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FIN SVCS: MFS Online Newsletter

July 20th, 2009

Both financial advisors and individual investors need strong high-level information to inform both clients and the investment strategies they pursue. To that end, I conducted in-depth reviews of weekly movement in the markets to produce easily digestible online newsletters. Feedback from advisors ran over 80% positive on the helpfulness of these communications.
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Stephen Boni
8/19/05
WIR-08/19/05-WEB-8/05

Week in Review: U.S. trade gap widens as oil prices continue to rise For the week ending August 19, 2005

Rising oil prices continue to have an impact on the U.S. trade deficit. Driven by the latest round of oil-price increases, prices of overseas goods and services imported into the United States (many of which are oil-related) went up by 1.1%. Consequently, in June the U.S. deficit in international trade of goods and services grew by 6.1%. This has raised familiar concerns about interest rate increases and diminishing foreign investment support for the U.S. dollar. Many economists believe that this larger-than-expected trade gap will force the U.S. government to reduce its second quarter estimates for economic growth.

U.S. Economic News

Wholesale and consumer prices go up

Amid surging gasoline costs and increased prices on automobiles, wholesale prices went up 1% in July ― their largest increase in nine months. The increase is considered significant, though the core rate of inflation at the wholesale level, which excludes energy and food costs, rose by only 0.4%. Some economists believe that car price increases have obscured the bigger picture of core inflation. Joshua Shapiro of consulting firm MFR Inc. stated in the Wall Street Journal this week that “whatever upward influence car prices had on core inflation in July should be ignored in terms of useful information about core inflation pressures.” According to Shapiro, when cars and light trucks are excluded from the calculation, core wholesale inflation rose by just 0.2%.

On the consumer side, prices rose by 0.5% ― less than wholesale prices, but still at the fastest rate in three months. The U.S. Labor Department said that at least half of the increase was driven by current energy costs. However, core inflation for consumers in July was up by only 0.1%. Additionally, car prices on the consumer side went down by 1%, their biggest decline in 30 years.

Banks selling more alternative mortgage products

In the U.S. Federal Reserve’s July survey of senior loan officers, 19 of 46 responding banks reported that nontraditional mortgages, such as interest-only loans, have gone up to 5%-25% of total loan originations. Federal regulators have identified certain concerns about these new types of mortgage loans and are in the process of preparing guidelines for banks to follow on writing them. Historically, nontraditional mortgage options have been marketed largely to affluent and/or sophisticated borrowers. Current sales indicate that these products are being mainstreamed and that lending standards may be loosening.

U.S. corporate news

The board of directors at home appliance giant Maytag has backed a bid by the company to take over rival appliance firm Whirpool. The $1.7 billion bid would create the world’s largest home appliance company. In order for the deal to go through, the proposed merger must first pass U.S. antitrust scrutiny. This scrutiny poses risks because if the government requires Maytag to divest itself of certain business lines, Whirpool’s contract allows it to drop the deal altogether.

To raise cash and avoid a bankruptcy filing, Atlanta-based airliner Delta has decided to sell its Atlantic Southwest division to SkyWest. However, the cash generated from the sale may not be enough to cover credit card processing expenses that the company is obligated to pay to its main credit card company, Visa. A Delta spokesman said that the company may need to set aside a $750 million cash reserve that would shield its current credit card processors in case of an airline bankruptcy, which many analysts believe to be likely if Delta is unable to overcome a series of financial obstacles during the coming weeks.

A rumble is underway at media conglomerate Time Warner. Major investor Carl Icahn recently announced that he and three other investors will be meeting with Time Warner Chairman Richard Parsons to discuss an opportunity for the company to sell off its cable unit and buy back $20 billion in stock. Although Mr. Parsons has helped to reduce company debt following its merger with Internet provider AOL, and has also settled shareholder litigation issues and begun to deal with a variety of other business problems, Time Warner’s stock price has moved little during the past two years. Icahn and other investors believe it is now time to agitate for change within the company.

International economic news

Japan posted its third straight quarter of economic expansion. On Friday August 12, the Japanese government said that gross domestic product expanded 0.3% in the period ended June 30 from the previous quarter. This figure translates into annualized growth of 1.1%. While this growth figure isn’t huge, many economists were encouraged because of gains in two key parts of the Japanese economy – exports (particularly to the United States) and domestic consumption. Masaaki Kanno, an economist at J.P. Morgan Chase observed that, overall, the Japanese economy “has a very good balance at present. We knew from past data that domestic consumption was strong, and now exports have joined.”

Switzerland-based food company Nestlé reported its first major sales gains in a year, with a first-half net profit increase of 32%. (The company reports earnings for the half year and full year, not individual quarter) Over the past year, Nestlé has operated amidst decreasing demand for consumer goods in Western Europe, rising prices for raw materials, and a strong Swiss franc. Many analysts see Nestlé’s growth in this challenging environment as evidence of the company’s ability to trim costs in order to maintain its profit margins.

Stay focused and diversified

In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your investment professional, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon, and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The views expressed here are those of MFS^® and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product.

Sources: The Wall Street Journal. The Wall Street Journal Online. The Financial Times Online.