Great Earnings Overshadowed, Markets Drop for the Week

Sunday, May 02, 2010

The Dow ended the week in the red losing 158 points for a total drop for the week of 195 points (-1.75%). We saw a slew of great earnings reports out of many companies:

Caterpillar (NYSE:CAT): $0.50 v. $0.39e
3M (NYSE:MMM): $1.40 v. $1.21e
Dow Chemical (NYSE:DOW): $0.43 v. $0.30e
Kansas City Southern (NYSE:KSU): $0.44 v. $0.31e
Cummins (NYSE:CMI): $0.75 v. $0.35e
Weyerhaeuser (NYSE:WY): $-0.07 v. $-0.25e
Baidu (NASDAQ:BIDU): $2.02 v. $1.51e
Humana (NYSE:HUM): $1.52 v. $1.14e
Whirlpool (NYSE:WHR): $2.13 v. $1.33e

Yet, these excellent numbers were overshadowed by continued problems in Europe, the oil spill in the Gulf and Goldman's continued legal woes. S&P downgraded Greece, Portugal and Spain this week as the risks of government default rise across the Eurozone. Spain reported last week its unemployment rate has risen to 20.1%. This is double the US rate and paints a very bleak picture for the struggling country. Part of the $146 billion bailout package for Greece includes 3-year salary freezes coupled with wage cuts for public sector employees causing protests across the country this weekend.

BP (NYSE:BP) lost 12.9% last week after the explosion of the Deepwater Horizon oil rig caused the loss of 11 lives and the spill of hundreds of thousands of gallons of oil into the Gulf of Mexico. Several other energy companies dropped significantly last week as their various involvements with this catastrophe may make them culpable; the names include Transocean (NYSE:RIG), -19.6%; Anadarko Petroleum (NYSE:APC), -16.1%; Cameron International (NYSE:CAM), -16.6%; Halliburton (NYSE:HAL), -12.3%.

Warren Buffett held the annual Woodstock for Capitalists in Omaha this weekend. He sees a very real and substantial turnaround occurring across his variety of businesses with the exception of homebuilding. Though, he is okay with this continued slowdown believing the housing market is working through the incredible excesses in order to normalize supply against demand. Buffett stated that he stands behind Goldman Sachs and Lloyd Blankfein. Buffett clearly has a stake in the success of Goldman Sachs (NYSE:GS) with warrants to buy 43 million shares of stock at $115, yet, I sincerely do not believe this is why Buffett has defended GS. Buffett has done business with Goldman for over 4 decades and is an experienced man of finance. Buffett has spent over 5 decades investing and is well aware of the unforgiving nature of financial markets. If Buffett had bought into Lehman or Bear, would he have any recourse? Buffett said in his multitude of transactions with GS he never cared who was on the other side of the trade, and that it is largely irrelevant. Yet, many would argue that while it does not matter to someone of his expertise, it does matter to the unwitting even though they were consider sophisticated investors. I'm not sure GS can escape conviction though if they presented material misrepresentations regardless of whether they have the fiduciary duty to disclose counterparties. He left open the possibility of changing his mind though stating that "if it leads to something more serious, then we will look at the situation at that time."

New York City had a scare this weekend after an attempted bombing in Times Square luckily failed because of a faulty device. Police are still searching for the perpetrator. On a crowded Saturday night, this could have been an unthinkable tragedy.
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