FOCUS ON THE 15: Investing, spending public readily adjust to economy

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By Jim Victor | Tuesday, May 13, 2008 |

Free enterprise economies adjust. Supply and demand, the very core of economic balances, adjusts. Prices, consumers and suppliers adjust. And that constantly adjusting reality that can occur when freedom is in enterprise was quite visible last week, helping to guide investor decisions.

For the week, our Quad-City Times Key 15 retreated 8.03 to 1,382.21.

Despite continued increases in oil and gasoline prices, investors have pushed major stock markets to two months of gains. Crude oil on New York Mercantile Exchange contracts reached $124.61 per barrel on Thursday, almost $30 higher than the $95.98 recorded on the last day of 2007. No one would deny the need to adjust to that.

But adjusting is what Americans do best and Thursday’s latest from major retailing chains shows just that. April retail sales at stores open more than a year averaged a 3.3 percent rise over April 2007, according to Retail Metrics. This was the largest gain since last November. And the biggest upside surprise to analysts since March 2007. This was indeed adjustment.

Major discounters saw similar gains, up 3.2 percent at Wal-Mart, up 3.1 percent at Target, up 3.5 percent at Kohl’s. Total sales, when adding back in the new openings, is much higher for each of the three, up 9.8 percent at Wal-Mart, up 9.0 percent at Target, up 12.0 percent at Kohl’s.

So you can say that higher gasoline prices are a headline story, but not a horror story for shoppers or retailers in April. And it was only the final days of April that saw the U.S. government send stimulus checks to consumers. That stimulus could become more apparent in May sales. Investor response to this has been to carefully return to buying retailers’ shares.

Also adjusting and surprising investors are export sales. Exports are what we sell from the U.S. to anyone outside the country. That includes both goods manufactured here and services provided here as well. Friday’s latest from the U.S. Commerce Department shows a continuation of our impressive sales growth here. Export sales were an eye-popping 15.5 percent above one year ago. A lesser-valued U.S. dollar is making our goods more attractively priced. And continued growth in U.S. productivity is keeping our prices down for foreign buyers as well. The adjustment here is amazing: Our export boom is in many places offsetting the housing market or credit market slowness.

Global firms benefit from all this. Alcoa (a) (b) with major Quad-City operations, is truly global. Alcoa shares gained 2.93 to 39.04 last week, the week that saw the election of a new chief executive officer. Klaus Kleinfeld, 50, had been president since August 2007 and a board member since 2003. He stepped down as CEO from Siemens AG, based in Munich, Germany, to come to Alcoa last year. Alain Belda, who will continue as chairman of the board, says “In the short amount of time Klaus Kleinfeld has been an Alcoan, he has made a significant difference for the company. Klaus has extraordinary energy, a keen understanding of global issues, is committed to continuing the strong operating performance of Alcoa, and embraces our values.”

Kleinfeld adjusted. Shareholders adjusted.

Adjusting is part of living on the mighty Mississippi River, too. Along with flood-related road closures, the Rhythm City Casino in Davenport was closed briefly. But the gaming boat reopened Tuesday morning. Isle of Capri’s vice president and general manager, Mo Hyder, says “This has been a year of extreme weather conditions; everyone worked together to ensure that downtown Davenport continues to welcome visitors with open arms.” Investors adjusted. Isle of Capri shares were down .64 last week to 6.32.

Monsanto’s (b) Wednesday comments at an investor conference were about adjusting and growing. Chief financial officer Terry Crews says Monsanto is leveraging its strong cash position to more than double profits between 2007 and 2012. The cash allows the company to make timely investments and key additions that advance its strategy during the global boom in demand for food and fuel. Monsanto shares were bid up 4.49 to 119.71 by investors.

If you want to see more adjusting in our freedom of enterprise, check out Thursday’s latest on industrial production. Are manufacturers gearing up for retail sales and export sales? Let’s see.

Jim Victor is senior vice president-wealth management and financial

advisor for Smith Barney, Davenport. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. The information contained herein has been obtained by the writer from sources believed to be reliable, but he does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. a) The firm is a market maker in the publicly traded equity securities of this company. b) Within the past 3 years, Citigroup or its affiliates has acted as manager or co-manager of a public offering of securities of this company.