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At the open 5-2-11

News –

• Late last evening the President reported the death of Osama bin Laden following a SEAL raid on a compound in Abbotabad, Pakistan…this event may mark some closure in the lives of many in the tri-state area who lost loved ones in the attacks on 9/11 but should remind us as well that there are those who will likely plan reprisal attacks as a result of this operation and in an effort to set themselves up as the new leader of the organization. We much remain vigilant and hope that they remain relatively inept and remember “if you see something, say something”.

Other News / Events –

• We begin May with a relatively light (13 companies) slate of earnings announcements…

• Markets in Asia were mixed in overnight trading as several markets were closed…the FTSE remains closed Monday as the Easter/Wedding week finally drags to a close…the rest of Europe is open for trading but results there are a bit mixed as well…domestic futures indicate a higher open for all of the indices at this time…

• Silver futures drop as much as 13% as the CME increases margin requirements…
• Economic releases are light today…we’ll get data on construction spending as well as the ISM manufacturing index (expected to come in at 59.5) and the ISM prices paid index (expected to come in at 83.0)…
• Rising fuel costs and above industry average wages and benefits (the reward for not filing for bankruptcy like the rest of the industry) now appear to threaten the ultimate economic viability of AMR (the parent corporation of American Airlines)…the cost of 5 year credit default swaps has risen to 22.3 points “up front” plus 5% “running” interest costs…this from a low of 9 points up front in January of this year.
• For those who believe that the current rally is more secular than cyclical you can look to the continuation of improving productivity per unit of labor and the consequent stability in unit labor costs as one of the key factors in the profit gains in US companies that has driven return on equity higher for six consecutive quarters to 23% in the latest quarter. Analysts suggest that the ROE could reach 27% next year which would be the highest level since2000. Much of this gain must be attributable to the continuous application of technology in the workplace environment. Unfortunately, it also highlights the shortcomings in much of the labor force as specific skills are required to work in a more technologically advanced industrial workplace. This creates the risk of secular unemployment for those unable to adapt which in turn places a larger burden on society.
• Estimates are that as many as 11 million new households will be formed in 2011 as the improving economy results in young adults leaving home…it is believed that the growth in the population of “live at home college grads” has created a backlog of pent up demand for housing which could serve to drive further improvement in the economy through increased housing construction once the backlog of unsold homes and foreclosures clears the market. At this point it remains difficult to determine how long this will take but it’s likely measured in years not months. The other problem remains matching housing demand with those geographies that have excess supply like the so-called “sand states”.
• US exports increased 16.6% in 2010 to $1.8 trillion unfortunately for the trade deficit imports rose even faster (+19.7%) to $2.3 trillion. If exports remain on the current trajectory they will surpass the Presidents goal of doubling exports by 2015…
• Dry weather in Kansas threatens the wheat harvest in the 2nd largest producing state in the US…the winter wheat crop in the US is at its lowest level of production in 15 years and threatens to further erode inventories already expected to fall by 14%. Kansas may produce as few as 257 mm bushels of wheat this year, down 29% from last year’s production while Texas and Oklahoma crops may be down by ½.
• Investors are increasing exposure to natural gas as lower electricity output from nuclear power and a recovering economy should result in higher utilization rates of gas fired generation worldwide. Below is a chart of natural gas prices at the Henry Hub in Louisiana…
• Gasoline remains elevated as rising demand for oil and the political instability in the MENA keeps the pressure on prices at the pump…

Phillip Pennell, CFA
Turnberry Capital Management
(203) 861-2708 (Direct)
(203) 861-2700 (Trading)
(203) 917-2255 (Mobile)

The contents of this posting do not constitute recommendations to buy or sell specific securities. Any individual wishing to buy or sell securities for their investment account or that of others should consult with their investment advisor prior to entering into any securities related transaction

Today is: June 29, 2017 - 3:41am
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