Market Matters… TGI-2009. Though the year-end fanfare and fireworks were lackluster at best, investors put a disastrous 2008 in the rear-view mirror and looked forward to better times ahead (or more of the same). While many had hoped for a last minute Santa Claus rally, the fat man did make an appearance over the last two weeks of the year, though results were modest and contributed little to overall holiday cheer. Amid light volume, investors seemed content to take some time off to lick their collective wounds, analyze what went right (short list) and wrong (too long to list), and set their sights on 2009 (or update their résumés). As has become the norm, the news headlines were dominated by the usual suspects: bailout (financial and auto), Madoff, retail, and energy.
While much of the financial crisis has involved residential loans, Foresight Analytics predicts that commercial mortgages will become the next ax to fall as property developers take their place in line for the next DC bailout. The continued freeze in credit and a vast recession could set the tone for an array of hotels, shopping centers, and office complexes to move toward default. GMAC represented the latest non-bank to become a bank as the Fed approved its charter and the Treasury opened its TARP pocketbook to the tune of $5 billion (and another $1 billion for parent GM). Soon after, the financing company (rather bank) announced plans to offer 0% loans for certain GM models in an attempt to jumpstart the auto sector. (Now, that’s what TARP was designed to do). A Credit Suisse analyst quickly put a damper on these “positive” developments by downgrading GM to “underperform” and claimed the company could still fall into bankruptcy. Bernard Madoff turned over a list of his personal assets to the SEC as the befuddled agency attempted to track down that missing $50 billion. Meanwhile, those “lucky” Madoff investors who managed to take distributions may be forced to give that money back as lawsuits apply a six-year “claw back” provision on past redemptions. While Amazon.com (AMZN, Financial) relished in the unexpected delight of its best holiday season ever, MasterCard Inc. predicted that most retailers were not so fortunate. Its SpendingPulse unit projected that total holiday sales declined by 2.5% to 4% from last year’s levels and the International Council of Shopping Centers (ICSC) predicted more store closings in 2009. Turmoil in the Middle East and a dispute between Russia and Ukraine served to advance the energy markets as oil prices jumped above $46/barrel on the first trading day of the new year. For the most part, traders (and speculators) continued to take their cues from the weak global economy (and sluggish demand) as oil prices have fallen over $100/barrel since mid-July.
Many investors closed their books on 2008 a few weeks early, but took some opportunities to rebalance portfolios for 2009. The Dow experienced its worst year since 1931 and the Nasdaq and S&P 500 indexes have fallen almost 45% since their 2007 highs. Likewise, foreign markets suffered similar fates as Japan’s Nikkei, for example, plunged 42% last year. The markets were open for trading on January 2 and those investors who chose to work took the Dow soaring past 9,000 for the first time in two months. Still, volume was light as many investors stayed home to nurse hangovers (both financial and alcohol-induced), watch meaningless college bowls, and (hopefully) look for some post-holiday bargains in the malls. Happy New Year and TGI-2009.
Weekly Economic Calendar
The economic data of the past two weeks did little to instill confidence that the recession will be short-lived and any rebound is imminent. The manufacturing sector remained weak as durable goods orders fell for the fourth straight month and the ISM purchasing managers’ survey revealed widespread pessimism as it hit its lowest reading in 28 years. Consumer confidence dropped to an all-time low as individuals remained worried about their jobs and were hesitant to spend on much beyond the bare essentials (bad news for retailers). Third quarter GDP was again reported as down 0.5%, and most analysts expect a far worse showing for the fourth quarter.
On the housing front, both existing and new home sales continued to decline in November and median prices tumbled on a national level. The drop in mortgage rates, however, prompted a surge in refinance activity and borrowers may soon have a few extra bucks in their pockets to contribute to the economy. On that note, all hope is not lost. As the government continues to pour money into the mortgage markets, the most optimistic of analysts believe that the same housing sector that started the downturn eventually will lead the economy out of its doldrums. Home prices are affordable; mortgage rates are extremely low; and the incentives are there for those who can take advantage (perhaps a slightly brighter light at the end of the tunnel?).
On the Horizon… It’s time to look forward, not back.The 111 th Congress meets on January 6, 2009 and a comprehensive economic stimulus package remains atop its agenda. Hopefully, the lawmakers can put partisan bickering aside (fat chance) and have a bill in place for President Obama’s signature soon after his January 20 th inauguration. Projections call for $800 billion to $1 trillion (pork projects included) in stimuli, though the Obama folks claim they will trim away any unnecessary fat. Don’t expect much joy from retail-land as a trade group projected that December sales plunged by over 1% with JC Penney (JCP, Financial) (-11%), Kohl’s (KSS, Financial) (-10%), and Target (TGT, Financial) (-8%) among the primary victims. Discounter Wal-Mart (WMT, Financial), is believed to have benefited most from the economic weakness with sales projected to have risen by 3% in December. While the holiday numbers seem dire at best, gift card sales don’t show up in the data until they are redeemed so retailers have one last opportunity for positive news in January (and beyond). Unemployment data highlights the week’s releases and a 12 th straight month of labor contraction is a foregone conclusion. As for stocks, the January effect states “as the first five days of January go, so goes the market for the year.” Let’s hope the full week sets a nice tone for 2009 (not a bad start).
by: Brounes & Associates (email: [email protected])
| Market/Index | Year Close (2007) | Qtr Close (09/30/08) | Previous Week (12/26/08) | Current Week (01/02/09) | Change from 2007 |
| Dow Jones Industrial | 13,264.82 | 10,850.66 | 8,515.55 | 9,034.69 | -31.89% |
| NASDAQ | 2,652.28 | 2,091.88 | 1,530.24 | 1,632.21 | -38.46% |
| S&P 500 | 1,468.36 | 1,164.74 | 872.80 | 931.80 | -36.54% |
| Russell 2000 | 766.03 | 679.58 | 476.77 | 505.82 | -33.97% |
| Fed Funds | 4.25% | 2.00% | 0.25% | 0.25% | -400 bps |
| 10 yr Treasury (Yield) | 4.04% | 3.83% | 2.14% | 2.42% | -162 bps |
While much of the financial crisis has involved residential loans, Foresight Analytics predicts that commercial mortgages will become the next ax to fall as property developers take their place in line for the next DC bailout. The continued freeze in credit and a vast recession could set the tone for an array of hotels, shopping centers, and office complexes to move toward default. GMAC represented the latest non-bank to become a bank as the Fed approved its charter and the Treasury opened its TARP pocketbook to the tune of $5 billion (and another $1 billion for parent GM). Soon after, the financing company (rather bank) announced plans to offer 0% loans for certain GM models in an attempt to jumpstart the auto sector. (Now, that’s what TARP was designed to do). A Credit Suisse analyst quickly put a damper on these “positive” developments by downgrading GM to “underperform” and claimed the company could still fall into bankruptcy. Bernard Madoff turned over a list of his personal assets to the SEC as the befuddled agency attempted to track down that missing $50 billion. Meanwhile, those “lucky” Madoff investors who managed to take distributions may be forced to give that money back as lawsuits apply a six-year “claw back” provision on past redemptions. While Amazon.com (AMZN, Financial) relished in the unexpected delight of its best holiday season ever, MasterCard Inc. predicted that most retailers were not so fortunate. Its SpendingPulse unit projected that total holiday sales declined by 2.5% to 4% from last year’s levels and the International Council of Shopping Centers (ICSC) predicted more store closings in 2009. Turmoil in the Middle East and a dispute between Russia and Ukraine served to advance the energy markets as oil prices jumped above $46/barrel on the first trading day of the new year. For the most part, traders (and speculators) continued to take their cues from the weak global economy (and sluggish demand) as oil prices have fallen over $100/barrel since mid-July.
Many investors closed their books on 2008 a few weeks early, but took some opportunities to rebalance portfolios for 2009. The Dow experienced its worst year since 1931 and the Nasdaq and S&P 500 indexes have fallen almost 45% since their 2007 highs. Likewise, foreign markets suffered similar fates as Japan’s Nikkei, for example, plunged 42% last year. The markets were open for trading on January 2 and those investors who chose to work took the Dow soaring past 9,000 for the first time in two months. Still, volume was light as many investors stayed home to nurse hangovers (both financial and alcohol-induced), watch meaningless college bowls, and (hopefully) look for some post-holiday bargains in the malls. Happy New Year and TGI-2009.
Weekly Economic Calendar
| Date | Release | Comments |
| Last Week | ||
| December 23 | GDP (3 rd Quarter) | Biggest decline since 3 rd quarter 2001 |
| Existing Home Sales (11/08) | Largest drop in home prices on record (since 1968) | |
| New Home Sales (11/08) | 4 th straight monthly decline | |
| December 24 | Initial Jobless Claims (12/20) | Highest level of claims in 26 years |
| Durable Goods Orders (11/08) | Continued weakness in auto industry | |
| Personal Income/Spending (11/08) | 5 th consecutive month of spending declines | |
| This Past Week | ||
| December 30 | Consumer Confidence (12/08) | Worst showing on record since 1967 as job cuts mount |
| December 31 | Initial Jobless Claims (12/27) | Surprisingly large decline in new claims |
| January 2 | ISM – Manu Index (12/08) | Lowest reading since 1980 |
| The Week Ahead | ||
| January 5 | Construction Spending (11/08) | |
| January 6 | Factory Orders (11/08) | |
| ISM – Services (12/08) | ||
| January 8 | Initial Jobless Claims (01/03/09) | |
| Consumer Credit (11/08) | ||
| January 9 | Unemployment Rate (12/08) | |
| Nonfarm Payroll Additions (12/08) |
The economic data of the past two weeks did little to instill confidence that the recession will be short-lived and any rebound is imminent. The manufacturing sector remained weak as durable goods orders fell for the fourth straight month and the ISM purchasing managers’ survey revealed widespread pessimism as it hit its lowest reading in 28 years. Consumer confidence dropped to an all-time low as individuals remained worried about their jobs and were hesitant to spend on much beyond the bare essentials (bad news for retailers). Third quarter GDP was again reported as down 0.5%, and most analysts expect a far worse showing for the fourth quarter.
On the housing front, both existing and new home sales continued to decline in November and median prices tumbled on a national level. The drop in mortgage rates, however, prompted a surge in refinance activity and borrowers may soon have a few extra bucks in their pockets to contribute to the economy. On that note, all hope is not lost. As the government continues to pour money into the mortgage markets, the most optimistic of analysts believe that the same housing sector that started the downturn eventually will lead the economy out of its doldrums. Home prices are affordable; mortgage rates are extremely low; and the incentives are there for those who can take advantage (perhaps a slightly brighter light at the end of the tunnel?).
On the Horizon… It’s time to look forward, not back.The 111 th Congress meets on January 6, 2009 and a comprehensive economic stimulus package remains atop its agenda. Hopefully, the lawmakers can put partisan bickering aside (fat chance) and have a bill in place for President Obama’s signature soon after his January 20 th inauguration. Projections call for $800 billion to $1 trillion (pork projects included) in stimuli, though the Obama folks claim they will trim away any unnecessary fat. Don’t expect much joy from retail-land as a trade group projected that December sales plunged by over 1% with JC Penney (JCP, Financial) (-11%), Kohl’s (KSS, Financial) (-10%), and Target (TGT, Financial) (-8%) among the primary victims. Discounter Wal-Mart (WMT, Financial), is believed to have benefited most from the economic weakness with sales projected to have risen by 3% in December. While the holiday numbers seem dire at best, gift card sales don’t show up in the data until they are redeemed so retailers have one last opportunity for positive news in January (and beyond). Unemployment data highlights the week’s releases and a 12 th straight month of labor contraction is a foregone conclusion. As for stocks, the January effect states “as the first five days of January go, so goes the market for the year.” Let’s hope the full week sets a nice tone for 2009 (not a bad start).
by: Brounes & Associates (email: [email protected])
