Remember a few weeks back when Burlington Northern Santa Fe (BNI) and Union Pacific (UNP) sank the transports and the Dow on warnings that the economy was not steaming ahead after all? BNI's stock derailed that day, but Warren Buffett, who owned a major stake in the company, demonstrated why he is the greatest investor of all-time. While the world was selling BNI like it was the plague, America's Grandpa was putting together a plan to buy the rest of the company's outstanding shares.

Buffett Buys Burlington Northern Outright

The Merriam-Webster Dictionary defines “railroad” as “to convict with undue haste and by means of false charges or insufficient evidence.” The definition seems to fit snugly around what happened on Wall Street Friday, while also offering an interesting play on words. Based on popular press reports, investors convicted the market on the earnings data and forecast warnings of a couple key railroad companies. Specifically speaking, Friday’s downturn was placed squarely on the engine car of Burlington Northern Sante Fe (BNI).

Railroad companies and other shippers of goods, including truckers like J.B. Hunt Transport Services (JBHT) and shipping companies like DryShips Inc. (DRYS), are considered barometers of the economic lifecycle. After all, if manufacturers and distributors are moving product, it is going to be visible in the results of the shippers.

The entire nation followed the news story with great trepidation as it unfolded dramatically before our eyes. What harrowing heights he had risen to! With anxious hearts, we feared the little chap might crash down hard after climbing too high too fast. We are, of course, speaking of the Dow Jones Industrial Average, and its burst above the symbolic 10,000 mark. The Dow broke 10,000 this past week, revisiting the mark for the first time in over a year. Like an old pal last seen on October 3, 2008, we greeted our once earthbound friend with affection. Still, just as soon as we had soared to cloud nine with him, acrophobia set in.

Through the close of trading Friday, the Dow's heroic climb had taken the poor balloon boy 55% above the intraday low he marked on March 9. Year-to-date, the index is up 13.9%, which clearly illustrates the V-shaped market turn from those shaky days we survived in February and March. What is disturbing though is that despite lessons learned, the naive child has seemed to gain courage from his own momentum, rising 377 points the week before last. Yes, he's come quite far, but also quite fast. Therefore, we must ask, is his strange vessel sturdy enough to survive the harsh conditions of the upper atmosphere?

The International Council of Shopping Centers (ICSC) - Goldman Sachs (GS) produced its preliminary report for September's Chain Store Sales on Thursday. According to the ICSC, those sales inched higher by 0.1% in September, offering what its Chief Economist Michael P. Niemera called, "the beginning of recovery."

Retail Chain Store Sales Recovery in Question

For the week ended October 3, Weekly Jobless Claims measured 521,000, comparing favorably against the previous week's revised figure of 554,000. The periodic tally of new unemployment benefits filers reached its lowest flow rate since January. The count also proved better than the economists' consensus forecast of 540,000, based on Bloomberg's survey. As a result of the favorable figure, the four-week moving average also improved by 9,000, to 539,750.

Last week, we saw the federal government's monthly count of unemployment climb a tenth of a percentage point higher to 9.8% for September. This week's Department of Labor data showed the advance seasonally adjusted insured unemployment rate improved a tenth of a percent to 4.5% for the period ended September 26.

Time to Take Profits

A pair of reports this week indicated that confidence has wavered in both the consumer and investor segments. For this reason and more, we think now is a good time to take some capital off the table and reduce risk in portfolios away from equities for the near-term.

Quoting the Conference Board, publisher of the Leading Economic Indicators Index,

All in all, the behavior of the composite indexes suggest that the recession will continue to ease and that the economy may begin to recover in the near term.

It took place in a cracked village that lay in ruins, perhaps symbolic of the economies of the Group of Eight developed nations that met there. What resulted was a mix of the usual clichés saturated with big statements for unity, but also some common sense and direction from the new kid on the block, one Barack Obama.

Earthquake shattered L’Aquila, Italy hosted this latest meeting of the G-8, and offered a meaningful change from the usual pomp and circumstance these gatherings tend to display. Not for one minute could the leaders of the wealthiest nations on earth forget the state of their own countries’ affairs, nor that of the global economy. All they had to do was look out the window for a reminder.

Ladies, have you heard this pickup line yet? "Hi, I'm Jobless."

I remember the old days when I would throw my own collateral around, proclaiming to superficial takers, "I'm a Wall Street Analyst" (stressing Wall Street). Nowadays, you would omit the term "Wall Street," as it would return a smirk or a slap to the face, alongside a comment about how you ruined someone's life. Today, you are more likely to hear the jobless line in a bar, since about one out of every ten of you is now unemployed, and even more of you are under-employed.

Bank of America (BAC) CEO Ken Lewis seems to have been effectively pressured into dealing a near deathblow to his own company. He's indicated that the consummation of his company's acquisition/absorption of Merrill Lynch came at the prodding of government representatives, according to the Wall Street Journal's accounting of his sworn testimony to the New York District Attorney's Office.

It seems Mr. Lewis is a good obedient citizen, and whatever he is asked to do by any federal official, he will do. In February, he was asked by New York District Attorney Cuomo why he bought the highly troubled Merrill Lynch, even after getting a good look at the books. More importantly, the DA wanted to know why Lewis didn't disclose Merrill's toxic load to shareholders before closing the deal and issuing bonus payouts. The embattled CEO answered like the good soldier would, with the truth, which effectively shifted the spotlight to our old pals, Bernanke and Paulson.

This week is all about damage control, especially related to the big bad AIG bonus blunder. Treasury Secretary Geithner will attempt to divert attention from that whole mess by releasing the details of his toxic financial asset program at the start of the week. However, on Tuesday, both Geithner and Bernanke are scheduled to testify before the bloodthirsty House Financial Services Committee. The President hopes to limit public perception damage by appearing on prime time television that same evening. We're guessing he intends to clear up the impending massacre of Geithner before the media feeding frenzy begins. Talk about pulling out all stops - President Obama will have made three unconventional television appearances within the course of a week, and that's not to mention his NCAA Tournament bracket selection show...

The President is doing all he can to keep his new Treasury Secretary propped up through a barrage of criticism that began almost from the moment of his selection for the role. For the life of me, I can't see why anyone would accept any Administration position now that deals with financial or economic matters.

Three kings brought gifts of profitability, financial independence and share rise to the market last week. The CEOs of Citigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM) injected the stock market with greatly needed confidence as a result of their long-overdue news.

The initial spark that gave life to trading was the conspicuous leak of an internal memo at Citigroup. Vikram Pandit, the CEO of the troubled bank, authored a note to employees pleasantly sharing news of the company’s “best quarter since Q3 2007.” We should make note here that the aforementioned quarter was the bank’s last profitable period. Likewise, Vik was relieved to share that the company was also profitable through the first two months of 2009. If ever there were a reason for hope, tangible good news from the financial sector would be it.

8.1% spells relief? What were you thinking when you saw that the unemployment rate jumped a half of a percentage point in February, surpassing economists’ expectations by two-tenths of a point? Did you wipe your brow and say “whew?” Of course not. So then you must be wondering why the stock market actually rose modestly on Friday. It’s called a relief rally, and it’s spelled: “we already sold everything all week long, and so when the world didn’t end, there was nothing else left to sell on Friday.” Voila... rally, kind of, sort of.

I mean it was a pretty pathetic rally, but it was better than chalking up another decline on a week that netted a loss of 6.2% on the Dow. The Industrials Index fell incredibly deep below 7000, to close out the week at 6,626.94.

I think it was Popeye who used to say, “That’s all I can stands! I can’t stands no more!” Then he would squeeze open a can of spinach with his bare hand, sending the greens arching through the air and into his mouth, and in one great gulp, into his belly. His muscles would bulge sequentially one by one. Spinach digested, iron running through his veins, he would then do something incredible like motor across the surface of a lake via the power of his gyrating legs alone.

Like the day you lost your job, this past week was, for investors, forgettable. The Dow Jones Industrials Index set a six-year low last week, and dropped 6.2% through the holiday-shortened spat. So, I say we just pretend it never happened. Let’s just leave it all behind us shall we? It’s time to move on anyway.

Try as we may though, we just can’t get that nasty memory out of our minds. It strikes us tragic how it all went down. It was supposed to be a good week after all. President Obama signed his stimulus bill into law, and promised America he would put our tax money to good use saving jobs. So what happened then?

The annual pace of new home sales sank to a new record low in December. Running at 331K, the sales pace was 15% below November's revised rate. In fact, sales have not been this low ever before, at least not since 1963, when record keepers began keeping count. Bloomberg's consensus of economists were knocked off their feet by the news, as the forecasters were looking for a pace of 400K... and they probably considered that a bad number! Last month's sales were 44.8% below the 600K pace set in December of 2007.

As new home demand disappears, pricing is adjusting rapidly. The median price for homes sold in December reached $206,500, with the average measuring $246,900. S&P/Case Shiller's Home Price Index confirmed the trend earlier this week, as it showed prices fell 2.2% in November alone among the 20 metropolitan regions surveyed. We can only speculate on December, but Thursday's news seems to confirm we're in for more of the same.

Last week's "Miracle on the Hudson" was perfectly timed for a market that needed a reason to believe. The Dow Jones Industrials Index put in another losing week, falling 3.7% this time. Stocks started the period hopeful that despite the prior week’s sad holiday shopping tally, maybe a fresh slate would offer reason for rise.

The week marked the official start of earnings season with the traditional report of Alcoa (NYSE: AA). However, the aluminum king was downgraded by a Deutsche Bank analyst even before it reported its $1.19 billion loss on Monday. Harsh corporate news dominated the week from start to finish. Citigroup (NYSE: C) awoke to selling pressure, as investors worried about its longevity as a going concern. By mid-week, Citi had sold half its stake in its Smith Barney brokerage unit to Morgan Stanley (NYSE: MS). In closing, Citi reported an $8.3 billion loss and broke the company up into two pieces.

Yesterday's duo of jobs reports provided dire data. ADP serves as a precursor to the Labor Department's Employment Situation Report, which is due for Friday release. The implication of ADP's news is that the job market is failing fast and furiously. Heading into today's data, economists had been forecasting a 7.0% unemployment rate, but reevaluation is clearly in process now.

Challenger, Gray & Christmas released its Job-Cuts Report today, which is its monthly tally of planned corporate layoffs. The news was another tough chew, with December's reading of 166,348 not much short of November's 181,671. Besides the ADP data, keeping us from celebrating the improved layoff news was the fact that December represents a unique period of the year, when any leftover human warmth of heart is supposed to prevail. The holiday season may have caused some employers to show mercy, and it certainly kept some bankers from lowering the hammer.

Corporate managers typically use the fourth quarter to clean their books, and prepare a fresh slate and low bar for the coming year. Management will write off most suspect assets in the last quarter of a bad year. This year offers an especially opportune moment for such a trashing, as expectations for it are high and broad reaching. As a result, the impact on share price and scrutiny of management's performance should be minimal. So, this year, the corporate junkyard should be full of kitchen sinks.

The term "writing off the kitchen sink" illustrates the depth with which companies will go to clear their books in a bad year. The analogy is drawn to a house cleaning, where you might throw many things out. The last thing you would trash is the kitchen sink, which has a daily utility value. Therefore, when companies "throw out the kitchen sink," they go too far.

Merry Christmas Detroit! President Bush offered a holiday treat to General Motors (NYSE: GM) and Chrysler on Friday. Unfortunately, since Old Saint Hank was out of TARP funds, Ford (NYSE: F) found an empty stocking.

The President released the remaining TARP funds to GM and Chrysler, with another $4 billion earmarked for GM in February, assuming Congress first approves the release of additional TARP capital to the Treasury. For now, the $13.4 billion dollars offer the two burdened companies a short window of opportunity to restructure for the long-term... and to survive.