|Market/Index||Year Close (2008)||Qtr Close (03/31/09)||Previous Week(05/29/09)||Current Week(06/05/09)||YTD Change|
|Dow Jones Industrial||8,776.39||7,608.92||8,500.33||8,763.13||-0.15%|
|Fed Funds||0.25%||0.25%||0.25%||0.25%||0 bps|
|10 yr Treasury (Yield)||2.24%||2.68%||3.47%||3.86%||-162 bps|
Shifting to a more “stable” industry, the FDIC and Chairman Bair seem to be targeting Citigroup for a management shake-up, a move that could give regulators greater control of the one-time financial behemoth. Smith Barney brokers found their new homes as a significant joint venture between Citi and Morgan Stanley was completed. Citi also attempted to save face from the prior AIG embarrassment by announcing plans to withhold millions in previously promised severance packages to former execs. On the TAMP front, JP Morgan Chase, Morgan Stanley, and American Express each revealed plans for stock offerings as they race to become the first major bank to repay “bailout” moneys. With GM now in bankruptcy and Citi struggling to overcome its own problems, the Dow Jones Industrial Average is replacing them with Cisco Systems and Travelers effective June 8. In other corporate news, UAL (United Airlines) announced that Boeing and Airbus will submit competing bids to build about 150 new aircrafts as the company looks to benefit from a highly lucrative (below market) deal in these still dire economic times.
Energy prices resumed their higher trek as crude spiked above $70/barrel for the first time since last October, despite reports that showed demand at its lowest level in 10 years. Goldman Sachs analysts upwardly revised their projections for future global demand and warned of a “likely return to energy shortages” in 2010. As gas prices have skyrocketed about 50 cents above last month’s levels, consumers are facing pressures at the pumps that threaten to hinder some of next year’s anticipated growth in the economy. With the uncertainty of GM finally behind them, investors were able to focus on a calendar of better than expected economic releases (see below). Equities benefited from the reverse “flight-to-quality” as some of that massive cash on the sidelines seems to be making its way into riskier asset classes. On the other hand, fixed income struggled mightily as traders grew ever-anxious about the country’s expanding debt position, particularly in light of the auction announcement as another $65 billion of treasury securities hits the street in the upcoming week. (Ready to participate as always, China?) The Dow briefly moved into positive territory on a year-to-date basis after being down 25% in early March, before settling just below last year’s closing level. (Perhaps losing GM and Citi will help?)
Weekly Economic Calendar 2
|June 1||Personal Income/Spending (04/09)||Income increased; savings rate highest in 50 years|
|ISM ; Manu ; (05/09)||Stronger than expected showing|
|Construction Spending (04/09)||Surprising rise for 2 nd straight month|
|June 3||Factory Orders (04/09)||Increase in orders, though lower than anticipated|
|ISM ; Services (05/09)||8 th straight monthly contraction|
|June 4||Initial Jobless Claims (05/30/09)||Total claims fell for first time in 2009|
|June 5||Unemployment Rate (05/09)||Climbed to 9.4%, a new 25-year high|
|Non-farm Payroll (05/09)||345k decline in jobs not as bad as expected|
|Consumer Credit (04/09)||2 nd largest drop in borrowing on record|
|The Week Ahead||;|
|June 10||Balance of Trade (04/09)|
|Fed Beige Book|
|June 11||Retail Sales (05/09)|
|Initial Jobless Claims (06/06/09)||;|
Looks like fixed income traders are not the only ones concerned about the expanding debt position in this country. Fed Chairman Bernanke warned that the government “can’t borrow indefinitely” and politicos need to take crucial steps to reduce a budget deficit that is rapidly approaching $2 trillion. Dr. B. again confirmed his belief that the economy will move beyond recession by late-2009, though warned that the weak jobs market (among other conditions) will restrict future expansion. Speaking of labor, the unemployment data highlighted the week’s releases and the jobless rate surged to 9.4%, a new 25-year high, as 345,000 nonfarm jobs were lost from the economy. However, even bad news becomes good news these days as economists had predicted a far more substantial loss (525,000 jobs), and the May decline was the smallest since October 2008. Still, over six million folks have seen their jobs disappear since the recession began in December 2007 and May represents the 17 th consecutive month of labor contraction.
In other news, the manufacturing sector appears to be on the verge of recovery (though ever-so-slightly) as the ISM index reported its best showing since September 2008. On the housing front, construction spending jumped for the second straight month and pending home sales experienced its biggest increase in eight years. Personal income surprisingly rose in April, a positive sign for future consumer activity. Though retailers reported weaker than expected same-store sales for May, analysts were quick to point out that Wal-Mart is no longer participating in these reports, a decision that should skew the numbers lower because the world’s largest retailer accounts for about 10% of total retail sales. Luxury chains and department stores were among the worst performers last month, while Gap benefited from a nice increase in activity at Old Navy.
Treasury Secretary Geithner ventured over to China during the week where he praised it leaders for past stimulus measures (a tad different tact than used by his predecessor). Recently China has complained about the ballooning US debt and analysts remain worried about its continued participation in our treasury auctions. The domestic powers-that-be have long criticized China about unfair trade practices and currency issues. While the respective leaders have reservations about each other’s policies, Geithner’s remarks may be seen as smoothing over relations as our combined efforts will be imperative to securing an effective and long-lasting global recovery.
On the Horizon… A slow week on the economic calendar should give analysts time (maybe more than they desire) to monitor the auto bankruptcies and financial bailouts. Chrysler aims to get final approval to move beyond Chapter 11, while major banks rush into positions to pay back TAMP loans and get out from under the heavy hand of government. May retail sales (including Wal-Mart) will highlight the week’s data, giving investors another look into the mindset of the consumer. As far the equity rebound…how much longer will “the trend be our friend?”
About the author:
My name is Ben C. and I am 2nd year MBA candidate at the Anderson School of Business at the University of California- Los Angeles. I have a BS in Economics from the Wharton School of Business at the University of Pennsylvania. Before coming to Anderson I worked as a generalist equity research analyst for Right Wall Capital, a long-short equity hedge fund located in New York City. Prior to working at Right Wall I worked as an analyst at Blue Ram Capital, another long-short equity hedge fund located in Rye Brook, NY. This past summer, I worked for West Coast Asset Management as a research analyst. West Coast, which was co-founded by Kinko’s founder Paul Orfalea, is run by well-known value investors Lance Helfert and Atticus Lowe.