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Market Round Up: January 23-27, 2012

General Comments

After several weeks out of the news, Greece has made it to the front pages once again. A bond payment is due March 20. If it’s not paid, the likelihood of disorderly default is quite high (with potential ramifications for the rest of the Eurozone).  Eurozone countries are already hesitant to loan to Greece after the country did not follow through on certain contractual obligations of previous loans.

Greece is working to make arrangements with “the troika” of its official lenders – the European Commission, European Central Bank and International Monetary Fund” and with private creditors simultaneously. Even If these arrangements work out, the Economist magazine remains pessimistic about the future of Greece, which “will need propping up for a long time.” The magazine said that “virtually no progress has been made in overhauling the economy. Although wages have fallen slightly, the country remains chronically uncompetitive. Greece’s rescuers bear some blame: they focused too much on raising taxes and too little on reforming the state and freeing up the economy. But the real culprit is the Greek government, which has proved singularly incapable of implementing the reforms needed to allow the economy to grow.”

North American Markets

Research in Motion was on everyone’s tongues this week after the company’s co-founders (and co-CEOs) stepped down to be replaced by Chief Operating Officer Thorsten Heins.

RIM was trading significantly higher in premarket but it did not translate into real gains — the lack of a strong statement of direction from the new CEO likely contributed. While Canadian markets ended higher (up 1%) on Monday RIM was left out of the rally.  RIM did have a gain of 3.1% Friday after Prem Watsa’s Fairfax Financial Holdings Ltd. disclosed that bought additional stake in RIM and now owns 5.12% of the company.

Tuesday’s markets’ did not fare as well as Monday’s, with the TSX losing the 1% it had gained the day before, the Dow down 0.3% and the S&P down 0.1%. Apple, however, revealed exceptional earnings. Revenues were US $7.3 Billion above expectations ($46.3B), and Apple produced earnings of US $13.87 per share.  Apple’s stock price soared Wednesday with analysts giving new valuations of $570 per share (share price is a reflection of expected future earnings of the company over your investment horizon).  Last year Apple became the largest company in the world. This year analysts remain particularly bullish (with 50 “buy” ratings out of 51).

On Wednesday the Fed revealed plans to keep US interest rates low into 2014, citing a depressed housing market, continuously high unemployment and a continuing slowdown in global growth. Previous plans were going to increase rates in 2013.

While this move reflects the Fed’s pessimism for future economic growth, low interest rates are linked to increased investment and growth and this plan led to a market turnaround Wednesday. The TSX gained 1.2%, the Dow up 0.7% and the S&P up 0.9%.  North American Markets closed down Thursday, and were relatively unchanged Friday.


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