Valentine Capital IPC Notes
by Valentine Capital's Investment Policy Committee

Valentine Capital Asset Management
Investment Policy Committee

WEEKLY MARKET and ECONOMIC OUTLOOK
April 29, 2010

No alarms, no surprises
That was the general consensus after the Federal Reserve said it would keep interest rates at historic lows for an extended period. Once again the Federal Reserve left the Fed Funds target in a range between 0 and 0.25%, just as everyone expected. The Fed has kept interest rates near zero at every meeting since December 2008. During its’ two-day meeting, the Federal Open Market Committee said that the U.S. economy continues to strengthen, but the slack left over from the recession is still so large that it expects interest rates to stay near zero for an "extended period." The Fed's policy-making arm noted the labor market is beginning to improve, but still-high unemployment is keeping a lid on consumer spending. The Fed will not meet again until June 22-23. In between, there will be nine weeks worth of economic data. The strength of the near term details on economic conditions will make that next FOMC meeting potentially pivotal. Interest-rate futures traders stuck to bets on Wednesday that the Federal Reserve will raise its target interest rate by the end of the year, after this week’s meeting.

GLOBAL THEMATIC OBSERVATIONS
ECONOMIC UPDATES
MARKET ANALYSIS
EARNINGS DEVELOPMENTS


Japan reported retail sales have made another strong monthly gain. In the just-completed quarter, nominal retail sales are rising at an 11.3% annual rate over the previous quarter’s level. Gains are strong across all the major retail categories.
The ‘P’, ‘G’, & ‘S’ of PIIGS downgraded. Portugal, Greece and Spain, all members of the PIIGS countries, had their debt ratings lowered by S & P this week. Greece’s credit rating was downgraded to ‘Junk’ status. The ratings agency cuts the other country’s credit rating from AA+ to AA, pinning the decision on fears that an extended period of weak economic growth could damage the government’s budget position.
Germany said confidence rose more than expected to a 6-month high heading into May on optimism about the economic outlook and wages, the GfK research group said.
UK reported higher home prices. The average British house price rose by a seasonally-adjusted 1% in April, aided by tight supplies of properties for sale, mortgage lender Nationwide said today. The average price now stands at 167,802 pounds ($254,287), up 10.5% compared to April 2009. That marks the first double-digit annual rise since June 2007.
Source: Investor’s Business Daily, Wall St. Journal: April 22 – April 29.

U.S. Economic Events & Analysis:

POSITIVE INDICATORS:

Jobless claims down: The number of people filing initial claims for unemployment benefits declined by 11,000 in the week ended April 24 to a seasonally adjusted 448,000, the Labor Department reported today. Claims are down about 28% from a year ago. The number of people collecting regular state benefits dropped 18,000 to a seasonally adjusted 4.65 million in the week ended April 17. The four-week average of continuing claims fell 9,000 to 4.64 million, the lowest level since January 2009.
Consumer confidence up: Consumer confidence index rose 10.7% month-over-month to 57.9, its highest level since September 2008. The gain handily outpaced the Consensus expectation for a rise to 53.5. During the last ten years there has been an 86% correlation between the level of consumer confidence and the y/y change in real consumer spending.
Home prices up: Houses in 20 major U.S. cities were worth more in February 2010 than in February 2009, the first time in more than three years that values had increased year-to-year, according to the Case-Shiller home price index.
CRB Index down: The Reuters-Jefferies Commodity Research Bureau is down -3.2% year-to-date. The widely followed CRB index shot up 24% last year, topping the 1973 increase sparked by the oil crisis.
Benchmark interest rate down: Yesterday’s closing yield on the benchmark 10-year Treasury was 3.76%, still down and near the 3.73% last week.
Oil down: Crude for June delivery, the most active contract, gained 78 cents, or 1%, to $83.22, right where it was last week at $83.68 a barrel. The Energy Information Administration reported an increase of 1.96 million barrels in the U.S. oil inventories. Analysts surveyed by Platts had expected a rise of 1.4 million barrels.
Sources: Economy.com, Bloomberg, MarketWatch, IBD, First Call: April 22 – April 29.

WEAK INDICATORS:

Mortgage activity drops: The Mortgage Bankers Association reported that mortgage applications slipped last week. For the month as a whole, applications were the lowest since July of last year. Weakness in borrowing is further evident in the nearly 50% decline in applications versus last year. Refinancing applications fell nearly one-quarter this month versus March and by roughly two-thirds from the peak last April. However, applications to purchase a home firmed this month and last, ahead of Friday's expiration of an $8,000 home-buyer tax credit. Applications this month were at the highest level since October.
Sources: Economy.com, Bloomberg, MarketWatch, IBD week of: April 22 – April 29.

· The Market: The stock market remains in a confirmed uptrend from a rally that began February 16. Including this AM, the DOW is up 14 out of the last 16 sessions. All the major indices are at levels not seen since summer of 2008. The NASDAQ closed at the level it was in May of 2008. Supporting the upward momentum has been higher volume. With the 1st quarter in the history books, the S & P 500 has advanced 4 consecutive quarters after declining 6 straight beginning in Q4 of 2007. As we have noted, the S & P 500 has not had a pullback exceeding 7% since the market rally began in early March (the S & P 500 is up 79.% since the March 6th ’09 low). Year-to-date major index performance: S & P 500 6.8%, DJIA 5.9%, NASDAQ 8.9%, and the S & P 600 15.6%. Since December 21, new highs have been dominating new lows. Here are the past week’s results: April 22: 787 new highs & 14 new lows, April 23: 954 new highs & 13 new lows, April 26: 512 new highs & 18 new lows, April 27: 147 new highs & 23 new lows, and April 28: 185 new highs & 26 new lows. Industry Group analysis: year-to-date, 187out of 197 groups we monitor are positive.
Source: Investors Business Daily. April 22 - April 29.
**The Standard & Poor’s 500 (S&P500) is unmanaged group of securities considered to be representative of the stock market in general.
**The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.
**NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
**The Standard & Poor’s 600 (S&P600) is an unmanaged group of securities, relating to the small cap segment of the U.S. equities market, covering approximately 3% of the U.S. equities market.
***Indexes are unmanaged and cannot be invested into directly. Investing in limited sectors may increase the overall volatility of a portfolio.


Bull/Bear Barometer:
Market in confirmed uptrend: BULLISH.
Industry group strength broad : BULLISH. 187of the 197 industry groups we monitor are up year-to-date, near the same as last week’s 188.
Dow dividend yield: BULLISH. The current yield for the Dow Jones Industrial Average is 2.51%, the same as last week and down from 4.45% March 9, ‘09, which was a 5-year high.
Volatility index down: BEARISH. Also known as the ‘Fear index’, the VIX (volatility index) is 21.3, up from 15.4 last week, but still down significantly from the last bear market highs. The VIX has dropped from over 50 near the market bottom in March. According to FactSet Research, the VIX spiked to record highs of between 81 and 96 in late October ‘08, then peaked at 103.4, as panic gripped markets worldwide. This contrarian indicator is considered bearish as it reads investors become less fearful. Since its introduction in 1993, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility.
Investors Intelligence survey shows rising optimism: BEARISH. The Investors Intelligence Advisors Sentiment index, which gauges the stock advice of about 150 newsletters and other paid market-advice outlets, is now at new extreme levels. The “Bearish” sentiment is 18%, up from 17.4 last week. “Bullish” professional sentiment is 54, up from 53.3 last week. The 5-year high is 62.9. The index is considered normal at a measure of 45% bulls, 35% bears and 20% neutral.
Bear Perspective: Bull market or Bear market rally?? Both provide impressive gains, especially over the short-term. During the October of 1929 to July 1932 bear market the Dow lost 89% of its value. During that time there were 7 large rallies exceeding 27%. For example, the bear market rally that began in October 1931 lasted 35 calendar days and resulted in a gain of 35%. Additionally, a more powerful bear market rally ensued in 1932 when an early August to late September advance exceeded 100% before another leg down, losing over 30%. Japan’s Nikkei showed 4 huge up moves of 50% or more during its prolonged bear market, losing 74% of its value. Japan’s stock market is still a fraction of its September 1989 peak near 40,000, as it is now about 10,000.
Sources: Wall St. Journal, IBD, Thompson First Call, Zacks, Stock Traders Almanac, AlphaTrends. April 22 – April 29.


● Earnings & Company Developments: At this point it seems clear that we are going to have a stellar earnings season when all is said and done. So far 173 firms of the S&P 500, or 34.6% have reported. No doubt about it; earnings reports so far are trouncing expectations. Of the S & P 500 company announcements so far, 83% have beaten forecasts, a record rate. The normal percent that beat consensus expectations is 61%, according to Thompson Reuters. Collectively, companies are beating views by 21%. Most profit gains in recent quarters came from aggressive cost cutting. But lean firms seem to be leveraging rising revenue now, a positive trend change. S&P 500 earnings are on track for a 50% gain (32% excluding financials). Analysts expected 37% growth overall back on April 1. Companies of interest: B&G Foods (BGS), stated, "First quarter was an excellent quarter for our business. The $30.0 million EBITDA was a record quarterly EBITDA for our Company, and was achieved through strong volume growth complemented by improved net pricing. Key metrics in the business are all excellent; cash is at an all-time high for quarter-end at $69.4 million, net leverage for the latest twelve months is 3.9 times EBITDA, and adjusted EPS increased by 22.2%. Given this strong performance, we are raising our fiscal 2010 EBITDA guidance to $108.0 to $111.0 million."
Sources: Zacks Investment Research, Thompson Reuters, Earnings.com, TheStreet.com, FactSet. April 22 – April 29.

On This Day:
April 29, 1862 -- New Orleans fell to Union forces during the Civil War.
Source: history; about.com

Notable & Quotable: on Dedication
If you don’t make a total commitment to whatever you are doing, then you start looking to bail out the first time the boat starts leaking. It’s tough enough getting that boat to shore with everybody rowing, let alone when a guy stands up and starts putting his life jacket on.
Lou Holtz, football coach.

Valentine Capital Asset Management, Inc.   

6111 Bollinger Canyon Rd. Ste 100, SAN RAMON, CA  94583

925.275.0200

Published by Valentine Capital Asset Management
Copyright © 2010 Genevieve Valentine Enterprises. All rights reserved.
All rights reserved. Valentine Capital Asset Management 6111 Bollinger Canyon Road #100 San Ramon, CA 94583 (925) 275-0200 Valentine Capital Asset Management is an SEC Registered Investment Advisory firm doing business in the State of California. John Valentine, Founder & President. Securities offered through Purshe Kaplan Sterling Investments, member FINRA/SIPC, Headquartered at 18 Corporate Woods Blvd, Albany, NY 12211 NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL. NOT INSURED BY ANY STATE OR FEDERAL AGENCY.