Thursday, April 28, 2011

Stock Market: What Really Matters

Rising jobless claims? A slowing economic recovery? The stock market ignored the bad economic news today and climbed to a new multi-year high.

Rightly so. The disappointing numbers today (the jobless claims that jumped last week by 25 K on 429 K and the economic growth that slowed to 1,8 % last quarter from 3,1 % in the quarter 2010) are just statistical bloopers. The strong economic upswing, which started around 2 years ago, stays intact.

The profits of companies are rising fast, because they get more efficient and benefit from the high growth of the global economy, especially in China and other economic markets. The dynamics of the world economy and the rising productivity of companies should keep the rally running for a while!

Movies: Hanna

Don´t believe the first impression! Especially when you have to deal with Hanna. At first sight she is a real cutie, an innocent and fragile girl who reminds to the Madonnas and angels painted by Raphael (Raffaello Sanzio da Urbino, the Italian Renaissance painter). But beware! Hanna is also a human killing machine, trained to terminate her foes very fast and efficiently.

This is the idea of the fascinating new film "Hanna" (directed by Joe Wright known from "Atonement" or "Pride & Prejudice). Of course, the idea of a human being educated as a dangerous weapon isn´t new and sometimes the plot harkens to the "Bourne Trilogy". But the flick goes its own ways.

It`s fascinating watching fragile looking Hanna (played by the 16 year old talent Saorise Ronan) deals with her plentiful opponents. She is elegant and smart. But "Hanna" is not just another slick action thriller. It is also a cultish art movie with funny and surrealistic moments. This mixture makes the flick a real pleasure. The icing of the cake is the lusty score from the Chemical Brothers. Enjoy!

Wednesday, April 27, 2011

Stock Market: The Perpetual Profit Machine

Many spectators are surprised: The stock market climbed today on a new multi-year high. How could that be? If we believe the media, the world is suffering under a chain of crisis: Nuclear disaster in Japan, political unrest in the Middle East and high debts of the United States, Greece and other countries. But it seems the stock market doesn`t care. The ongoing rally in the stock market proves that the investors focus on another issue: profits of the companies, and they are rising fast.

The rally on the stock market, which started in March 2009, has now got new legs because we are experiencing another strong earning season. In recent days many companies have reported their results from the first quarter of the year, and many of them beat the predictions of the analysts. In Q1 company profits & revenues climbed faster than expected and the majority of the companies gave encouraging outlooks (guidance) on the current quarter.

The good Q1 numbers aren´t a surprise. Company profits already grew faster than expected last year. Companies are benefiting from the fact that they get leaner and more efficient. The last recession especially forced them to squeeze out a lot of their costs, which now leads to strong productivity gains. Also helpful is the growing world economy, which permits the companies to expand their markets.

But the recent gains are just a part of a long term development. Companies are just a structured cluster of humans, and like them tend to learn. And they learn to get better and better every day. Companies develop new products and tap new markets while reducing their costs. Therefore we can expect that  profit growth will continue in the long run, at least as a trend. This will translate into rising stock prices because the value of a company is just the sum of its profits.

Friday, April 8, 2011

New Orleans: The Charm Of The Garden District

New Orleans is a charming place. The subtropical climate delivers pleasant temperatures in spring and you will find a lot of beautiful buildings there. While I visited the "Big Easy" last month I enjoyed especially the Garden District. This area was developed in the 19th century when successful entrepreneurs — the “nouveau riche” of that time - invested their fortunes in opulent building structures.

"It may be one of the best preserved collection of historic southern mansions in the United States" writes Wikipedia. You can find many architectural styles there, including Greek Revival, Italianate and Queen Anne Victorians, very often set in beautiful gardens. Enjoy.

Thursday, April 7, 2011

Stock Market: The Surprising Consumer

The world is very unsure and insecure, don`t we know it!  But there is one factor on which we can rely: The US Consumer. This morning we got US retail sales from March. The retailers reported much better numbers than the pessimistic analysts predicted.

The so called experts predicted that the same-store sales (excluding new shops) declined last month by 0.7%. Instead, the retailers posted an aggregate gain of 1.7%. In fact, 82% of retailers beat estimates. Discounters posted the best performance, with a 3.9% overall same store sales gain.

Costco (COST) posted a 13% year-over-year gain, beating expectations for 7.4%. Saks (SKS) sales grew 11.1%, better than expectations for 0.8% growth. Limited Brands (LTD) posted a 14% gain, against expectations for 1.5%. Zumiez (ZUMZ) and The Buckle (BKE) also outperformed handily.

The reason for the pessimistic predictions were rising food, cotton and gasoline prices, a slowly recovering job market and a bleak housing market. Analysts also quoted the late Easter holiday, which will falls on April 24. This means that this year the pre-Easter shopping moves in April. But  the numbers show that the consumer is much more optimistic and free-spending than analysts think.

This is also good news for the stock market, not just for retail stocks, because the consumer is the motor of the whole economy.

Tuesday, April 5, 2011

Reinsurers: Benefitting From The Disasters

Reading the media we find disasters everywhere: Japanese nightmares, flooding in Australia, earthquakes in New Zealand, just to recall the latest. Shouldn´the stocks of the reinsurers be down? These companies are covering the risks of other insurance companies and now have to pay for a huge part of the damages. They might pay $35 billion for the Japan disaster alone, according to Flagstone Reinsurance Holdings.

But the stocks of reinsurers don´t fall - quite the contrary! Yesterday reinsurance stocks hit a new 52-week highs. Shares of RenaissanceRe Holdings (RNR) and Arch Capital Group (ACGL) climbed on new highs.

The reason: The investors are betting that the series of global disasters will allow the reinsurers to raise their fees. Reinsurers get payments for the risk they take. The higher the supposed risk, the higher the fees.

So, investors now believe, that history is repeating itself. In times of high risks the reinsurers get high fees, but in low risk times they get less. The series of disasters should lead to higher reinsurance fees and therefore higher profits for these finance companies.

Chip Stocks: CEOs Versus Analysts

Computer chip stock were under pressure recently. The stocks of Intel, Advanced Micro Devices (AMD), Nvidia and other leading processor makers suffered under negative comments from analysts. The brokers were lowering their profit estimates for the chip companies, because they believe an allegedly weakening demand for PCs is slowing down the sales of computer chips.

But some CEOs seem to think differently, at least Richard Templeton. The CEO of Texas Instruments (TXN) wants to buy their competitor National Semiconductor (NSM). The Texan chipmaker offereds $25 cash for a National Semiconductor share, which is 78% higher than their closing price yesterday - a huge premium.

The offer is a sign that Texas Instruments regards the value of their competitor much higher than Wall Street and the analysts do. It is also a sign of great confidence in the prospects for the whole chip industry, much more confidence than most of the skeptical analysts show.

Whom should we believe more? A CEO of a company should at least know his market much better than the analysts. Maybe the offer for NSM is a valuable hint for investors?

Monday, April 4, 2011

Stock Market: Encouraging Strength Of The Transport Sector

The stock market showed a surprising development today: The Dow Jones Transportation Index climbed to a new multi-year high. The index contains transportation stocks, like airlines, railways, shipping companies, trucker and logistic companies (e.g. FedEx).

Over the past few weeks transportation stocks are performing better than the stock market as a whole. This over performance is astonishing, because the climbing oil price is raising the costs of the transport companies.

Apprently,  investors assess the positive impulse of the economic upswing more than the negative effect of the rising energy costs. Transportation companies are very sensible about economic development, therefore economists regard  the Transportation Index as an indicator for the current economic situation. The strength of the Transportation Index is a sign that the whole economic situation is getting better, which is also positive for the whole stock market.

Sunday, April 3, 2011

Stock Market: A New Tailwind From the US Job Market

The Stock Market started the new month with new gains. Investors cheered the monthly US employment report, which was better than expected. Non-farm payrolls grew 216,000 in March, the fastest pace since last May. The jobless rate dropped to 8,8% (from 8,9%).

The revitalization of the job market shows that the CEOs are now reacting to rising company profits. They hire more people because they want to expand their businesses to benefit from the economic upswing.

This confirms that the recovery of the economy is sustainable and therefore the rally on the stock market most likeli will continue. People who get new jobs will consume more and create more profits for the companies. Rising company profits in turn generate more gains on the stock market.