December 2009

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LETTER FROM THE EDITOR

The broader market indices trended upward and closed positive in the month of November 2009 as a result of positive signs of economic recovery and increasing consumer confidence.  The Dow Jones Industrial Average hit a 13th month high and closed above the 10000 point mark. The jobless claims during the month did not face much of a change, but the federal government remains committed to improve the jobs market scenario by organizing summits with the corporate executives.  The market had a number of mergers and acquisitions leading with Warren Buffet’s Berkshire Hathaway purchase of Burlington Northern Sante Fe Corporation, one of the largest acquisitions in terms of dollar value made by Mr. Buffet.

GDP: The United States government revised down its third quarter GDP estimates from 3.5% to 2.9%, on Tuesday, November 24, 2009.  This was the second preliminary estimate among the three reports that are usually reported every quarter.  The reason for the downward revision was the increase in imports, which affected negatively on the GDP figure; the decrease in the state and local government spending; and consumer spending.  The third and final revision of the third quarter GDP estimate would be released in December 2009.  Although the figure was revised downward, it was significantly higher compared to the second quarter GDP estimate that was negative 0.7 %.  Broadly speaking the increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures, exports, private inventory investment, federal government spending, and residential fixed investment.  To get more specific details on the report visit:  Bureau of Economic Analysis.

Another area of concern for most players in the financial market is that if the economy can sustain the rise in the GDP figure leading into year 2010, because the third quarter figure spurred mainly due to the government stimulus programs like the “Cash for Clunkers” program.

According to the reports from private sector, massive job cuts by businesses are paying off for them. Corporate profits increased at a 10.6 % quarterly rate, the fastest rate since 2004. In the prior quarter, profits rose at a 3.7% rate.

Mortgage Delinquencies : On November 19, 2009, the Mortgage Bankers Association (MBA) reported that mortgage delinquencies hit a record high in the third quarter of 2009:

"The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86 percent in the second quarter of 2009 to 9.94 percent this quarter." (For more specifics on the report, please click here.)

The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.  Despite the economic recovery in mid-summer, the job losses are continuing to increase making mortgage payments difficult, resulting in increased delinquencies and foreclosures.

VIX:  The VIX (the Chicago Board Options Exchange Volatility Index), a benchmark index for United States stock options fell during the second week of November 2009 at a steepest drop in almost a year, slipping 4.3 percent to 23.15.  Since November 2008, the VIX index has tanked from 81 points to 23 points due to an uptrend in the broader US stock market indices in the year 2009, after a long period of recession resulting from the housing crisis.  VIX index is also called as a “fear index” that measures the market’s expectation of volatility over the next 30 day period. A higher value of the VIX index corresponds to a high volatility market.  Low VIX is a good sign for the stock market.

Mergers and Acquisitions

Berkshire Hathaway to buy Burlington Northern Santa Fe Corporation

Warren Buffet’s Berkshire Hathaway agreed to buy Burlington Northern, the nation's largest rail transporter of coal and grain, for $ 34 Billion. Berkshire Hathaway Berkshire already owns about 22 percent of Burlington Northern, and will pay $100 a share in cash and stock for the rest of the company. Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. 60 percent of the deal is cash and 40 percent is in stock.

Caterpillar to buy JGS, a South Korean Equipment-Maker

Caterpillar Incorporated, a Peoria, Illinois based construction and mining equipment maker plans to buy JGS, a South Korean equipment making subsidiary of Jinsung T.E.C.  The terms of the acquisitions were not disclosed. This transaction will give the US-based Caterpillar Incorporated to set up its first factory in South Korea.  In that region, Caterpillar already has plants in China, India, Indonesia, and Australia.

BMO Financial to buy Diners Club Franchise from Citi Group

On November 24, 2009, The Bank of Montreal (BoM) said that it has agreed to buy Citi Group's Diners Club North American franchise.  The Bank of Montreal would gain almost $ 1 Billion of net receivables and $ 7.8 Billion of credit card transactions. This acquisition would give BoM exclusive rights to issue Diner's Club cards to corporate and professional clients in United States and Canada, as reported by Associated Press.  The acquisition is expected to close before March 31, 2010.

Pinnacle Foods Group to buy Birds Eye Foods

The Pinnacle Foods Group, a company controlled by the Blackstone Group, agreed to acquire Birds Eye Foods for $1.3 Billion from its owners Vestar Capital Partners and the Pro-Fac Cooperative. Pinnacle is one of the largest packaged-food companies that sell products like Swanson frozen dinners and Duncan Hines baking mix. Pinnacle Foods would finance the transaction using a combination of new debt and a significant new equity contribution from Blackstone. The deal is expected to close by March 31, 2010.

WHAT IS NEW?

November was an eventful month for us here at Investor Concepts. We are on an aggressive growth path and intend to remain that way for the foreseeable future. What this means to you “our reader” is lots of new and relevant content and tools integrated into our website that is made with a purpose of equipping you to be a smart and sophisticated investor to make the right investment decisions.  So what have we accomplished during the month of November? Here is the short list.

•    We are working with few practitioners in the investment industry to provide valuable investment insights to our Investor Concepts readers through articles.
•    We have integrated the largest financial glossary to our Investor Concepts website that currently has meanings and definitions to 8,799 financial and business terms written by Mr. Campbell Harvey, Ph.D., a well renowned professor of finance at Duke University, in addition to our in-house authors.
•    We have expanded a few content areas: Concepts, Books, and Investor Tools.
•    We still continue to expand our Concepts section by including concepts in Spanish.
•   We have licensed with PR Newswire, one of the largest news distribution agency, to provide timely financial and business news articles to our readers on Investor Concepts.
•    Added content categorization feature that allows tagging and topical navigation of published articles.
•    Expanded the Events calendar to include a variety of online and offline financial events.

FEATURED ARTICLES

During the month of November we had a number of very interesting articles published on our site, many of which deal with financial planning, investor education, commodity trading, and technical analysis. We’ve also had some primary research published and are beginning to see some forecasts. Below is a list of articles that caught our attention and we recommend reading them. For a complete list of published content for the month of October visit our Monthly Content Archive.

“Exploiting Harvest Delays” by MBWealth
In this article, Mr. Matthew Bradbard, the founder and president of MB Wealth Corporation providing valuable insights on trading staple commodities like soy bean and corn. He also states the reasons for his bullish view on these commodities.

“Let the Bubble Blow” by Greg Feirman
In this article, Mr. Greg Feirman, an investment manager of Top Gun Financial Planning talks about the Federal Reserves intentions of keeping the benchmark interest rates low to help companies to sail through the recession.

“When Employers Cut 401(K) Matching” by Liz Davidson
In this article, Mr. Liz Davidson, the chief executive officer of Financial Finesse discusses the importance of saving for retirement and the benefits of Individual Retirement Account.  Ms. Davidson is a well renowned professional who has made a mark as a financial planning educator.  

“The Price-to-Earnings (P/E) Ratio: What Does it Really Mean?”
This article talks about the importance of Price-to-Earnings Ratio as a method of relative valuation.  In addition, this article also discusses the benefits and drawback of using this important metric in screening attractive stocks for investing.

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MARKET PERFORMANCE RECAP

November turned out to be a profitable month for the market hitting 13 month highs.

•    Dow Jones Industrial Average +5.67%
•    NASDAQ Composite  +4.66 %
•    Standard & Poor’s 500 +5.06%
•    Russell 3000 +4.84%
•    Dow Jones Wilshire 5000 Composite +4.84%

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