Thus far, Wall Street seemed quite pleased with his primary choices: Tim Geithner as Treasury Secretary, Larry Summers as National Economic Council Director. Obama even tapped former Fed Chair Paul Volcker to head a White House advisory board. (What, no role for Greenspan?) Early talk about the proposed package calls for over $500 billion in tax cuts and new federal spending programs to jumpstart the stalled economy and create 2.5 million new jobs over the next two years. (To appease those deficit hawks, Obama promised to go through the budget “line by line” to help offset this new spending…though they seemed less than impressed.)
Not to be outdone, the current Administration continued on its own “big government” course by announcing a new program, Term Asset-Backed Securities Loan Facility (TALF…not to be confused with TARP), aimed at supporting the consumer and small business lending markets. The Fed also will purchase up to $500 billion in mortgage related securities backed by Freddie and Fannie. For good measure, Hank Paulson became Citigroup’s latest white knight, riding in with a rescue plan that included another $20 billion capital infusion (what happened to the initial $25 billion?) and a government backing on up to $300 billion in underwater assets. Apparently, desperate times call for desperate measures as the Administration that once preached “small government” is about to leave office with a deficit that could breach $1 trillion in 2009. While the jury remains out (and may be for some time) about the successes of these comprehensive actions, Americans can take comfort that the current and future Administrations have put partisanship aside (besides some minor squabbling) and are working together to seek real solutions that will benefit the country. (And, that’s some change everyone can believe in.)
As gasoline prices plunged well below $2/gallon, Americans should be thankful that they can better afford holiday travel this season. Additionally, retailers are hopeful consumers take some of those gas savings directly to the malls come Black Friday and beyond. Investors put some of that cash from the sidelines back into the markets as both stocks and bonds benefitted from the government’s latest actions and a newfound optimistic message that resonated across the country (enjoy the honeymoon, Mr. President-elect). Even the ailing asset-backed and mortgage markets soared on news of the consumer-oriented TALF program and equities welcomed each new economic team member with a bullish overtone not seen in some time. Stocks rallied on four consecutive days prior to the holiday for the first time since April (despite some gloomy economic releases…see below); financials enjoyed a boast from the Citi rescue plan. A handful of working traders took the markets higher on Friday for a fifth straight day (on light volume). Hopefully the rest were in the malls, helping to stimulate the economy (like Obama requested).
Market Matters…
Market/Index | Year Close (2007) | Qtr Close ( 09/30/08 ) | Previous Week ( 11/21/08 ) | Current Week ( 11/28/08 ) | YTD Change |
|---|---|---|---|---|---|
Dow Jones Industrial | 13,264.82 | 10,850.66 | 8,046.42 | 8,829.04 | -33.44% |
NASDAQ | 2,652.28 | 2,091.88 | 1,384.35 | 1,535.57 | -42.10% |
S&P 500 | 1,468.36 | 1,164.74 | 800.03 | 896.24 | -38.96% |
Russell 2000 | 766.03 | 679.58 | 406.54 | 473.14 | -38.23% |
Fed Funds | 4.25% | 2.00% | 1.00% | 1.00% | -325 bps |
10 yr Treasury (Yield) | 4.04% | 3.83% | 3.17% | 2.96% | -108 bps |
Weekly Economic Calendar
Date | Release | Comments |
|---|---|---|
November 24 | Existing Home Sales (10/08) | Lowest median residential sales price since early 2004 |
November 25 | GDP ( 3 rd quarter) | Downward revision reflects even weaker economy |
Consumer Confidence (11/08) | Surprising gain, though last month was lowest on record | |
November 26 | Durable Goods Orders (10/08) | Largest decline in two years |
Initial Jobless Claims ( 11/22/08 ) | Slight decline but still reflects recessionary times | |
New Home Sales (10/08) | Slowest pace of sales since January 1991 | |
Personal Income/Spending (10/08) | Worse than expected drop in spending | |
November 27 | Thanksgiving | GO SHOPPING (and support the economy) |
The Week Ahead |
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December 1 | Construction Spending (10/08) |
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ISM (Manu) Index (11/08) |
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December 3 | ISM (Services) Index (11/08) |
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Fed Beige Book |
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December 4 | Initial Jobless Claims ( 11/29/08 ) |
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Factory Orders (10/08) |
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December 5 | Unemployment Rate (11/08) |
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Non-farm Payroll (11/08) |
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Consumer Credit (10/08) |
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It’s Thanksgiving. Enjoy the turkey, the football, the day off from work. Spend time with your family; turn off the TV (at least, stop watching those so-called financial “experts”); and head to the malls for some good old-fashioned SHOPPING. While naysayers believe holiday sales may fall in November/December for the first time since 1992, optimists point out that retailers have slashed their projections and even the slightest rebound in activity could create surprises for the season. Bear in mind, the consumer accounts for two-thirds of the activity of the economy. Rather than sitting home and moping about recession, go out and contribute to its growth. Wal-Mart, Toy-R-Us, Gap, Kohls, Limited, even CVS Caremark among others are trying to attract consumers by offering discounted prices that haven’t been seen in years. Take advantage of those bargain basement prices and prove those “doom and gloom” analysts wrong for a change.
As expected, the recent economic releases were weak again, though investors seemed to discount their negativity and took their cues from the “optimistic” message coming out of DC. (When is the last time “optimistic” and “DC” went together?) The housing sector seems to be far from rebound mode as new and existing home sales plunged in October; potential buyers remained hesitant to commit to major purchases amidst a weak economy and declining stock market. Third quarter GDP fell by a revised 0.5%, all but confirming the economy is mired in recession. However, the labor market received a bit of a reprieve as jobless claims actually fell last week. Even more significant, consumer confidence surprisingly increased in November as individuals came to the realization that plunging gas prices actually means more cashflow for the holidays. China cuts its key lending rate by over 1%, its fourth such move in three months, as governments across the world continue to take somewhat coordinated actions to stimulate global growth.
On the Horizon… Retail statistics come in all shapes and sizes (store traffic, Internet clicks, etc.) as analysts speculate about Black Friday and the first holiday shopping weekend. Automakers return to the forefront as politicos eagerly await their proposals for $25 billion in bailout money. (Any pointers, Citigroup?) OPEC holds a special session to discuss oil production, though few analysts expect any moves until the mid-December meeting. The economic releases will be highlighted by Friday’s unemployment report which should (ok…will) show the 11 th straight month of job contraction. The Fed’s Beige Book offers a look into activity within the various regions of the country (though another rate cut is now a foregone conclusion). So enjoy the holiday, get some well-deserved R&R, and contribute to the overall growth of the economy.
Ron Brounes owns and operates Brounes & Associates, a Houston-based consulting firm that performs research, marketing, and education projects for financial services companies and other professionals. Through the years, Brounes has worked directly with retail investors as well as institutional investors. He received his MBA from the Edwin Cox School of Business at Southern Methodist University in Dallas and his BBA degree in Accounting from The University of Texas. More at: ww.ronbrounes.com
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