Market Matters…
Just imagine what his ratings would be if the country wasn’t mired in the worst recession since the Great Depression? With unemployment soaring to its worst level since 1983 and the Fed declaring every sector of the economy to be in the doldrums (see below), Obama moved into the 2 nd month of his presidency with 41% of the American people believing that the country “is generally headed in the right direction.” By comparison, 26% of those surveyed in January (and 12% in November before the election) expressed similar sentiment. Though the economic data reveals more “challenges” ahead and the markets continue to move to much lower levels, two-thirds of Americans feel “hopeful” about Obama’s leadership. In a small way, these results may be more telling than any earnings or economic report. Consumer and business confidence will prove keys in moving the country back in the right direction. Perhaps, these poll results indicate that such “optimism” may be returning to the American mindset (though ever so slowly)?
The Obama Administration and the Federal Reserve rolled out two measures designed to stabilize the credit markets and provide some much needed relief for struggling borrowers. (FDR’s New Deal has nothing on these guys.) Term Asset-Backed Securities Loan Facility is a $200 billion program that will (hopefully) stimulate lending activity for small businesses and consumers. The $75 billion “Making Home Affordable” program will (hopefully) assist 9 million homeowners with financial hardships to avoid foreclosure by modifying terms of their mortgages. (At some point, some of these programs have got to work, don’t they?)
Individual Stocks and Oil
How long until Citigroup (C, Financial) is listed as a penny stock on the Pink Sheet? With nationalization talks becoming more prevalent, the one-time banking giant fell below $1/share and its market cap plunged to $5.4 billion (from $270 billion just two years ago).
Speaking of penny stocks, AIG (AIG, Financial) posted a $60+ billion quarterly loss, the largest in history, and stands prepared to accept another $30 billion in government funds.
US Bancorp (USB, Financial) and Wells Fargo (WFC, Financial) took measures to shore up their financial positions as both cut their respective dividends by about 85% to $0.05. Meanwhile, Wells’ management announced an additional $2 billion in expenditure reductions and claimed that the financial institution experienced “strong operating results” in early 2009.
Same-store sales at Wal-Mart (WMT, Financial) surpassed all expectations and many mall-based stores performed better than anticipated. However, luxury retailers like NeimanMarcus and Saks (SKS, Financial) continued to suffer as shoppers looked for more bargains in the challenging economic times.
The news outside of financials was not much better. Computer shipments are projected to decrease by almost 12% in 2009, the worst level of activity ever reported. Auto sales in February plummeted again and no one escaped the negativity: GM (-53%), Ford (-48%), Toyota (-40%). GM also seemed to move a few steps closer to bankruptcy reorganization (and penny stock status).
Volatile oil prices settled above $45/barrel as traders weighed the dire economic picture against inventory reports that showed an unexpected decline in crude supplies. The Dow tumbled below 7,000 and never looked back, hitting levels not seen since May 1997. Other major indexes followed with the Nasdaq plummeting to a six-year low. Prospects for a new stimulus plan from China (see below) brought short-lived optimism, though ultimately the pessimists won out as news about Citi and GM ruled the day. Enjoy those approval ratings (while they last), Mr. Prez.
Weekly Economic Calendar
With many countries mired in a global recession, China proclaimed that its $585 billion stimulus plan should produce about 8% annual growth for the world’s third largest economy. Outsiders had hoped that China’s premier would announce a more robust package, but instead the government is taking a “wait and see” attitude before determining if any further measures are needed. Both the European Central Bank (1.5%) and the Bank of England (0.5%) reduced their key lending rates by 50 bps to the lowest levels in the history of both central banks. The Federal Reserve’s Beige Book reported that the prospects for recovery continue to look bleak for the short-term with any “pickup not expected before late 2009 or early 2010.” Meanwhile, Bernanke confirmed that the recession is worsening as the labor market weakens; he also appeared to support the Administration’s stimulus package as the best hope to revive the domestic economy.
Unemployment skyrocketed to 8.1% in February as another 651,000 jobs were eliminated from the economy. Since December 2007, the official beginning of the recession, 4.4 million jobs have been lost, the vast majority of which have occurred in the past four months. On the housing front, construction spending dropped in January for the fourth consecutive month and even non-residential activity experienced its worst decline since early 1994. Manufacturing continued to struggle as January factory orders and the February ISM index both contracted again, though the results of each were actually a tad better than projected. On another (somewhat) positive note, personal spending in January rose after six straight monthly declines, consumer borrowing jumped after three straight drops, and activity picked up in February for some of the nation’s retailers.
On the Horizon…
Could the recent same-store sales numbers actually be indicative of a renewal in retail activity over the past month (and beyond)? The week’s calendar is highlighted by the February retail sales report and some analysts are “cautiously” optimistic (which is really saying something in this environment). The January report depicted the first monthly increase in seven months and the best showing for retailers in over a year. After a dismal holiday season, perhaps folks are simply antsy to partake in the “Great American Pastime” of shopping again (regardless of the balances in their checking accounts and/or portfolio statements). Remember, gift cards purchased for the holidays are still being redeemed and may have contributed to some additional activity last month. And with equities facing their lowest valuations in 12 years, some investors may be becoming just as antsy to jump off the sidelines and take advantage of bargain basement prices. Could this be the week? (Unfortunately, for now, there is far more talk than action.)
Ron Brounes
www.ronbrounes.com
Just imagine what his ratings would be if the country wasn’t mired in the worst recession since the Great Depression? With unemployment soaring to its worst level since 1983 and the Fed declaring every sector of the economy to be in the doldrums (see below), Obama moved into the 2 nd month of his presidency with 41% of the American people believing that the country “is generally headed in the right direction.” By comparison, 26% of those surveyed in January (and 12% in November before the election) expressed similar sentiment. Though the economic data reveals more “challenges” ahead and the markets continue to move to much lower levels, two-thirds of Americans feel “hopeful” about Obama’s leadership. In a small way, these results may be more telling than any earnings or economic report. Consumer and business confidence will prove keys in moving the country back in the right direction. Perhaps, these poll results indicate that such “optimism” may be returning to the American mindset (though ever so slowly)?
The Obama Administration and the Federal Reserve rolled out two measures designed to stabilize the credit markets and provide some much needed relief for struggling borrowers. (FDR’s New Deal has nothing on these guys.) Term Asset-Backed Securities Loan Facility is a $200 billion program that will (hopefully) stimulate lending activity for small businesses and consumers. The $75 billion “Making Home Affordable” program will (hopefully) assist 9 million homeowners with financial hardships to avoid foreclosure by modifying terms of their mortgages. (At some point, some of these programs have got to work, don’t they?)
| Market/Index | Year Close (2008) | Qtr Close (12/31/08) | Previous Week (02/27/09) | Current Week (03/06/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 8,776.39 | 7,062.93 | 6,626.94 | -24.49% |
| NASDAQ | 1,577.03 | 1,577.03 | 1,377.84 | 1,293.85 | -17.96% |
| S&P 500 | 903.25 | 903.25 | 735.09 | 683.38 | -24.34% |
| Russell 2000 | 499.45 | 499.45 | 389.02 | 351.05 | -29.71% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.24% | 3.04% | 2.83% | +59 bps |
Individual Stocks and Oil
How long until Citigroup (C, Financial) is listed as a penny stock on the Pink Sheet? With nationalization talks becoming more prevalent, the one-time banking giant fell below $1/share and its market cap plunged to $5.4 billion (from $270 billion just two years ago).
Speaking of penny stocks, AIG (AIG, Financial) posted a $60+ billion quarterly loss, the largest in history, and stands prepared to accept another $30 billion in government funds.
US Bancorp (USB, Financial) and Wells Fargo (WFC, Financial) took measures to shore up their financial positions as both cut their respective dividends by about 85% to $0.05. Meanwhile, Wells’ management announced an additional $2 billion in expenditure reductions and claimed that the financial institution experienced “strong operating results” in early 2009.
Same-store sales at Wal-Mart (WMT, Financial) surpassed all expectations and many mall-based stores performed better than anticipated. However, luxury retailers like NeimanMarcus and Saks (SKS, Financial) continued to suffer as shoppers looked for more bargains in the challenging economic times.
The news outside of financials was not much better. Computer shipments are projected to decrease by almost 12% in 2009, the worst level of activity ever reported. Auto sales in February plummeted again and no one escaped the negativity: GM (-53%), Ford (-48%), Toyota (-40%). GM also seemed to move a few steps closer to bankruptcy reorganization (and penny stock status).
Volatile oil prices settled above $45/barrel as traders weighed the dire economic picture against inventory reports that showed an unexpected decline in crude supplies. The Dow tumbled below 7,000 and never looked back, hitting levels not seen since May 1997. Other major indexes followed with the Nasdaq plummeting to a six-year low. Prospects for a new stimulus plan from China (see below) brought short-lived optimism, though ultimately the pessimists won out as news about Citi and GM ruled the day. Enjoy those approval ratings (while they last), Mr. Prez.
Weekly Economic Calendar
With many countries mired in a global recession, China proclaimed that its $585 billion stimulus plan should produce about 8% annual growth for the world’s third largest economy. Outsiders had hoped that China’s premier would announce a more robust package, but instead the government is taking a “wait and see” attitude before determining if any further measures are needed. Both the European Central Bank (1.5%) and the Bank of England (0.5%) reduced their key lending rates by 50 bps to the lowest levels in the history of both central banks. The Federal Reserve’s Beige Book reported that the prospects for recovery continue to look bleak for the short-term with any “pickup not expected before late 2009 or early 2010.” Meanwhile, Bernanke confirmed that the recession is worsening as the labor market weakens; he also appeared to support the Administration’s stimulus package as the best hope to revive the domestic economy.
| Date | Release | Comments |
| March 2 | Personal Income/Spending (01/09) | Better than expected increases in both |
| Construction Spending (01/09) | 4 th consecutive monthly decline in activity | |
| ISM Index – Manu (02/09) | 13 th straight monthly contraction, though at slower pace | |
| March 4 | ISM Index – Services (02/09) | 5 th straight month of contraction |
| Fed Beige Book | Prospects for near-term improvement deemed poor | |
| March 5 | Initial Jobless Claims (02/28/09) | Surprising drop in benefits claims |
| Factory Orders (01/09) | Record 6 th consecutive monthly decline | |
| March 6 | Unemployment Rate (02/09) | Highest rate since 1983 |
| Nonfarm Payroll (02/09) | Another 651k jobs lost from economy | |
| Consumer Credit (01/09) | Rose following three straight monthly declines | |
| The Week Ahead | ||
| March 12 | Initial Jobless Claims (03/07/09) | |
| Retail Sales (02/09) | ||
| March 13 | Balance of Trade (01/09) |
Unemployment skyrocketed to 8.1% in February as another 651,000 jobs were eliminated from the economy. Since December 2007, the official beginning of the recession, 4.4 million jobs have been lost, the vast majority of which have occurred in the past four months. On the housing front, construction spending dropped in January for the fourth consecutive month and even non-residential activity experienced its worst decline since early 1994. Manufacturing continued to struggle as January factory orders and the February ISM index both contracted again, though the results of each were actually a tad better than projected. On another (somewhat) positive note, personal spending in January rose after six straight monthly declines, consumer borrowing jumped after three straight drops, and activity picked up in February for some of the nation’s retailers.
On the Horizon…
Could the recent same-store sales numbers actually be indicative of a renewal in retail activity over the past month (and beyond)? The week’s calendar is highlighted by the February retail sales report and some analysts are “cautiously” optimistic (which is really saying something in this environment). The January report depicted the first monthly increase in seven months and the best showing for retailers in over a year. After a dismal holiday season, perhaps folks are simply antsy to partake in the “Great American Pastime” of shopping again (regardless of the balances in their checking accounts and/or portfolio statements). Remember, gift cards purchased for the holidays are still being redeemed and may have contributed to some additional activity last month. And with equities facing their lowest valuations in 12 years, some investors may be becoming just as antsy to jump off the sidelines and take advantage of bargain basement prices. Could this be the week? (Unfortunately, for now, there is far more talk than action.)
Ron Brounes
www.ronbrounes.com
