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Dallas, TX
March 1, 2010, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Emerging Trends: Murky Tax Outlook And Cautious Increases In Salaries
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What's Hot Today: |
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U.S. stock index futures were pointing to a slightly hither
opening on Monday. The dollar regained lost ground overnight. Oil is still
pushing to get above $80 per barrel with little success.
- Personal Income and Outlays 8:30 AM ET
- ISM Mfg Index 10:00 AM ET
- Construction Spending 10:00 AM ET
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 11:30 AM ET
- 6-Month Bill Auction 11:30 AM ET
News For Thought
Greece and Germany disagree on scope and timing of "bailout." According
to multiple reports over the weekend, a German led bailout for Greece is
coming. Greece's prime minister has been quoted as saying that news could
come as early as the end of this week. Yet, The Wall Street Journal reported: "The
conflicting accounts reflect Germany's reluctance to give up any leverage
it has over Greece before Athens has shown concrete progress in reining
in its deficit, expected to reach nearly 13% of gross domestic product
this year. Germany, the economic engine of the 16-nation euro zone, would
have to shoulder the lion's share of any bailout. Polls show that a solid
majority of Germans oppose extending aid to Greece. Greece, which needs
to refinance more than €40 billion in debt in the coming months amid growing
doubts over its solvency, is eager to lock in a rescue plan as quickly
as possible."
Report: AIG may sell unit for $35 billion. According to Reuters: "Prudential,
Britain's largest insurer, will pay about $25 billion in cash and the rest in
equity, which could include preferred stock, for AIG's American International
Assurance (AIA), the source said, declining to be identified because the deal
is not public yet. A deal, in what would be the largest asset sale for insurer
AIG, could be announced as soon as Monday, the source said."
Private school entrance exams in New York decline. According to Bloomberg: "Fewer
children took entrance exams for private elementary schools, continuing a decline
that began last year, as the economy hurt parents’ ability to pay annual tuition
of more than $30,000. The number of tests completed by kids applying to prekindergarten
to fifth grade declined 4.4 percent, to 4,259, said Antoinette DeLuca, an executive
director of the Educational Records Bureau, which administers the exams." On
the flip side, public school enrollments are on the rise.
China manufacturing survey shows economy is slowing. According to Marketwatch.com: "Purchasing
Managers' Index eased to 52.0 in February from 55.8 in the previous month, according
to the China Federation of Logistics and Purchasing. The PMI reading was lower
than the 55.45 median forecast in a poll of economists by Reuters. However, the
result was still above the 50 mark, which indicates expansion in manufacturing."
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Emerging Trends: Murky Tax Outlook And Cautious Increases In Salaries
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Crossroads For Recovery Appear
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There is an interesting conflict between emerging data and
emerging trends. The most recent economic data, especially employment claims
suggests that maybe the economy is slowing. Yet, the government wants to raise
taxes and businesses are starting to want to raise salaries.
The three trends aren't exactly pulling in the same direction, which means that
the future remains uncertain and that a smooth recovery remains in doubt.
Some things seem to be getting better. Prices are stable for most things, such
as groceries, and even gasoline. Yet, the specter of higher taxes is clearly
shaping investor behavior. According to The Wall Street Journal, clients at Fidelity
and Charles Schwab are moving their assets into tax free bond funds at a fourfold
clip compared to normal money flows into these instruments. This is being combined
with moves into Roth IRAs which pay taxes at current rates and can be added to
with after tax dollars.
This behavior suggests that the fear factor is on the rise, but does have some
potential pitfalls in the future, such as what would happen if tax rates don't
actually rise to a degree where moving to a Roth IRA actually costs investors
money and tax free bond funds get hit with defaults from municipalities who can't
make payments on their bonds?
On the other side, a more positive, albeit tentative trend may be starting to
take hold. According to The Journal: "Slowly and tentatively, some companies
are rescinding pay cuts made during the recession."Hard-drive maker Seagate Technology
Inc. and New York Times Co. are among the concerns restoring full salaries for
some but not all employees. Hewlett-Packard Co. granted one-time bonuses after
cutting pay, though it may not permanently reverse the cuts. FedEx Corp. is resuming
some raises, but from levels that were reduced by pay cuts. Computer-storage
giant EMC Corp. fully restored pay in January only after monitoring financial
performance for six months."
There is clearly a trend emerging with salaries. Much of it may have to do with
retaining key employees, which is why these companies are going about the restoration
in a piecemeal fashion. Yet, it's a sign that business may be improving to the
point where it's worthwhile for the companies to make the commitment of raising
salaries for key employees.
Yet, this is hardly an accross the board trend, a signal that any recovery remains
murky. According to The Journal: "Thirteen percent of companies cut pay between
late 2008 and October 2009, and 29% of those planned to rescind the cuts in the
following 12 months, according to an October survey of 875 human-resources employees
by the HR association WorldatWork. About 15% said the pay cuts were permanent."
In fact, there is plenty of fine print and company specific dynamics rule the
roost with regard to how each entity pursues the give back to employees. According
to The Journal: "FedEx said in December that it would begin offering merit increases
again this year after a bigger-than-expected bump in holiday shipping. But with
profit and revenue still under pressure, the raises will be based on the reduced
pay levels that followed the 5% cuts imposed a year ago, said a spokesman." Regional
issues are also impacting the situation. According to The Journal, the New York
times didn't rescind the paycuts for its Boston Globe employees.
EMC announced over Christmas that pay cuts would be rescinded. According to The
Journal, EMC made its cuts in May and June of 2009 but "Executives at the Boston-based
company scrutinized weekly order levels for the next six months to make sure
they felt comfortable restoring pay. In the third quarter, EMC exceeded its internal
sales expectations by $100 million, Chief Financial Officer David Goulden said,
but the company didn't accelerate the timeline to reinstate full pay. In the
fourth quarter, though, EMC again beat its sales projections."
Conclusion
There are two significant trends to consider for the next 12-24 months. One is
that some form of higher taxation is coming. Congress is likely to start haggling
about taxes after the 2010 mid-term election. That means that the outcome of
the polls will also affect the extent of any new taxes.
Thus, higher taxes are coming, but the extent and the timing is not certain,
given the potential for some Republican gains in the Senate, the House and gubernatorial
elections. Those investors that are making hasty decisions could regret them
after the election. They may also be laughing at those who waited. Still it seems
that putting all of your eggs into one set of beliefs when there is such uncertainty
is a recipe for potential trouble.
The fact that some companies are starting to reinstate raises and bonuses, even
with the fine print that is attached to many of these moves, makes us cautiously
positive. These are still very few examples, and there is no real evidence of
a small business recovery that is palpable.
But there is a feeling out there that the worst may have passed. And for now,
that's a significant change.
The bottom line is that time is as important a fact in a recovery as it is in
making decisions about the future. Higher taxes are likely, but there is too
much uncertainty about how they finally arrive. It may be better to concentrate
on rebuilding a nest egg at this time before actually deploying it. In other
words, surveying the landscape is smart. Jumping at shadows isn't.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Nike Inc. (NYSE: NKE) Broke Out Of Base Last Week
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It may be an
Olympic related move, or something else, but Nike Inc.
(NYSE: NKE) broke out last Friday.
Chart Courtesy of StockCharts.com
It makes sense for a sports apparel company's stock to
break out during an Olympics fortnight. Yet, Nike isn't
exactly known for its winter gear.
What's more important to Nike is summer and indoor sports such as basketball.
This year, though, Nike could actually make big bucks on soccer, as the World
Cup will take place.
In fact, Nike's been telling the press that its soccer sales, ahead of the World
Cup, are ahead of schedule. Goldman Sachs upgraded the shares last week, also
helping the stock move.
From a technical standpoint, Nike was due for a move, as it had been moving sideways
for months. When a stock forms such a base, it is often the prelude to a big
move of some sort, up or down.
If you look at things from a broader point of view, though, rising fortunes for
a sports apparel company suggest that maybe people are starting to take their
minds off of some of their misery and turning toward more positive endeavors.
That can't be bad news. |
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