USA Today
NEW YORK — Stock market forecasts tend to be sunny, and 2009 is no exception. Wall Street gurus are again predicting gains. But this year's bullish market call comes with an asterisk.
Wary stock strategists, unsure how the worst financial crisis since the Great Depression will play out, are hedging their bets. Rather than just sharing an opinion about what they think is the most likely outcome for stocks in their '09 outlook reports, some strategists are including worst-case and best-case market scenarios that reflect lower-probability outcomes — but ones that can't be ruled out.
Welcome to the new world of uncertainty on Wall Street.
After a year of tumult, highlighted by the near collapse of the financial system in 2008, the worst recession in almost 30 years and the biggest stock market decline since 1937, many investment pros appear hesitant to declare with 100% certainty that stocks will finish the year in the plus column.
In his 2009 outlook, for example, Morgan Stanley's Abhijit Chakrabortti lays out his base case — a 975 year-end close for the Standard & Poor's 500 index, or an 8% gain, based on Wednesday's close of 903.25 — as well as a scary bear case (-56%) and a super-optimistic bull case (+32%). Three distinct market scenarios are also outlined by LPL Financial chief market strategist Jeffrey Kleintop.
"The road to recovery is likely to be a bumpy one," Kleintop wrote in his outlook piece titled "Time to Opine on 2009."
"What happens further along the road depends on which fork the financial crisis takes us down. The heightened uncertainty … surrounding the economy and policy backdrop generates a wider range of possibilities than for most years."
A recent Citigroup survey of institutional investors reflects the wide disparity of potential performance outcomes for stocks next year. More than 20% expect the S&P 500 to rise 11% to 22% in 2009. But more extreme predictions — both pessimistic and optimistic — were also evident. About 15% think stocks could fall as little as 12% or as much as 39%. And about 15% said stocks could post gains ranging from 44% to 55%.
Here are three potential outcomes for the battered stock market in the new year:
1 ... Base case
This scenario assumes an economic recovery around midyear and a rebound in the stock market, which is a forward-looking animal, by year's end. It is deemed the most likely outcome given the time needed to ease the current stresses undermining investor confidence and zapping the strength of the financial system, credit markets and broader economy.
The base case is, in effect, the consensus opinion on Wall Street. A review of a half-dozen year-end S&P 500 price targets from top strategists suggests that stocks could rebound 8% to 22%.
The key underpinning of this outlook is a belief that the panic that gripped investors around the globe last year will begin to ease in the early stages of 2009, paving the way for a more normal functioning of financial markets in the months that follow, according to Kleintop.
An immediate economic recovery, given the dearth of consumer confidence caused by a weak holiday shopping season and rising joblessness, is wishful thinking. However, the outlook is expected to brighten when there are visible signs that the unprecedented government intervention that began in late 2008 — and that is likely to continue with the incoming Obama administration's massive stimulus plan — is starting to work.
"Let's not fall into this despair trap," Tobin Smith of ChangeWave noted in a recent self-described "rant" titled "As 2008 Ends, There's Hope for 2009."
"The U.S. economy will recover," he wrote. "We as a country are a 'going concern,' and this ain't the end of civilization as we know it. The monetary and fiscal policy of 'no Depression at any cost' will save us from the unnecessary brutality the U.S. witnessed in the 1930s."
As the economy emerges from recession, the profit power of U.S. companies will improve, providing investors with a real fundamental reason to buy stocks. Another building block that supports this base case, according to Morgan Stanley's Chakrabortti, is that stocks are priced attractively after a 38% drop in 2008. Based on analysts' 2009 profit projection of $77.35 for the S&P 500, the market is trading at 11.7 times next year's profit stream, below the long-term historical price-earnings ratio, or P-E, of 15, according to Thomson Reuters.
Even if you plug in more dire earnings predictions, such as the $53 expected by Chakrabortti, the market is selling at 17 times earnings, which is not considered expensive. "Valuations," he says, "are highly supportive" and a reason to be positive on stocks.
Other factors bolstering the case for double-digit gains in '09 include the fact that expectations for economic growth are super-depressed and investor skepticism is super-high. Those acute levels of pessimism increase the chances of an upside surprise if things don't turn out as bad as doom-and-gloomers warn.
"Risk aversion turns to greed later in 2009," Thomas Lee, U.S. equity strategist at JPMorgan Chase, predicts in his outlook report. "An economic recovery will spur risk appetite. At some point after mid-2009, the tailwinds of lower gas prices, fiscal stimulus and housing stabilization should generate a sustainable rally."
That's not to say stocks won't be volatile. Lee says investors should prepare for both violent rallies powered by optimism surrounding the government bailouts, as well as discouraging declines prompted by the reality of horrific corporate earnings until the recovery takes effect.
2 ... Bearish case
It's no fun even to entertain thoughts of another year like 2008, which wiped out $6.9 trillion in shareholder wealth, according to Dow Jones Indexes. But it's better to be prepared for the worst than enter the year overly complacent.
Under this scenario, the financial crisis drags on for another year, putting yet more downward pressure on stock prices. Downside for the S&P 500 is severe, with the benchmark index careening down to 560, a 38% loss, according to Kleintop. Morgan Stanley's Chakrabortti says there is a 25% probability that the S&P 500 could fall as low as 400, a stunning annual loss of 56%.
"Our bear case is driven by much weaker growth and an outright deflationary environment," Chakrabortti notes. Under this scenario, economic growth in the U.S. would come in at negative 2% to 3% vs. 2008, which would be the first year of economic contraction since 1991, according to the Bureau of Economic Analysis.
In short, 2009 would look a lot like 2008, a year most investors want to forget. The recession that began in December 2007 would extend its destructive path for another 12 months, and frozen lending markets would fail to thaw despite the massive response from the nation's central bank, U.S. lawmakers and the Treasury Department.
"The bad news is that our economy is broken, and there is nothing the government can do to fix it," argues longtime bear Peter Schiff, president of Euro Pacific Capital.
Sparking the economic free fall will be another leg down for the already depressed housing market, which would result in a new wave of bank losses, foreclosures, job losses and economic anxiety, Schiff says.
Further deterioration in the outlook for economic growth both in the USA and once-hot emerging economies such as China is likely to drag down both corporate profits and the prices of all kinds of financial assets, ranging from soybeans to stocks.
That could spark a fresh wave of forced selling by large financial institutions, such as hedge funds and mutual funds, that need to raise cash quickly to meet redemption requests from investors, Kleintop warns. The risk of this sell-because-you-have-to-sell frenzy could spark a vicious downward spiral, like the kind experienced in October when stocks were in free fall.
Fears of a hard economic landing could also intensify the deflationary forces already in motion, triggering concern that the U.S. could suffer a lost decade similar to the one experienced by Japan in the '90s after its stock market and real estate bubble burst.
3 ... Bullish case
This case is simple: The turn in the economy, credit markets and corporate profitability comes faster, and the bounce is bigger than even the biggest proponents of a big '09 rebound predict. This optimistic view assumes that the financial panic does a disappearing act at the start of the year, restoring a sense of stability and hope to financial markets and investors.
"Freed from such stark fears, such as depression or something like it, stocks should rise," Lord Abbett market strategist Milton Ezrati said in a recent report, "Recipe for 2009: Add a Pinch of Optimism to That Eggnog."
The bullish case, if it comes to fruition, would result in big profits for investors. Kleintop's high-end, year-end target on the S&P 500 is 1365 — a 51% gain. On the lower end of the mega-bull range is Chakrabortti's target of 1190, or a 32% advance. However, Chakrabortti sees only a 20% probability of this optimistic scenario unfolding.
So how would markets get so well so fast after the worst showing since the Great Depression?
The major wild card would be if the prescription to fix the economy — lower interest rates, government-driven stimulus initiatives and an emphasis on job creation — works sooner than expected and puts a quick end to the recession, helps home prices bottom and helps thaw frozen credit markets more quickly, Kleintop says.
If that were to occur, investor and consumer confidence would enjoy a much-needed boost. Consumers now hoarding cash for fear of losing their jobs would start spending again, propelling a rebound in corporate profitability. And risk-averse investors who now think it is safer to stuff their spare cash under the mattress will start taking risks again in search of larger returns, adds JPMorgan's Lee.
Financial markets, Lee predicts, will refocus their attention on emerging tailwinds as opposed to the gruesome headwinds that kept them on the sidelines in 2008. Stock values will rise as the mountain of cash sitting on the sidelines is put back to work in stocks, creating a demand for shares that has been absent since the financial panic broke out last fall.
Richard Bernstein, chief investment strategist at Merrill Lynch, sums up the new year this way: "We think that 2009 is likely to be better than 2008."
USA Today
New York was the first state that required tobacco companies to sell "fire-safe" cigarettes, which are denoted by a long black bar above the bar code on a cigarette pack.
States are circumventing more than 30 years of tobacco industry opposition to federal safe cigarette legislation by passing their own laws that require the sale of self-extinguishing cigarettes.
The list of states with such laws on the books will expand to 32 in 2009, nearly tripling the number that had such laws at the start of 2007.
After federal legislation — first proposed in 1974, and last failed in 2006 with opposition from the tobacco industry — the decision was made to change strategy and promote state requirements, said U.S. Fire Administrator Gregory Cade.
By the end of 2009, 14 states will join the 18 that already require vendors to purchase and sell only the fire-safe cigarettes, which are designed to go out if they are dropped or set aside, said Lorraine Carli, vice president of communications at the National Fire Protection Association and the Coalition for Fire-Safe Cigarettes.
Fire-safe cigarettes will be mandatory in Delaware, Iowa, Oklahoma, Pennsylvania and Texas beginning Jan. 1, she said. Laws go into effect during the year in Arizona, Colorado, Hawaii, Idaho, Indiana, Kansas, Louisiana, Washington and Wisconsin. Six more states are set to enact laws in 2010 and seven others have proposals in the works, Carli said.
Sen. Dick Durbin, D-Ill., introduced federal fire-safe cigarette legislation in 2005 and Rep. Ed Markey, D-Mass., did so in 2006, according to Jessica Schafer, Markey's director of communications. She said the legislation was met with strong opposition from lobbying firms, and given the success at the state level, there is no plan to reintroduce it.
"Government fundamentally doesn't like … to pass laws restricting commerce," Cade said.
David Howard, spokesman for R.J. Reynolds, the USA's second-largest tobacco company, says R.J. Reynolds opposed federal legislation not because of the cost, but because it didn't include "pre-emptive language," preventing states and localities from passing their own, differing regulations.
John Banzhaf, professor of product liability at George Washington University and founder of Action on Smoking and Health, a national anti-smoking organization, has been critical of how the tobacco industry "has very openly fought virtually everything."
According to the U.S. Fire Administration, almost 1,000 smokers and non-smokers die annually in home fires caused by cigarettes and other smoking products.
New York's 2004 fire-safe cigarettes law was the first. Lauren Rivera, with the New York Department of State, said in 2004 there were 31 smoking-related fire deaths. By 2006, the most recent data available, that number had dropped to 22.
Howard said R.J. Reynolds will start making all of its cigarettes fire-safe by the end of 2009.
Phillip Morris USA, the largest tobacco company, will not make all of its cigarettes fire-safe, but will "continue to work with the states," said spokesman David Sutton.
By Kitty Bean Yancey, USA TODAY
The tourist jackpot: The Strip is still calling Americans, and Las Vegas is once again the top U.S. destination being booked for 2009
Wallet-watching travelers will be taking fewer trips, waiting longer to book them in hopes of a deal and downscaling vacations.
Las Vegas will remain a big draw, and Mexico will be hotter than a chili pepper.
That's the outlook for 2009, according to travel analysts and providers and a survey of 547 agents, managers and agency owners with Travel Leaders (formerly Carlson Wagonlit Travel Associates), out today.
Vegas is the No. 1 U.S. destination Americans are booking (as it was last year), the survey says, followed by Orlando. Perhaps fueled by Obama fever, the Abraham Lincoln bicentennial and a Harry Potter exhibit at the Museum of Science and Industry, Chicago (No. 10) is more of a tourists' kind of town. It moved into the top 10 "for the first time in years," says Travel Leaders spokesman Steve Loucks.
Internationally, Caribbean cruises rule yet again, but dollar-stretching Mexico has five destinations in the top 10: Cancun, No. 2; Riviera Maya, No. 3; Puerto Vallarta, No. 4; Cabo San Lucas/Los Cabos, No. 9; and Mexican cruises (tied for No. 10). Additionally, some Caribbean cruises call at Mexican ports.
"You've got so many" new resorts in Mexico, and there are some exceptional values, Loucks says. He also cites increased interest in China, Mediterranean cruising and European river cruises.
At Apple Vacations, famed for value getaways in the Caribbean and elsewhere, Mexico remains popular. Huatulco on the Pacific Coast is an up-and-coming destination, with lots of new hotel rooms, says Apple marketing vice president Sandy Babin.
Jamaica is "getting a lot of renewed attention, most likely because of all the new hotels cropping up," she says. Well-regarded all-inclusive brands with a presence in Mexico and the Dominican Republic (such as Riu and Iberostar) have new Jamaican properties and offer rates as low as $1,000 a person a week, including airfare and all you can eat and drink.
Meanwhile, well-heeled travelers are "taking a step back" and downgrading, says Roland Largay, chairman of Southbury, Conn.-based Largay Travel, who recently was named agent of the year by Travel Agent magazine.
"The people who were going to South America are going to the Caribbean now," he says. "Cancun has been selling well, and instead of Crystal Cruises, it's Holland America."
Rudi Steele of Rudi Steele Travel in Dallas, another high-end agency, maintains that the rich "are still going." His clients are looking to "take a break from the constant doom and gloom" and booking England more now that the dollar is better vs. the pound, as well as Morocco and South America (Patagonia, Buenos Aires and São Paulo are among in-demand destinations).
"Just try to get a seat on a (Dallas) non-stop to Buenos Aires, Santiago or São Paulo," he says. "They're packed."
Other findings in the Travel Leaders 2009 trends survey:
•90.5% say customers are cutting back on travel compared with the same period last year.
•57.4% say clients are cutting back on the length of their trips.
•31.5% say airfares on 2009 corporate bookings are equal to or lower than those in 2008.
•81.6% say clients are trading down when it comes to hotels.
•84.3% recommend Mexico as the best value outside the USA, followed by cruises (61.1%) and the Caribbean (43.9%). Agents were asked to pick up to three places.
•Despite the rise of the dollar against the euro and pound, 77% say bookings to Europe are even or down for 2009.
•71% say travelers are saving money by staying at all-inclusive resorts; 75.7% say vacationers are being more flexible with travel dates to get better prices.
"If you are flexible in your travel plans, there are going to be more soft spots (in hotel rates) everywhere," says Robert Mandelbaum, director of research information services at PKF Hospi- tality Research. He says consumers will have more luck this year negotiating better rates and extras at hurting hotels. "It pays to ask," he says.
When it comes to flights, Tom Parsons, chief of Bestfares.com, says airfares to Europe and elsewhere are coming down, and so are fuel surcharges.
He also advises keeping an open mind when deciding where to go and looking for good hotel/air packages, which can save a lot of money.
2009 "is going to be a travelers' market," he predicts.
Reuters
GAZA (Reuters) - Palestinian Islamists vowed revenge against Israel on Friday for killing a senior Hamas leader and his family, and said all options including suicide bombs were now open to "strike at Zionist interests everywhere."
On the seventh day of an offensive aimed at stopping Hamas rockets striking southern towns, Israeli warplanes struck 20 targets and Islamist fighters fired rockets at Israel's port of Ashkelon, once again dashing international hopes of a ceasefire.
One rocket blew out windows in an apartment building. Stunned residents spilled onto the street and twisted metal window frames dangled from the building.
In Gaza City, less than 20 km to the south, a lucky few hundred foreign passport holders boarded buses in the pre-dawn murk to quit the Strip, with the help of the International Committee off the Red Cross, their governments and Israeli compliance.
"The situation is very bad. We are afraid for our children," said Ilona Hamdiya, a woman from Moldova married to a Palestinian. "We are very grateful to our embassy."
They left behind 1.5 million Palestinians unable to escape the conflict, a city waking up to another day of bombs, missiles, flickering electricity, queues for bread, tape-up windows and streets littered with broken glass and debris.
"We will not rest until we destroy the Zionist entity," said Hamas leader Fathi Hammad at the funeral of Nizar Rayyan, who was killed with four wives, eight children and four neighbors by an Israeli missile which hit his house on Thursday.
Spokesman Ismail Rudwan said that "following this crime, all options are now open including martyrdom operations to deter the aggression and to strike Zionist interests everywhere."
DAY OF PROTESTS
Bracing for protests and retaliatory violence a day after it killed a senior Hamas leader in an air strike on his Gaza home, Israel sealed off the occupied West Bank to deny entry to most Palestinians, and deployed heavy security at checkpoints.
A pro-Hamas website urged Palestinians to take to the streets in protest.
A statement by Hamas spokesman Ismail Rudwan said Israel's "terrorism, massacre and holocaust will not break us and will not force us to raise a white flag ... killing begets killing and destruction begets destruction."
Israeli air strikes killed two Palestinians in a house that Israel said concealed a tunnel and a weapons dump.
The death toll rose to 421 as some badly wounded succumbed to their injures. A quarter of the dead were civilians, the United Nations estimates.
Some 2,000 Palestinians have been wounded. The Gaza rockets, which have killed four Israelis in the past week, injured two people slightly in Ashkelon.
Rayyan was the highest ranking Hamas official to be killed in the current offensive. He had called loudly for suicide bombings in Israel.
Israeli armored forces remained massed on the Gaza frontier in preparation for a possible ground invasion, ignoring international calls for a halt to the conflict.
Late on Thursday, Israeli war planes bombed the Jabalya mosque. Israeli security officials said it was a meeting place and command post for Hamas militants and the large number of secondary explosions after the strike indicated that rockets, missiles and other weapons had been stored there.
Nine mosques have had been hit since it began on Saturday.
"I will pray at home. You never know, they may bomb the mosque and destroy it on our heads," said one man buying humus from a street stand. Another was defiant: "What better than to die while kneeling before God?" he said.
Analysts said Israeli leaders felt under pressure to act ahead of a February 10 national election, and surveys indicate the assaults may boost support for Barak and Livni, against frontrunner Benjamin Netanyahu of the right-wing Likud party.
Livni says the strikes have been effective.
"I think that even now, after a few days of operation we have achieved changes," she said on Thursday after talks in Paris with French President Nicolas Sarkozy. She rejected a proposed 48-hour respite in fighting, saying food aid was being allowed in and there was "no humanitarian crisis in the Strip."
(Writing by Douglas Hamilton; Editing by Jon Boyle)
Reuters
MOSCOW/KIEV (Reuters) - Russian gas kept flowing to European Union states on Friday, a day after Moscow cut off flows to Ukraine in a contract dispute, but importers across the continent were watching for signs their supplies were faltering.
The European Union's Czech presidency said it considered the row between Moscow and Kiev to be a bilateral issue and would not step in unless supplies to Europe started to suffer.
Europe gets about a fifth of its gas via pipelines through Ukraine, supplies Moscow said should be unaffected by the cut-off unless Kiev starts illegally diverting the gas.
Energy firms in Hungary, Poland, Bulgaria and Turkey said on Friday their supplies were unaffected, echoing importers in most European countries who earlier reported they had not seen any drop in deliveries.
Europe, where temperatures fell below freezing overnight, has enough gas stockpiled to manage without Russian supply for several days but could face difficulties if any disruption stretched into weeks, analysts said.
After both the European Union and the United States urged a quick solution to the row, Ukraine said its negotiators would fly to Moscow to resume talks that broke down on New Year's eve. There was no confirmation though that they had arrived.
The row could raise new doubts about Moscow's reliability as an energy supplier and fuel suspicions in the West -- already running high since Russia's war with Georgia last August -- that the Kremlin bullies its pro-Western neighbors.
Russia denies politics are behind the dispute and says it is about prices and debts, but the two ex-Soviet neighbors have clashed over a drive by Ukrainian President Viktor Yushchenko to take his country into the NATO alliance.
Czech officials met an Ukrainian delegation led by Energy Minister Yuri Prodan, who traveled to Prague to offer assurances Ukraine would not disrupt supplies.
"We are not going to interfere until the moment when the pressure of gas will reach some low limits," Czech EU presidency spokesman Jiri Potuznik after the talks.
Ukrainian President Viktor Yushchenko -- anxious that blame for any supply problems does not attach to Kiev -- wrote to major EU states and the United States explaining his stance.
If talks do resume between Ukrainian state energy company Naftogaz and Russia's gas export monopoly Gazprom, the gulf between their negotiating positions is wide.
Alexei Miller, CEO of Gazprom, said on Thursday he wanted Ukraine to pay $418 per 1,000 cubic meters (tcm) of gas, compared with the $179.5 Kiev paid in 2008. Ukraine says the most it can afford to pay is $235.
Gazprom charges about $500/tcm to customers in the European Union, though that is likely to fall by up to half this year. Gas prices track oil and crude has plummeted in value.
PIPELINE PRESSURE
The EU is keen to avoid a repeat of a January 2006 row when Moscow cut off supplies to Ukraine, causing a brief reduction in gas deliveries to other parts of Europe in mid-winter.
Gazprom said it was watching for signs that Ukraine was siphoning off gas destined for customers in Europe.
The company said its engineers were monitoring pipeline pressure at a pumping station in Slovakia, just to the west of the Ukrainian border, and would be able to say if any gas was going missing later on Friday.
Hungary's Natural Gas Transmission Company, owned by energy firm MOL said it was keeping a close watch on supplies from Russia. "We have not seen a decline in pressure, it is in line with the contracted level," said spokeswoman Edina Lakatos.
Ukraine's Naftogaz said it guaranteed uninterrupted supplies of Russian gas to Europe and that it was drawing the fuel from underground stockpiles to meet its own needs. Temperatures in Kiev were about 8 degrees Celsius below zero.
But Naftogaz said it was diverting 21 million cubic meters of gas a day -- or about 6 percent of the volumes flowing to Europe -- to maintain pressure in the pipeline network, a step Gazprom could interpret as illegal siphoning.
Russia says its row with Kiev is purely commercial. Squeezing more money from Ukraine is particularly pressing for Gazprom now as its finances have been hurt by the global financial crisis and gas prices are on the way down.
A protracted row is likely to hurt the Ukrainian economy, already reeling from a drop-off in investor confidence and steep falls in the hryvnia currency that have not been stemmed by an International Monetary Fund loan.
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The Key to Eliminating Your Slice
Making a proper “full shoulder turn” is one of the most important fundamentals of the golf swing, yet it's one of the most common mistakes made by golfers; and why so many have slice problems. A proper shoulder turn is when you rotate the shoulders so the leading shoulder comes under your chin, without letting your hips turn much at all. Below we explain the ways this eliminates the slice:
• If your shoulder rotation is stopped too early, your arms will tend to continue by fling across the target line and causing an outside-to-inside swing path, resulting in the dreaded banana-ball. A full shoulder turn will help the club fall “on plane”, which greatly reduces the chance of cutting across the target line and slicing the golf ball.
• A full shoulder turn will promote proper weight shift. Remember too keep your lower body from moving laterally. Do not confuse the full shoulder turn as meaning you must get the club back to parallel at the top of the swing. Many great golfers have a compact swing that comes up far short of parallel at the top, but all great golfers take a full shoulder turn when executing a full shot.
• A full shoulder turn will bring you to the top of the swing and assist in getting the hands and arms into proper position.
• Keep your chin up and off your chest so the leading shoulder can rotate and pass under the chin. If the shoulder hits your chin, it will cut the shoulder rotation short and encourage a slice.
• When a golfer does not utilize a full shoulder turn, they tend to rely more on the small muscles (hands and arms) to swing the golf club. This leads to inconsistent ball striking and shots prone to slicing. With a full shoulder turn, you will use more of your big muscles, which are much more consistent, and help you square the club face and avoid a slice. Don’t be in a rush; taking the club back slow will help you to finish the back swing with a full shoulder turn. More body, less arms.
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