Flu down; Profit Up at Aetna

On Tuesday Aetna Inc. lifted its 2010 earnings forecast a second time after the firm reported milder-than-expected flu season. The good news about flu this year tacked one more positive in an earnings season that has been dominated by profit results and increasingly positive projections.

The firm now projects that their operating earnings may reach $3.05 to $3.15 a share in the upcoming quarter. That’s significantly up from their earlier forecast of $2.75 to $2.85 in April.

In further positive economic stimulus, Aetna's Chief Financial Officer Joseph Zubretsky said that in addition to healthy profit for the firm in the second half of 2010, the company will also increase their spending to upgrade computer systems.

For the 2Q 2010, net income rose 42 percent to $491 million easily topping most medical market analyst expectations.

Source:  Aetna

Investors Continue Focus On Earnings

U.S. stocks surged last week following yet another strong batch of earnings.

Earnings results from heavy weights such as Caterpillar (CAT), 3M (MMM), UPS (UPS) and AT&T (T) all topped earnings estimates and raised their outlooks.

Some economists pointed to data that seemed to show some weakness. Weekly jobless claims jumped, but it may have been due to seasonal factors.

The markets have been trying to sort out all the data and it seems that for now investors have decided that the positive corporate earnings from so many sectors do not indicate a slowdown in the economic recovery. And even if there is some weak elements, those are not affecting companies' profits in general.

For the week the S&P 500 index was up nearly 3%.

Rates Continue Down; Loan Applications Up

For those folks looking to refinance or purchase, the news on Wednesday continues to be nothing but positive.

The Mortgage Bankers Association (MBA) reported that their refinancing index jumped 8.6% in the July 16 week, making for a nearly 30% gain over the past four weeks. The average 30-year mortgage fell 10 basis points in the week to 4.59%, the lowest ever in the survey.

Low rates continue to be a consistant positive for home sales. The MBAs purchase index also rose -- up 3.4%. Much of the demand was driven by government loans which have low down-payments.

Wednesday's report, along with Tuesday's rise in applications for housing permits, are indisputable good news for the housing sector.

James Altucher versus Dr. Doom (Winner: James)

Many of you will remember last year when we ask Dr. Doom, Nouriel Roubini to take a seat already!  As most of you know Dr. Doom is just that -- a Doomster -- a perma-pessimist.  Sadly (and mistakenly), because he is always calling for the worst, he is credited with correctly calling the credit crisis and the ensuing recession.  (and will likely be given credit for any other downward trends in the future!)

Fortunately we do currently have more level heads among us. One of those level heads is James Altucher. Forget Dr. Doom and do your homework on James and his columns and interviews.

In this interview with Dow Jones, James gives 7 reasons why the S&P index is headed for 1500.

And in this one, James takes on Dr. Doom and scores knock-out, after knock-out punches.

Enjoy!

Historic Financial Overhaul Begins Now

On Thursday, the U.S. Congress gave final approval to one of the most massive overhauls of country's financial regulation ever. The legislative action ended more than a year of political disagreements over the scope of the new regulations.

The new law establishes an independent consumer bureau within the Federal Reserve to monitor against abuses in mortgage, credit card and several other types of lending.

President Obama is scheduled to sign the legislation next week. On Thursday after Senate passage of the bill, he said that the bill will "protect consumers and lay the foundation for a stronger and safer financial system, one that is innovative, creative, competitive, and far less prone to panic and collapse."

Sen. Christopher J. Dodd (D-Conn.), who was one of the Senate's driving forces behind the bill, said that "more than anything else, my goal was, from the very beginning, to create a structure and an architecture reflective of the 21st century in which we live, but also one that would rebuild that trust and confidence."

In addition to the Presidential and Senate praise Thursday, Treasury Secretary Timothy F. Geithner held a rare news conference lauding the bill.

Earnings For S&P 500 Firms Still Increasing

Earnings for members of the Standard & Poor's 500 are expected to increase another 27% from a year earlier and their associated revenues are seen to also rise -- perhaps another 9%, said Thomson Reuters last week. Actual earnings season for Q2, begins shortly...

In the first quarter of 2010, S&P 500 firms' earnings increased 57%. It was the second quarter in a row that the S&P 500 recorded earnings growth. If the predictions are correct, it will represent three quarters in a row of year over year increases. Those increases follow a record nine straight quarters of year-over-year declines prior to that.

Industry sectors like materials, energy, information technology and consumer discretionary segments are all predicted to have very healthy earnings growth rates.

European Cash Needs Overblown

Negative moods in Europe are finally being calmed by news on Wednesday that the European Central Bank will likely lend less money than expected for the next three months. The data suggests that region's banks' cash needs were wildly overblown again by the crisis fear-mongers.

"The result of the ECB's money market operations indicated that money markets have been less distorted than originally feared," BNP Paribas said in a note. BNP Paribas is considered the leading financial group of the eurozone.

Also providing a hopeful sign, Germany's unemployment rate declined to 7.5% in June thanks not only to the traditional springtime upturn, but also an improving economy, according to the country's labor agency report. They released data showing that the jobless rate was down from 7.7% in May.

The German data raised hopes on Wednesday that consumer spending in Europe's biggest economy will help the region, a zone where doomsters have suggested that severe spending cuts will darken the growth outlook.

The European reality now mirrors what most analysts now recognize in the U.S. economic prognostications. "The U.S. economy has stabilized in the near term," said Castor Pang, director of research at Cinda International. "Maybe the U.S. markets are overreacting a little."

Consumers Score Another 2010 Trifecta

Income, Spending, and Saving All Grow in May

According to the Bureau of Economic Analysis the month of May provided a triplet of economic good news -- personal income, spending, and savings all grew. Furthermore, income grew even greater than consumer expenditures and consequently, savings grew as well.

All three measures added similar gains in March of this year.

Personal income has remained fairly stable over the past three months, growing between 0.4% and 0.5%. Over the same period, disposable income has averaged about 0.5% growth. For consumers to be able to spend more on discretionary purchases, their disposable income must of course increase.

Spending has been less stable, recently. In February and March we finally saw spending growth increasing, after the recessionary downward trend of 2009.   The first uptick however post-recession had consumers increasing spend without as much additional income, which meant shoppers were relying more on credit to spend and saving less. In April, however, that changed. Spending was constant, while income continued to grow. And in May? We're now seeing an even better reading: more income growth, but with some additional spending as well.

Geithner: "Unpopular 2009 Actions Were The Right Thing To Do"

Treasury Secretary Timothy F. Geithner said credit availability is improving and companies are building up unprecedented cash reserves, signs that the U.S. economy continues on a path of increased growth.

Further the Secretary claimed on Tuesday that the government’s management of the $700 billion Troubled Asset Relief Program has yield the desire results while costing much less than originally estimated. The unpopular program he claims “played a critical role” in loosening access to credit and putting the economy back on a solid footing.

“Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,” Geithner said in his testimony to the Congressional Oversight Panel. Geithner pointed to U.S. firms that are now raising money in capital markets “and have built up record cash reserves, which will eventually be reinvested and fuel growth.”

The TARP program was criticized by both Democratic and Republican lawmakers as favoring Wall Street over small businesses. Many thought the government would likely lose all of the $700 billion lawmakers had allocated to rescue large banks as well as several U.S. automakers and housing loan backers.

Surprisingly, the cost to taxpayers has now plummeted to $105 billion at last estimate, down from an estimate of $341 billion in August. And it seems now that the benefits have thus far continued to outweigh the cost of the program.

Congress authorized TARP in October 2008 to prevent a collapse of the U.S. financial system. Against the predictions of many, companies like Goldman Sachs Group Inc. and Bank of America Corp. that borrowed funds have since repaid the government with interest. Additionally because of the return to more palatable market conditions, Geithner said the Treasury plans to sell the remainder of its stake in Citigroup Inc. in an “orderly fashion” by year end, further reducing the overall cost of the rescue program.

In additional good news, prospects for the government’s investments in the auto industry have improved, and the Treasury plans to begin to recover its stake in General Motors Co. after the company has an initial public offering later this year or in 2011.

Losses from government investments in GMAC Inc. “will be less than forecast last year,” the Secretary said.

Geithner said the Obama administration doesn’t plan to extend TARP past its Oct. 3 expiration and called Tuesday’s hearing “a eulogy” for the program.

The TARP loans “did what they were supposed to do,” Geithner continued. The economy wouldn’t have started to rebound “without the dramatic actions we took, however unpopular, to bring down the cost of credit and stabilize the system.”

U.S. Consumer Spending Power Increases

Over the last two months, consumer spending power has increased and not just because of income gains. The U.S. dollar actually goes farther these days as prices have dropped on average in the past two months.

Many argue that prices are down largely because of gasoline prices. However, in May overall inflation declined 0.2%, following the -0.1% measure in April. These latest cost of living adjustments are in line with what most economists were expecting and point to good news for consumers -- provided the labor picture continues to improve.

As has been the trend since May of last year, this past week saw several indications that labor indeed will continue to improve. On Thursday the conference board released the leading economic indicators. The most substantial gain in the May report was the factory work-week. The indicators underscored another release on Wednesday which illustrated that overall industrial production in May surged 1.2%, following a 0.7% boost the month before. The production numbers continue to beat forecast -- this month above the +1.0% consensus estimate.

Post Stimulus: Home Buyers Now Phoning Their Bankers Again

On Wednesday, the Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey for the week ending June 11, 2010. Their Market Composite Index, a measure of mortgage loan application volume, increased 17.7% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 29.7% compared with the previous week.

Their Refinance Index increased 21.1% from the previous week. It was the highest Refinance Index recorded in the survey since May 2009.

"Mortgage applications for home purchases increased last week, the first increase in over a month. Refinance applications also picked up significantly over the week," said Michael Fratantoni, MBA’s Vice President of Research and Economics.

Purchase applications dropped sharply as a result of the tax credit expiration, but with rates continuing at historic lows and the spring buying season in full swing applications are rebounding sharply.

The four week moving average for the seasonally adjusted Market Index is now up 3.8% and the average is now up 5.5% for the Refinance Index.

U.S. Consumers Confidence Highest in Over 2 Years

On Friday the University of Michigan's consumer confidence index indicated that spenders mood is at its highest level since January 2008. Since its low late in the recession, the measure has now risen by more than one-third.

One measure which records expected economic conditions advanced by 2.8% -- now up increase by 43.7% from its 2008 low. The readings for expected change in personal finances and expected five-year business conditions also both improved.

Another measure which registers sentiment about current economic conditions improved to the highest level since early-2008 and it was up 44.2% from the 2008 low. Consumers expectations for price inflation during the next year fell sharply.

The increases topped even the most optimistic of economists' predictions for gains for the period. The report, because of its strength, continues to point to steady underlying improvement in the jobs market.

Hiring Expected To Improve in 23 of 36 Countries

Hiring Intentions in Europe are Also Up

According to Reuters and Manpower Inc. reports, employers in most of the global economy are more likely to add workers than three months ago, including those in the United States. Significant gains in economies like Brazil, India and China are also likely according to the surveys.

Manpower Inc. is considered one of the leading surveyors of employment demand. They report that the employment recovery will continue in most of the world. The company said Tuesday its seasonally adjusted forecast for the third quarter was now up over its second quarter forecast. Its forecast a year ago was negative.

The firm surveys over 18,000 U.S. hiring managers and measures the difference between those managers who say they will add to their workforce and those managers who plan cuts. "We'll go into the third quarter and see more of what we saw in the second -- no doubt improved BLS numbers...," Manpower Chief Executive Jeff Joerres was quoted saying on Tuesday.

Beyond the U.S. the survey covers a total of 82 countries including hot markets in Brazel, India, and China covering a grand total 61,000 manager interviews. The most recent surveys reveal positive employment prospects in 23 of 36 countries and all but four are higher than a year ago.

In Latin America, most Brazil employers anticipate adding jobs in Q3. And in Mexico an improving environment is also expected -- especially in manufacturing and mining.

Surprisingly in Europe, employers in all of the larger economies like France, Germany and the United Kingdom also expect to add workers over the next three months despite talk of a "crisis."
More employers than last quarter also expect to increase hiring in Central European economies, as well as in Spain, Sweden, Austria and Belgium.

"We've been seeing really no change in our business since the Greek credit crisis of a month ago," Joerres said.

Despite Distractions, US Economic Recovery Gains Momentum

Recent distractions with economic uncertainty in Europe have turned many heads, but the strong U.S. economic recovery rolls on.  Just about all new U.S. economic reports are now posting positive results.  This past week was no exception.

A very strong month-to-month surge in new manufacturing orders and additional employment boosts highlighted another robust ISM manufacturing report.  New orders have been rolling in steadily now for well over a quarter and employment is now accelerating a level not seen for almost 6 years.  Other ISM readings included strength for production, backlogs, and export orders.  Additionally all the activity in production is drawing-down inventories – a sign that points to additional necessity for inventory restocking and even further production and employment.

The recent surge in home sales has also carried over to unexpected strength in construction activity. Construction outlays in April have jumped 2.7%, following a 0.4% rebound in March.  Even though economists knew about expiring tax credits for home buyers, the consensus had expected no change for the April reading.  The recent jump in home sales has now cut home inventories enough to give contractors renewed confidence to pick up their pace of additional construction.

Car and truck sales are also proving very solid.  In the latest report, sales are now ramping to an annualized adjusted rate of 11.6 million -- surpassing April's 11.2 million.  The best news for the auto sector is that even now that those government incentives have been curtailed, sales continue to ramp steadily.

The Challenger's job-cut report held its count at a pre-recessionary 38,810 in May.  The level is little changed month to month, but compared to last year's 111,182 in May the rate is now at "normal" levels.  The report supports continued expectations for sizable payroll gains and lowering unemployment rates in the months to come. 

The ISM's non-manufacturing composite also continues to report solid gains. Its readings continue to   indicate steady month-to-month acceleration in activity.  The employment component of the report now shows a net gain in hiring with rising backlogs pointing to accelerated hiring ahead. 

So while short term market fluctuations many times have folks asking if the recovery is over, the reality is all indications are that this recovery cycle (even though it is now about a year old) is likely just getting started.  Fundamentally, most indicators now point to steady economic growth and an increase in hiring for the foreseeable future.

 

 

Tax Credit A Strong Stimulant For Exisiting Home Buyers In April

Existing home sales soared in April as existing home buyers rushed to take advantage of the tax credit that expired at the end of the month.

On Monday, the National Association of Realtors reported that existing home sales jumped 7.6% last month to a seasonally adjusted annual rate of 5.77 million units, up from a rate of 5.36 million in March. Sales year-over-year were up 22.8%.

Even though the jump was widely anticipated, it still beat forecasts. The consensus among economists was that resales in April would only rise at an annual rate of 5.65 million units.

The median price of all existing homes also rose in April. Existing home sales tally the number of previously constructed homes, condominium and co-ops in which a sale closed during the month.

Details of the report show comparable gains for both single-family homes, up 7.4%, and condos, up 9.1%. The Northeast led the regional breakdown of gains.

Jobs Returning to Nation's Capitol Region

Jobless rates fell in Washington D.C., Maryland and Virginia last month, according to government data released Friday. It was the first regionwide decline in unemployment rates since the recession of 2009.

According to the April data from the federal Bureau of Labor Statistics, Washington D.C., experienced the most dramatic drop in April's measure, falling to 11% from 11.5% in March. Maryland's unemployment rate fell to 7.5% from 7.7% and Virginia's fell to 7.2% from 7.3%.

Many economists over the weekend agreed that the data reflected a real drop in joblessness and that it underscores ongoing evidence of a sustained recovery cycle.

"This is the first time all three [unemployment rates] declined in tandem," said Sara Kline, an economist at Moody's Analytics. "The labor force has been growing for the last couple of months and there's been a downtick in unemployment."

According to the Washington Post, a survey conducted in April among recruiters in the District, Maryland and Virginia, showed a dramatic increase in hiring in the first quarter. "To see four straight months of unemployment going down and over-the-year job growth -- these trends are going in the right direction," said Joseph P. Walsh Jr., director of an employment services agency in the region.

"Things certainly are headed in the right direction," said Eric M. Seleznow, executive director of the Maryland Governor's Workforce Investment Board.

In Virginia, more than 28,000 jobs were added, 14,100 of them in Northern Virginia. "It was an encouraging month," said Ann D. Lang, senior economist at the Virginia Employment Commission.

The growing strength of the job market continues the positive trend nationally that we've been tracking here for over a year now -- a trend that now appears quite likely to be only a few months away from netting the U.S. economy 500,000 new jobs per month.

Japan's Growth Up 4 Straight Quarters - GDP now at 4.9%

In Q1 2010, the Japanese economy grew at a quarterly rate of 1.2% the government said on Thursday. The four straight quarters of growth now bolster assertions that Japan’s recovery is holding firm.

Their annualized growth rate of 4.9% was released by the Japanese Cabinet Office and accelerated from 3% for the Japanese economy’s fourth quarter of 2009.

Much like the U.S. economy, Japan's private consumption makes up about 60 percent of the economy, but exports also play a key role in the healthy growth rates. Recovery in Japan has been assisted by a rebound in mainstay exports of cars and electronics, which both posted the fourth year-on-year rise in March. The report confirms that the continued strength is lifting domestic production and wages in the country.

Retail Start Strong In Q2

Retail sales in the U.S. climbed more than forecast in April, indicating the economic recovery is gaining momentum int the second quarter of 2010.

Sales increased 0.4 percent in April. Last week's Commerce Department report also upped the measure for March to a 2.1 percent gain -- larger than previously estimated. Production rose 0.8 percent, the most in three months, the Federal Reserve said.

Another report showed consumer sentiment improved in May following four straight months of payroll gains, suggesting Americans will keep shopping to help sustain the expansion of the world’s largest economy.

“We’re seeing a broadening of the recovery,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, who correctly forecast the gain in industrial production. “Consumers are still engaged. There is some pent-up demand out there.”

On Top Of A Growth Engine

Back in July 2009, Intel asserted that the young recovery of 2009 would be anything but lackluster.

On Tuesday, the leaders of the chip giant re-asserted their claims for 2010 and beyond.

Paul Otellini, Intel's CEO, told analysts that its earnings per share and revenue should grow at an average annual rate in the "low double-digits" over the next few years. "We are on top of a growth engine," Mr. Otellini said.

You may remember that last year -- in the face of a global financial crisis -- Intel chose to spend $7B in new U.S R&D facilities, while competition retrenched in the face of credit woes. Intel can now exploit those technological advantages and continue to deliver new products with much higher performance and lower power consumption. Otellini stated that those advances now drive the company's products into a plethora of new devices such as cellphones, digital TVs, car electronics, cameras, and other consumer electronics.

"Intel has a unique set of attributes that no one can replicate," Mr. Otellini said. "This stuff gets harder to do and we are going to get better at it."

For Intel, it looks like 2010 (and perhaps 2011) will also be anything but lackluster.

The Euro Zone Will Defend Its Money: Experts Hail Resolute Action

“The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early Monday.

With massive resolve after a 14 hour meeting, 16 euro nations agreed to offer financial assistance worth as much as 750 billion euros ($962 billion) to countries under attack from speculators. The European Central Bank (ECB) will counter negative and “severe tensions” in “certain” markets by purchasing government and private debt.

Marco Annunziata, chief economist at UniCredit Group in London, quickly released a statement following the ECB announcement: “This truly should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion.”

“I think they will have bought themselves a significant amount of time to do the right thing,” said Barry Eichengreen, an economics professor at the University of California, Berkeley.

“This sets a precedent for the rest of the life of the Central Bank and will have likely surprised even the most seasoned observers,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group. “The ECB’s intervention was necessary to short circuit the negative feedback loop...”

The swift and united action will likely now turn most eyes back onto the fundamentals of a worldwide economic recovery that is accelerating and a U.S. jobs market that is growing again.