What recession? While much of the world has been pointing fingers at Wall Street for the global financial crisis, the major investment firms took a break from begging for TARP money in time to dole out $18.4 billion dollars in employee bonuses in 2008. President O called the move “outrageous,” though the Street pointed out that the pay represents a 44% reduction from last year’s level (though still remains the 6 th highest bonus pool on record). Meanwhile, while energy companies cried “doom and gloom” over plunging oil prices, Exxon-Mobil announced a record annual profit of $45.2 billion (despite a 33% decline in 4 th quarter earnings). Not to be outdone, while poor retailers panicked over the lack of consumer activity, Amazon.com called its holiday season “the best ever” and surpassed most analysts’ earnings estimates.
An oversight panel deemed the TARP plan a failure, thus far, as many of the major recipients of government funds actually reduced their lending activities during the prior three months (thanks Hank Paulson). Newly confirmed Treasury Secretary (and tax evader) Geithner claimed that TARP – Part 2 will be overhauled to ensure enhanced lending and even hinted at the creation of a “bad bank” that would purchase toxic assets from financial institutions. (Could they then use the proceeds to pay more bonuses?) A $819 billion economic stimulus package passed the House without any Republican support and Obama turned to the Senate where certain provisions on lower taxes and family planning may prove more acceptable to the opposition. The Prez is hoping for a signed version by mid-February (as a nice Valentine’s gift for the American people).
Year Close (2008)
Qtr Close (12/31/08)
|Dow Jones Industrial|
|10 yr Treasury (Yield)|
Earnings season moved into high gear and Thomson Reuters projected that S&P 500 companies suffered a 34% drop in profits (losses), the 6 th straight quarterly decline. In addition to Exxon-Mobil and Amazon.com, a few other companies reminded investors that not everyone is losing money: Verizon, US Steel, Procter & Gamble, Colgate-Palmolive. (Apparently, individuals don’t cut back on brushing their teeth in dire economic times.) Wells Fargo, Starbucks, and Ford were among those posting dismal reports, though the latter still has no plans to tap into government bailout funds (great…more for everyone else). Pfizer set out to prove that deals can still get done in this environment and announced its intent to purchase drugmaker rival Wyeth for $68 billion. (Just imagine the possibilities when Celebrex and Phen-fen get together.)
Oil fell again this week and hovered below $42/barrel as weak economic data (see below) and higher inventory reports revealed that demand continued to wane. Despite a recent four day winning streak for the S&P 500, its first since November, the major indexes closed out January with losses again. According to the January Barometer, when the market tumbles in the first month, it typically slides for the remainder of the year. Investors took their cues from the weak economic and earnings reports and offered a collective yawn to the House’s partisan passage of the stimulus package. The “bad bank” idea seemed to generate a bit of optimism though no real details about how such a plan would work have been announced. (Maybe Hank Paulson can come up with something? There may just be a sizable bonus in there for whoever does?)
Weekly Economic Calendar
|January 26||Existing Homes Sales (12/08)||Surprising increase offset by drop in median sales price|
|Leading Eco Indicators (12/08)||Increase exaggerated by jump in money supply|
|January 27||Consumer Confidence (01/09)||All-time record low confidence level|
|January 28||Fed Policy Meeting Statement||Continued deterioration means more Fed measures|
|January 29||Initial Jobless Claims (01/24/09)||Record number of benefit recipients|
|Durable Goods Orders (12/08)||Larger than expected drop in new orders for big items|
|New Home Sales (12/08)||Worst year for home sales since 1982|
|January 30||GDP – 4 th Quarter||Worst level of economic contraction in 27 years|
|The Week Ahead|
|February 2||Personal Income/Spending (12/08)|
|Construction Spending (12/08)|
|ISM – Manu (01/09)|
|February 4||ISM – Services (01/09)|
|February 5||Initial Jobless Claims (01/31/09)|
|Factory Orders (12/08)|
|February 6||Unemployment Rate (01/09)|
|Nonfarm Payroll (01/09)|
|Consumer Credit (12/08)|
Companies across virtually every sector of the economy continued to play “follow the leader” as everyday more and more layoffs were announced. On Monday alone, over 65,000 soon-to-be ex-employees became destined to hit the unemployment line as Pfizer (8,000), Sprint (8,000), Home Depot (7,000), GM (2,000), and Caterpillar (7,500) were among those offering harsh labor news. The weekly initial jobless clams data confirmed that more people than ever (or since 1967 when the statistics started being kept) are receiving unemployment benefits. Meanwhile, the housing sector showed few real signs of rebounding as new home sales fell for the fifth consecutive month and dropped to its lowest level since 1982. While existing home sales actually climbed in December by 6.5%, the median sales price plummeted over 15% and stands at its lowest level since 1968. Still, the optimists point out that the mere fact some homeowners have emerged to buy houses at these distressed levels is a positive sign that a recovery is inching closer. (Unfortunately, investors weren’t buying it.)
The domestic economy contracted at its slowest pace in almost 27 years as GDP plunged by 3.8% in the 4 th quarter. Again, the eternal optimists claim that most analysts were expecting a decline in excess of 5% so the negative results should actually be perceived as positive for the economy. (Unfortunately, investors weren’t buying it.) Bernanke and friends repeated their pledge to keep rates at record low levels and hinted that they stand prepared to begin buying treasuries and other fixed income securities to spur lending activity. According to the Fed statement issued at the conclusion of the Open Market Committee meeting, "Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight."
On the Horizon… Obama’s efforts to end partisan bickering continues as the Senate debates its version of the economic stimulus package. Expect plenty of “liberal bashing” over spending and “conservative whacking” over taxes as most Senators toe party lines. In the end, hopefully, “love of country” wins over “love of party” and politicos take measures to move the economy forward and help struggling individuals and businesses. The January unemployment numbers highlight a busy week of economic news, though the recent job cut announcements already imply some pretty ugly results. In December, the jobless rate moved to its highest level in 16 years. Disney, Motorola, Kraft, and MasterCard are among those companies posting quarterly earnings as the season begins to wind down. January is over…how about some positive news for a change?
Ron Brounes & Associates