Jan 3, 2011

January 3, 2011

Happy New Year. I hope your holidays were fabulous!

US equity markets are opening strong this morning after the ISM posted an inline result (57.0) suggesting continued manufacturing expansion. The prices paid index was above consensus at 72.5 vs. 71.8 and the prior period at 69.5. Construction spending declined to 0.4% from 0.7%, but was ahead of the consensus of 0.2%. Oil and commodities are rising again today while bonds continue their weakness. The dollar is also up this morning after being weak most of the past 10 days. The risk is that stronger economic growth will either defer the Fed’s QE2 or that the Fed will continue and create inflationary pressures.

Bank of America announced they would pay $2.6 billion to resolve claims by Freddie Mac and Fannie Mae regarding loan sales with faulty documentation. The company had faced at least $13 billion in unresolved put back demands prior to the settlement, about half due to Freddie and Fannie. Most of the loans at issue were originated by Countrywide.

2011 could see a resurgence in the IPO market as private equity firms, long shut out of the equity markets, look to unload inventory from ’04-’07 vintage deals. If the equity markets can maintain their strength, watch for a deluge of sponsored IPO’s in the first half of the year.

Small caps led returns last year, and typically signal an economic recovery is underway. The smalls tend to be more dependent upon US demand and, according to Bloomberg, have preceded faster economic growth during the past 20 years.

Nike turned some heads last week by guiding to roughly 150 bps of margin pressure over the next 2 quarters due to cost inflation. Management does not expect to offset much of the mid-single digit cost inflation in the near term but stated they are not in panic mode because they believe that Nike's market leadership, scale, and leverage with suppliers and retailers ultimately gives it the ability to raise prices and share the pain.

The Port of Charleston’s container volumes increased by more than 14% in November, resulting in the 11th consecutive month of growth for the port. Through the first 11 months of 2010, Charleston container volume was shown to be up 17.5%, while container volume over the past five months was up 15.9%.

Asian markets were mixed while European markets are also strong this morning.

Have a great day


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