a close, the last die-hard eternal optimists are calling for a year-end Santa Claus Rally, as the government bailouts and U.S. Federal Reserve actions give investors some hope for 2009 and beyond.

But such blind optimism too often ignores a key point or two. The Dallas-based Neiman Marcus, for instance, just announced that its third-quarter earnings plunged 84% because of its aggressive discounting, the Dallas Morning News reported. And since the discounting will continue, so will the decline in profits, the high-end retailer conceded.

With even luxury retailers discounting to try and salvage something from the holiday shopping season, the outlook for lackluster sales and even-more-lackluster earnings feeds into an already dour outlook for the U.S. economy.

And if that doesn’t squelch the optimists’ ardor, then a looming revision in the third-quarter gross domestic product (GDP) – last reported as minus 0.5% – will almost certainly bring them back to the realities of the sluggish economy.

It may even force those optimistic economists to finally say: “Bah Humbug.”

That GDP report is due out tomorrow (Tuesday).

Market Matters

Though perhaps it’s wishful thinking, there are some analysts who point out that one or more of any number catalysts could jump-start the economy and the financial markets in the New Year, putting the past few miserable months in the rearview mirror.  They argue that the trillions of dollars in bailout money pumped into the financial system should finally start to provide badly needed liquidity; the Fed seems intent to do “whatever it takes” to reverse, or at least blunt, the current downturn (even if runaway inflation may be a repercussion down the road); an “Obamanomics” stimulus plan could create new jobs, while enhancing the country’s aging infrastructure; risk-free Treasury yields at 0.00% should start to look less and less attractive, prompting investors to look into stocks and non-government bonds again. Just a few last minute items to add to the holiday investment-shopping wish list.

Sadly, Bernie Madoff saw to it that his investors will have a holiday season to forget as the list of prominent victims grew each day: Real estate mogul Mort Zuckerman, U.S. Sen. Frank R. Lautenberg, D-N.J., Hollywood movie mogul Steven Spielberg, Spanish bank Banco Santander SA (ADR: STD), France’s BNP Paribas SA, Nomura Holdings Inc. (ADR: NMR), and many charitable foundations and non-profit organization were among the people and institutions victimized.

Plenty of finger-pointing has been directed at the U.S. Securities and Exchange Commission (SEC) for failing to uncover some rather obvious signs of wrongdoing through the years. As Money Morning reported even before the official announcement was made, U.S. President-elect Barack Obama tapped FINRA Chief Executive Officer Mary L. Schapiro to head the SEC during this time of turmoil. Congrats on the appointment, I guess?

The Detroit Big Three automakers received early holiday cheer as the U.S. Treasury Department will release $17.4 billion of Troubled Asset Relief Program (TARP) money in return for potential equity stakes and other concessions from management and unions.  General Motors Corp. (GM) and Chrysler LLC will be the recipients, while Ford Motor Co. (F) pursues – for now – the go-it-alone strategy. Meanwhile, Chrysler will be shutting down all of its North American production plants for at least a month and also will begin charging dealers large fees on unsold cars that remain on their lots after prolonged periods.  In perhaps a sign of things to come, a consortium of 14 companies – including 3M Co. (MMM) and Johnson Controls Inc. (JCI) – have asked for $1 billion in government funding to begin manufacturing state-of-the-art batteries for electric cars.  The move is reminiscent of action taken by computer chip firms decades ago that helped make the industry more competitive domestically. (Johnson Controls also announced last week that it would invest $90 million to open a lead-acid-battery-production plant in China’s green-power energy industrial center in Changxing Economic Development Zone of Zhejiang province, Alibaba.com reported).

Energy traders disregarded the decision by the Organization of Petroleum Exporting Countries (OPEC) to cut production by a record 2.2 million barrels a day, fearing lack of compliance by its members. Instead, traders chose to focus on the shrinking demand in the sluggish economy as oil prices briefly fell below $35a barrel to levels not seen since 2004.

Goldman Sachs Group Inc. (GS) reported its first-ever quarterly loss and Morgan Stanley (MS) followed with a shortfall of its own.

FedEx Corp. (FDX) posted a higher profit, but gave a dire outlook and announced major compensation cuts for senior management (and benefits cuts for the rank and file).  Stocks were relatively flat as investors digested the latest on Madoff, the auto bailout, and significant Fed actions.

Economically Speaking

“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

Too bad Fed Chief Ben S. Bernanke couldn’t punctuate that last statement with a hearty “Ho, ho, ho – happy holidays.”

After setting the target for the Federal Funds rate at 0.00% to 0.25%, the Federal Open Market Committee (FOMC) policymakers revealed they are studying other measures and may purchase U.S. Treasuries at some point in an effort to stimulate the financial markets.
There are already some signs that the central bank’s action already are working. Mortgage rates have dropped dramatically and borrowers are taking advantage of refinancing opportunities to save on future interest payments.  Investors are finding value in corporate and municipal securities, as certain high-quality issues are yielding more than 6% more than comparable Treasuries. Meanwhile, Japan’s central bank followed suit with a rate cut (to 0.1%) of its own.

More details of the Obama stimulus plan emerged during the week and his economic team pegs the total package at about $800 billion (or more than $1 trillion by the time Congress adds its required “pork.”).  Tax cuts of up to $100 billion will serve as the most immediate stimuli, with construction (infrastructure), energy and healthcare among the industries that will benefit the most over time.

The data of the week revealed that his package can not arrive soon enough.  Housing starts fell by 18.9%, to a record low, and declining building permits did not offer much promise for future construction. Another forecasting release, leading economic indicators, fell for the second consecutive month; in fact, over the past six months, the index has experienced its worst decline since 1991.

The inflation picture remains favorable, though naysayers find pessimistic views in that data as well.  The November consumer price index (CPI) fell 1.7%, the largest decline on record (since 1947), as gasoline prices plummeted by 29.5%. While the deflation-mongers claim that falling prices will force consumers to delay purchases (for when they become even cheaper), others point out that gas purchases can not be delayed, as people have to get to work (and few are choosing to ride their bikes or shift into mass transportation).  In reality, plunging gasoline serves as a stimulus package without any government interaction (though OPEC is getting involved).

Weekly Economic Calendar

Source: If Holiday Retail Stats Don’t Have Economists Saying “Humbug,” Tuesday’s GDP Report Certainly Will

• FedEx Corp. (FDX) mixed bad news with good in its latest quarterly report. After posting a profit for its second fiscal quarter, the package delivery giant also said it’s suspending pension contributions, freezing new hires, cutting its CEO’s pay by 20% in order to cut $800 million by the end of its fiscal 2010, Reuters reported.

• Wal-Mart Inc. (WMT) store representatives told Bloomberg that the world’s largest retailer would begin selling Apple Inc.’s (APPL) iPhones by the end of the year. The move is seen as positive for both companies, as it gives Wal-Mart a hot new item and Apple a gigantic new sales outlook.

• General Motors Corp. (GM) denied a report yesterday (Thursday) that the company reopened merger talks with Chrysler LLC. The report first appeared in The Wall Street Journal. “We have had no talks with them since we announced during our third-quarter earnings call that the talks had been suspended,” GM spokesman Tony Cervone said, Reuters reported.

• Credit card firm Discovery Financial Services (DFS) added itself to the list of companies applying to become a bank holding company, thus making it eligible for federal TARP money. The company also reported a $432 million profit in its fiscal fourth-quarter, up from a $56 million loss the previous year, MarketWatch reported.

• The Labor Department said yesterday (Thursday) that the number of filings for initial jobless benefits fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. Still, claims remain near the highest level since 1982.

• Goldman Sachs Group Inc. (GS) has agreed to share its 29% in Sanyo Electric Co. Ltd. (OTC: SANYY) to Panasonic Corp. (ADR: PC) for at least $6.4 billion, Reuters reported. The purchase will make Panasonic Japan’s No. 2 electronics manufacturer after Hitachi Ltd with $120 billion in annual sales. Goldman had previously rejected two other offers from Panasonic.

• The U.S. economy will begin to rebound late next year or early in 2010, IMF Managing Director Dominique Strauss-Kahn told Spanish newspaper Expansion. He based this view on the likelihood that the housing market will soon bottom and demand will follow the recent wave of fiscal stimuli. Though he added: “We recognize, however that the possibility of a recovery is plagued with uncertainty.”

• Carnival Corp. (CCL), the world’s largest cruise operator, reported a 4% rise in fourth-quarter earnings yesterday (Thursday), but lowered its 2009 outlook as consumers will likely cancel or delay vacations for the next year. The company’s quarterly revenue rose 6% to $3.3 billion.

Source: Global Investing Roundups Friday, December 19th, 2008

That doesn’t leave members of the central bank’s policymaking Federal Open Market Committee (FOMC) much room to maneuver. Still, the policymakers may have more ammunition in their arsenal and the statement that accompanies the rate decision at the end of the two-day session could shed some insight on the “creative” actions the Fed could consider in addition to rate cuts (For instance, the central bank could extend the new investment firm discount window, offer additional loan guarantees, or utilize any number of other tools).

And the Fed may well have to use those other tools. As Japan’s “Lost Decade” demonstrated, “zero” interest rates won’t necessarily jump-start an economy – especially when interest rates weren’t really the problem. And as several Money Morning investigative pieces have demonstrated, the low interest rates aren’t necessarily inducing banks to lend. Indeed, many banks are using the federal bailout money to finance buyout deals.

The ministers of the Organization of the Petroleum Exporting Countries (OPEC) will meet in Algeria on Wednesday and President Chakib Khelil implied that a surprisingly sizable production cut is in the cards.  While OPEC controls about 40% of the world’s oil supplies, energy analysts hold more stock in actions rather than words. Said one of those analysts: “You can announce all the cuts you want. Compliance is the key.”

Market Matters

In a major story last week, Bank of America Corp. (BAC) may be eliminating 35,000 jobs as it adds Merrill Lynch & Co. Inc. (MER) to its ever-growing list of subsidiary companies.

But in an even bigger story, Wall Street powerbroker, Bernard Madoff stole the headlines (and about $50 billion from investors in the process).  This former chairman of the Nasdaq Stock Market Inc. (NDAQ) ASDAQ was arrested for committing perhaps the largest investor fraud in history (Enron may be off the hook) as Bernard L Madoff Investment Securities LLC appears to have been “basically a giant Ponzi scheme” (his own words).  Though the client list seemed relatively small, at first, the implications will be quite widespread, as some of the largest hedge funds of funds participated in Madoff’s investments; their clients include some of the world’s (formerly) wealthiest folks.  Additionally, regulators will have quite a few questions to answer as lax oversight failed to uncover this massive fraud that may have been perpetrated for years.  Stay tuned – this one isn’t going away any time soon.

In “lighter” news, the U.S. House of Representative passed a “preliminary” auto bailout package that would provide $14 billion to the Big Three – Ford Motor Co. (F) may not need any for now – and create a new car czar to oversee an industry restructuring.  While Wall Street initially hailed the move as a positive step to a necessary overhaul, the Senate demanded greater concessions from auto unions and the bill became basically “dead on arrival.”  Since the U.S. Treasury Department appears to be growing more comfortable with the bailout concept with each passing day, Bush administration officials implied that aid via the $700 billion Troubled Assets Relief Program (TARP) would be forthcoming even without Senate approval. By the way, an oversight committee gave the financial bailout a rather poor initial report card, claiming a lack of transparency in terms of how dollars are being spent and whether recipients are complying with government intentions (no wonder the automakers want to participate as well).

Elsewhere, Merrill’s John A. Thain reversed an earlier position by “choosing” to forgo his 2008 bonus and Morgan Stanley’s (MS) John J. Mack quickly followed suit.  The Dow Chemical Co. (DOW), Sony Corp. (ADR: SNE), and 3M Corp. (MMM) joined BofA and others in announcing sizable job cuts.  FedEx Corp. (FDX) and The Procter & Gamble Co. (PG) reduced prior outlooks and sales projections.

Oil prices fluctuated greatly as traders weighed contrasting supply/demand reports:

• The Energy Information Administration expects weak demand to result in declining consumption through 2009 even as significant production cuts could be announced at the upcoming OPEC meeting.
• With oil trading below $47 a barrel, Goldman Sachs Group Inc. (GS) (of “we’re going to $200/barrel fame”) contradicted past forecasts by claiming prices could fall to $30 (and lost some credibility in the process).

Stocks reacted favorably to rumors of President-elect Barack Obama’s $500+ billion stimulus package (see below) and the apparent progress with automaker negotiations.  As the week moved on, reports of new job losses and more financial woes halted the brief optimism and the Senate’s inability to pass an auto bill brought more excessive volatility.  A “flight-to-quality” sentiment contributed to yields on 3-month T-bills dipping to 0.0% (that’s ZERO percent … talk about risk averse).

Economically Speaking

“I am absolutely confident that if we take the right steps over the coming months, that not only can we get the economy back on track, but we can emerge leaner, meaner and ultimately more competitive and more prosperous.”

Somehow an economic stimulus plan which directs $500+ billion into new FDR-like public works programs to increase employment does not necessarily imply “leaner and meaner.”  Still, many analysts believe the Obama plan (still in its infancy) may be just the tonic needed to jumpstart the economy.

Meanwhile, the European Union announced its own $200 billion package as the 27 member countries struggle with global recession.  Not to be outdone, Japan revealed some sizable stimulus measures of its own late in the week.  With the recession already pushing a year in duration, Duke University released results of its Global Business Outlook Survey which showed that 60% of domestic CFOs believe the downturn will last until the 4th quarter of next year – and perhaps longer. Similarly, a
Wall Street Journal forecasting survey predicted four straight quarters of negative growth as measured by gross domestic product, or GDP, the longest period of economic contraction since the Great Depression.

A light week on the economic calendar ended with a couple of major reports that gave the Fed a bit more anecdotal material to (over-)analyze prior to the FOMC meeting today and tomorrow. With claims for unemployment benefits soaring to their highest level since November 1982, Federal Reserve Chairman Ben S. Bernanke and friends must make job creation among their top priorities.  November retail sales fell by 1.8% as automakers reported their worst level of monthly activity in 26 years.

Still, the decline was less than Wall Street expected, leading Morgan Stanley’s analysts to speculate about future downward revisions.  Wholesale inflation (as measured by the producer price index, or PPI) declined by 2.2% as gasoline prices plummeted by 25% in November.  Normally, consumers would welcome such news and gladly spend those savings from the pumps at the malls during the holidays.  Instead economists continue to spread more “gloom and doom” by suggesting consumers may hoard their savings and resist spending amid these uncertain times.

Weekly Economic Calendar

Source: Fed May Cut Rates Again as Policymakers Meet

• Companies from Russia and China are most likely to use bribes when conducting business abroad, says a report from Berlin-based corruption watchdog Transparency International (TI), Reuters reported. The least likely to bribe were Belgium and Canada, according to group’s 2008 Bribe Payers Index.

• Four days after rival J.M. Smucker Co. (SJM) cut its list price for Folgers coffee products, Kraft Foods Inc. (KFT) announced an immediate 10-cent price cut for its Maxwell House and Yuban ground and instant coffees. It marks the fifth price cut by major U.S. roasters this year, Reuters reported.

• Sales of existing homes fell again in October, says a report from the National Association of Realtors. Its index of pending home resales fell 0.7% to 88.9 from a revised 89.5 in September, Bloomberg reported.

• Smelters in China asked mining companies including BHP Billiton Ltd. (ADR: BHP) to pay 74% more to process copper next year, two sources told Bloomberg. Earlier this week, China – the world’s biggest iron and copper consumer – asked BHP and other mining companies to scale back prices of iron ore by 82%.

• Yahoo! Inc. (YHOO) directors are moving in on selecting a candidate for its vacant chief executive officer post, and have gone as far as checking references on a few candidates, sources told The Wall Street Journal. One of the names considered is Arun Sarin, former CEO of Vodafone plc (VOD).

• FedEx Corp. (FDX) warned that it would finish its fiscal year 26% below the low end of its projected earnings, Dow Jones reported. “Demand for our services weakened sequentially throughout the quarter and global economic trends continue to worsen, substantially reducing our second- half outlook,” Chief Financial Officer Alan B. Graf Jr. said in a prepared statement.

• Lehman Brothers Holdings Inc., the bank that filed the biggest U.S. bankruptcy, asked a judge to allow it sell its French unit to Nomura Holdings for $1, Bloomberg reported. According to its filing, Lehman was “unable to find an alternate solution or buyer.” And for the price (and liabilities that come along with it), Nomura would get employees, commercial records, information technology, furniture and other assets.

• The National Football League announced it will lay off 150 jobs in the next 60 days to cut costs in the face of recession. The job cuts are within the league offices, not the teams, Reuters reported.

Source: Global Investing Roundups Wednesday, December 10th, 2008