The market was able to continue yesterday's reversal trend
higher, even following Moody's 3-notch downgrade of Italy's credit
rating late yesterday afternoon. This move echoes S&P's
downgrade of Italy a couple of weeks ago, so the markets weren't
shocked by the Moody's call.
Whether or not we are entering the "bad news is good news" phase
for the markets, yesterday's late-day spike (400-point upswing in
the final 45 minutes of trading) as well as today's 1-2 percent
gain in the indices will certainly help a lot of traders recover
from the recent momentum stock swoon.
Looking at today's market action, earnings results painted a
mixed picture for some well-known companies. Costco (
COST
) and Yum! Brands (
YUM
) ended lower, while Monsanto (
MON
) traded over $3 higher. Speaking of Costco, the company announced
it will raise membership fees 10%. It's pretty amazing that the
concept of paid memberships to buy (mostly) food products still
helps deliver steady profits. You'd think this concept wouldn't
resonate as much during tough economic times, but apparently it
still does. Is the selection of products really different than at
the large supermarket chains? I never really noticed all that much
of a difference personally, selection-wise or price-wise.
In other news, positive Wall Street commentary helped lift
stocks like CBS Corp (
CBS
), Marathon Oil (
MRO
), and Walt Disney (
DIS
). Tech giants like Cisco (
CSCO
), Oracle (
ORCL
), IBM (
IBM
) racked up nice gains as well. Speaking of tech giants, Microsoft
(
MSFT
) came out after the close refuting any rumors it was kicking the
tires once again in regards to an acquisition of Yahoo (
YHOO
). One of the most oversold sectors - commodities, racked up a
second straight day of gains with stocks like CF Industries (
CF
) and Freeport McMoran (
FCX
) pacing the gains. There is a decent amount of traders that have
been caught buying one too many dips in the sector, so there could
be some more volatility ahead if the markets suddenly reverse back
down.
Bad Business Move for Best Buy?
It's been a few days since I have read about Best Buy (
BBY
) being a value play (sarcasm), but the company recently announced
they would be cutting their holiday season employee hiring program
by 50% this year. On the surface, this move sounds like a good way
to cut some fixed costs. But when you think about the Best Buy
shopping experience, the move could backfire badly.
People that shop at Best Buy tend to have questions when it
comes to electronics, so just imagine the frustration of trying to
haul a knowledgeable salesperson down during the manic holiday
shopping period. Then if you can navigate through that phase, the
last thing you will want to do is wait on long lines to check out.
Anyone who has switched to shopping online only (Amazon has taken a
big slice of the consumer electronics space) will likely never step
foot in a big box electronics store again. We'll see how it works
out for Best Buy this year, but their recent announcement had me
thinking about the move from a business person's standpoint. As you
can see by my take, I don't think the move to cut their sales staff
this holiday season will prove very successful.
Shopping, Then & Now
Speaking of shopping, it appears that "layaway" programs are
making strong comebacks across various retail store brands.
According to a survey released by ConsumerSearch.com, the majority
(71%) of the 1,011 of consumers polled said they are open to using
layaway programs in the next six months, and 42% said they'll do so
for holiday gift purchases. This trend brings back memories of when
I was a child and my parents would use the layaway strategy at the
local "5 and dime" store. The money they'd spend was drawn from
their "Christmas club" bank account as well - anyone remember
those? Christmas club accounts were specialized accounts you could
set up with your bank to make deposits throughout the year. At the
end of the year, that money would then be used to purchases holiday
gifts for friends and family members.
Last Hour Rumors Only Add to Volatility
Yesterday marked the
third time
in the past couple of months that FT.com (Financial Times) cited
unnamed "sources" as saying European bank bailouts were on the
horizon. The first FT story claimed China would bail out Europe and
was refuted the next morning. Then two weeks ago, there was talk of
a potential TARP-like bailout for some of the smaller European
banks. That news, predictably, juiced the markets suddenly higher
(but never materialized). Then yesterday, FT published another
European TARP rumor, which once again lifted the markets off the
lows and actually caused a near 400-point turnaround in the last 45
minutes of trading. That story was also refuted this morning by the
ECB, by the way. I don't ever want to complain about market gains,
but these constant false rumors are doing little to help us flush
out the bad news from the markets once and for all.
Buying Time or Biting the Bullet
I went to bed last night and all I could think about is what
would make the ECB (European Central Bank) consider doing their own
version of TARP. That program in the U.S. did help our markets pop
higher and get us off those March 2009 lows, but as you can see
from the weakness remaining in the banks, the supposed solution has
not had a long-lasting effect. And now, talk of a U.S. TARP Part II
is making the rounds. I'm not sure how well such a plan would go
over with taxpayers, not to mention the growing numbers of
protesters across the nation that have risen up against such
measures.
It's pretty clear to me that politicians are simply buying time
with these bailouts. Keeping bad banks in business just isn't a
sound practice, however. As we've seen in Japan, the decision to
keep financial institutions on life support there has kept the
Japanese economy in the doldrums for over two decades now. Maybe
some members of the ECB are floating the idea out there to see how
the markets react. If so, they'd better be very careful basing any
decisions on a single-day market reaction.
Thanks for reading, and I'll see you tomorrow! P.S. Please pass
this e-mail on to someone you think can use some financial
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