Market Matters…
When Economist-in-Chief Obama talks…people listen and applaud (60 ovations) and gripe about the message (thanks Governor Jindal) and proclaim class warfare (so much for bipartisanship) and sell stocks (again). In his first address to Congress, the Prez tried to find the middle ground between fear and optimism as he outlined the severe global economic challenges being faced today, while vowing to lead the nation into recovery. While the talk was “generally” well-received (at least, by his fans), Obama followed up with his budget blueprint (rather a national healthcare plan) a few days later which proposed some significant tax hikes on upper income folks and many businesses. (Should you raise taxes during a recession?) Early prognostications claim that Big Oil and Big Pharma will be particularly hard hit, though Congress will have some say in the ultimate spending and tax moves. (So, let the partisan bickering begin.) Then again, with the budget quickly ballooning to unfathomable levels, here’s hoping Obama can meet his ambitious goal of half-ing it within five years. (So, let the bipartisan compromising begin.)
Financial institutions were in the news again (what a shock) as the FDIC reported that domestic banks lost over $26 billion in the fourth quarter and more than doubled their loan loss reserves from the prior year. JP Morgan (JPM, Financial) slashed its dividend by almost 90% to $0.05/share and announced cutbacks of 12,000 jobs as it incorporates Washington Mutual into its mix. Fannie Mae (FNM, Financial) reported a $25 billion quarterly loss and has its hands out for another government handout. Likewise, AIG (AIG, Financial) signaled a need for more bailout funds as it contemplates breaking itself into four separate entities: Asian ops, international life insurance, US insurance, toxic assets (any interested parties for this unit?). Citigroup (C, Financial) took a step closer to nationalization as the government and some private investors agreed to convert preferred stock into common stock, leaving taxpayers with a stake of just under 40% in the one-time financial behemoth. (Do we, at least, get some breaks on bank fees now?) Meanwhile, the government announced some details of “stress tests” that will be used to measure how banks needing additional capital assistance would hold up during “baseline” and “extreme” economic conditions. In other corporate news, the tech sector is officially out of favor as two consulting firms downwardly revised sales forecasts on expectations that consumers and businesses will resist any major expenditures in the dire economy. Microsoft (MSFT, Financial) issued a poor outlook for the rest of the year, but hinted that another deal for Yahoo (YHOO, Financial) may be in the works. Dell (DELL, Financial) reported a dismal quarter on slumping sales as revenue came in below expectations.
Traders welcomed news that shrinking supply (OPEC cuts) may be reaching an equilibrium with lower demand (slowing economy) and oil prices climbed to above the $44/barrel level. The “lost decade” hit Wall Street as equity indexes fell to their lowest levels in 12 years amid concerns that the recession will get worse before it gets better. February was the Dow’s worst month since 1933. While Bernanke attempted to calm the markets with optimistic rhetoric that the downturn MAY end this year, investors did not find his message very convincing. Every slight rebound was short-lived as investors tried to make heads or tails about Citi’s ongoing concerns, Obama’s budget, and the horrid economic data (see below). So much for those 60-odd standing ovations.
Weekly Economic Calendar
With Obama stealing much of the limelight, Fed Chair Bernanke attempted to insert himself into the latest debate by issuing a few key policy talks of his own. He told Congress that the recession should end in 2009 and next year should be one of recovery (of course, he also mentioned some substantial risks to his forecasts). Big Ben then tried to quell the ongoing bank rumors (thanks Senator Dodd) by claiming that “nationalization misses the point” and such moves “would be disruptive to the markets.” Finally, he attempted to calm the growing concerns that the exploding deficit and expanding money supply will lead to skyrocketing inflation in the years to come. Bernanke remains confident that the Fed can act quickly to avoid any significant threats of price pressures when the recovery emerges (rather…if the recovery emerges).
When the government initially reported that GDP contracted by 3.8% in the 4 th quarter, some economists raised eyebrows and predicted a revision in the later releases. And a revision is what they got. Now the Commerce Department claims that the economy shrank by 6.2% in the last quarter of 2008, the worst setback since 1982 and a far weaker showing that anyone expected. (How could those analysts at Commerce be so wrong with their first reading? Doesn’t instill much confidence in the other data?) Elsewhere, existing home sales plummeted to its lowest level in almost 12 years, and new home sales plunged to its worst showing ever reported. (Guess, the lower home prices haven’t prompted new buyers or builders to take action?) Consumer confidence also experienced a record-setting month in January (record setting down month, that is) as individuals remained fearful for their jobs and hesitant to hit the malls (or even the Wal-Mart) for anything, but the bare essentials.
On the Horizon…
TGIM (thank goodness it’s March). Unfortunately, that’s what investors were saying when they closed the books on January and times have only gotten worse. The economy is weaker; the markets are lower; consumers are more frightened; and businesses of all shapes and sizes continue to struggle. February brought a comprehensive stimulus package, a blueprint for a complete budget overhaul, and several bailout plans. At some point, these ideas by the smartest men/women the country has to offer have got to start working (don’t they?). Analysts will be working overtime as data from housing, manufacturing, and labor is set to be reported. Bear in mind, in January, the unemployment rate soared to 7.6% and 600,000 jobs were lost from the economy. With companies announcing major layoffs each day, The National Association now predicts the jobless rate to peak at nine percent this year (though the pessimists actually believe that number to be low). Heck, maybe even a positive revision or two are in the cards?
When Economist-in-Chief Obama talks…people listen and applaud (60 ovations) and gripe about the message (thanks Governor Jindal) and proclaim class warfare (so much for bipartisanship) and sell stocks (again). In his first address to Congress, the Prez tried to find the middle ground between fear and optimism as he outlined the severe global economic challenges being faced today, while vowing to lead the nation into recovery. While the talk was “generally” well-received (at least, by his fans), Obama followed up with his budget blueprint (rather a national healthcare plan) a few days later which proposed some significant tax hikes on upper income folks and many businesses. (Should you raise taxes during a recession?) Early prognostications claim that Big Oil and Big Pharma will be particularly hard hit, though Congress will have some say in the ultimate spending and tax moves. (So, let the partisan bickering begin.) Then again, with the budget quickly ballooning to unfathomable levels, here’s hoping Obama can meet his ambitious goal of half-ing it within five years. (So, let the bipartisan compromising begin.)
| Market/Index | Year Close (2008) | Qtr Close (12/31/08) | Previous Week (02/20/09) | Current Week (02/27/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 8,776.39 | 7,365.67 | 7,062.93 | -19.52% |
| NASDAQ | 1,577.03 | 1,577.03 | 1,441.23 | 1,377.84 | -12.63% |
| S&P 500 | 903.25 | 903.25 | 770.05 | 735.09 | -18.62% |
| Russell 2000 | 499.45 | 499.45 | 410.96 | 389.02 | -22.11% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.24% | 2.77% | 3.04% | +80 bps |
Financial institutions were in the news again (what a shock) as the FDIC reported that domestic banks lost over $26 billion in the fourth quarter and more than doubled their loan loss reserves from the prior year. JP Morgan (JPM, Financial) slashed its dividend by almost 90% to $0.05/share and announced cutbacks of 12,000 jobs as it incorporates Washington Mutual into its mix. Fannie Mae (FNM, Financial) reported a $25 billion quarterly loss and has its hands out for another government handout. Likewise, AIG (AIG, Financial) signaled a need for more bailout funds as it contemplates breaking itself into four separate entities: Asian ops, international life insurance, US insurance, toxic assets (any interested parties for this unit?). Citigroup (C, Financial) took a step closer to nationalization as the government and some private investors agreed to convert preferred stock into common stock, leaving taxpayers with a stake of just under 40% in the one-time financial behemoth. (Do we, at least, get some breaks on bank fees now?) Meanwhile, the government announced some details of “stress tests” that will be used to measure how banks needing additional capital assistance would hold up during “baseline” and “extreme” economic conditions. In other corporate news, the tech sector is officially out of favor as two consulting firms downwardly revised sales forecasts on expectations that consumers and businesses will resist any major expenditures in the dire economy. Microsoft (MSFT, Financial) issued a poor outlook for the rest of the year, but hinted that another deal for Yahoo (YHOO, Financial) may be in the works. Dell (DELL, Financial) reported a dismal quarter on slumping sales as revenue came in below expectations.
Traders welcomed news that shrinking supply (OPEC cuts) may be reaching an equilibrium with lower demand (slowing economy) and oil prices climbed to above the $44/barrel level. The “lost decade” hit Wall Street as equity indexes fell to their lowest levels in 12 years amid concerns that the recession will get worse before it gets better. February was the Dow’s worst month since 1933. While Bernanke attempted to calm the markets with optimistic rhetoric that the downturn MAY end this year, investors did not find his message very convincing. Every slight rebound was short-lived as investors tried to make heads or tails about Citi’s ongoing concerns, Obama’s budget, and the horrid economic data (see below). So much for those 60-odd standing ovations.
Weekly Economic Calendar
| Date | Release | Comments |
| February 24 | Consumer Confidence (02/09) | Worst showing on record (1967) |
| February 25 | Existing Home Sales (01/09) | Dropped to 12-year low |
| February 26 | Durable Goods Orders (01/09) | Lower than expected decline |
| Initial Jobless Claims (02/21/09) | Total claims surge past the 5 million level | |
| New Home Sales (01/09) | Worst level ever reported (1963) | |
| February 27 | GDP – 4 th quarter | Revisions mark worst showing since 1982 |
| The Week Ahead | ||
| March 2 | Personal Income/Spending (01/09) | |
| Construction Spending (01/09) | ||
| ISM Index – Manu (02/09) | ||
| March 3 | ISM Index – Services (02/09) | |
| Fed Beige Book | ||
| March 4 | Initial Jobless Claims (02/28/09) | |
| Factory Orders (01/09) | ||
| March 5 | Unemployment Rate (02/09) | |
| Nonfarm Payroll (02/09) | ||
| Consumer Credit (01/09) |
With Obama stealing much of the limelight, Fed Chair Bernanke attempted to insert himself into the latest debate by issuing a few key policy talks of his own. He told Congress that the recession should end in 2009 and next year should be one of recovery (of course, he also mentioned some substantial risks to his forecasts). Big Ben then tried to quell the ongoing bank rumors (thanks Senator Dodd) by claiming that “nationalization misses the point” and such moves “would be disruptive to the markets.” Finally, he attempted to calm the growing concerns that the exploding deficit and expanding money supply will lead to skyrocketing inflation in the years to come. Bernanke remains confident that the Fed can act quickly to avoid any significant threats of price pressures when the recovery emerges (rather…if the recovery emerges).
When the government initially reported that GDP contracted by 3.8% in the 4 th quarter, some economists raised eyebrows and predicted a revision in the later releases. And a revision is what they got. Now the Commerce Department claims that the economy shrank by 6.2% in the last quarter of 2008, the worst setback since 1982 and a far weaker showing that anyone expected. (How could those analysts at Commerce be so wrong with their first reading? Doesn’t instill much confidence in the other data?) Elsewhere, existing home sales plummeted to its lowest level in almost 12 years, and new home sales plunged to its worst showing ever reported. (Guess, the lower home prices haven’t prompted new buyers or builders to take action?) Consumer confidence also experienced a record-setting month in January (record setting down month, that is) as individuals remained fearful for their jobs and hesitant to hit the malls (or even the Wal-Mart) for anything, but the bare essentials.
On the Horizon…
TGIM (thank goodness it’s March). Unfortunately, that’s what investors were saying when they closed the books on January and times have only gotten worse. The economy is weaker; the markets are lower; consumers are more frightened; and businesses of all shapes and sizes continue to struggle. February brought a comprehensive stimulus package, a blueprint for a complete budget overhaul, and several bailout plans. At some point, these ideas by the smartest men/women the country has to offer have got to start working (don’t they?). Analysts will be working overtime as data from housing, manufacturing, and labor is set to be reported. Bear in mind, in January, the unemployment rate soared to 7.6% and 600,000 jobs were lost from the economy. With companies announcing major layoffs each day, The National Association now predicts the jobless rate to peak at nine percent this year (though the pessimists actually believe that number to be low). Heck, maybe even a positive revision or two are in the cards?
