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The Beginning of A Santa Claus Rally?

|Includes:AA, BUCY, CHTT, Intel Corporation (INTC), JBLU, SNY, TEX

Just as much of the Northeast United States is digging out of one the worst snow storms experienced in decades (the 16 inches recorded Saturday at Reagan National Airport outside Washington was the most ever for a December day. Philadelphia, which recorded 23.2 inches, had its second-largest snowfall since it began keeping records in 1884); in a like manner the equity markets are clawing back from the depths of the Great Recession. The move up by the indexes has been very democratic with advancing issues significantly outnumbering the declining issues by a wide margin. Nonetheless, worthy of mention is the advance of the technology issues which has propelled the NASDAQ to 52 week highs. Names such as Intel (NASDAQ:INTC) and Alcoa (NYSE:AA) are emerging as star performers that have the Dow putting in a triple digit positive day.

There are a number of news items which can be viewed as catalyzing events for the market's rise. Among these are the offers made by Sanofi-Aventis SA (NYSE:SNY) to acquire Chattem Inc. (CHTT) for $1.9 billion and Bucyrus International Inc. (NASDAQ:BUCY) offer to buy the mining equipment division of Terex Corporation (NYSE:TEX) for $1.3 billion. In addition, the Saab name of General Motors appears to have been thrown a life line with a new offer emerging from Dutch auto maker Spyker Cars. In aggregate, the spate at which these deals are being announced suggest that a whole new era of mergers and acquisition activity is imminent. This is a clear positive as companies will only engage in such action if it is felt that the worst is over.

Also, acting as a supportive element for today's rally are the comments made by the president of the Chicago Federal Reserve about the outlook for the macro economy. In essence, Charles Evans conveyed that the outlook for the economy is more upbeat than for 2009 and that the prospects for inflation are by all measures, modest. A key take away from his comments is that the Fed is likely to remain very accommodating in the light of a persistently high unemployment rate. Some degree of comfort can be taken from the fact the Fed is reportedly in "intense debate" about future strategy. This suggests, that whatever policy measures that are likely announced in the near future, it one that was come about lightly. The recovery it appears, is well on the way.

Semiconductor Equipment Billings Continues its Positive Momentum
Carlos Guillen

So far, signs from the semiconductor capital equipment industry continue to be favorable, indicating that the recovery in the semiconductor industry is well on its way. Corroborating the notion that a recovery in the semiconductor industry is well on its way, according to data from SEMI, billings continued to trend higher for the seventh consecutive month, and bookings did tick higher, although apparently flattening out. The book-to-bill ratio also remained above parity for the fifth consecutive month; however, it inched lower sequentially. Nonetheless, it is all "systems go" for the semiconductor industry as end-demand is now becoming a stronger component of the recovery.

Given the most recent data from SEMI, the trailing three-month average billings in November totaled $744 million. This monthly result increased approximately 7.15% from the level achieved in the prior month, although it still represented a 7.82% drop from the level achieved in November 2008.

The three month average bookings during November totaled $791 million, not only continuing to increase sequentially but rising above the year ago level. Bookings grew by 4.52% sequentially and by 0.85% year over year. This positive result continues to provide more support that a semiconductor recovery is well on its way. Looking into early 2010, I believe the memory industry should kick in and begin to ramp up some capacity, which will provide more upside to the billing.

In November, the overall book-to-bill ratio continued at above parity for the fifth consecutive month at 1.06, demonstrating that demand is stronger than supply. However, the fact that billings grew at a faster pace than booking caused the book-to-bill ratio to decline slightly from 1.09 sequentially.

From a semiconductor capital equipment perspective, although the macroeconomic backdrop is still precarious, it is becoming apparent that demand is holding strong. As a result, many OEMs and distributors have continued to replenish significantly depleted inventories in anticipation of better than expected end demand. Many companies are already seeing improvements in end-demand, so it is not just inventory restocking that is driving semiconductor company revenues. The fact that manufactures and distributors have been very careful in managing inventories provides support for the notion that end-demand is indeed contributing to the rise in revenues.

We expect that the combination of stock replenishment and end-demand improvement will continue to push semiconductor industry utilization rates higher for the next several quarters, increasing the likelihood of industry capacity expansion, which will ultimately benefit semiconductor equipment providers.

Passenger Bill of Rights... A Late Christmas Present
David Silver

For all those people who remember the stories from February 2007, where travelers were stuck for hours on their flights (JetBlue (NASDAQ:JBLU) took the award for longest wait on the tarmac with eleven hours) for hours at a time, have received some respite this holiday season, well sort of. The Department of Transportation said that under the new regulations, airlines operating domestic flights will be able only to keep passengers on board for three hours before they must be allowed to disembark a delayed flight. The regulation provides exceptions only for safety or security or if air traffic control advises the pilot in command that returning to the terminal would disrupt airport operations. U.S. carriers operating international flights departing from or arriving in the United States must specify, in advance, their own time limits for deplaning passengers. Foreign carriers are not covered by the rules.

However, to the sort of part... the new regulations do not go into effect for another 120 days. So all you traveling this holiday season, the three hour tarmac visit is still a possibility. Additionally, Transportation Secretary Ray LaHood said airlines could be fined $27,500 per passenger for each violation of the three hour rule. Boeing's 737 hold about 162 passenger seats, and if the plane is completely full, the airline would incur a $4.5 million fine for each flight. That could definitely get things moving, however, it runs the risk of causing more cancellations and even more so, adding another cost to your ticket. They give you the option of bag insurance; maybe next they will start selling delay insurance (on top of the $25 bag charge and $5 bottle of water charge).

Disclosure: none