Friday, January 29, 2010

Ben Wins! and Other Good News

Yesterday the Senate approved Ben Bernanke for a second four-year term as Chair of the Federal Reserve. As late as last Friday that approval was in doubt, as a number of senators announced they would not support him. However, the White House put on a full court press over the last week and garnered enough support for the second term. The vote was 70 for and 30 against approval. The negative votes were the most in history for a chairman, a vivid illustration of the bad blood that still exists between Congress and the Fed. The was other good news today: GDP for the fourth quarter rose 5.7%, well above the 4.5% estimate of many economist. Further, our reading of the data suggests that consumers came alive in the fourth quarter. The largest component of the data was the ongoing inventory rebuild. That is normal and a good sign that the economy will continue to grow over the coming months. Fourth quarter corporate earnings are soundly beating Wall Street estimates. Thus far with 40% of S&P 500 companies reporting, 81% of the companies have beaten Street estimates. The big news is that year over year earnings for the Index, as we predicted, are higher. Indeed, on average they are 75% higher than a year ago, when the financial sector had huge losses. The average surprise has been almost 13%. That is a very high surprise rate. It's too soon to call fourth quarter earnings a big success. There are still 300 companies that have not reported and many of them are banks, but the early signs are very good. A Little Not-So-Good News: The market has not been kind to investors in the last two weeks. The main reason for the slide has been the news coming out of China that their central bank is attempting to slow speculation in their economy. Odd isn't it that what the Chinese central bank is doing lands on the doorsteps of our stock market. Get used to it. China and Indian central bank activity will be as closely watched in the future as our own. The reason is simple: China and India have continued to grow at near double digits rates while the rest of the world has been in recession. Thus, what is going on in the Chinese and Indian economies directly impacts many US companies.