By Tom Heysek

The market retreated modestly this week, with the Dow slipping back below 13,000 and the S &P 500 below 1,400. On Tuesday, NASDAQ came within 17 points of breaking through the 2,500 mark, a technical barrier, but has since fallen back. When oil withdrew from a $123 per barrel on Thursday, stocks began moving up, though not enough to break through resistance levels.

Gold came to life again, rising to over $885 an ounce, or about a 2% gain. Industry analysts claimed this is more of a correction from having been oversold.

Indeed, news on the economic front was downright encouraging! On Thursday, the Labor Department reported unemployment claims fell to 365,000 (from 375,000 last week). This was twice the decline in unemployment claims that economists had expected.

The states with the biggest increases in unemployment claims: Massachusetts, New York and New Jersey. The states with the biggest decline in unemployment claims: Texas, California and Pennsylvania.

Adding even more buoyancy to this week’s market were the gains in same-store sales reported by the major retailers. Same-store sales refer to sales from retail units opened for at least a year, and therefore represent mature location sites and are more commercially indicative than sales from newly opened stores.  

Specifically, Wal-Mart (WMT: $57.31) reported a 3.2% increase in same store sales for April…led by sales of groceries, flat-screen TVs and medications.   Costco (COST: $71.24) reported a whopping 8% gain in same store sales. Excluding gasoline sales, Costco’s same-store sales would have been up 5%…still impressive.

Target (TGT: $52.44) reported a 3.1% increase in April same-store sales. All retailers hedged a bit, cautioning investors not to expect gains of this magnitude for the full year. However, this is an encouraging economic signal.    

Admittedly, some of these gains may be temporary…awaiting that $600 or $1,500 check from the U.S. Treasury. Yet, the stock market has a 21% correction under its belt (March 17th), the technical definition of a bear market correction. If May’s retail results are anything close to April’s, this market could get legs.

In terms of finding some extra money to be a part of this consumer rebound, check out this video at Dolans.com: "Eight Ways to Get Extra Money."

Another way to participate in the retail sector is via Wal-Mart de Mexico (WMMVF: $4.10). Wal-Mart Mexico is majority-owned by Wal-Mart and represents about 10% of Wal-Mart’s consolidated sales. Less than 20% of WMMVF’s stock is publicly traded.

With 8.5 million WMMVF shares outstanding (a market value of $35 billion), in an economy like this, it might make sense for Wal-Mart to purchase the shares of Wal-Mart Mexico it doesn’t own. Incidentally, there is an exceptionally high short interest in this company, which is hard to explain unless it is a clinically hedged position. The graph below illustrates the stock price performance of both Wal-Mart and its Mexican subsidiary over the past 3-months.

A retailer whose options are in the crosshairs is Pacific Sunwear (PSUN: $12.14). Check out this article at OptionsZone.com.

A summary of the week would be incomplete without highlighting the end to the Microsoft (MSFT: $29.31)/Yahoo (YHOO: $26.21) merger. Here’s a link to an article on that busted acquisition plan.

As expected, Yahoo’s stock price tanked to less than $23 per share, a drop of almost 20% for the day. It has since bounced back a bit. The biggest losers in the scuttled merger are the investment bankers, who are out at least $2 billion in investment banking fees that would have been payable had Microsoft gone through with the merger.

Paul Coletta is SVP of Marketing for Jamba Juice (JMBA: $2.65), which recently teamed up with Dole Foods (Dole Foods went private in 2003) in a joint marketing effort to get its smoothies into grocery stores. Frankly, a rather shrewd move. If this economy features consumers spending less discretionary income on Starbucks and Jamba Juice outlets, why not try to catch their discretionary spending at the grocery store, which is technically "less discretionary."

Jamba is a small cap stock (market value of less than $250 million), which does connote more stock market risks than a larger cap stock. Here is a piece from Toby Smith of ChangeWave that addresses risk in the small cap sector.

Jamba makes its smoothies with no syrups or concentrate. Its products are consistent with the whole fruit concept of Dole Foods. Evidently, Jamba is also discussing licensing arrangements with Nestle (NSRGY: $483.50) as well for an international co-branding affiliation.

On food shortages and inflation, as pointed out in the recent issue of Barrons, this is a topic that easily lends itself to politicization.

For example, there are some private sector companies in Africa whose harvests have rotted. The reason: Food aid delivered to Africa made their private sector initiatives a wasted effort. Another reason: Panic. Thailand stopped exporting rice due to concerns about providing for its own population. As a result of such stockpiling (some might say hoarding), shortages in Asia became even worse. Most European countries subsidize its farmers, further distorting the true supply picture.

Here’s the point: What’s really needed in this world is a truly free market for food. Let the market be the arbiter and allocator of food, just as free capital markets determine who has access to capital, and who doesn’t.

Snippets

Reverse Out-Sourcing. DATELINE…May 5, 2008. Los Angeles Times: Mr. Liu Keli is investing $10 million in South Caroline to build a printing-plate factory. It will employ 120 people. His initial reason for expanding into South Carolina was to tap the American market, and save transportation expenses. However, when he went through the numbers, he was "stunned to learn how they compared to China."

Liu spent about $500,000 for seven acres in Spartanburg, South Carolina, less than one-fourth what it would cost to buy the same amount of land in Dongguan, China, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn’t have to put up with frequent blackouts.

Labor costs: Liu is looking to offer $12 to $13 an hour there, versus about $2 an hour in Dongguan. However, he does not have to offer room and board to his U.S. employees. But Liu expects to offset higher labor costs with a payroll tax credit of $1,500 per employee from the state of South Carolina.

"I was surprised," said the 63-year-old president of Shanxi Yuncheng Plate-Making Group. "The gap’s not as large as I thought."

Here’s the point: The American media has pummeled the issue of outsourcing U.S. jobs to overseas locations. Confirming that Free Market-based economies produce solutions to all problems, here is an example of a foreign company setting up shop in the U.S., notwithstanding paying higher labor costs. Look for more of these.

How big a slap? Forbes magazine has just released its annual CEO pay figures for 2007. The top execs at the nation’s 500 largest companies, says Forbes, averaged $12.8 million last year. They took home nearly a quarter million dollars a week, 407 times the weekly pay average Americans were making at year's end.

China Rain for Olympics. Evidently, the festivities for the 2008 Summer Olympics in China includes arming 11,000 artillery guns with silver iodine so that it rains every night, resulting in a sunny next day, for the games. Here’s the link to that piece to read with your own eyes.