Granted, it wasn’t by much – a scant 0.7% higher than July. But it’s inevitable that consumers will eventually get back to their spending ways as this recession subsides.

And if you’re looking for a way to play it, consider hhgregg, Inc. (NYSE: HGG). Here’s why…

hhgregg, Inc: This Retailer is Bucking the Industry Trend

Based in Indianapolis, the hhgregg operates 111 retail stores selling consumer electronics and home appliances. Yes, I know that’s the same stuff you can get at your typical Best Buy (NYSE: BBY), Home Depot (NYSE: HD), or Lowe’s (NYSE: LOW).

But this company is hardly typical.

While most retailers are focused on survival, hhgregg’s in full-on attack mode. It’s not pinching pennies to stay afloat. It’s not reducing the workforce. It’s not closing underperforming stores, or mothballing expansion plans.

Instead, it’s actually ratcheting up its expansion plans and hiring by the hundreds. In fact, in the next two years, the company plans to expand its footprint by 60%.

And there’s a good reason for it…

hhgregg’s “Extraordinary Opportunity” for Growth

hhgregg’s still a regional player, with countless metropolitan markets left to enter. Plus, the fundamentals make sense…

• The typical hhgregg store generates positive free cash flow quickly, within three months of opening.
• Not to mention, the company entered the recession in much better shape than most of its competitors.
• Most notably, it wasn’t overloaded with debt. In turn, management is exploiting the drop in commercial rental rates to secure prime locations, within miles of top competitors.

President, Dennis May, says, “We have an extraordinary opportunity to gain market share by taking advantage of the current rental rates and excess availability in the real estate market.”

At the same time, the bankruptcy of a once major retailer cracked open an $11 billion opportunity…

Two Ways That hhgregg Separates Itself From the Crowd

With Circuit City having gone bust, most investors expect Best Buy to scoop up all the business. But I’m convinced hhgregg will earn its fair share too, because it distinguishes itself from big box competitors in two notable ways.

1. All Commission… All Knowing: hhgregg employs an all-commission sales staff. So if they’re content to just show up, they go hungry. They need to make sales. Thus, hhgregg’s staff tends to be older and more informed about products than the hourly, 20-somethings over at Best Buy. And with big-ticket items, consumers put a premium on superior customer service.
2. Same-Day Delivery: hhgregg offers same-day delivery on most products. Instant gratification goes a long way in attracting new customers.

To be clear, however, hhgregg is sharing in the retail pain. Same-store sales dipped 14.7% in the most recent quarter. But analysts expected worse.

The key point to remember, though, is that we never buy a stock based on the current conditions. We buy based on the future. And I’m convinced that hhgregg will be locked-and-loaded for rapid earnings growth as the economy recovers.

And the fact that shares trade at a reasonable valuation of 14 times forward earnings only makes the opportunity more compelling.

Good investing,

Louis Basenese

Source: hhgregg, Inc.: The Only Retail Stock Worth Buying Right Now

In a report to be released this week, the Obama administration will boost its 10-year projection for the federal budget deficit to about $9 trillion – an increase of roughly $2 trillion, or 29%, from its prior projection, Fox News reported over the weekend, citing a source from the Office of Management and Budget (OMB).

The new cumulative deficit projection – for 2010-2019 – replaces the administration’s previous estimate of $7.108 trillion. Changes in budget projections – whether they result in a surplus or a deficit – are often refined as economic conditions change. This new projection was necessary because the recession has gone on for so long, causing federal tax receipts to plunge – and because the economic rebound will be prolonged and weak, resulting in lower forecasts for future federal revenue.

Although most of the news media focuses on the Obama administration’s $787 stimulus measure, the fact is that the federal government was pushing forward with nearly $12 trillion in rebound-related financing commitments, Money Morning reported this spring.

The administration earlier this year predicted that unemployment would peak at about 9% without the financial-jump-starting initiatives and 8% with them. But U.S. joblessness zoomed skyward anyway, and stood at 9.4% last month, although many economists now say that a double-digit unemployment rate – one of 10% or more – is easily possible.

The nation’s debt now stands at $11.7 trillion. In the scheme of things, that’s more important than talking about the deficit, which only looks at a one-year slice of bookkeeping and ignores previous debt that is still outstanding.

Back in June, the non-partisan Congressional Budget Office (CBO) predicted that the federal deficit would reach $1.825 trillion this year. The CBO and the Obama administration will tomorrow (Tuesday) separately release new budget-deficit predictions. Last Wednesday, a senior White House official, speaking on the condition of anonymity, told The Associated Press that the administration estimate would reach $1.58 trillion – or triple last year’s deficit.

The report for the budget year that ends Sept. 30 also will predict Washington to spend $3.653 trillion this year, although revenue will reach only $2.074 trillion, the unnamed senior official told The AP.

“Whether it’s $1.6 trillion or $1.8 trillion, it’s pretty bad,” said Robert Bixby, executive director of the bipartisan fiscal watchdog The Concord Coalition, told Fox News. “I hope no one tries to spin that as good news.”

Total U.S. debt has soared to $11.7 trillion (the budget deficit is the “shortfall” in the annual deficit, while the debt is cumulative), having balloned to that level as a result of the multiple annual deficits that have become the norm, it seems.

Market Matters

Just who is the world’s great economic superpower these days?  At times, it seems, “as China goes, so go the world equity markets.”  Early in the week, the Shanghai Composite Index (SSE) suffered its largest percentage decline since late 2008, with the index plunging more than 20% for the month on concerns about the sustainability of China’s recovery.

The global markets watched as the Japan, Europe, and the U.S. indexes followed the SSE downward.  By mid-week, however, all eyes were back on the domestic market as another sell-off in China was overshadowed by signs of growing U.S. economic strength and reports of enhanced energy demand.

The global bailout plans moved into a new stage as the Swiss government relinquished its control over banking giant UBS AG (NYSE: UBS) by selling off its investment for a $1.13 billion profit, or a 30% annualized return.  While the U.S. government has yet to reap similar benefits, several major banks have paid off their Troubled Asset Relief Program (TARP) loans and the CEO for one of the poster children for financial distress, American International Group Inc. (NYSE: AIG), announced that his firm should be able to pay back the government and may even be able to “do something for shareholders as well.”

While many auto dealers complained about the rebate process on the “Cash for Clunkers” program, General Motors Corp. (NYSE:GRM) stepped forward and will begin providing advances to participants who continue to wait for the government to move through its traditional red-tape.

The healthcare debate (and political infighting) raged on (complete with widespread town hall civil disobedience).  Rumors that the government would remove its public-health-plan option sent related health-care stocks soaring early in the week, though the jury remains out as to how this will really play after U.S. President Barack Obama guaranteed approval of an overhaul and then bashed congressional Republicans for their efforts in blocking any plan whatsoever.

On the earnings front, the housing sector received mixed signals as Home Depot Inc. (NYSE: HD) bested expectations, while rival Lowe Companies Inc. (NYSE: LOW) fell short and reduced its outlook. Cost-cutting was widespread among retailers as The TJX Cos. Inc. (NYSE: TJX), The Gap Inc. (NYSE: GPS), and even Target Corp. (NYSE: TGT) benefited from increased margins, though sales remained lackluster at best.

Hewlett-Packard Co. (NYSE: HPQ) struggled in its PC and printer-business segments, though management expects a healthy rebound in its fiscal fourth quarter.

Fixed income benefited from some early “flight-to-quality” trades and a report that showed strong foreign demand for U.S. Treasuries in June (despite ongoing rumors to the contrary).  Stocks fell sharply in sympathy with the China sell-off, though buyers reemerged in a big way on positive signs from the earnings and economic reports.

Likewise, oil prices shook off some early week negativity and surged to 2009 highs, as a surprising plunge in inventory levels revealed growing demand – perhaps to coincide with the beginning of a global economic rebound?  On that note, U.S. Federal Reserve Chairman Ben S. Bernanke’s comments about the prospects for recovery (though slow at first) were extremely well-received as investors seemed to all but forget about following Shanghai and the U.S. markets assumed the leadership role once again.  The major domestic indexes shrugged off the weak start and pushed to new highs for the year.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (08/14/09)	Current Week (08/21/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	9,321.40	9,505.96	+8.31%
NASDAQ	1,577.03	1,835.04	1,985.52	2,020.90	+28.15%
S&P 500	903.25	919.32	1,004.09	1,026.13	+13.60%
Russell 2000	499.45	508.28	563.90	581.51	+16.43%
Global Dow	1526.21	1,629.31	1,803.83	1,819.50	+19.22%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.56%	3.56%	+132 bps

Economically Speaking

In addition to the Home Depot and Lowe’s earnings reports, housing news was prevalent during the week and the results were somewhat confusing.  The National Association of Home Builders reported that its Housing Market Index climbed for the second month in a row and reached its highest level in over a year.  Likewise, applications for mortgages increased for the third straight month on declining interest rates.

However, foreclosure rates remain on the rise and, according to the Mortgage Bankers Association, 13.2% of mortgages are delinquent or worse (in foreclosure); in fact, subprime mortgages are no longer the only area of concern as the unsettled labor picture has prompted homeowners with strong credit to fall behind on their prime mortgages as well.

Though housing starts fell in July, the decline was entirely attributable to apartment activity and construction of single-family homes actually rose for the fifth straight month.  Additionally, existing home sales in July surged by more than 7% as buyers took advantage of the misfortunes of others (in foreclosure), though prices continue to fall because of transactions related to these distressed properties.

In non-housing news, separate regional reports from the New York and Philadelphia Feds boosted the outlook for the domestic manufacturing sector and the overall economy.  Wholesale inflation remained benign as the producer price index (PPI) fell by a wider-than-expected 0.9% in July and prices have plummeted over the past 12 months by the largest percentage (6.8%) since records have been kept, dating back to 1947.

Be forewarned: Oil just hit a 2009-high.

U.S. Federal Reserve policymakers met for their annual conference and Fed Chair Bernanke shared a favorable assessment about the recovery process from “the most severe financial crisis since the Great Depression.”  Of course, Bernanke tempered some of his remarks and reiterated that, while the recession seems to be coming to an end, the rebound would likely be slow, with unemployment remaining a concern.

Bernanke also spoke of the need for financial regulatory reform in order to ensure the current financial debacle isn’t repeated.  The Fed also extended its Term Asset-Backed Securities Loan Facility (TALF) lending program in order to help stem the potential “challenges” that remain among commercial mortgage-backed securities.

Weekly Economic Calendar

Source: In the Race for a U.S. Economic Rebound, Growing Debt and Budget Deficits Remain the Biggest Possible Roadblock

It has been a tough week if you have anything to do with the world of retail. Just about every company that opened its books to the Street this week got punished for the act.

The list of “disappointing” reports is getting longer by the day.

Lowes (NYSE:LOW) kicked off the week with scary-low figures. Home Depot (NYSE:HD) beat the Street but still got punished after a slew of less-than-stellar economic reports.

Outside of the home-centric sector, shares of Liz Claiborne (NYSE:LIZ) plummeted on Monday after the Standard and Poor’s cut its rating on the unprofitable retailer to B, a two-notch downgrade. The company’s rating now stands five levels below investment grade.

High-end retailer Abercrombie & Fitch (NYSE:ANF) is also deep in negative territory for the week after succumbing to industry pressure and a downgrade from Susquehanna.

Obviously, the market believes a business model that focuses on trendy, expensive clothing is not a place to be during a deep, protracted recession.

And of course, there is Eddie Lampert and his Sears Holding (NYSE:SHLD). While the store may be the hideout of choice for any enslaved husband while his wife shops for new bed linens, fewer of us our purchasing the store’s products.

Shares of the company are down by double-digit proportions today after Sears announced it lost $94 million over the past three months. It is tough to make a profit when revenues are plunging by 10% (12.5 for comparable-store sales).

Essentials only investing

If consumers are not spending their money at the high-end stores or paying to fix up their house, where are they spending it? After all, there is no choice but to spend money on the essentials at the very least.

The key is understanding which retailers are stocked up on the essentials. Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are the first to come to mind.

And guess what… shares of Target are up on the week and Wal-Mart is just slightly in negative territory.

One of the most appealing sectors of the retail market is the ultra-cheap (in price and quality) “dollar store” segment. As the market breaks out its magnifying glass in an attempt to find any signs of so-called green shoots, shares of company’s like Family Dollar (NYSE:FDO) and 99 Cents Only (NYSE:NDN) have dropped from their recent highs.

The discounting is a mistake. Today’s unexpected surge in first-time jobless claims (a jump of 15,000 claims) proves tens of thousands of American consumers are still at risk of losing their jobs. That means they won’t be shelling out their reserves any time soon.

Instead, they will continue their spendthrift shopping.

While there are sectors much more likely to hand you sizeable profits in the near future, no portfolio is healthy unless it is properly diversified.

If you need exposure to the nation’s retail market, look at the big guys like Wal-Mart and Target or the small discount retailers where a buck will buy you just about anything… but a share of the company.

Finally, if you have been playing this sector or have your eye on any big movers, your fellow readers would love to hear about it. Drop us a line and let us know your thoughts.

Source: Dangerous Retail: The Sector That Refuses to Recover

• Japan’s economy is once again growing, with its gross domestic product (GDP) rising 3.7% in the second quarter. A rebound in exports to China and a large stimulus program helped Japan bounce back from contraction that, at an annualized rate of 11.7%, was more than double that of the United States’ in the first quarter. Officials at Japanese companies think the nation’s worst recession since World War II is nearly over, according to a survey released last weekend.

• The National Association of Home Builders/Wells Fargo confidence index rose to 18 this month, a one-year high, Bloomberg Newsreported. Still, a reading below 50 means most respondents view conditions as poor. “Inventory is being cleared and that is starting to benefit the new-home market,” Julia Coronado, a senior economist at BNP Paribas SA in New York told Bloomberg. “With a few months’ lag, that will lead to a turnaround in construction activity.”

• The Federal Reserve Bank of New York’s general economic indexrose to 12.1, higher than forecast and the first increase since April 2008. Any reading above zero indicates that manufacturing is growing. “Inventories were drawn down to such amazingly low levels that companies need to start bringing them back,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in aBloomberg News interview. “We are coming out of the recession.It’s probably over at this point.“

• Credit card default rates showed signs of stabilization in July,Reuters reported, citing regulatory filings by multiple large U.S. banks. Bank of America Corp. (NYSE: BAC), the bank with the highest default and delinquency rates saw its charge-off rate shrink slightly to 13.81% in July from 13.86%. “It just seems to bear out what we heard in the second-quarter calls, that things seem to be getting marginally better — and I would stress marginally — on the consumer side,” Nancy Bush, founder of NAB Research, said of Bank of America.

• Microsoft Corp. (Nasdaq: MSFT) and General Electric Co. (NYSE: GE) joint venture MSNBC.com has acquired “hyperlocal” news and information Web site EveryBlock. Terms were not disclosed, but in June Time Warner Inc.’s (NYSE: TWX) AOL acquired a similar Web site, Patch for $7 million, The Washington Post reported. EveryBlock offers news in 15 cities. “Joining with MSNBC.com gives us the resources to turn EveryBlock from a cool, useful service into something much bigger,” said Adrian Holovaty, founder of EveryBlock. Holovaty and the company’s staff of five will remain based in Chicago.

• Reader’s Digest Association Inc., whose namesake magazine says it is the bestselling magazine in the world, has filed for Chapter 11 bankruptcy protection as a part of a prearranged plan with lenders to cut debt by 75%. If the court approves the deal, Reader’s Digest’s debt would be reduced to $550 million from its current $2.2 billion. “Our deal has already been negotiated and hammered out with a majority of our creditors,” said Chief Executive Officer Mary Berner in an interview with Reuters. The announcement “doesn’t affect our employees, it doesn’t affect the vast majority of vendors, it doesn’t mean we’ll do mass layoffs, it doesn’t mean we’re going to be selling off assets. It’s business as usual.”

• Continuing weak demand, bad weather and charges related to the halting of its expansion contributed to a 19% drop in Lowe’s Cos.’(NYSE: LOW) second quarter earnings. The world’s second-largest home improvement retailer after Home Depot Inc. (NYSE: HD) saw its profit fall to $759 million, or 51 cents a share for the quarter ended July 31. That compares to a net income of $938 million, or 63 cents a share in the same period last year. Sales fell 4.6% to $13.84 billion and same-store sales dropped 9.5%.

Source: Investment News Briefs Tuesday, August 18, 2009

• The U.S. economic downturn may be slowing, but conditions remained weak in almost half of its regions, the Federal Reserve reported in its Beige Book business survey. “Contacts from several districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year,” the central bank said in the report. But the words “stable” or “stabilize” appeared in some form more than 60 times in yesterday’s (Wednesday’s) report,according toBloomberg. Many district banks reported that homebuilding “appeared to have stabilized at very low levels,” and some regions said “manufacturing employment levels may soon stabilize.” The Fed report reflects information collected through June 1 and summarized by staffers at the Cleveland Fed bank. It is published two weeks before the next Federal Open Market Committee meeting.

• Home Depot Inc. (NYSE: HD) yesterday (Wednesday) raised its 2009 profit forecast and said economic indicators signal the worst of the U.S. housing correction has passed. The company, which has been upgrading services and products in its stores to win back market share from rival Lowe’s Co.’s Inc (NYSE: LOW), said earnings could be flat this year, rather than falling as it previously forecast.  Admitting its sales were hit hard by the housing market slump and recession, the nation’s biggest home-improvement chain said it sees better margins this year through improved efficiencies,Reuters reported.

• Total home loan applications were driven down by spiking U.S. mortgage rates last week as demand for refinancing shriveled to the lowest level since November, the Mortgage Bankers Association said yesterday (Wednesday).  Borrowing costs have soared as bond yields have risen, even as the Federal Reserve has purchased hundreds of billions of dollars in bonds to keep rates low and stimulate the housing market, Reuters reported. The average 30-year fixed mortgage rate jumped 0.32 percentage points in the week ended June 5 to 5.57%. That’s nearly a full point, about 100 basis points, above the record low rate of 4.61% in March, the trade group said.

• Legislation introduced in the Senate yesterday would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers, Bloomberg reported. Senator Johnny Isakson (R-Georgia) is co-sponsoring a bill that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.  It would eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit and extend it to owner-occupied, multi-family units.  “The housing market continues to be a drag on the economy,” said John Castellani, president of the Washington-based Business Roundtable, which represents the interests of more than 100 large-company CEOs. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.”

• Citigroup, Inc. (NYSE: C) yesterday (Wednesday) began a $58 billion recapitalization process that will make the U.S. government the company’s largest shareholder, MarketWatchreported. The Treasury will exchange up to $25 billion of the bank’s preferred securities for interim securities and warrants. The recapitalization would create roughly $58 billion in new common Citi shares.

• Oil prices have eclipsed $70 a barrel for the first time in seven months, and now analysts say escalating energy costs could inhibit global recovery, MarketWatchreported. “As if the U.S. consumer didn’t have enough to worry about,” said Peter Boockvar, equity strategist at Miller Tabak, referring to gas prices, which are rising to their highest levels since last fall. The U.S. government reported an unexpected decline in supplies last week. “If gasoline prices stay elevated, it will dramatically dilute the tax-cut portion of the Obama stimulus plan,” said Boockvar, adding that for every dollar the price of gasoline rises, “it’s an extra $140 billion more in consumer spending at the pump.”

• Euro Pacific Captial, Inc. President and Chief Global strategistPeter D. Schiff is considering a run for the U.S. Senate on the Republican ticket, Reuters reported, citing his Tuesday appearance on Comedy Central’s “The Daily Show.” He would challenge Connecticut Sen. Christopher Dodd. Supporters have launched schiff2010.com to encourage Schiff to run. Schiff is an occasional guest columnist for Money Morning.

Source: Investment News Briefs Thursday June 11, 2009

No matter which path GM chooses – conventional restructuring or bankruptcy – the U.S. Big Three of GM, Ford Motor Co. (NYSE: F) and Chrysler LLC will have to adjust to the U.S. auto market’s post-financial-crisis “new reality.” Automakers will sell only 10 million cars and trucks in the U.S. market this year, the worst in at least 3 decades – and roughly 38% less than the 16 million vehicles that were sold in the United States annually in recent years before the financial collapse caused an accompanying collapse in auto sales.

Part of the reason for the slump in new vehicle sales is that consumers are increasingly turning to used cars. Pre-owned car sales are up 10% this year over last, as credit availability increases, but buyers focus on affordability. In fact, according to the most-recent report, used-car sales jumped in April, and the trend is expected to continue at least until the middle of the year as pent-up demand for affordable, pre-owned vehicles jacked up the used-vehicle segment of the auto marketplace.

Market Matters

U.S. Treasury Secretary Timothy F. Geithner put his most optimistic face forward in assessing the progress with the bank bailout plan. Geithner pointed out that the 19 stressed-tested banks have already raised $56 billion in capital [including Bank of America Corp.’s (NYSE: BAC) $13.5 billion stock offering] and several could begin to pay back Trouble Asset Relief Program (TARP) money shortly.  He also indicated that the public-private partnership to remove “toxic” assets from banks’ books should be up and running in the next month-and-a-half, a move that may instill greater confidence in the financial markets.

However, an analysis by The Wall Street Journal rained on Geithner’s parade by estimating that small and mid-sized banks could face losses on bad commercial real estate loans of $100 billion by year-end 2010. A Money Morning investigation of the looming commercial real estate crisis predicted that this sector of the real-estate market would pose major problems for the U.S. economic recovery.

Meanwhile, GMAC LLC may be close to receiving a fresh $7 billion in new (bailout) money as the government continues to seek ways to rescue the auto industry.  GM reached an agreement with its main union (UAW) that would reduce retiree benefits and overall labor costs to make them comparable to those of their foreign rivals.

As another negative earnings season comes to a close, investors searched long and hard for a bright spot – any bright spot.  With most Standard & Poor’s 500 Index companies reporting, earnings plunged more than 30% in the first quarter and are on track to fall 13% for the full year, the worst annual performance in six years.

Still, Thomson Reuters PLC (Nasdaq ADR: TRIN) says that a consensus of sell-side analysts projects a 29% increase in earnings in 2010 as cost-cutting measures pay off and relative results begin to look more attractive.

The Lowes Cos. Inc. (NYSE: LOW) reported better-than-expected quarterly profits and raised its outlook for the year, but The Home Depot Inc. (NYSE: HD) saw its numbers disappoint investors who were looking for stronger signs from the home improvement giant.  Likewise, Hewlett-Packard Co. (NYSE: HPQ) reported weaker earnings, and that spawned renewed pessimism for the high-tech sector.

On a brighter note, retailers Sears Holdings Corp. (Nasdaq: SHLD) and Aeropostale Inc. (NYSE: ARO) reported better-than-expected quarterly profits.  Ratings upgrades brought early promise as Citigroup Inc. (NYSE: C) boosted its forecast on homebuilder Lennar Corp. (NYSE: LEN); Deutsche Bank AG (NYSE: DB) raised its views on McDonalds Corp. (NYSE: MCD); and Goldman Sachs Group Inc. (NYSE: GS) made Bank of America a “Buy.”  However, S&P warned it may downgrade the United Kingdom’s debt below AAA due to ongoing economic obstacles, a development that prompted others to wonder if U.S. securities could face similar dire possibilities.

Crude oil surged past $62 a barrel on lower inventory data and gasoline climbed above $2.36 a gallon heading into the Memorial Day holiday weekend, a far cry from the $3.80 of this time last year – although it was 30 cents higher than late April levels.

Economically Speaking

While Geithner was “spinning” the bailout progress in the most favorable light possible, the U.S. Federal Reserve meeting minutes painted a picture of a more sluggish economy than most had predicted just three months ago.  In fact, the policymakers negatively revised their projections for economic contraction and warned that the unemployment rate could push toward 10% by the end of the year.  Still, central bank Chairman Ben S. Bernanke believes improvements are on the way as the impact of the Obama administration stimulus package aids in the recovery over the year’s second half. Furthermore, the Fed stands prepared to buy more U.S. Treasury and mortgage-related securities should such moves be deemed beneficial.

In the “it could be worse” category, Mexico (-21.5%), Japan (-15.2%), and Germany (-14.4%) each reported severe economic declines (as measured by gross domestic product, or GDP), as these three primary U.S. trading partners suffered the ill effects of the lower domestic demand for foreign-made goods and services.

Though the economic calendar was rather light during the week, some positive signs did emerge from deep within the numbers.  While analysts were surprised by a decline in April housing starts, the losses stemmed from a reduction in apartment activity, and single-family construction actually jumped by almost 3%, its second consecutive positive monthly showing.

Additionally, a private survey of the nation’s construction professionals depicted that homebuilder sentiment soared to its highest level in eight months, another sign that the prolonged housing slump may finally be nearing an end.

Finally, leading economic indicators, a predictive index that forecasts activity for the ensuing six months, turned positive after six straight down months.  Unfortunately, labor continued to struggle as the number of folks who have been receiving unemployment benefits for over a week hit a new record high.  While the economy definitely seems to be moving past the dreaded recession, any recovery will be limited as long as the labor picture remains weak and employees hold off on purchases until their job situations become more stable.  And the risk of a “double-dip” downturn remains somewhat high.

Weekly Economic Calendar

Source: As GM Cruises Toward Government Deadline, U.S. Automakers Must Learn to Deal With a Permanently Smaller Market

• Agricultural Bank of China raised 50 billion yuan ($7.3 billion) in the nation’s biggest corporate bond sale. The goal of the bond sale was to raise capital and help set up an initial public offering, Bloomberg reported.

• A handful of banks have applied to repay the billions they borrowed from the U.S. government’s Troubled Asset Relief Program (TARP). Sources told Reuters that Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) are two of the banks eager to begin repaying the government.

• Fiat SpA (OTC ADR: FIATY) Chief Executive Sergio Marchionne said in a Bloomberg interview that an offer he plans to make for General Motors Corp.’s (NYSE: GM) Opel unit will include assets that are “better than cash.” Today (Wednesda) is the deadline the German government set for Opel bids.

• World Bank President Robert Zoellick said that a global economic recovery could begin at the end of this year, Reuters reported. “I’m neither an optimist nor a pessimist, I am uncertain, a realist. Clearly the fall has been interrupted. I think there’s a good chance that while we face declines, they will be smaller in size. The majority expect a recovery at the end of this year, at the beginning of next year,” Zoellick said on Spanish television.

• The Bank for International Settlements said the derivatives market declined for the first time in the second half of 2008 as the global financial crisis curbed trading, Bloomberg reported. The Switzerland-based bank said yesterday (Tuesday) the amount of outstanding contracts linked to bonds, currencies, commodities, stocks and interest rates dropped 13.4% to $592 trillion, the first decline in 10 years of compiling the data. The amount of credit-default swaps insuring investors against losses on bonds and loans fell 27% to cover $41.9 trillion of debt.

• General Electric Co (NYSE: GE) Chief Executive Officer Jeff Immelt said yesterday (Tuesday) has already borrowed all the money it planned to raise on debt markets for 2009 and may reach funding goals for 2010 before the year is out.  “From a funding standpoint, 2009 is already done,” the head of the largest U.S. conglomerate told an investor conference in Florida, Reuters reported. “We’re going to pre-fund a lot of 2010 in 2009, maybe the whole thing.”

• The United Auto Workers and General Motors Corp (NYSE: GM) still have a “long way to go” to reach an agreement that local labor leaders could vote on, UAW President Ron Gettelfinger said after a union-sponsored forum at the U.S. Capitol, according to Bloomberg. GM’s decision to shut 16 U.S. plants and boost the number of cars it imports to 7% of North American sales has emerged as a sticking point in talks on a new UAW contract.  GM has a June 1 deadline to complete a restructuring plan or enter bankruptcy.

• Home Depot Inc. (NYSE: HD), the world’s largest home improvement chain reported higher-than-expected quarterly earnings as massive cost cuts offset weak sales. But investors found the results disappointing in comparison with those of smaller rival Lowe’s Cos Inc. (NYSE: LOW) and shares fell.  On Monday, Lowe’s reported better-than-expected quarterly earnings.  Home Depot affirmed its fiscal-year outlook, Reuters reported.

Investment News Briefs Wednesday, May 20, 2009

Starts for privately owned homes clocked in at a 458,000 annual rate, a 12.8% decline from March’s revised rate of 525,000 and a 54.2% dive from April 2008’s annual rate of 1,001,000 starts, according to a report from the U.S. Department of Commerce.

Meanwhile, building permits for privately owned housing units were applied for at a seasonally adjusted annual rate of 494,000, 3.3% below March’s revised rate of 511,000 and a 50.2% plummet from April 2008’s revised rate of 991,000.

The Commerce Department report also sheds light on the complexity of the housing market’s fallout and path to recovery.

Most strikingly, while starts in the West have dropped 52.9% from last year, they actually rose 42.5% from March 2009. The Northeast, Midwest and South all posted double-digit monthly declines and steeper annual losses.

Also, the drop in building permits isn’t necessarily a bad thing, says Peter Kenny, managing director at Knight Equity Markets. Like the retail sector’s recovery, the first step for the ailing housing market is getting rid of all the houses already on the market, he said.

“There is so much inventory on the market that the sooner we stop building and start eating into existing inventory the better off we’ll be,” Kenny told Reuters.

Affect on Stock Market

For the short term, April’s housing figures won’t help the country’s top home-repair retailers, The Home Depot Inc. (NYSE: HD) and Lowe’s Cos. Inc. (NYSE: LOW).

Each company posted quarterly earnings that beat analysts’ forecasts, but not because they’ve been blessed by a return of consumer demand.

Rather, the retailers discounted items and cut costs across the board.

Earlier this year, Home Depot announced plans to cut 7,000 jobs, freeze officers’ salaries and close some specialty outlets – moves that shed 16.4% from operating costs, Reuters reported.

In April alone, building-material and garden-supply stores, shed 7,500 jobs, according to the U.S. Department of Labor.

The moves have clearly been effective, but also entwined with a bitter irony.

And as long as unemployment continues climbing, there won’t be a consumer base for every element for the housing market, including the merchandise on their shelves.

Source: U.S. Housing Starts and Permits Revisit Record Lows in April

• China will increase its annual oil refining volume by 18% over the next two years to meet expected long-term demand. China’s State Council also said that it would boost stockpiles and encourage petro companies to merge operations, Bloomberg reported.

• Lowe’s Cos. Inc. (NYSE: LOW) reported an analyst-beating quarterly profit and raised its full-year forecast. The No. 2 home improvement retailer cited improving consumer confidence and signs the housing market may be bottoming, Reuters reported.

• Toshiba Corp. has begun a $3 billion stock sale to raise capital after posting a record loss last year. Japan’s biggest semiconductor maker plans to offer 870 million new shares priced at a 3% to 5% discount to the stock’s closing price the day the sale ends, which may be as early as next week, Bloomberg reported.

• Seeking to pay back government loans, American International Group Ltd. (NYSE: AIG) is speeding up plans to list its Asian subsidiary, American International Assurance Co. Ltd., through an initial public offering, Reuters reported. AIG hopes the IPO will raise more than $4 billion, a small number considering the insurer has racked up a $180 billion debt to the U.S. government.

• President Barack Obama will announce today (Tuesday) a federal standard for greenhouse-gas emissions from vehicles, the first nationwide limit on pollution scientists say is triggering global climate change.  The emissions limit will be coordinated with new national fuel economy standards for cars and trucks, Bloomberg reported, citing people familiar with the matter.

• U.S. homebuilders confidence rose in May to the highest level since September, providing further evidence that the housing slump that started in 2006 may be closer to a floor. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 16 from 14 the prior month, the Washington-based agency said yesterday (Monday), capping the first back-to-back gain since February 2008. A reading below 50 means most respondents view conditions as poor, Bloomberg reported.

• State Street Corp (NYSE: STT), the Boston-based custodial bank and asset manager, said it plans to sell $1.5 billion of stock and will also sell notes to help repay government bailout funds. The bank said it took a $3.7 billion charge to move some assets onto its balance sheet at a loss, and will said it will use proceeds from the securities sales to help repay a $2 billion infusion from the Troubled Asset Relief Program, Reuters reported.

• Oil prices rose sharply yesterday (Monday), as violence in Africa’s top crude exporter Nigeria and a fire at a key U.S. East Coast refinery revived concern about supplies.  U.S. crude for June jumped $1.98 to $58.32, while London Brent for July rose $2.51 to $58.49.  The gains came after Nigerian militants said they had blown up two oil and gas pipelines in the Niger Delta and would blockade waterways in the region in an effort to disrupt energy exports from the Organization of Petroleum Exporting Countries (OPEC) member, Reuters reported.

• An earnings surprise and a buy recommendation on a major U.S. bank sent U.S stocks skyward yesterday (Monday). The Dow Jones Industrial Average had its best day since April 9, zooming 235.44 points, or 2.85%, to close at 8,504.08 – as 29 of the 30 stocks that make up that closely watched blue-chip index rose. The Standard & Poor’s 500 Index recouped  more than half of last week’s losses, advancing 26.83 points, or 3%, to close at 909.71. Home-improvement retailer The Lowe’s Cos. (NYSE: LOW) topped earnings estimates – sending its shares up more than 8% — while one analyst recommended buying shares of Bank of America Corp. (NYSE: BAC), and set a $15 price target. BofA’s shares closed yesterday at $11.72, up 9.84% each. The Nasdaq Composite Index surged 52.22 points, or 3.1%, to end the day at 1,732.36.

Investment News Briefs Tuesday, May 19, 2009

Earnings Announcements: BKS, FL, GME

Monday

Earnings Announcement: LOW

Tuesday

Economic Reports: Building Permits, Housing Starts

Expectations are for both of these reports to show a modest improvement versus the previous month. With the deteriorating housing market, I don’t think these reports will meet expectations. Until the existing inventory is whittled down, these reports should show a drop in permits and starts. Of course, I have been wrong before, but I can’t imagine any builder wanting to add more inventory to the drastic oversupply right now.

Earnings Announcements: HD, HPQ

Wednesday

Economic Reports: FOMC Minutes

The market will scour these minutes for any indication of the Fed’s future course on interest rates. With inflation a growing concern, this becomes an even more important ‘heads up’ for possible moves.

Earnings Announcements: TGT, SKS, LTD

Thursday

Economic Calendar: Philadelphia Fed

This report will give some insight into the manufacturing sector in the tri-state area. Is it possible the report will show some good news? Perhaps. The report is expected to show a reading of -18, which is a marked improvement from last month’s reading of -24.4. The report is moving in the right direction, which means less contraction in the manufacturing sector.
Source: Housing Back In The News, More Retailers Report Earnings