2009 December
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Don't Be Fooled by the Housing Market's False Bottom
Existing home sales surprised the markets by rising 7.4% to an annual rate of 6.54 million units in November, the highest since February 2007, according to the National Association of Realtors (NAR). That's only 10% below the all-time peak in 2005.
What's more is that house prices, as measured by the S&P/Case-Shiller 20-city Home Price Index, rose for the fourth consecutive month in September before stabilizing in October when prices were flat.
The NAR is inevitably convinced that the worst is over and that housing is due for a rapid recovery, and that home prices will take out 2006's peaks some time in 2011 or 2012.
Not so fast, guys!
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Only the Strongest Retailers Will Survive in 2010 as U.S. Consumers Continue to Battle Back
The early returns on the 2009 holiday shopping season show a minor gain over last year's abysmal retail sales, and next year will affirm that retailers are successfully adapting to a consumer environment that's very different from years past.
However, 2010 will be difficult for retailers as they contend with high unemployment, tight credit, and aggressive competition.
Retail sales gained 3.6% year-on-year from Nov. 1 through Dec. 24, SpendingPulse, a unit of MasterCard Advisors (NYSE: MA) said earlier this week. But an extra day between Thanksgiving and Christmas this year may have skewed the data anywhere from 2% to 4%, SpendingPulse said. Sales in the same period last year declined 2.3% as consumers reeled from the financial meltdown that occurred in the fall.
"The latest holiday shopping season wasn't a rip-roaring success, but at least it met or slightly exceeded expectations," John Lonski, chief economist of Moody's Capital Markets Research Group (NYSE: MCO) told The Associated Press. "Consumer spending is indeed in a recovery mode, which brightens prospects for 2010."
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GMAC to Receive Additional $3.5 Billion TARP Bailout
The U.S. government is negotiating to provide GMAC Financial Services with approximately $3.5 billion in bailout funds in addition to the $12.5 billion the company has already received, according to multiple reports.
The U.S. Treasury told the company to raise additional capital as part of government-led stress tests of large banks conducted earlier this year. The tests were designed to identify banking firms that would need more capital to continue lending if the economy faltered in 2009 and 2010.
While the government views GMAC's survival as critically important to the revival of the auto industry, the company's financial troubles are actually linked to its mortgage lending unit Residential Capital LLC, or ResCap.
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U.S. Stocks Will Reward Optimistic Investors in 2010
I have been surprised to see the air thick with pessimism in recent weeks. Not so much the stock market, where the sentiment indexes show the bulls dominating the bears by slightly more than 52%. But among the general public.
An NBC/Wall Street Journal poll last week found that 55% of all Americans feel the nation is heading the wrong direction. This is the highest level since January of this year – when the financial crisis was red hot and U.S. President Barack Obama was just entering the White House! That's amazing.
A recent CNBC "Wealth in America" report found more negativity. Negative sentiments were expressed about the economy, stocks, home values, and wage growth. Faith in institutions like the U.S. Federal Reserve, the U.S. Treasury, and the financial sector were very low. President Obama's approval rating has fallen below 50% for the first time.
However, Merrill Lynch & Co. Inc. researchers picked up on this theme, and said in a recent note to clients that 2010 would be the year we exit the "pessimism bubble."
And I couldn't agree more. In fact, there might not be a better time to buy stocks.
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Investment News Briefs
With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world.
Fannie, Freddie Get Blank Checks; Holiday Retail Sales Rise 3.6%; Fed to Banks: Set Up CDs with Us; Health Care Bill Likely to Resemble Senate Version; JPMorgan Sues Former Bank Exec; Oil Tops $79 for First Time in Four Weeks
- In what's been called a "perplexing" move by one analyst, the U.S. Treasury lifted a $200 billion cap on the amount of taxpayer dollars that can be injected into ailing mortgage firms Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) , providing unlimited support to them. The Treasury put into $60 billion into Fannie and $51 billion into Freddie, and were unlikely to need more than the $200 billion cap, wrote Keefe, Bruyette & Woods Inc. analyst Bose George in a note to investors yesterday (Monday). George views the Treasury's move as a way to more aggressively prop the U.S. housing market, and said the government could step up efforts of its Home Affordable Modification Program (HAMP), a mortgage-modification program designed for homeowners who can no longer afford them. But so far, HAMP and other government props have failed to stop a continuing wave of foreclosures, as Money Morning reported last fall. Shares of the firms, both government-sponsored enterprises (GSE) skyrocketed in trading yesterday. Fannie was up 20.95% to close at $1.27, while Freddie gained 26.98% to close at $1.60.
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The "January Effect" Could Offer Quick Gains for Small-Cap Investors
If your investing tastes run more to small-cap issues than the giants of the Dow Jones Industrial Average and other major indexes, you could find 2010's best buying opportunities before the new year even starts – today (Tuesday) and tomorrow to be precise. That's the promise of the so-called "January Effect," historically one of the most reliable of the recognized stock market anomalies.
Although there are some minor variations, the primary thrust of the January Effect states that stocks do better in January than in any other month – and small stocks do better than large stocks, with the bulk of the gain realized from the final trading day of December through the middle of the following month.
While the first portion of that hypothesis isn't strictly true – historically, April has held a slight edge over January in general stock market performance – the small-stock portion has a strong record. In fact, in some years, small-stock gains in the first trading days of January have accounted for the sector's total advance for the entire year.
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China's Exports to Return to Growth Next Year, but How Much Will It Matter?
Shipments from the Red Dragon were hit hard in the first 11 months this year, falling 18.8% compared to a year earlier, but are expected to bounce back and grow 6% in 2010, China's State Information Center said today (Tuesday).
However, exports from China, which is largely considered to be the world's manufacturing floor, are becoming less and less relevant as the Red Dragon moves toward a more balanced economy.
For instance, imports are expected to grow 11% next year, reflecting a shift toward more domestic consumption. And while the country is known for its massive spending on infrastructure, its service sector is growing twice as fast as its construction and infrastructure sectors, according to Money Morning Chief Investment Strategist Keith Fitz-Gerald, who says exports account for only 20% of China's gross domestic product (GDP).
