2010 Stock Market Analysis

As we speed through the last few trading days of 2009, it’s time for all of us to turn our attention to what is sure to be an interesting and eventful 2010.

So, let’s take a look at what investors should be keeping in mind – and on their radars – as we enter a bright new year and evaluate the next phase of the economic recovery.

The unemployment rate remains the ultimate barometer of how well the recovery is doing. The initial $787 billion stimulus package was supposed to create or save millions of jobs, but so far success can only be measured in terms of “what could have been”. It’s a safe bet that the stock market can’t get on a sustainable uptrend until new jobs are being created, and the unemployment rate begins to tick down.

As long as unemployment is rising, bears will have strong ammo to retain their stance in market discussions. Investors should remain cautious of companies and industries that rely on consumer spending until we see concrete evidence of higher employment.

Home tax credit extended and the mortgage industry is another key metric to follow in 2010. The $8,000 new buyer credit now runs through April 2010, and an additional credit offers $6,500 to homeowners that have lived in their home for at least five years and are looking to relocate their primary residence. This should help to improve the home market and fringe retailers like Home Depot and Lowe’s, and other home appliance and home improvement stocks.

Housing led us into this mess, and at some point it will need to help lead us out. Housing data follows employment data as the most important economic indicators heading into 2010.

The banking pulse will continue to dominate headlines. We might see the vast majority of TARP funds repaid to the U.S. Government by the end of 2010. On December 2, Bank of America got approval from the Treasury Department to repay its $45 billion in remaining TARP loans. Bank of America subsequently sold nearly $20 billion in stock to raise cash, and its move could be followed by similar actions at Citigroup and Wells Fargo.

The combination of a falling U.S. dollar and higher commodity prices has been the most consistently profitable investing theme of 2009. Most signs point to the dollar remaining low in 2010, but if we see any signs of inflation in economic indicators like the CPI and PPI, expect the dollar to start recovering as short-term interest rates will head higher.

Investors should have some stock exposure to commodities as well as stocks with a high percentage of exports, but don’t bet the farm on them. This area has had an extremely good 2009 and could be due for a drop, or at least a slowdown.

There’s cash in them thar hills! We continue to see investors holding cash, trillions in fact. This means that as more people have faith that we are indeed recovering, there is a lot of kegged gunpowder that can fire into stock markets next year.

Gold riskier than you think?

A speculative economy and cloudy outlook in the financial markets has sent investors flocking to gold in 2009. Before you take the plunge with what’s left of your savings and investments, take a closer look at what’s making this metal shine.

Recent email inquiry from a Stocknod member “With the recent upheaval in the economy and forecasts of a “second bubble”, I want to shift more of our investments in our 401k into precious metals (gold/silver). My financial advisor scoffs at this thought — like I’m a weirdo “gold/precious metal bug,” and I’m not. I just want to protect our 401K after the disastrous hit it took last year. What are some funds I could buy?”

First let me say that investment managers shouldn’t be scoffing at anyone these days. And you don’t have to be a “weirdo gold bug” to benefit from buying precious metals. My concern with Gold as posted by several of my blogs is that investors have been piling into gold for good reason, and there’s nothing wrong with the logic behind the case for buying. Gold has traditionally done very well in times of financial upheaval because of its perceived as a “safe investment” that can do no wrong.

The price of gold typically rises when the value of US Dollar falls. Similar to a lot of commodities. As the Federal Reserve and U.S. government have flooded the world with paper money to try to revive the global economy, gold bulls argue that it’s only a matter of time before inflation returns. Surging prices for goods also push gold prices higher.

All of these conditions have helped spark big demand for gold, which creates additional upward pressure on prices. But keep in mind that gold prices can fall sharply with little notice. So while it may provide a useful hedge, it’s not a great place to stash your entire nest egg. Especially with prices already through the roof.

Investors who did so in the late 1970s learned the hard way why gold can be so risky. As inflation raged, gold prices doubled in the ten months that ended in October 1979. Governments appeared powerless to stop the corrosive price spiral. Interest rates remained high because anyone lending paper money worried about its rapid loss of value. By January, 1980, gold prices had doubled again to hit $850 an ounce.

The Fed’s unprecedented moves to keep short-term interest rates at zero by flooding the system with cash is certainly cause for concern.

There’s little evidence of inflation in the economy today; the large excess capacity in housing, manufacturing capacity and labor markets are creating a big damper on prices. But if central bankers wait too long to mop up all that money, it could spark a fresh outbreak of inflation.

If you’re worried about inflation, there may be better ways to hedge. The price of metals like copper will likely rise if the global economy picks up and demand increases, especially in the developing world. (The same is true for oil.) For individual investors, there are a number of funds or ETFs that offer you a diversified basket of commodities.  Take a look at Pro Shares Ultra Gold EFF.

Retail report: holiday stress or success

With Christmas just days away, consumers must be flooding malls and stores nation-wide to fill the underneath of their trees. But, the media reports lackluster sales and empty parking lots, which I recall hearing for the last, oh, ten years! Are the large retailers struggling? Or is this a strategic media ploy to motivate shoppers to start buying to aid the economy? Lets take a look in this month’s retail report.

Lets start with the large, upscale department store, Nordstrom. I can’t remember a December where I didn’t have to fight for a parking spot or park across the street from it at a business park. Nordstrom offers clothing, jewelry, fragrance, and food, which all should be in high demand this time of year. Has the recession taken a bite out of their sales or stock price as the Nordstrom stock news would have you believe? Doesn’t appear to have, not when you look at 2009 Q4 sales and corollary stock price for Nordstrom, Inc. Total sales for Nordstrom, Inc. rose 5.9 percent to $749 million for the four-week early Christmas/Black Friday period ending November 30, 2009 from $707 million a year ago. Its stock price has also increased from $33.45 on Nov. 30 to Dec. 14th price of $35.95.

Now lets look at Target stock news. Another retail establishment busting at the seams with potential flu carriers…I mean, consumers. Target has a more broad selling focus, offering clothing, electronics, toys, household, office supplies, and groceries. If their checkout lines are any indication, Target will also dispel the media’s claims of a “ghost town” shopping season. Target’s stock price rose from $46.56 to $47.66 from Nov. 30 to Dec. 14. Its net retail sales for the early Christmas/Black Friday period from Nov. 1-28, 2009 were $5,689 million, an increase of 1.5 percent from $5,605 million for the same period in 2008.

Before we take a look at our last outlet in this retail report, there is another issue that I want to discuss. If we’re in a ression then how is there a “holiday hot toy”! It’s almost impossible to find a Zhu Zhu Pet at the store. From Nov. 1-30, over 206,000 Zhu Zhu Pets transactions have taken place on ebay. Shouldn’t parents be buying bread and socks for their kids insted of motorized hamsters? The market is a contradiction. Its not just pockets of retail success. Look at this eBay chart indicacating where Zhu Zhu Pets have been sold. It looks like a nation-wide outbreak of (spending, that is) rather than a recession.

Venture into the online shopping arena with the recent powerhouse Amazon.com news and you will see no other cyber-retailer compares with Amazon. They offer books, electronics, home & garden, tools, grocery, digital downloads, you name it. Have the attractive prices and ease of shopping from your office chair or couch enticed consumers in this economy? From the same range as the other retailers, Nov. 30 to Dec. 14, Amazon’s stock price (AMZN)  has dipped from $135.91 to $131.38. Interesting. However, if you move back the starting date to Oct. 22, which could mark the time people embarked on their early Christmas shopping, the price was $93.45. Four days later it shot up to $124.64 and has stabilized in the $120-$144 range since. Into Q4, Revenue was up 28% from last year to $5.45 billion. Amazon.com Consumer Electronics VP Paul Ryder reported that sales are up in December and have been getting busier and busier as Christmas grows closer. So, it looks like Amazon is beating the slow consumer spending rap as well.

So, don’t believe what you hear on the news. Based on this retail report of three of the retail leaders in their segments, there is no consumer spending crisis. Spending this Christmas season has not only matched last year’s numbers, it has eclipsed them. Stocks are up, revenue is up, and no-one can find Zhu Zhu Pets. Good luck, shop well, and have a great Christmas.

Metlife Stock

MetLife Inc (MET) MetLife shares rose 2.7 percent, or 98 cents, to $36.31 in afternoon trading on the New York Stock Exchange. After a rock 3 month rocky decline, current MET Life news points towards another big bounce.

MetLife Chief Executive Robert Henrikson said at an annual investor conference that the company sees revenue growing by up to 8 percent in 2010 as the company lures customers away from weaker rivals.

Life insurers were particularly susceptible to the upheaval in credit markets, which led to large losses on the sector’s holding of trillions of dollars in investments. But as markets have recovered, MetLife and its next biggest rival, Prudential Financial Inc (PRU.N), have emerged stronger than some peers, helping each to win more business. Latest Prudential Financial Stock Prices.

MetLife expects improved investment profit and lower expenses will also help its bottom line in 2010. The company said it met its target of $400 million in cost savings a year ahead of schedule and raised its forecast for savings in 2010 to $600 million.

Henrikson said the company was “wide open to really accretive” acquisitions, or deals that could significantly bolster growth. He declined to speak about specific deals.

MetLife’s (Met) stock price has more than tripled since hitting a 52-week low of $11.37 in March as investor fears about the capital position of U.S. life insurers eased. Get stock alerts on Met Life.

Commodities Stock Bubble

Is a commodities stock bubble about to pop? And which commodities are at more risk than others? Many preduct Gold ETF Funds to have sharp turn in coming months. Here are experts from a Reuter’s article I read today.

A bubble has formed in commodities as “speculative fervor” returns to markets after the global financial crisis, veteran Wall Street economist Henry Kaufman said on Monday. “There are bubbles in commodities,” and probably in the gold market as well, Kaufman, president of financial consulting firm Henry Kaufman & Co Inc in New York, told analyst at Outlook Summit in New York. He cited the return of leveraged bets as one driver of select commodities stock bubbles.

Because commodity markets are small compared with some other financial markets, comparatively modest shifts out of other assets could increase the risks in commodity markets.

However, the “speculative fervor” where participants are borrowing heavily in short-dated markets “might be a risk for the dollar,” Kaufman said.

Investors, spurred by near-zero U.S. interest rates and easy availability of funds, have borrowed huge sums of money in dollars in recent months to purchase higher-yielding assets in so-called “carry trades.”

Kaufman went further to say he did not expect the U.S. government to take any action to stabilize the dollar at the degree they have gone.

Longer term, if the U.S. economic recovery is more anemic than that in some other major economies, that will weigh more on the dollar, he added, citing the area between 80 yen and 85 yen per dollar as a “testing point.”

Despite some analysts’ concerns that the huge amount of U.S. government debt issuance will ultimately pummel the dollar and push U.S. government bond yields steeply higher, Kaufman expects the 30-year Treasury bond’s yield will rise only moderately to about 5.5 percent by early 2011, from about 4.4 percent now.

Kaufman became known as “Dr. Doom” for correctly forecasting higher inflation and interest rates when he was chief economist with Salomon Brothers in the 1970s and 1980s. He is also known as an expert on the Federal Reserve.Look for several of the barn burner commodities to peter out soon. Keep close eye on Top Gold ETF Funds: ProShares ultra Gold (UGL Prices) and SPDR Gold Trust (GLD Prices). Follow current hot stock picks with Stocknod Hotsheet.