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Economics

   This Week’s Data

    Third quarter productivity was reported up 8.1% versus expectations of an 8.5% increase; unit labor costs declined 2.5% versus estimates of decrease of 4.2%.

    The November Institute for Supply Management nonmanufacturing index came in at 48.7 versus forecasts of 51.7 and the October reading of 50.6 (recall a number below 50.0 reflects contraction).
    http://www.businessinsider.com/chart-of-the-day-ism-non-manufacturing-index-2009-12?utm_source=Triggermail&utm_medium=email&utm_campaign=Clusterstock%20Chart%20of%20the%20Day%2C%20Thursday%2C%2012%2F03%2F09

    November nonfarm payrolls fell 11,000 versus forecasts of 120,000; and unemployment fell from 10.2% to 10.0%.  Many pundits have been saying that employment is the key to driving stocks prices higher; and as you know, of late I have been trying to get a handle on what will drive stock prices.  We are about to find out if employment is that force.  If it is the key, our sales earlier this week will likely be proven premature.
    http://www.calculatedriskblog.com/2009/12/employment-report-11k-jobs-lost-10.html

   Other

    What commodity prices could be telling us (short):
    http://scottgrannis.blogspot.com/2009/12/commodities-update.html

    The latest Fed balance sheet (short):
    http://www.zerohedge.com/article/fed-balance-sheet-declines-15-billion-after-improbable-reduction-mbs-excess-reserves-monetar

Politics

  Domestic

    The group think on global warming (medium):
    http://article.nationalreview.com/?q=MTdmOGE3YzZjNjRmY2E1OTZiZmY4ZDQyOWNhODdiYzM=

  International War Against Radical Islam

The Market
    
    Technical

    The DJIA (10366) remains in its up trend off the March lows (10202-12773); the S&P (1099) once again fell below the 1102 level though it too traded within the as-yet-to-be-established (at least in my mind) up trend off the March low (1093-1378).  The dollar was down (dollar reflation trade score board: dollar down, stocks down, gold down, oil down) and stays solidly in a down trend.  The VIX rose and traded again between the down trend off its March high and the last support level, leaving open the question.  Bottom line: the technical picture provides little guidance as to Market direction; though the jobs number today may change all that.

    The latest from TraderFeed:
    http://traderfeed.blogspot.com/2009/12/midday-briefing-for-december-3rd-non.html

    And Trader Mike:
    http://tradermike.net/2009/12/december_3_2009_stock_market_recap

   Fundamental
    
    More on gold (short):
    http://www.ritholtz.com/blog/2009/12/king-report-gold-bubble/

    Here is an interesting piece on what hedge funds are doing.  It is a bit miss leading because hedge funds are supposed to be market neutral; that is they are both long and short with many of them engaged in so called ‘pair trades’ in which they go long a name they like in an industry and short one they don’t like, e.g. long Coke, short Pepsi.  So the implication that the hedge funds’ short position is because of a negative view of the market is probably not accurate.
    http://allaboutalpha.com/blog/2009/12/03/hedge-funds-plowing-into-stocks-short/

      Headlines

    Yesterday, stocks got off to a decent start with the better than expected weekly jobless report which was quickly reversed as the retailers reported November comparable store sales which were disappointing.  Investors then went catatonic as the Bernanke re-appointment hearing was carried virtually non stop by the business channels,

    Toward the end of the day, we got reports out of Obama’s job summit that can be summed up as ‘the picture is grim and the administration is determined to do more.’  Really. How about this, forget the summit and get a grip on the fact that businessmen are scared s***less to do anything in the face of (1) a budget busting healthcare bill that is in danger of being passed and (2) an uncertain environmental regulatory outlook due to the pending ‘cap and trade’ legislation, and probably couldn’t make investments or hire people even if they weren’t scared because all those banks that are benefiting enormously from the massive injection of liquidity by the Fed aren’t making loans.  Until the administration recognizes its agenda is the problem, jobs are going nowhere and bank lending will remain nonexistent.
    http://www.clubforgrowth.org/

    Adding to this clown show, the house voted to extend the estate tax--if it does nothing, the tax expires.  So we got one set of guys in Washington worried about jobs and another set of guys in the same city ostensively members of the same political party seriously considering loading economic penalties on the taxpayer.

    Is there any surprise that stocks sold off at the close?

    Bottom line; the US economy is struggling to recover and probably will despite the best efforts of our politicians.  But that recovery will remain a struggle because of lousy fiscal/monetary policies.  Our model suggests that stocks are pretty close to Fair Value in that scenario; and that is why I see little up side from here.  Furthermore, regrettably the risk to this scenario is not that the politicians will wise up, set some growth stimulating policies, making stocks undervalued; but rather that they will simply keep following a policy agenda (massive budget deficits, excessive regulation, increased taxes and the easiest monetary policy in the history of this country) that is antithetical to economic growth, making stocks overvalued.

    The above was written last night; but none of that it altered by the jobs number.  This new data simply means that fewer people are being fired which is much different that lots of people being hired.  As I noted that the economy is improving despite the all conceived policies of our political class.

     Thoughts on Investing--more from The Money Game
     
    ‘What is it ‘performance’ fund managers do?  No one ever schooled ‘performance’, so there are no tenets, only what has grown up pragmatically.  The chief characteristics of performance are concentration and turnover.  By concentration, I mean limiting the number of issues.  Turnover means how long you hold the stocks.

    There is obviously one genuine threat in ‘performance’, and, that is the threat of liquidity.  All the funds simply can’t get through the exit door at the same time.

    ‘Performance’ funds still represent only a tiny fraction of all the managed money.  But the influence of the trend extends far beyond the actual amounts on money involved. There are still lots of vests around, and a lot of bankers who disapprove of everything that swings. It may all go too far and they may be right.  At the moment ‘performance’ seems the logical reaction to a world wide inflation, an inflation that reflects the aspirations of much of society running ahead of society’s ability to pay for these aspirations on a current basis, or a least the discipline of paying for those aspirations in the traditional way.’

    News on Stocks in Our Portfolios

    Positive comments on T Rowe Price from Zacks’:

T. Rowe Price Group, Inc. (TROW - Snapshot Report) is outperforming the market on a rising Zacks Consensus Estimate. The company recently announced that it will buy a stake in Indian asset manager and mutual fund company UTI Asset Management.

Company Description

T. Rowe Price Group, Inc. is a global investment management organization that provides a broad array of mutual funds, subadvisory services and separate account management for individual and institutional investors, retirement plans and financial intermediaries.

The company offers a variety of sophisticated investment planning and guidance tools. T. Rowe Price's disciplined, risk-aware investment approach focuses on diversification, style consistency, and fundamental research.

Recent Acquisition

The company recently announced that it will buy a 26% stake in UTI Asset Management Company Limited and UTI Trustee Company Pvt. Ltd. for approximately $138 million based on current exchange rates. The transaction is expected to close in the fourth quarter of 2009.
Management said the acquisition provides T. Rowe Price with an opportunity to participate directly in the tremendous growth potential of India's asset management industry. India's economic growth rate is second only to China's among large economies and its working-age population is expanding rapidly. The country's high savings rate and demographics favor strong growth in mutual fund investing over time.

Bullish Forecasts

Analysts polled by Zacks have been hiking earnings estimates. The current full-year projection of $1.63 per share is up from $1.48 over the past 60 days. For 2010, the Zacks Consensus Estimate of $2.39 per share climbed from $2.07 over the past 60 days.

Shares Jump on Third Quarter Results

T. Rowe Price saw a nice spike after announcing third-quarter results. During the past year, the stock nearly doubled the market's return.
Earnings per share of 50 cents were below last year’s 56 cents but topped the Zacks Consensus Estimate by 9%.

The company also reported a 16% increase in assets under management, totaling $366.2 billion.

Management noted that firm's investment advisory results relative to peers remain strong, with 87% of the T. Rowe Price funds across their share classes surpassing their comparable Lipper averages on a total return basis for the 5-year period ended September 30, 2009, 83% outperforming for the 3-year period and at least 79% outperforming for the 1- and 10-year periods.

The company also stated that it remains debt-free with substantial liquidity, including cash and mutual fund investment holdings of $1.4 billion that supports TROW’s ability to continue investing for the future.

Stellar Fundamentals

In addition to having a balance sheet that shows no debt, TROW offers a solid return on equity (ROE) of 12.7%, which soars past the industry average of 6%. The company’s net profit margin of 17.5% soars past the industry average of 3%. This Growth and Income pick also pays an industry-leading dividend yield of 2%.