Financial News Summary - 02-20-09

By Markos N. Kaminis - Economy & Markets:

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

The Dow slid to a new six-year low Friday, as troubling economic data from Europe exacerbated an already shaky week. In the States, corporate data flow only compounded the situation, and bank investigations both here and abroad have the financial sector right back in the pits of hell.

Economic Data Analysis

Consumer Price Index (CPI) - January

* Headline CPI: +0.3%
* Consensus: +0.3%
* Core CPI: +0.2%
* Consensus: +0.1%

January's Consumer Price Index was reported this morning, and it played no role in futures action or market tone, in our opinion. The CPI figures were about in line, though the tenth of a percentage point higher Core CPI result is not negligible.

Like the PPI, reported yesterday, headline CPI was greatly influenced by the first energy index rise since mid-summer '08. Energy was up 1.7%, mostly driven by a 6% increase in retail level gasoline prices; given that gasoline was up a higher percentage on the producer level, we would expect consumer prices to have some momentum in February as well.

You must be wondering what drove the Core CPI rise, since food and energy are excluded from it. Well, the Transportation Index was up 1.3% in January, after falling 5.0% in December and 9.7% in November. Clearly energy prices have the potential of a multiplier effect here, eventually leading to greater shipping and travel cost adjustments tied to variable fuel costs. However, the driver last month was more direct, as "motor fuel costs," which is included in "transportation," rose 5.3%. Motor vehicle prices also increased in January, helping boost the total.

In the future, we wonder how much municipal transportation costs, or those tied to city subway, bus, regional rail and tolls will rise as municipalities do everything they can to balance budgets. Look out for this counterbalance to generally easing prices elsewhere. Even so, in January, the index for public transportation fell 1.8%.

CPI on a Year-to-Year Perspective

* Headline CPI: 0.0%
* Core CPI: +1.7%

A 20.4% decrease in consumer level energy prices was offset by rising prices across the board, especially a 5.3% increase in the price of food and beverages. The rate of inflation clearly eased through the period.

International Markets News

Euro Zone Purchasing Managers Index

The Euro-Zone manufacturers PMI touched a record low in February, falling to 33.6, from 34.4, giving the ECB more impetus to get off its rear in March and do what it should have done in February (read cut rates from the current 2.0% level). Economists were reportedly looking for a rise in the index, so perhaps there are still too many folks taking happy pills in Europe. Like our similar indexes, a measure below 50 signifies economic contraction.

The service sector measure also dipped, where economists saw it improving. It slipped to 38.9, from 42.2. The overall PMI obviously fell as well, touching 36.2, versus 38.3 in January. The Europeans had been enthused by a previous improvement in January figures, but February leaves no doubt now that the worst is yet ahead for Europe. Another quarter of drastic GDP contraction seems nearly certain for Q1.

Germany Denies Rescue Plan

Talk about being in denial, Germany killed rumors today that it might be about to lead a rescue effort for struggling EU states. The German Finance Ministry contested an article in Der Spiegel that had rumored as much, but also noted that concerted efforts of the European Commission, ECB and euro-zone finance ministers were in order. We warned yesterday that with the rumor of this effort alive on the wire and in the minds of Europeans, a lack of near-term action or statement of such action to come could pull support out from under European shares. Voila! European shares fueled a global shakeout today, driven by the weak economic data and partly by the German Finance Ministry statement, in our view.

Asia:

1. MSCI Asia APEX 50: -3.0%


2. Japan NIKKEI 225: -1.87%


3. Hong Kong Hang Seng: -2.49%


4. China CSI 300: -2.0%


5. India BSE SENSEX 30: -2.21%

Europe:

1. DJ Euro STOXX 50: -4.21%


2. UK FTSE 100: -3.22%


3. France CAC 40: -4.25%


4. Germany DAX: -4.76%

(Index prices are as available at hour of publishing and may not be the closing price)

Swiss Banks Roiled

Yesterday's news that UBS would settle with U.S. tax authorities, and in so doing, provide information on U.S. investor funds kept in secret accounts, has effectively destroyed significant value in Swiss bank firms. The secrecy distinction served as a differentiator, providing Swiss banks with a means of drawing excess deposits from rival institutions across borders. That's not to mention the aristocratic appeal of Swiss banking, which mostly resulted from its exclusivity and secrecy. UBS (NYSE: UBS) shares are down 12.7%, while Credit Suisse (NYSE: CS) is off 3.1% and Julias Baer (VTX: BAER.VX) 6.9%.

Commodity Markets

Gold on the Rise

In recent articles in which we discussed what to own in 2009, we joked about canned goods, bottled water and guns, but we were serious when we mentioned gold. The shiny metal passed a thousand dollars today on the most current futures contract. It was up 2%, to $996.50 when last we checked. This article is meant for quick reading; we hope to discuss gold in a more detailed fashion in the near-term, and you might be surprised by our complicated forecast.

Corporate News Drivers

Anglo American

Mining firm, Anglo American (Nasdaq: AAUK), today announced a massive workforce reduction of 19,000 employees. It was an interesting development, occurring the same day gold broke above $1,000. However, Anglo American is a well-diversified mining company, and therefore, most of its products are cyclical in nature. In case you've been in a coma, we should inform you that the economic downturn has severely damaged commodity pricing. As a result, the company's Base Metals Division took a 42% operating profit hit in 2008. The Base Metals Unit was responsible for 45% of the company's operating profit in 2007, and so you understand the problem... While capital expenditure cuts had been previously announced, today's workforce news accompanied a dividend suspension, offering clear warning to all industry investors.

A total of 10% of the company's workforce is scheduled to go away, but the means described offers an interesting note: through layoffs, scaling back of contracting arrangements and through natural attrition... What's natural attrition in the mining industry, accidental asphyxiation, elevator malfunction and being buried alive? I think they could have left that part out, because even if there is normally a high turnover rate in the business, today's economy will solidify employee willingness to bear jerky bosses and asphyxiation risk... I would think...

General Motors

General Motors (NYSE: GM) seems to have initiated a partial minor bankruptcy, and appears to us to be orchestrating an orderly restructuring not too dissimilar to bankruptcy proceedings. However, in this case, thanks to U.S. government aid and sought after foreign government aid, GM can avoid major disruption of its supplier and dealer networks, preserving the greater auto economy. It's as if the U.S. and other directly impacted nations are getting together to save the GM nation. One notation is called for here though... This salvation is not painless. GM is planning to shut down another five or six U.S. plants.

Today, it looks to have stepped toward a mini-bankruptcy of its Saab unit, and it hopes that through Swedish government reorganization protection (read bankruptcy), it might effect this while freezing its financing needs at Saab for three months. After that, it hopes to spin off the unit or sell it. It seems a whole lot more reading is required to explain how this can occur, so we'll take a look for ya!

J.C. Penney

Popular media noted today that J.C. Penney (NYSE: JCP) reported better than expected results. That was a bit deceiving now wasn't it chums? It put a jazzy label on a battered, pre-worn useless garment, so to speak... JCP actually posted a 51% shortfall from its prior year net profit, on a same-store sales decline of 10.8%! The company drastically marked down inventory in Q4 in order to move it before the store itself was forced to move out of the mall. Not only that... J.C. Penney said the first quarter of this fiscal year would not meet the analysts' view, not by far. The company's forecast loss is about 50% greater than analysts foresaw on average. JCP shares were down 1% at hour of publishing.

Lowes

Lowes (NYSE: LOW) didn't mince words. The country's #2 home improvement retailer posted a 60% profit decline and lowered market expectations for the future. Blunt presentation did it no good today though, cause the truth hurts! Its quarterly same-store sales dropped 9.9% as it had to mark down prices aggressively while in the midst of desperate competition doing the same. That's what happens in a saturated marketplace during drastic demand decline folks, and we prepared you for it here long ago. LOW shares are off by 6.5% at the hour of publishing.

Bank of America

New York State Attorney General Andrew Cuomo subpoenaed Bank of America (NYSE: BAC) CEO Ken Lewis. Regulators are reviewing the questionable bonus planning and payouts that occurred for Merrill Lynch executives before the deal closed. There were exchanges of information and nonpublic documents detailing the maximum Merrill could pay out in bonuses, and these computations reportedly took place before the quarter end, which is highly irregular. Investigators want to know if information was withheld from and/or falsely reported to shareholders. Bank of America shares are down 31% so far today as a result!

Corporate EPS Schedule

The earnings schedule highlights news from Advanced Medical Optics (NYSE: EYE), Anglo American (Nasdaq: AAUK), Barrick Gold (NYSE: ABX), Brady Corp. (NYSE: BRC), Colfax Corp. (NYSE: CFX), Constellation Energy Partners (NYSE: CEP), HMS Holdings (Nasdaq: HMSY), Interline Brands (NYSE: IBI), Jaco Electronics (Nasdaq: JACO), J.C. Penney (NYSE: JCP), Kingsway Fin'l (NYSE: KFS), LifePoint Hospitals (Nasdaq: LPNT), Lowe's (NYSE: LOW), Ore Pharmaceuticals (Nasdaq: ORXE), Pacific Office Properties (AMEX: PCE), Pinnacle West (NYSE: PNW), Prudential PLC (NYSE: PUK), RTI Biologics (Nasdaq: RTIX), Standard Register (NYSE: SR), TC Pipelines (Nasdaq: TCLP), TRW Auto (NYSE: TRW) and Weingarten Realty Investors (NYSE: WRI).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. (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)