Market Matters…
So what will $790 billion buy these days? Hopefully, a few roads and bridges, about 3.5 million new jobs, and maybe an economic recovery in the process. As the stimulus package moves closer to the President’s signature, the jury is still out on its future success. Perhaps the sign of a successful compromise exists when neither party is completely satisfied (or at all) and points out flaws in the final package. In this case, budget hawks and other Conservatives claim that the bill is a giant spending package that will do little to revive the economy or create any real jobs. Many bleeding hearts and other Liberals were counting on a larger stimulus and believe the tax cuts and rebates will not help and, if anything, similar actions over the past few years have contributed to the current mess. Obama seemed pleased with the progress and praised the plan as an “endeavor of enormous scope and scale.” Then again, his views on effective stimulus may have cost him another cabinet nominee as his willingness to cross partisan lines to find a Commerce Secretary failed over insurmountable economic and ideological differences with Senator Judd Gregg .
News from the bailout front grew more pessimistic during the week as Treasury Secretary Geithner’s initial attempt to win over Congress, investors, economists, and the media proved no more successful than Hank Paulson’s before him. The stock market had run up significantly in the days leading to his speech, as folks hoped to hear some specifics about how the next round of TARP (and other initialed programs like TALF) would work far better than the initial plan. Instead, disappointed investors ran for cover when his remarks left many questions about the valuations of toxic assets and private/public partnerships unanswered. A day later, the Masters of the Universe themselves (execs from the leading financial services companies), came to Congress with their tails between their legs trying to explain how they fizzled away $160 billion in taxpayer dollars. (Somehow Alex Rodriguez and Miguel Tejada came across as looking more credible.)
As plenty of finger-pointing continued over the failed bailout initiative and its lack of direction, some signs of success from the Fed’s and Treasury’s moves have slowly emerged. The once-frozen credit markets have started to thaw as corporations have borrowed almost $80 billion so far in 2009 by issuing high quality bonds to take advantage of low interest rates; Cisco alone sold $4 billion in debt securities to raise cash for potential M&A activities. In other (optimistic) news, Intel will be investing $7 billion in technology enhancements at its factories during these dire times. McDonalds showed that Big Macs are near necessities as sale-store sales jumped by over seven percent last month. Still, earnings season wound down with profits at S&P companies projected to plunge over 30% in the fourth quarter, the worst showing in about two decades.
Oil plummeted below $34/barrel (at one point) as inventories climbed to a 82-week high amid lower demand for energy during the downturn. Investors unloaded stocks following the Geithner remarks (buy the rumor, sell the fact), despite some better than expected economic releases (see below). Bonds experienced a “flight to quality” and also rose on news that a comprehensive foreclosure assistance plan is in the works. Heck, what’s another few billion between friends.
Weekly Economic Calendar
And the survey says…First the bad news. In the latest Wall Street Journal poll of top economists, the vast majority revised (downwardly) their outlooks for the second half of 2009 and believe prospects for a full-fledged recovery seem much less promising. While most predict some economic growth during the last six months, the rate of such expansion is lower than earlier projections. In fact, several economists expect that economic contraction will continue through the end of the year. Now the good news. These economic surveys are rarely on target.
Fed Chair Bernanke did his best Tony Robbins (positive thinking) imitation by highlighting the recent successes of certain policies. Dr. B. suggested that the commercial paper markets have benefited from the Fed’s decision to buy these short-term securities and more companies are meeting their liquidity needs. He promoted the newfound stability among money market funds as investors ceased the mass withdrawals that were occurring last year. Finally, he expressed relief that mortgage rates have declined dramatically and borrowers have taken advantage of purchase and refinance opportunities (at least those borrowers with high paying jobs and stellar credit).
While the trade deficit declined to its lowest level in almost six years, the pessimists claim that the improvement is more reflective of the recessionary times which have restricted domestic demand for imports for oil and other foreign goods and services. Meanwhile, the imbalance with China climbed to an all-time high. In retail news, sales in January surprisingly jumped by 1%, the first increase in seven months and the best showing in over a year. While Wal-Mart took advantage of the consumers’ hearty appetites for groceries and other (discounted) necessities of life, buyers also hit the auto lots again to check out the “too good to be true” deals. While the initial jobless claims actually fell slightly in the most recent week, the number of unemployed continuing to search for a job moved higher, an indication that the labor markets remain tight (and probably will for a while…until those road and bridge construction jobs come through).
On the Horizon…
"Right now, we have a once in a generation chance to act boldly, to turn adversity into opportunity, and use this crisis as a chance to transform our economy for the 21st century." With Prez O set to claim his initial legislative victory, he may need to temper the expectations of those in this “instant gratification” society who look for positive results to occur by say…yesterday. Economic advisor Larry Summers expressed such feelings by stating “the problems weren't made in a week, a month, a year. It's going to take time to fix…" and the plan shouldn’t be considered a “silver bullet.” Economists now focus their attention on the bailout plan and obtaining some of the details that Geithner left out in his most recent speech. The foreclosure initiative will be of particular interest to many who believe the housing sector remains key to any recovery. Investors also get the latest look at the inflation picture as both PPI and CPI for January will be released. While oil has continued to plunge, gas prices seemed to have stabilized as of late (unfortunately for consumers) and talks of deflation may have been put on the backburner, at least for now. Hey, maybe Tony Robbins would be a nice cabinet addition?
Ron Brounes
www.ronbrounes.com
So what will $790 billion buy these days? Hopefully, a few roads and bridges, about 3.5 million new jobs, and maybe an economic recovery in the process. As the stimulus package moves closer to the President’s signature, the jury is still out on its future success. Perhaps the sign of a successful compromise exists when neither party is completely satisfied (or at all) and points out flaws in the final package. In this case, budget hawks and other Conservatives claim that the bill is a giant spending package that will do little to revive the economy or create any real jobs. Many bleeding hearts and other Liberals were counting on a larger stimulus and believe the tax cuts and rebates will not help and, if anything, similar actions over the past few years have contributed to the current mess. Obama seemed pleased with the progress and praised the plan as an “endeavor of enormous scope and scale.” Then again, his views on effective stimulus may have cost him another cabinet nominee as his willingness to cross partisan lines to find a Commerce Secretary failed over insurmountable economic and ideological differences with Senator Judd Gregg .
| Market/Index | Year Close (2008) | Qtr Close (12/31/08) | Previous Week (02/06/09) | Current Week (02/13/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 8,776.39 | 8,280.59 | 7,850.41 | -10.55% |
| NASDAQ | 1,577.03 | 1,577.03 | 1,591.71 | 1,534.36 | -2.71% |
| S&P 500 | 903.25 | 903.25 | 868.60 | 826.84 | -8.46% |
| Russell 2000 | 499.45 | 499.45 | 470.70 | 448.36 | -10.23% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.24% | 2.98% | 2.88% | +64 bps |
News from the bailout front grew more pessimistic during the week as Treasury Secretary Geithner’s initial attempt to win over Congress, investors, economists, and the media proved no more successful than Hank Paulson’s before him. The stock market had run up significantly in the days leading to his speech, as folks hoped to hear some specifics about how the next round of TARP (and other initialed programs like TALF) would work far better than the initial plan. Instead, disappointed investors ran for cover when his remarks left many questions about the valuations of toxic assets and private/public partnerships unanswered. A day later, the Masters of the Universe themselves (execs from the leading financial services companies), came to Congress with their tails between their legs trying to explain how they fizzled away $160 billion in taxpayer dollars. (Somehow Alex Rodriguez and Miguel Tejada came across as looking more credible.)
As plenty of finger-pointing continued over the failed bailout initiative and its lack of direction, some signs of success from the Fed’s and Treasury’s moves have slowly emerged. The once-frozen credit markets have started to thaw as corporations have borrowed almost $80 billion so far in 2009 by issuing high quality bonds to take advantage of low interest rates; Cisco alone sold $4 billion in debt securities to raise cash for potential M&A activities. In other (optimistic) news, Intel will be investing $7 billion in technology enhancements at its factories during these dire times. McDonalds showed that Big Macs are near necessities as sale-store sales jumped by over seven percent last month. Still, earnings season wound down with profits at S&P companies projected to plunge over 30% in the fourth quarter, the worst showing in about two decades.
Oil plummeted below $34/barrel (at one point) as inventories climbed to a 82-week high amid lower demand for energy during the downturn. Investors unloaded stocks following the Geithner remarks (buy the rumor, sell the fact), despite some better than expected economic releases (see below). Bonds experienced a “flight to quality” and also rose on news that a comprehensive foreclosure assistance plan is in the works. Heck, what’s another few billion between friends.
Weekly Economic Calendar
| Date | Release | Comments |
| February 11 | Balance of Trade (12/08) | Lowest deficit in almost 6 years |
| February 12 | Initial Jobless Claims (02/07/09) | Still near quarter century high in claims |
| Retail Sales (01/09) | Surprising increase in post-holiday sales | |
| The Week Ahead | ||
| February 16 | Presidents’ Day | |
| February 18 | Housing Starts (01/09) | |
| Industrial Production (01/09) | ||
| February 19 | PPI (01/09) | |
| Initial Jobless Claims (02/14/09) | ||
| Leading Indicators (01/09) | ||
| February 20 | CPI (01/09) |
And the survey says…First the bad news. In the latest Wall Street Journal poll of top economists, the vast majority revised (downwardly) their outlooks for the second half of 2009 and believe prospects for a full-fledged recovery seem much less promising. While most predict some economic growth during the last six months, the rate of such expansion is lower than earlier projections. In fact, several economists expect that economic contraction will continue through the end of the year. Now the good news. These economic surveys are rarely on target.
Fed Chair Bernanke did his best Tony Robbins (positive thinking) imitation by highlighting the recent successes of certain policies. Dr. B. suggested that the commercial paper markets have benefited from the Fed’s decision to buy these short-term securities and more companies are meeting their liquidity needs. He promoted the newfound stability among money market funds as investors ceased the mass withdrawals that were occurring last year. Finally, he expressed relief that mortgage rates have declined dramatically and borrowers have taken advantage of purchase and refinance opportunities (at least those borrowers with high paying jobs and stellar credit).
While the trade deficit declined to its lowest level in almost six years, the pessimists claim that the improvement is more reflective of the recessionary times which have restricted domestic demand for imports for oil and other foreign goods and services. Meanwhile, the imbalance with China climbed to an all-time high. In retail news, sales in January surprisingly jumped by 1%, the first increase in seven months and the best showing in over a year. While Wal-Mart took advantage of the consumers’ hearty appetites for groceries and other (discounted) necessities of life, buyers also hit the auto lots again to check out the “too good to be true” deals. While the initial jobless claims actually fell slightly in the most recent week, the number of unemployed continuing to search for a job moved higher, an indication that the labor markets remain tight (and probably will for a while…until those road and bridge construction jobs come through).
On the Horizon…
"Right now, we have a once in a generation chance to act boldly, to turn adversity into opportunity, and use this crisis as a chance to transform our economy for the 21st century." With Prez O set to claim his initial legislative victory, he may need to temper the expectations of those in this “instant gratification” society who look for positive results to occur by say…yesterday. Economic advisor Larry Summers expressed such feelings by stating “the problems weren't made in a week, a month, a year. It's going to take time to fix…" and the plan shouldn’t be considered a “silver bullet.” Economists now focus their attention on the bailout plan and obtaining some of the details that Geithner left out in his most recent speech. The foreclosure initiative will be of particular interest to many who believe the housing sector remains key to any recovery. Investors also get the latest look at the inflation picture as both PPI and CPI for January will be released. While oil has continued to plunge, gas prices seemed to have stabilized as of late (unfortunately for consumers) and talks of deflation may have been put on the backburner, at least for now. Hey, maybe Tony Robbins would be a nice cabinet addition?
Ron Brounes
www.ronbrounes.com
