At 2.8% fourth quarter 2011 GDP growth disappoints–and now we can see what the Fed fears

Is this what the Federal Reserve saw in the fourth quarter GDP numbers that made it pessimistic enough on Wednesday to say that exceptionally low interest rates will be with us until the end of 2014 instead of “just” the middle of 2013?

I’m not talking about today’s headline GDP number, although that was disappointing. The “advance estimate”  (the first estimate and subject to future revisions) showed real GDP climbed at an annual rate of 2.8% in the fourth quarter of 2011. That was below the consensus among economists surveyed by Briefing.com of 3.2%. But well above the 1.8% annual growth recorded in the third quarter of 2011. Fourth quarter growth was the strongest since the second quarter of 2010.

But 2.8% was still disappointing because in recent weeks economists and Wall Street had pushed their expectations above 3% to as high as 3.5% for the quarter.

The real problem with this number is where the growth came from and what that forecasts for the first quarter of 2012. Read more

Sell Mead Johnson Nutrition (MJN)

Yesterday, January 26, Mead Johnson Nutrition (MJN) reported fourth quarter earnings of 52 cents a share, a penny above Wall Street estimates, and revenue of $911.3 million, above the Wall Street consensus of $894.04 million.

On the news the stock closed up at $74.01. That–$74 a share–was the price I set for an exit in the aftermath of the death of a baby in Missouri that had consumed the company’s Enfamil baby formula from a Cronobacter infection. To me the stock is now a sell. (The shares are a member of my Jubak’s Picks 12-to-18 month portfolio http://jubakpicks.com/the-jubak-picks/  )

The important issues are valuation and timing. Read more

It is the best of industries; it is the worst of industries.

And I think the energy position in your portfolio ought to reflect that U.S. oil stocks and natural gas stocks are headed in opposing directions. The underlying fundamentals of liquid hydrocarbons are so different from those of gaseous hydrocarbons in the U.S. market that the odds are that 2012 will bring higher share prices for U.S.-oriented oil producers and stagnant prices for U.S. natural gas producers.

And unfortunately for bottom fishers, I think the trends that have put natural gas in an energy deep freeze are set to last for a while.

This all has repercussions that extend well beyond the stocks of oil and gas producers because the conditions in these two energy sub-industries will have a huge effect on drilling and service companies and on chemical producers.

Here are two deals from Monday, January 23, that sum it all up. Read more

The numbers out of Brazil’s steel industry are ugly. How ugly? Uglier than a mole rat. Uglier than the first day of school. Uglier than an Ugli fruit.

Brazil’s steel industry produced a record 35.2 million metric tons in 2011, 6.8% more than in 2010, but “apparent consumption” (the sum of domestic production plus imports minus exports) fell by 4.2% to just 25 million tons. And since Brazil’s steel industry has a total capacity of 45 million tons, steel prices haven’t gone up strongly even if exports did climb 21% in 2011.

In short there’s nothing in the current picture of the Brazilian steel industry to explain why the American Depositary Receipts (ADRs) of Gerdau (GGB) are up 35.9% from December 19 to 2:13 p.m. New York time on January 26. (Gerdau is a member of my 12-18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

Part of that jump is due, of course, to the switch from risk-off to risk-on that has swept the entire global market in the last month. Traders and investors have decided, apparently, that the European Central Bank has poured enough money into European banks, that the U.S. economy is growing modestly, and that neither China nor Brazil are headed to a hard landing so it’s okay to move money from safe havens such as U.S. Treasuries to global equities. In the same period that produced Gerdau’s 36% gain, the iShares MSCI Brazil Index ETF (EWZ) 13%.

But that’s only part of the story—since Gerdau has outperformed the ETF (Exchange Traded Fund) so massively. Read more

Fed surprise as central bank says it will keep rates exceptionally low through end of 2014

Actually something of a surprise from the Federal Reserve’s Open Market Committee today.

The committee decided to keep its target rate for short-term interest rates at 0% to 0.25%.

No surprise there.

But then it said it anticipated keeping rates at that exceptionally low level through at least late 2014. Previously the Fed had said “though mid-2013.” Read more