- Alcoa Inc. (NYSE: AA) reports a loss to start earnings season- Alcoa reported a net loss of $143 million, or 13 cents a share for the third quarter, a reversal of last year's third-quarter profits of $172 million, or 15 cents a share. Sales fell as well, dropping 9.2% to $5.83 billion from $6.42 billion. Alcoa, the largest U.S. aluminum producer, was hurt by declining demand and aluminum prices that are 20% lower than a year ago. The company now expects aluminum demand will rise 6% this year, lower than the 7% forecast made in July. The silver lining for Alcoa is that the numbers weren't as bad as expected. Excluding environmental and legal charges the company posted a profit of 3 cents per share, ahead of Wall Street's estimate to break even. Even though sales fell they too beat projections. "The global economy is clearly slowing," Lloyd O'Carroll, a Richmond, Virginia-based analyst for Davenport & Co., told Bloomberg News yesterday. "That's what the IMF said today and so I think what Alcoa is doing is consistent with that." AA stock was down almost 4% as of noon.
- Chevron Corp (NYSE: CVX) announces 3Q results will stumble- Chevron said on Tuesday that it expects third-quarter earnings to be "substantially lower" than its second-quarter results. The San Ramon, CA-based company cited lower production and a lower price of oil for the decline in profits. For the months of July and August the average price of a barrel of oil in the U.S. was $95.44 compared to $103.91 in the April-June quarter. Last quarter the company earned $7.2 billion, or $3.66 per share and analysts expect net income of $6.2 billion, or $3.08 per share for the third quarter. Chevron, the second-largest U.S. energy company by market value, will release full third-quarter results on Nov. 2. CVX stock is down 3.5% as of noon.
The jobs report seems to have jumpstarted markets today, but one stock has been hot all week and doesn't need manipulated reports to boost it higher.
Here's a breakdown of today's news and a stock you need to know about.
- Unemployment falls for right reasons this month- The Labor Department reported today that 114,000 jobs were added in September, in line with expectations. The surprising news is that unemployment declined three percentage points to 7.8%, marking the first time since January 2009, President Obama's first month in office, that unemployment is below 8%. Unlike last month where the rate ticked down due to more workers dropping out of the labor force, this month's decline was a result of more jobs added in prior months and a surge in part-time workers. The August and July reports were collectively revised upward a total of 86,000 jobs and around 582,000 workers accepted a part-time role. After the revisions 146,000 jobs were added on average over the last three months, significantly better than the second quarter average of 67,000. Both candidates will try to spin September's report and analyze the numbers to their advantage as October's jobs report comes out just days before the election. "The September jobs report will frame the economic debate and could prove critical to the election outcome," Carl Riccadonna, senior U.S. economist at Deutsche Bank AG (NSYE: DB), told The Wall Street Journal ahead of Friday's release.
- Earnings season about to kick off- Believe it or not next week starts the third quarter earnings season as Alcoa Inc. (NSYE: AA) announces its earnings after markets close on Tuesday. Investors have been waiting to see if a poor earnings season could reverse the rally we've had over the past few months. Analysts expect the majority of earnings to be weak after many companies have already lowered their outlooks.
Here's a closer look.
- Europe is nowhere near fixed- Stocks opened higher Tuesday on hopes that Spain would request a bailout for the entire country and not just the banks. This drove the markets higher but stocks have since pared gains after digesting the release of the European Central Bank's balance sheet which showed $21 trillion in assets and $22 trillion in liabilities. Never mind that there are more liabilities than assets and no equity to speak of, the questions economists are asking is where is all this money, who is accountable for it and can we even trust these numbers to be accurate.
The thing is, it has happened many times before.
For instance, in the mid-1600s Holland literally drove itself to ruin over flowers - tulips, to be precise.
Referred to today as Tulip Mania, Tulipomania, or Tulpewoerde, it was the first recorded speculative mania in modern history.
Indeed, the financial frenzy that unfolded between 1634 and 1637 crashed so hard that it actually helped smash the Dutch economy, transforming one of the world's first superpowers into an economic backwater.
Writing nearly 200 years later in his classic work, "Memoirs of Extraordinary Popular Delusions and the Madness of Crowds," historian Charles MacKay said:
"In 1634, the rage among the Dutch to possess [tulip bulbs] was so great that the ordinary industry of the country was neglected, and the population, even to its lowest dregs, engaged in the tulip trade. As the mania increased, prices augmented, until in the year 1635, many persons were known to invest a fortune of 100,000 florins for the purchase of 40 roots."
For some context, the annual income of a middle-class urban family in Holland was 200 to 1,000 florins. (University of Kansas Prof. Mark Hirschey estimated that peak prices for tulip bulbs ranged between $17,000 and $76,000 apiece in today's money.)
Tulip Madness Takes HoldLike most manias, Tulip Madness took hold during a period of prosperity, when credit was easy to obtain. The Netherlands had the world's most powerful navy, accounted for half the world's shipping trade, was a center of science and, with artists like Vermeer, was also the cultural center of Europe.
The country was newly affluent and tulips, which had come to Europe in the late 1500s, were difficult to obtain and became a way to flaunt that wealth.
Naturally, the DeVries wanted to keep up with the Van Dijks, and tulip prices began their upward march.
But a noticeable trend is emerging.
In the past seven Septembers, the Dow Jones Industrial Average has risen five times. And while the last trading day of September 2012 ended down, it was an up month for the Dow.
In fact, the Dow has now risen in 11 of the past 12 months (May saw a 6% decline). The last time markets enjoyed that kind of stellar streak was in 1959.
For the third quarter, the Dow tacked on 4.3%, the Standard & Poor's 500 Index rose 5.8% and the Nasdaq climbed 6.2%
Year-to-date, all three major indexes have enjoyed robust gains. They headed into the fourth quarter up 10%, 14.6% and 19.6% year-to-date, respectively.
Commodities also ran higher in the third quarter. Gold glowed, gaining 8%, oil gushed higher by 8%, and the Dow Jones-UBS Commodity Index surged 15%. Gold, up 11% in 2012, and silver, up a sterling 24% so far this year, are both expected to benefit further as the Fed's free monetary stance weighs on the value of the dollar and inflation worries are amplified.
Most of September's gains came during the first two weeks as markets anticipated a third round of quantitative easing. The Fed delivered at the Sept. 13 Federal Open Market Committee (FOMC) meeting, and stocks muddled through the rest of the month suffering from a case of buy on the rumor and sell on the news.
"The third quarter story was really simple. The performance was propelled by the generosity of global central bankers," Rex Macey, chief investment officer at Wilmington Trust told USA Today.
Now let's take a look at if this momentum will surge into the fourth quarter.
- Third quarter ends with a dud- Stocks opened lower Friday as investors confront news that economic activity is shrinking for the first time in three years. Investors also remain worried over Spain's economic turmoil and are awaiting results from stress tests of Spanish banks. The market rallied yesterday after Spain's austerity budget was announced but uncertainty still outweighs any optimism concerning Europe. "The focus is back on Europe at this point," Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital in Greenwood, South Carolina, told Bloomberg News. "It's this ebb and flow of crisis- response-complacency. You get everything fine for a while and then increase in stress."
- Business activity contracts for first time in 3 years- The Chicago Purchasing Managers' index fell to 49.7 in September, its lowest level in three years. The reading measures manufacturing and non-manufacturing activity in the Chicago region and is considered a mirror of national activity. Any reading under 50 signals contraction and this was the first time activity shrank since September 2009. The sharp decline from last month's 53 was very unexpected and shows the economy has not improved over the past four years. Breaking down the report, the employment index came in at a two-and-a-half year low and new orders, backlogs and deliveries had their-three month moving averages at the lowest since the third quarter of 2009. "The chain that links all this stuff together is just a loss of confidence as we head toward the end of the year in fiscal policy," Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York told Bloomberg. "Businesses have been cutting back on their investment spending."
Taking in the recent close of 13,458, that means the Dow Jones is overvalued by 53%.
Let me explain how I arrived at that unsettling conclusion.
Primarily, it's because historically the Dow has risen pretty closely in tandem with nominal Gross Domestic Product.
That makes sense, because corporate profits in the long run have to track GDP fairly closely, and stocks can't soar forever if profits don't follow.
In fact, from 1917 to 1994, the stocks vs. GDP metric practically matched, with periods of overvaluation in the 1920s and 1960s, and periods of undervaluation in the 1930s and late 1970s.
In short, the correlation was nearly perfect for 77 years-until it wasn't.
For this you can thank Alan Greenspan, the erstwhile "Maestro."
The Greenspan Fed Changed the GameOn February 23, 1995 then-Fed chairman Alan Greenspan, in his semi-annual Humphrey-Hawkins Act testimony to Congress, announced that he was ending his period of money tightening that had taken the federal funds rate up to 6% and would start letting rates decline.
Spurred by this news, the Dow Jones Industrial index that afternoon touched 4,000 for the first time.
But at 4,000, the Dow was not undervalued. Loosening the money supply wasn't necessary.
After all, it had peaked at 2,722 only seven years earlier and had then suffered a decline of 1,000 points in a few weeks, including the notorious "Black Monday" crash. At 4,000 it had gone well beyond what in 1987 appeared an unsustainable high, and appeared fairly fully valued.
Of course, Greenspan's Senate testimony did not appear important at first - the Fed had raised and lowered interest rates many times before.
But on this occasion, thanks to more cheap money, the stock market took off.
Yet, stocks are up thanks to news from overseas...
- Final GDP reading reveals even weaker economy- The United States second-quarter gross domestic product grew at a lethargic 1.3% rate compared with the original 1.7% estimate. The downward revision was impacted by the drought but nonetheless the economy has stalled. "Consumption is not good," Thomas Simons, an economist at Jefferies Group Inc. in New York told Bloomberg News. "Consumers are still driving GDP but only at a very modest pace." This rate was much lower than the 2% growth of the first quarter and now makes the scenario of going off the fiscal cliff much scarier. If that happens economists say the U.S. will most likely head into a recession. From the latest GDP numbers it looks like we are already headed in that direction.
- Housing prices boost stocks- The S&P Case-Shiller national home price index which measures 80% of the U.S. housing market rose 1.6% in July from the previous month. Prices reached levels not seen since the summer of 2003, before the housing market reached its peak. The index is up 1.2% from a year earlier and July marked the third straight month that prices improved in all 20 markets the index covers. Year-over-year 16 of the 20 cities saw rising prices led by Phoenix with a 17% increase. "All in all, we are more optimistic about housing," David Blitzer, chairman of the S&P index committee, said in a statement. "Stronger housing numbers are a positive factor for other measures including consumer confidence."
- Consumer confidence rises on job hopes- The consumer confidence index rose to 70.3 in September from August's 61.3 level. The index is at its highest level since February as consumers become optimistic towards jobs and the economy. The expectations index rose to 83.7 from 71.1 and the number of people who expect more jobs in the future increased to 18.5% from 15.8%. "That was a pretty strong reading," Eric Viloria, senior currency strategist at Forex.Com in New York told Reuters. "As confidence increases, that could be a good thing for personal consumption and spending moving forward, which also helps the economy because consumption makes a large portion of GDP."
There are many theories about what can happen to the stock market following a presidential election - although the performance spread is pretty wide.
The highest election year return for the Standard & Poor's 500 Index takes us back as far as 1928, when Herbert Hoover beat Al Smith. The S&P 500 returned 43.6%.
But the heady atmosphere just before the 1929 stock market crash probably had more to do with that high return than Hoover's election-or Smith's loss.
The lowest return in the 80-year period came in 2008, when now-President Barack Obama beat John McCain. The S&P 500 dropped 37%. Once again, the 2008 financial crisis probably had a greater impact on that result than who won or lost the election.
So what is likely to happen four years later, with the economy still struggling to recover and the S&P 500 ahead about 15%?
Let's take a look.
Believe it or not, before the financial crisis in 2008 that was hardly the case. Going all the way back to 1958, bond yields always outpaced those of stocks.
But thanks to Ben Bernanke and friends, bond yields have been driven into the basement. What's more, the central banks of the world are doing everything in the power to keep them there.
That's why investors are increasingly turning to exchange-traded funds that specialize in dividend stocks as vehicles for income.
This makes good sense for a couple of reasons. First, bond markets aren't very transparent, which makes bond prices difficult to come by, so ordinary investors get ripped off if they buy corporate bonds directly.
Second, in today's markets you will do better in a high-dividend stock ETF--especially one with an international portfolio, than you will in a bond ETF.
Let me show you why that is...
Remember when he made a bid for the Presidency this go-round, but bowed out after a poor showing in Iowa?
Remember that during his brief run he acted like he was a Wall Street critic, admonishing the Street to "get its snout out of the trough?" Remember that?
Remember that T.P. became national co-chair of Republican presidential candidate Mitt Romney's run for the roses?
Do you remember that T.P. was a top contender for the V.P. slot that eventually went to Paul Ryan?
Don't worry if you don't remember any of that stuff about T.P. because none of his past politics matter (he's a Republican don't you know?) now that he has a new job.
Oh yeah, with less than 45 days before his buddy Mitt faces off against a resurgent incumbent named Obama - you probably don't remember because it just happened a few days ago - T.P. quit the campaign for a new gig.
You can't blame him. Everybody loves money, and the lure of a reportedly near $2 million salary is mighty enticing. So he took the job.
Guess what he's up to now?
With 2013 just a few months away and the U.S. on the brink of recession, now's the perfect time to prepare your portfolio with recession-proof stocks.
One way to determine how to profit during Recession 2013 is to check out what has outperformed over the past five years. During that period, the United States and other nations entered into and emerged from The Great Recession.
- Stocks try to rally- It has been over a week since QE3 was announced and the markets recently have been sluggish. After a strong rally leading up to the announcement of QE3, stocks cooled off this week amid the continuing global uncertainty. Today's trading session opened with all three major indexes rising higher as they try to start September with three straight weeks of gains. If the markets hold on to their early gains it will be a solid start to the month. The bullish trend is threatened though as anxieties increase over the looming fiscal cliff and the ongoing trend of lousy economic data.
- Jobless claims troubling again- The labor market and unemployment are the main reasons the U.S. Federal Reserve cited in their decision to implement QE3. Yesterday's (Thursday) initial jobless claims back up that move but economists will want to see improved numbers in the near future if QE3 is ever going to be considered successful for the economy. Last week's jobless claims fell to 382,000 from the previous week's 385,000 but still missed economists' projections for initial claims around 375,000. Another troubling sign is that the four-week average which is considered a less volatile figure rose by 2,000 to 377,750, the highest level since June. "Businesses clearly remain reluctant to aggressively boost their workforces amid the current risks associated with the soft economy and significant uncertainty surrounding fiscal policy next year," Jim Baird, chief investment strategist at Plante Moran Financial Advisors told MarketWatch.
- Markit shows manufacturing weakest in 3 years - Manufacturing measured by the Markit Purchasing Managers Index remained at 51.5 in September. That was also the average for the third quarter and well below the 54.2 measure for last quarter. A reading above 50 indicates expansion but this number was not encouraging as it was the lowest quarterly average since the third quarter of 2009. "I don't think the economy is going anywhere fast. The jobs market is still very difficult and manufacturing, which was a key pillar of the recovery is beginning to crack," Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania told Reuters.
"Don't fall for the flim-flam," I think to myself, "demand the cash instead!"
That's why my Permanent Wealth Investor service focuses on the kinds of dividends you can actually hold in your hand. For me, cash is king.
Anything else is simply a magician's trick. It's a sleight of hand designed to make you think you're getting something when you really aren't.
Share repurchases or buybacks are the perfect example.
Behind the wondrous façade, stock buybacks are just a means for management to enrich themselves. The truth is buybacks are positively damaging to the interests of ordinary shareholders.
The Ruinous Truth Behind Apple's Stock BuybackTake Apple Inc. (Nasdaq: AAPL), for instance. It's the stock everybody loves these days.
This $653 billion company recently announced a $10 billion stock buyback over three years, beginning October 1. Naturally, shareholders cheered, believing the buyback would boost the share price.
But consider this: Apple is buying back shares at several times book value, so the buyback will actually dilute Apple's book value per share.