Jan 28, 2011

Consumer's Throwing Caution to the Wind

The equity markets are getting a slight bid this morning after the US economy posted a solid gain on the best consumer spending in four years. The GDP report showed the economy grew at 3.2% last quarter. Although this was below estimates of 3.7%, the number is still indicative of economic improvement during the quarter. Personal consumption increased by 4.4%, in excess of the 4.0% estimate, as consumers shed their shed their spending inhibitions in the last two months of the year. That’s quite a turnaround from August and September, when the entire country was focused on a double dip recession.

A recent BLS study reported that over 40% of US companies that conducted mass layoffs during the recession are now expecting to recall workers. Jobs, typically a lagging indicator, are the key to sustaining the economic recovery.

The US budget deficit is now forecast to reach $1.5 trillion this year. The CBO reported that over the next decade, the cumulative deficit will expand to 97% of GDP. According to the economist, the US political system is not ready to deal with our fiscal challenges. “America’s leaders seem frightened to speak in anything but generalities and platitudes. It is not encouraging.”

The CBO also reported that Social Security will run deficits for now on, and will be completely out of money by 2037.

LinkedIn filed for an IPO yesterday. The market is definitely open right now, and a better IPO market should help private equity and venture fund marks over the next few quarters. The pipeline for deals is the biggest since it peaked in 2007.

Verizon announced an all cash, $1.4 billion deal to acquire Terremark Worldwide, a leading provider of hosting services via independent data centers. Their focus appears to be Terremark’s positioning in managed services, not their data center footprint.

Amazon was a beneficiary of the 4th quarter consumer spending spree, positing a revenue increase of 36%. Unfortunately that result was below street estimates and the stock declined by 10% in the aftermarket last night and is down 9% on the open. Ford missed badly this morning and is poised to open lower as well, by 10%. Chevron beat EPS on weaker than expected revenues.

Marion Maneker reported that yesterday was potentially a very big day in the publishing world with two announcements that could capitalize in the rapid shift toward e-books. “As a measure of that shift, USA Today’s list of the top 50 bestselling titles revealed that 46% of those works sold better as e-books than print copies in the previous week.” This is creating a significant shift in the publishing, book retailing, and printing world.

The IMF warned that bond buyers might dump US and Japanese sovereign debt if the nations fail to reduce their budget deficits. The IMF said that Europe is making progress with its government debt, but that the US and Japan are lagging behind major economies.

APAC markets fell last night after Japan had its debt rating cut by S&P to AA- because of a “lack of coherent strategy” for dealing with its overwhelming debt load.

Have a great weekend.


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