Business Review - Defense Sector, Told You So!

By The Greek - Economy & Markets:

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Economic Data Analysis

GDP Revision

The "Preliminary" reporting of GDP offered a drastic revision of the figure from the "Advance" reporting. GDP contraction was revised to 6.2%, from 3.8% previously estimated, and the great degree of change was a rare event.

The economic deterioration of the fourth quarter compared against third quarter contraction of 0.5%. The drivers of this recent extreme economic weakness were mostly derived from exports (-23.6%), equipment and software (-28.8%), personal consumption expenditures (-4.3%) and residential fixed investment (-22.2%). By the way, nonresidential fixed investment fell 21.1%.

Lower imports (-16.6%) helped to offset the impact of export weakness, but the fact that Americans are buying less is clearly not a sign of good economic health. Clearly global economic issues are now impacting us in a bad way.

We're sure you will be interested to know that motor vehicle output subtracted 2.04 percentage points from real GDP. Government spending (+6.7%) helped a little, and should help more in the future now that we are so aggressively addressing the crisis. But are we also addressing every liberal dream, and overextending ourselves, like Mitt Romney said today at a conference of conservatives?

Prices paid (price index) for gross domestic purchases decreased 4.1% in Q4. Excluding food and energy, prices increased by 1.1% in Q4, versus a 2.8% rise in the third quarter. Prices naturally adjust when demand falls off, and the Fed's prophecy plays true here as inflation concerns are but a vague memory and distant fear.

NAPM - Chicago Business Barometer

The National Association of Purchasing Managers data released today concurred that prices were on the decline, as its index for prices paid for raw materials declined to 37.8 in February, from 39.8 the prior month. Measures below 50 indicate contraction, so what we can perhaps garner from this data is that prices are declining more rapidly across a broader base.

NAPM - Chicago's best known index, its Business Barometer increased to 34.2 in February, from 33.3 in January. While directional change matters, as does improvement, the reading still represents dismal economic contraction. The most dire of the dismal was found in the Employment Index, which measured 25.2, the lowest point seen in seven years.

Reuters/University of Michigan Consumer Sentiment

February's final reading of the University of Michigan's sentiment measure steadied in hopelessness. The final measure of the month, at 56.3, was not much different than the drab consumers described at mid-month when the measure reached 56.2.

But how do we describe hopelessness? It's not a feeling about the present, but of the future. We characterize it as an absence of hope, a sense that all is lost. Well, Reuters/Michigan seems to paint that picture today with its index measuring the 12-month economic outlook. That prospective barometer sees no light at the end of the tunnel, based on the reading of 31 in February, as compared to 47 in January.

Government Moves

President Seeks Defense Cuts

I told you so! Really I did. Click on that there link and see for yourself. I said the market would be surprised to hear about defense spending cuts, despite the already sour performance of the defense sector over the past 12 months. Lockheed Martin (NYSE: LMT) dropped 8.4% today on rumors its F-22 Raptor might be one of the casualties of Obama's smart bomb. Northrop Grumman (NYSE: NOC) fell 5.2%; General Dynamics sank (NYSE: GD) 4.1%; Rockwell Collins (NYSE: COL) -3.2%; Honeywell (NYSE: HON) -2.7%; and Goodrich (NYSE: GR) -2.1%.

"America's men and women in uniform have fought block by block, province by province, year after year, to give the Iraqis this chance to choose a better future. Now, we must ask the Iraqi people to seize it." President Obama

Today our President laid out his time-line to end the war in Iraq. He said it will be 19 months from now, not the 16-month original plan many were hoping he would stick to. Even after it's over, the President plans to leave a decent sized force in Babylon for a year longer. Still, combat operations will cease as of August of 2010.

However, at the same time, Obama plans a new initiative in Afghanistan, but we get the goal there loud and clear... Kill or capture Osama Bin Laden (sounds familiar). Chop the head off of our many minded enemy, and gain redemption for the many deeply wounded Americans whose hearts have bled since 9/11, mine included. However, I am leaning toward love now; I'll probably do so even more after I finish reading a Merton book recently gifted to me by a good friend.

Treasury Raises Citigroup Stake

The Treasury Department upped the ante with Citigroup (NYSE: C) today, increasing its stake to a fully diluted 36% (or it will anyway). Citi dropped like a rock today, moving 39% lower, to a price of $1.50. Citigroup needs to strengthen its capital structure, and will do so partly through the conversion of preferred securities to common equity. Citi asked the Treasury to participate in "exchange offerings," which will effectively take the government's stake higher. The Feds will effectively govern Citi after this process, considering the significant ownership interest and comments from Ben Bernanke this week. Citi likely looked ahead to the upcoming stress test, and realized what was necessary, or the Federal government did so for it. Citi is a shadow of its former self, which seems destined to become a faded memory before long. Asset sales and the shrinking of Citigroup are pending.

Folks, I'm exhausted, so forgive me for cutting this article short...

Today's EPS Schedule

Friday's EPS schedule included news from Aqua America (NYSE: WTR), Calgon Carbon (NYSE: CCC), Calpine (NYSE: CPN), CapitalSource (NYSE: CSE), Caraustar (Nasdaq: CSAR), Cobra Electronics (Nasdaq: COBR), Coeur d'Alene Mines (NYSE: CDE), Deutsche Telekom (NYSE: DT), DiamondRock Hospitality (NYSE: DRH), EMC Insurance (Nasdaq: EMCI), Empresas ICA (NYSE: ICA), Endo Pharmaceuticals (Nasdaq: ENDP), Golar LNG (Nasdaq: GLNG), Gulf Island (Nasdaq: GIFI), Int'l Royalty (NYSE: ROY), Iowa Telecommunications (NYSE: IWA), James River Coal (Nasdaq: JRCC), Lydall (NYSE: LDL), Magellan Health (Nasdaq: MGLN), Mirant (NYSE: MIR), Osiris Therapeutics (Nasdaq: OSIR), Republic Services (NYSE: RSG), Shanda Interactive (Nasdaq: SNDA), Telecom Italia (NYSE: TI), TETRA Tech (NYSE: TTI), The Blackstone Group (NYSE: BX), The Interpublic Group (NYSE: IPG), The Phoenix Cos. (NYSE: PNX), The Progressive (NYSE: PGR), Trex Co. (NYSE: TWP), Triad Guaranty (Nasdaq: TGIC), Trico Marine (Nasdaq: TRMA), Warner Chilcott (Nasdaq: WCRX), Westar Energy (NYSE: WR) and more.


(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK). Please see our disclosures at the Wall Street Greek website and author bio pages found there.