Weekly Wrap-Up and Preview: December 15-19

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Includes: BBG, CPRT, FCX, IBOC, MRVL, OREX, PPD, PSA, RL, SCCO, XTO
by: Tycoon Report

BUYS

Bill Barrett Corp. (NYSE:BBG)

Bill Barrett 10% Owner Warburg Pincus and Director Jeffrey Harris have BOUGHT $23.35 million in BBG stock.

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Orexigen Therapeutics Inc. (NASDAQ:OREX)

Orexigen 10% Owners James Blair, Brian Dovey, Jesse Treu, Kathleen Schoemaker, Brian Halak, Nicole Vitullo, and Domain Partners Vii LP have BOUGHT $15.01 million in OREX stock.

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Southern Copper Corp. (PCU)

Southern Copper 10% Owner parent company Grupo Mexico SAB has BOUGHT $10.67 million in PCU stock.

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SELLS

Copart Inc. (NASDAQ:CPRT)

Copart Directors Barry Rosenstein and Thomas Smith have SOLD $67.29 million in CPRT stock.

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Marvell Technology Group Ltd. (NASDAQ:MRVL)

Marvell President & CEO Sehat Sutardia has SOLD $56.37 million in MRVL stock.

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Public Storage (NYSE:PSA)

Public Storage Directors Wayne Hughes and Tamara Hughes have SOLD $37.15 million in PSA stock.

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Polo Ralph Lauren Corp. (NYSE:RL)

Polo Ralph Lauren Chairman & CEO Ralph Lauren and President & COO Roger Farah have SOLD $13.73 million in RL stock.

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Pre Paid Legal services Inc. (NYSE:PPD)

Pre Paid Legal Services Director Thomas Smith has SOLD $12.91 million in PPD stock.

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XTO Energy Inc. (XTO)

XTO Energy SVP Bennie Kniffen has SOLD $12.55 million in XTO stock.

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International Bancshares Corp. (NASDAQ:IBOC)

International Bancshares Director Antonio Sanchez has SOLD $11.37 million in IBOC stock.

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Freeport McMoran Copper & Gold Inc. (NYSE:FCX)

Freeport McMoran Director Robert Day has SOLD $10.21 million in FCX stock.

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Mark Your Economic Calendar: What's ahead for the week of December 15, 2008

Economic Calendar for the week of December 15 to December 19

Monday, Dec. 15

9:15 Industrial Production

The index of Industrial Production is a fixed-weight measure of the physical output of the nation's factories, mines, and utilities. Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather. Severe hot or cold spells can boost production as increased heating/cooling needs drive utility production up.

In addition to production, this monthly report also provides a measure of capacity utilization. Though the rate of capacity utilization is seen as a critical gauge of the slack available in the economy, the market does not completely trust this measure. Capacity is very difficult to measure, and the Fed essentially assumes that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. The 85% mark is seen as a key barrier over which inflationary pressures are generated, but given revisions to these data and the difficulties with capacity measurement, the 85% mark should be viewed cautiously. It would be appropriate to look for corroborating inflation indications from commodity prices and vendor deliveries.

Big Picture

The outlook for industrial production through the end of 2008 and into 2009 has worsened. Production has held up surprisingly well through 2008 due in part to strong exports. Exports grew at a 7.0% annual rate in 2005, 9.1% in 2006, 8.4% in 2007, and at an annual average rate of 7.8% through the first three quarters of 2008. A major factor in this boom was a continually weakening dollar. Now, the dollar has strengthened and global economies are entering recession. This will undermine export growth and take away a major support for US industrial production. US companies will also be impacted by the darkening US economic outlook. Production is therefore likely to trend lower.

Highlights

  • The 1.3% increase in industrial production for October reflects a sharp rebound in chemical, mining, and other production that was sharply curtailed in September due to hurricanes Gustav and Ike.
  • Mining output fell 8.5% in September and bounced back 6.1% in October. Manufacturing output was up 0.6% in October after dropping 3.7% in September.
  • The bounce in October does not represent underlying strength.
  • The November data will get a boost from the end of the Boeing (NYSE:BA) strike, but the overall trend in manufacturing remains weak.

Tuesday, Dec. 16

8:30 Housing Starts and Building Permits

Housing Starts are a measure of the number of residential units on which construction is begun each month. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Building permits are permits taken out in order to allow excavation. An increase in building permits and starts usually occurs a few months after a reduction in mortgage rates. Permits lead starts, but permits are not required in all regions of the country, and the level of permits therefore tends to be less than the level of starts over time.

The monthly national report is broken down by region: Northeast, Midwest, South, and West. Briefing recommends analyzing the regional data because they are subject to a high degree of volatility. The high volatility can be attributed to weather changes and/or natural disasters. For example, an unexpectedly high level of rain in the South could delay housing starts for the region.

Big Picture

The outlook for housing had started to improve in late summer. Existing and new home sales were stabilizing. Since then, however, the national economic mood has moved deteriorated (to say the least). Home buying may well go into a deep freeze and housing starts will suffer as a consequence. The outlook for housing now depends a great deal on highly unpredictable political actions and an improvement in the economic national mood. The outlook is certainly not good, but there is still a chance that actions are taken to stabilize the housing industry at current low levels of activity.

Highlights

  • October housing starts fell 4.5% to a 791,000 annual rate. That is 38% below the year-ago level.
  • Single-family starts fell 3.3% and multi-unit starts 5.7%.
  • The decline in single-family starts was most prominent in the South, where starts were down 10.5%. The Northeast was flat, with a gain of 1.7% in the West and 11.5% in the Midwest. (The south accounts for about half of total starts.) The overall housing market clearly remains weak, but the worst conditions are in Florida, California, Nevada and selected other areas.
  • Housing permits fell 12% to just a 708,000 rate for October, suggesting that further declines in starts are likely in the months ahead.

8:30 CPI: Consumer Price Index

  • Importance (A-F): This release merits a B .
  • Source: Bureau of Labor statistics, U.S. Department of Labor.
  • Release Time: 8:30 ET, about the 13th of each month for the prior month.
  • Raw Data Available At: http://stats.bls.gov/news.release/cpi.toc.htm.

The Consumer Price Index is a measure of the price level of a fixed market basket of goods and services purchased by consumers. CPI is the most widely cited inflation indicator, and it is used to calculate cost of living adjustments for government programs and it is the basis of COLAs for many private labor agreements as well. It has been criticized for overstating inflation, because it does not adjust for substitution effects and because the fixed basket does not reflect price changes in new technology goods which are often declining in price. Despite these criticisms, it remains the benchmark inflation index.

CPI can be greatly influenced in any given month by a movement in volatile food and energy prices. Therefore, it is important to look at CPI excluding food and energy, commonly called the "core rate" of inflation. Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new cars. In addition to tracking the month/month changes in core CPI, the year/year change in core CPI is seen by most economists as the best measure of the underlying inflation rate.

Big Picture

Inflation is back under control. The commodity-produced inflation scare of this summer is long gone. The idea that higher energy prices will necessarily lead to broad inflation pressures is dead. The concern has actually shifted to deflation, with the idea that businesses will have a hard time maintaining profit margins. Lower energy prices and weak demand are leading to some large monthly declines in CPI for the fall months. CPI will remain in check well into 2009. The year-over-year increase in CPI stood at 4.9% through September, but plunged to 3.7% after the October data, and is headed even lower.

Highlights

  • Energy prices plunged 8.6% in October. Excluding energy, CPI was flat.
  • Food prices were up 0.3%.
  • The core rate fell 0.1%, reflecting broad weakness. Used car prices dropped 2.4% and new auto prices fell 0.5%. Apparel prices fell 1.0%. Lodging away from home (hotels) fell 1.6%. Video and audio recreation prices dropped 0.6% and technology products were off 0.3%. Other prices were up modestly at most. Medical costs were up just 0.2%, owners' equivalent rent was up just 0.1%, and personal care products up 0.2%.
  • The core rate is likely to track near flat in upcoming months due to continued weak demand. Further declines in energy prices are likely. There may very well be more negative CPI numbers in 2008, and even if energy prices stabilize, CPI is likely to post modest gains at most into early 2009.
  • The outlook is for very low inflation numbers over the next six months, with some deflation continuing.

Thursday, Dec. 18

10:00 Philadelphia Fed Index

  • Importance (A-F): The Philadelphia Fed Index merits a B.
  • Source: The Philadelphia Federal Reserve bank.
  • Release Time: Third Thursday of the month at 12 ET for the current month.
  • Raw Data Available At: http://www.phil.frb.org/

There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The Philadelphia Fed's survey is first each month, actually coming out during the third week of the month for which it is reporting. Several smaller surveys are then released before the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the NAPM and are of little value. The purchasing managers' reports are measured like the national NAPM - 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the Philadelphia and Atlanta Fed indexes, 0 is the breakeven mark.

These surveys can be of some help in forecasting the national NAPM - particularly the Philadelphia and Chicago surveys which are more closely watched due to their timeliness and the fact that these regions represent a reasonable cross section of national manufacturing activities.