Market Matters…
“We’re mad as ‘heck’ and are not going to take it anymore.” For the past year, most folks have not known what to make of the subprime debacle, credit crisis, and downturn in the economy. They focused on their tasks at hand, worried about the uncertainties of their jobs, and turned to “experts” like Jim Cramer for market insight and advice. Well, over the past few days, the people have spoken by showing a collective outrage over the $165 million in bonuses paid to AIG professionals who practically brought down the global financial system. Grandstanding politicos took note as the House passed a billed that would impose a 90% tax on these ill-gotten gains (and the Senate worked on their own version). AIG’s CEO Liddy felt the wrath of Congress and promised to ask his employees to return half of their bonuses (seems like the least they can do for ruining the world economies). NY Attorney General Cuomo received a list of the bonus recipients, but resisted posting their names because of threats made on their lives (though one Senator merely suggested suicide). President Obama took the opportunity to chat it up with the American people on Jay Leno, mixing in his personal outrage with a few tips on the NCAA tourney. While the bonuses raised quite the stir, the bigger (less talked about) issue was the $90 billion that AIG paid to domestic and international banks after receiving a federal bailout. In reality, Goldman Sachs and others were bailout beneficiaries themselves, though their identities were hidden through the AIG hardships. (BTW, former Treasury Secretary Paulson and AIG’s Liddy are former Goldman execs...any outrage or potential conflict there?)
While AIG dominated the headlines, life went on in other corporate boardrooms. IBM expressed interest in acquiring Sun Microsystems; Alcoa cuts its dividend to accommodate the reduced demand for aluminum; and Caterpillar announced plans to lay off over 2,000 employees. Meanwhile, GM’s CEO seemed more accepting of a potential bankruptcy restructuring and auto parts suppliers received a $5 billion bailout of their own. On more positive notes, Oracle bucked the recent trend by declaring its first ever dividend after posting better-than-expected quarterly profits, and Barclays PLC looked to sell its profitable ETF biz to stabilize its capital position.
The Fed took steps to add more liquidity into the system (see below) and the markets reacted favorably until investors stepped back to await more details of the plan. Despite reports of higher crude inventories, oil soared back above $50/barrel on news of the upcoming Fed’s actions and the potential effect of devaluing the dollar (a positive for commodities). Likewise fixed income jumped after the Bernanke announcement as the yield on the 10-year treasury fell to around 2.60% and mortgage rates dropped as well (good news for housing?). Equities continued their modest rally early in the week as cautious investors dipped their toes back into the water; inflation data eased some prior concerns that deflation would bring additional hardships on the economy. Some late-week profit-taking ensued as traders debated whether the recent upward move represented a full-fledged rebound or a short-lived bear market rally. The major equity indexes closed with slight gains for the week as traders rushed home to check their brackets, root for their favorite Cinderella, and look for that “well-deserved” bonus check in the mail.
Weekly Economic Calendar
With the fed funds rates hovering around 0%, Bernanke and friends showed that they have more ammunition in the arsenal to help jumpstart the economy. At the recent policy meeting, the Fed announced it intent to purchase up to $300 billion in treasury securities and also plans steps to stabilize the mortgage-backed markets. In the post-meeting statement, the policymakers warned about near-term sluggishness and higher unemployment, but offered some confident comments that the enhanced consumer activity would help in the months to come. Dr. B. even took his “optimistic” message directly to the people by appearing on 60 Minutes, where he again projected an end to the recession within 2009. (Next stop…Jay Leno?)
The data of the week did more to confirm the near-term sluggishness than the optimistic recovery outlook. Industrial production, a measure of manufacturing activity, dropped in February for the fourth straight month and stands at the worst level in 50 years. While housing starts increased after seven consecutive months of declines, the eternal pessimists point out that construction activity remains almost 50% below last year’s levels. Still, all regions of the country (outside of California and other western states) reported stronger activity as construction of new homes and apartments surged over 20% in February. Total claims for jobless benefits climbed to the highest level on record as workers continued to move to the unemployment lines in droves and, unfortunately, they are staying there for longer than normal periods of times. On the inflation front, PPI rose for the second straight month as energy prices climbed in February and those early fears of deflation continued to subside. CPI, the retail inflation gauge, also rose as drivers have begun spending a bit more at the pumps (just in time for those spring break travels).
On the Horizon…
After initially reporting 4 th quarter GDP as down 3.8%, the Commerce Department dramatically revised its estimate last month to reflect a loss of 6.2%, the worst showing for the economy since 1982. Do-over number two will be reported in the days ahead and some economists fear the next revision will be even worse. Housing will be highlighted in the upcoming data as both new and existing home sales for February are set to be announced. After a nice rebound in construction activity, some analysts are hopeful that the decline in home prices and a provision within the stimulus package ($8,000 credit for first time homeowners) may have brought some buyers back to the table and able to recognize the American Dream. The AIG fiasco returns as Treasury Secretary Geithner next faces the rage of Congress whose heartfelt indignation (always after-the-fact) should play well to constituents at home (and the C-SPAN audience). Dems will be out to prove how tough they can be, while Republicans will be sure to place blame on the current administration (despite the fact that much of the AIG bailout was approved long ago). Meanwhile, the NCAA tourney moves forward, thus, shifting the country’s short attention span from AIG to their own (and Obama’s) brackets. Hook Em!!!
Ron Brounes
www.ronbrounes.com
“We’re mad as ‘heck’ and are not going to take it anymore.” For the past year, most folks have not known what to make of the subprime debacle, credit crisis, and downturn in the economy. They focused on their tasks at hand, worried about the uncertainties of their jobs, and turned to “experts” like Jim Cramer for market insight and advice. Well, over the past few days, the people have spoken by showing a collective outrage over the $165 million in bonuses paid to AIG professionals who practically brought down the global financial system. Grandstanding politicos took note as the House passed a billed that would impose a 90% tax on these ill-gotten gains (and the Senate worked on their own version). AIG’s CEO Liddy felt the wrath of Congress and promised to ask his employees to return half of their bonuses (seems like the least they can do for ruining the world economies). NY Attorney General Cuomo received a list of the bonus recipients, but resisted posting their names because of threats made on their lives (though one Senator merely suggested suicide). President Obama took the opportunity to chat it up with the American people on Jay Leno, mixing in his personal outrage with a few tips on the NCAA tourney. While the bonuses raised quite the stir, the bigger (less talked about) issue was the $90 billion that AIG paid to domestic and international banks after receiving a federal bailout. In reality, Goldman Sachs and others were bailout beneficiaries themselves, though their identities were hidden through the AIG hardships. (BTW, former Treasury Secretary Paulson and AIG’s Liddy are former Goldman execs...any outrage or potential conflict there?)
| Market/Index | Year Close (2008) | Qtr Close (12/31/08) | Previous Week (03/13/09) | Current Week (03/20/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 8,776.39 | 7,223.98 | 7,278.38 | -17.07% |
| NASDAQ | 1,577.03 | 1,577.03 | 1,431.50 | 1,457.27 | -7.59% |
| S&P 500 | 903.25 | 903.25 | 756.55 | 768.54 | -14.91% |
| Russell 2000 | 499.45 | 499.45 | 393.09 | 400.11 | -19.89% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.24% | 2.89% | 2.63% | +39 bps |
While AIG dominated the headlines, life went on in other corporate boardrooms. IBM expressed interest in acquiring Sun Microsystems; Alcoa cuts its dividend to accommodate the reduced demand for aluminum; and Caterpillar announced plans to lay off over 2,000 employees. Meanwhile, GM’s CEO seemed more accepting of a potential bankruptcy restructuring and auto parts suppliers received a $5 billion bailout of their own. On more positive notes, Oracle bucked the recent trend by declaring its first ever dividend after posting better-than-expected quarterly profits, and Barclays PLC looked to sell its profitable ETF biz to stabilize its capital position.
The Fed took steps to add more liquidity into the system (see below) and the markets reacted favorably until investors stepped back to await more details of the plan. Despite reports of higher crude inventories, oil soared back above $50/barrel on news of the upcoming Fed’s actions and the potential effect of devaluing the dollar (a positive for commodities). Likewise fixed income jumped after the Bernanke announcement as the yield on the 10-year treasury fell to around 2.60% and mortgage rates dropped as well (good news for housing?). Equities continued their modest rally early in the week as cautious investors dipped their toes back into the water; inflation data eased some prior concerns that deflation would bring additional hardships on the economy. Some late-week profit-taking ensued as traders debated whether the recent upward move represented a full-fledged rebound or a short-lived bear market rally. The major equity indexes closed with slight gains for the week as traders rushed home to check their brackets, root for their favorite Cinderella, and look for that “well-deserved” bonus check in the mail.
Weekly Economic Calendar
With the fed funds rates hovering around 0%, Bernanke and friends showed that they have more ammunition in the arsenal to help jumpstart the economy. At the recent policy meeting, the Fed announced it intent to purchase up to $300 billion in treasury securities and also plans steps to stabilize the mortgage-backed markets. In the post-meeting statement, the policymakers warned about near-term sluggishness and higher unemployment, but offered some confident comments that the enhanced consumer activity would help in the months to come. Dr. B. even took his “optimistic” message directly to the people by appearing on 60 Minutes, where he again projected an end to the recession within 2009. (Next stop…Jay Leno?)
| Date | Release | Comments |
| March 16 | Industrial Production (02/09) | Worst showing for manufacturing on record |
| March 17 | Housing Starts (02/09) | Surprisingly high jump in activity across the country |
| PPI (02/09) | 2 nd consecutive monthly increase eased deflation worries | |
| March 18 | CPI (02/09) | Largest jump n consumer prices in 7 months |
| Fed Policy Meeting Statement | Buying up to $300 billion in treasuries | |
| March 19 | Initial Jobless Claims (03/14/09) | Surprising drop in claims, though still at high levels |
| Leading Eco. Indicators (02/09) | Decline in index not as bad as expected | |
| The Week Ahead | ||
| March 23 | Existing Home Sales (02/09) | |
| March 25 | Durable Goods Orders (02/09) | |
| New Home Sales (02/09) | ||
| March 26 | Initial Jobless Claims (03/21/09) | |
| GDP – 4 th qtr (final) | ||
| March 27 | Personal income/Spending (02/09) |
The data of the week did more to confirm the near-term sluggishness than the optimistic recovery outlook. Industrial production, a measure of manufacturing activity, dropped in February for the fourth straight month and stands at the worst level in 50 years. While housing starts increased after seven consecutive months of declines, the eternal pessimists point out that construction activity remains almost 50% below last year’s levels. Still, all regions of the country (outside of California and other western states) reported stronger activity as construction of new homes and apartments surged over 20% in February. Total claims for jobless benefits climbed to the highest level on record as workers continued to move to the unemployment lines in droves and, unfortunately, they are staying there for longer than normal periods of times. On the inflation front, PPI rose for the second straight month as energy prices climbed in February and those early fears of deflation continued to subside. CPI, the retail inflation gauge, also rose as drivers have begun spending a bit more at the pumps (just in time for those spring break travels).
On the Horizon…
After initially reporting 4 th quarter GDP as down 3.8%, the Commerce Department dramatically revised its estimate last month to reflect a loss of 6.2%, the worst showing for the economy since 1982. Do-over number two will be reported in the days ahead and some economists fear the next revision will be even worse. Housing will be highlighted in the upcoming data as both new and existing home sales for February are set to be announced. After a nice rebound in construction activity, some analysts are hopeful that the decline in home prices and a provision within the stimulus package ($8,000 credit for first time homeowners) may have brought some buyers back to the table and able to recognize the American Dream. The AIG fiasco returns as Treasury Secretary Geithner next faces the rage of Congress whose heartfelt indignation (always after-the-fact) should play well to constituents at home (and the C-SPAN audience). Dems will be out to prove how tough they can be, while Republicans will be sure to place blame on the current administration (despite the fact that much of the AIG bailout was approved long ago). Meanwhile, the NCAA tourney moves forward, thus, shifting the country’s short attention span from AIG to their own (and Obama’s) brackets. Hook Em!!!
Ron Brounes
www.ronbrounes.com
