Market Commentary: February 25th, 2010:9:00 am (PST). Posted by Manu Walia

“The number of jobless filing for initial unemployment claims increased in February, pointing to trouble for the February employment report and sending equities and commodities lower in immediate reaction. Initial claims jumped to 496,000 in the Feb. 20 week, the highest level since November. The four-week average, up 6,000 to 473,750, is also the highest since November and is more than 15,000 higher than January levels. In an ominous note for the monthly jobs report, claims offices said heavy weather increased the number of claims in the week. Continuing claims, where data lags by a week, were slightly higher at 4.617 million and are little changed from January levels. The unemployment rate for insured workers is unchanged at 3.5 percent.” Source:

Markets are worried about the employment picture with good reason. The economy goes as does the jobs scenario. It can be seen in the Chart below that the US jobless situation, even though on a downward slope since April, 2009 is experiencing an interim setback. As mentioned above, initial jobless claims jumped in the third week of February. It is also important to notice that bad weather was also a contributing factor. On the other hand retail sales in recent weeks have picked up indicating resilience from the public which contributes to over 75% of the economy.

Chart: Jobless Claims February 25, 2010
Chart: Jobless Claims February 25, 2010

The markets are still approximately 28% below the 2007 high of 14,166. We should realize that the overall economy has picked up, evident from the strong fourth quarter growth of 5.7%. Even though a lot of that was attributable to the government stimulus, the after effect should come in terms of support in various sectors like banking and financial services and job growth in the infrastructure area.

We can understand the slow down in the ascent of the capital markets as investors digest policy changes and the political rhetoric. We as investors should not take our eye off of the overall growth which could be experienced from a higher pool of consumers which have been created through globalization and economic liberalization throughout the globe.

We still maintain our favorable bias in terms of the US and global economic growth and adding gradually to existing positions in the area of Finance, Technology and Healthcare.

Market Commentary: February 22nd, 2010:9:00 am (PST). Posted by Manu Walia

Our February 19th commentary started with the emphasis on the Federal government move on discount rates. “The most watched move from the Federal government has been the interest rate movement. Yesterday, Bernanke and company raised the discount rate (charged to major banks by the Federal Reserve) from 0.50% to 0.75%. The endeavor is to make banks start relying on deposits as opposed to government help. Even though the index futures reacted negatively, this is a clear indication from the Feds that the markets are in the mode of stabilizing.”

Even though we believe that this indicates Federal government’s confidence in the state of the US economy, it could very well be a tactic on Mr. Bernanke’s part to test the reaction of the markets. The discount rate is the rate charged by the Federal government to major banks for borrowing assets from the Fed window. In other words, the government is encouraging major banks to start gravitating towards regular market operations as the overall markets stabilize.

In addition, the consumer price index illustrated by Chart below, signify benign inflationary conditions which is another alleviating factor.

Chart : CPI Feb 19 2010

Chart : CPI Feb 19 2010


We believe that the decision to raise the discount rates by .25% is a way for the Federal government to indicate that the markets are in the process of stabilizing and the vote of confidence in the future.

Market Commentary: February 19th, 2010 : 12:00 pm (PST). Posted by Manu Walia

“Stocks and commodities dropped in immediate reaction to a much larger-than-expected level of jobless claims, at 473,000 in the Feb. 13 week vs. expectations for 440,000. There are important special factors possibly affecting the data but their effects are unknown and the Labor Department isn’t offering any explanations. There was extremely heavy weather through most of the nation in the reporting week, and results from four states had to be estimated including the key states of Texas and California with holiday backlog in the latter having skewed prior reports.”

“Higher gasoline prices slammed consumer wallets in January but a drop in shelter costs kept both the headline and core rate softer than expected. Headline consumer price inflation in January held steady at a 0.2 percent increase-matching December’s revised pace (new seasonal factors). The headline number for January was a little below market expectation for a 0.3 percent boost. Core CPI inflation actually fell at a 0.1 percent monthly rate, following a 0.1 percent uptick in December. The consensus had forecast a 0.1 percent rise for the core CPI. The gain in the headline CPI was due largely to higher gasoline prices. The core was pulled down by a 2.1 percent drop in lodging while away from home and by a 0.1 percent dip in owners’ equivalent rent. Basically, hotels and resorts are still trying to lure customers with discounts. And rents are soft for housing in markets, caused by high unemployment.” Source:

The most watched move from the Federal government has been the interest rate movement. Yesterday, Bernanke and company raised the discount rate (charged to major banks by the Federal Reserve) from 0.50% to 0.75%. The endeavor is to make banks start relying on deposits as opposed to government help. Even though the index futures reacted negatively, this is a clear indication from the Feds that the markets are in the mode of stabilizing.

Chart 1: Jobless Claims Feb 18 2010

Chart 1: Jobless Claims Feb 18 2010

This states that the Federal government has confidence in the economy despite less than impressive improvement in the overall employment area illustrated by Chart 1 above. In addition, the consumer price index illustrated by Chart 2 below, signify benign inflationary conditions.

Chart 2: CPI Feb 19 2010

Chart 2: CPI Feb 19 2010

The overall economic situation has come a long way and we still believe that the recent 7% correction is a good entry point for investors. We have been proponents of adding gradually to existing positions in the area of Finance, Technology and Healthcare.

Market Commentary: February 17th, 2010: 12:00 pm (PST). Posted by Manu Walia 

As a contrarian, we have been proponents of investing in the financial sector since early October 2009. This morning, CNBC reported that Mr. George Soros, Mr. John Paulson and Mr. Eddy Lampert (all major Hedge Fund Managers) have invested significantly on distressed companies like Citigroup and Bank of America.

It was intriguing to watch the Fast Money traders start talking favorably about the same banks that they have been poo pooing for the last so many months. They actually mentioned that a company like Citi had valuable assets. The irony is that these same traders were vociferous about how Citi has been selling most of its valuable assets like Smith Barney, etc. Without being facetious, I am compelled to say that CNBC stands for Cartoon Network Broadcasting Company. The only difference is that they keep adults like me watching their insightful programming and news broadcast.

CNBC: Fast Money Crew Talks about Citi and Bank Of America

We would now like to divert our attention to the housing starts numbers announced this morning.

“The recovery in housing is cloudy, according to the January starts report. Groundbreaking for new homes rebounded, but permits fell back. Housing starts in January rebounded 2.8 percent after dipping 0.7 percent in December. January’s annualized pace of 0.591 million units was above the market forecast for 0.580 million units and was up 21.1 percent on a year-ago basis. Also, December starts were revised up notably from the previous estimate of 0.557 million units. The January comeback was led by a 9.2 percent increase in multifamily starts, following a 12.6 percent jump in December. The single-family component edged up 1.5 percent after a 3.0 percent decline the prior month.” Source:

Chart 2

Chart 2

Chart 1
Chart 1

As the Chart 1 above illustrates, housing is not completely out of the woods. We believe that he unemployment situation has been and continues to improve (Chart 2), due to the lack of major disruptions the market experienced during 2008 and early 2009. Since, there has been a significant amount of stimuli from the government. In addition, the $787 billion stimulus package signed in February 2009 has not been dispersed. We believe that as we move forward, the economic growth will be sustained and unemployment will improve.

We encourage our readers to continue to invest globally in the Financial, Technology and Healthcare sectors.

Please note that each investor is unique and should invest to compliment their respective financial conditions and objectives. 

Market Commentary: February 12th, 2010: 9:00 am (PST). Posted by Manu Walia 

“The administrative backlog from the New Year holidays was supposed to have already cleared up. But not so fast! The Labor Department attributes a stunning 43,000 drop in initial claims to 440,000 for the Feb. 6 week — not to economic improvement — but to the final end of the backlog, a backlog that inflated levels in prior weeks. In only a very partial offset, the prior week was revised 3,000 higher to 483,000. Given the haze of the backlog effect, the four-week average offers the best handle on the data, falling for the first time in four weeks, though only by 1,000 to 468,500 and little changed from mid-December before the backlogs started to build.” Source:

We had mentioned previously that China’s restrictive monetary policy and Obama administration’s banking reform rhetoric had been a deterrent to the capital markets. China is again in the picture this morning with the announcement that they are tightening the Credit Reserve Ratio for their domestic banks. This policy is has been ordered second time this month primarily to avert asset bubbles and restrain inflation in China.

On the other hand, we should view the US economy from a macro level and pay attention to job creation and corporate earnings. These two factors can be gauged to understand consumer behavior which contributes almost 70-75% of the US economy. Illustrated in the chart below, we can see that jobless claims have been trending down since the peak that was formed in April of 2009. Even though clams have spiked up for the month of January, the overall trend in our view is favorable and should continue to retreat.

Jobless Claims February 12 2010

Jobless Claims February 12 2010

We have been waiting for a 5-7% correction since August of 2009 and believe that we are in an interim correction within a larger bull market. Our belief comes from the observation of the recent corporate earnings. 74% of the companies that have announced earnings within the S&P 500 have been able to beat on the top line. In addition, 62-63% of the companies have also been able to beat the revenue forecast and have announced positive forecasts. Corporate earnings in our view define the backbone of the economy. The interim noise from the Obama administration should not deter investors from investing during this correction in our view. In addition, the Chinese pro action should be considered as a positive that may help avert a real estate bubble forming in China.

We continue to believe in globalization and would encourage investors to invest in international companies in the area of financials, technology and healthcare.

Please note that each investor is unique and should invest to compliment their respective financial conditions and objectives. 

Market Commentary: February 4th, 2010: 10:00 am (PST). Posted by Manu Walia

Released on 2/5/2010 8:30:00 AM For Jan, 2010




Consensus Range


Nonfarm Payrolls – M/M change


-40,000  to 75,000 


Unemployment Rate – Level

10.0 %

10.1 %

9.9 % to 10.2 %

9.7 %

Avg Hourly Earnings – M/M change

0.2 %

0.2 %

0.1 % to 0.2 %

0.2 %

Average Workweek – Level

33.2 hrs

33.2 hrs

33.2 hrs to 33.3 hrs

33.9 hrs


Today’s employment report had conflicting trends between the payroll numbers and the household survey. Although the unemployment rate fell unexpectedly, payroll jobs continue to contract. Nonfarm payroll employment in January fell 20,000, following a revised 150,000 drop in December and revised gain of 64,000 for November. In the previous employment situation report, December showed an 85,000 drop and November rose 4,000. However, today’s report contains annual revisions and they were down significantly. The December payroll decrease fell short of the consensus forecast for no change in payroll jobs.”

The unemployment rate has started to improve based on the report released by the Labor department this morning (See charts below). One of the most important points to realize is that the productivity of employees is also rising. In other words, worker efficiency is increasing. This is very important and reassuring in reference to wage inflation. As the economy improves and employment declines, it results in putting upward pressure on wages. As the disposable income increases, it in turn puts pressure on prices and hence inflation. Therefore, higher worker productivity is a positive factor in containing inflation. In addition, corporate America now has lean balance sheets with adequate cash to fund inventory restoration as the economy recovers.

However, there are a few road bumps to be considered and factored going forward. On the short term, the rhetoric from the White house regarding the banking reform could have a large impact on the way the US is considered as a free economy. As the world becomes global, the role of the US is diminishing as the watchman of the world. All regions of the world are now opening their economies and letting the invisible hand (in the words of Adam Smith) or free market action, govern progress. The other troubling variable is the condition of PIIGS (Portugal, Ireland, Italy, Greece and Spain) national debt. The problem is not only the respective debt of each country but the derivative products that can significantly impact the players in the financial and non-financial sector that are involved. Without delving into the details, derivative products have little or no transparency and are contractual agreement between two parties. Usually the counter parties include investors looking for protection or speculating the downside of an underlying security (in this case sovereign debt of the PIIGS) and institutions that will collect small premiums and insure the underlying security. In case of a Black Swan event, (Greece defaults on their debt) the institution that has insured the investor against an event, in this case debt default is liable to pay up. The true risk is in case the insuring institution does not have adequate reserves to make the counter party whole, in case of a true debacle. In that case the markets can experience a panic that could escalate to other areas of the financial services industry.

We do not believe that the European Union will allow that to happen. We still believe that this 7% correction is a good entry point for investors, and have been proponents of adding gradually to existing positions in the area of Finance, Technology and Healthcare.

Market Commentary: February 3rd, 2010: 11:00 am (PST). Posted by Manu Walia 

“ADP private payroll count for January fell 22,000, a result that will likely edge expectations lower for Friday’s employment report where expectations are centered at no change for non-farm employment.”

ADP Private Payroll Feb 3 2010

ADP Private Payroll Feb 3 2010

It can be observed by the ADP payroll report and the chart above that the employment situation has started to improve. In addition, Chart B clearly suggests that the Jobless claims have started to improve.

 Chart B : Jobless Claims Feb 3 2010

Chart B : Jobless Claims Feb 3 2010

We believe that major damage in employment arose from the auto and housing sectors. Obviously, the 12-13 million jobs lost did not all come from these sectors directly but the allied industries on the periphery. We believe that we have now seen an inflexion point from a macro perspective. The government stimulus has started to work and should provide continued support. The only deterrent in our perspective is the political rhetoric regarding banking reforms, which could choke entrepreneurial activity with in the financial services industry.

We believe that the country is in a longer term strengthening phase and investors should take advantage of sectors that are expected to show continued growth in their top and bottom line. Earnings have improved over 200% (ex-financials) for the fourth quarter and 77% of the companies that have announced results have beaten their earnings estimates.

Without sounding like a broken record, we would reiterate our favorable bias towards companies in the Financial, Healthcare and Technology sector with international exposure.

Market Commentary: February 1st, 2010: 9:30 am (PST). Posted by Manu Walia 

January 29th, 2010

Fourth quarter advance estimate of gross domestic product was up more than expected at an annualized rate of 5.7 percent. This was the quickest growth rate in more than six years. Analysts had expected an increase of 4.5 percent. The fourth quarter gain primarily reflected a deceleration in inventory disinvestment (de-stocking), a deceleration in imports and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in PCE. Real final sales of domestic product – GDP less change in private inventories – increased 2.2 percent in the fourth quarter, compared with an increase of 1.5 percent in the third. 

February 1st, 2010

 The pace of month-to-month growth in the manufacturing sector rose sharply in January, driven by a red-hot pace of new orders that accelerates higher each month and points to exceptional overall growth through the rest of the first quarter. The ISM’s manufacturing index jumped more than 3 points to 58.4 for its sixth straight indication of month-to-month growth (plus 50). New orders posted their third straight reading over 60, rising more than 1 point to 65.9. Exports, centered in electronics, are driving conditions in the manufacturing sector, with the new export order index up 4 points to 58.5.


It can be clearly observed in the Chart A below that the markets have been correcting intermittently during the robust rally since the market low of March 9th 2009. The biggest correction happened in June 2009 of over 7% and we have now experienced a 6% correction since January 19th 2010. We have discussed the role of corrections and it being a reality since August 2009. We need to recognize the tug of war between technical and fundamental investors. The Economic news has been improving since March 2009, but the tug of war continues between economists who believe that a government led recovery is temporary and we are still over levered and can not sustain the recent recovery.

Chart A: Market Corrections Feb 2010

Chart A: Market Corrections Feb 2010

We have been proponents of reviewing economic growth in terms of unemployment and corporate earnings. The recent GDP report (Chart 1 below) clearly shows improvement over the last 3 quarters. We do not believe that the economy will grow at the current rate but this is a development in the right direction.

Chart 1: Real GDP Jan 2010Chart 1: Real GDP Jan 2010

In addition, the manufacturing sector (Chart 2 below) is showing improvements that is also a favorable variable.

Chart 2: ISM Manufacturing Index Feb 1 2010Chart 2: ISM Manufacturing Index Feb 1 2010

 In addition, We would like to draw our reader’s attention to the recent fourth quarter earnings in the US. 79% of the companies that have announced results have been able to beat the analyst earnings expectations and 64% have beaten revenue estimates. Future outlook, especially from sectors and companies exposed to international markets have been projected to hold promise from.



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