REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR WEEK ENDED JULY 10 2009

 

 

 

 

Market Statistics                   52 week
            Low High
Dow Jones (134.22points) (1.62%) to 8146.52   6,547.05 13,058.20                                             
Nasdaq (40.49 points) (2.25%) to 1756.03   1,268.64 2,549.94
S&P 500 (17.29points) (1.93%) to   879.13      676.53 1,426.63
Crude Oil ($6.84/barrel) (10.25%) to $59.89   $33.87 $145.29
Gold ($18.50/oz) (1.99%) to $912.20   $704.90 $1,001.80
10 Year Tsy (0.250%) to 3.297%   2.04% 4.32%
             
             

 

 

                                                                                                      

 

 

 

 

 

 

 

 WALL ST JOURNAL

 

 

 

 

OVERVIEW:

There was a recurring theme last week in the continued decline in the stock market which really was a continuation of the previous week in that there will not be a sustained recovery anytime soon ,if there is one by strict economic definitions it will be a ‘jobless” one where unemployment will remain at or close to double digits into 2010 and that we are in for a long haul with lackluster economic growth. Sounds like a broken record doesn’t it?

That is because as we have said time and again, the consumer will not lead us out of the recession until house prices recover, jobs are created and consumers feel confident enough to spend rather than save. Banks need to lend to small and medium size businesses which are the backbone of the economy and the economy must have resources  focused in the short term more on growth not entitlement programs, however socially desirable they are.

 The key questions floated this week are:

  • Do we need a second stimulus package since the first has not worked to date?

The prevailing sentiment is a no for two different reasons. One, that the first stimulus funds would not be felt until 2010,so give it a chance. Two, since the first will not work anyway as it is not focused on job creation, why increase the deficit even more ?

  • Is the Obama Administration taking on too much too soon?

Between the Stimulus, Healthcare and Climate Control, is the Government not focusing sufficiently on ensuring economic recovery before it addresses the other issues? We are on the side of a more limited program where the economic and political capital required is much more concentrated  on the economic recovery.  We understand the argument that they are all critical ,but you cannot have success in the latter two without achievement in the first.

 

We have talked ad nauseam about our concerns regarding the Banking sector and particularly the huge amounts of toxic assets on bank’s balance sheets (estimated at between $2-$4 trillion).Earlier this year the Government announced a plan called ‘PPIP’(Public-Private Investment Program) designed to take up to $1 trillion of toxic assets of banks balance sheets. The Program was unveiled this past week with the amount now down to $40 billion! Both it’s  reduced size and  expected reluctance of banks to participate (what’s their incentive with suspended mark to market rules?) renders any attempt to address the toxic securities, too little too late.

 

STOCKMARKET:

All of the above led the broad averages down heavily for a second consecutive week as  the major indexes stayed below their 50 day moving averages. Eyes were mostly focused on the coming week’s second quarter earnings reports as an indicator of performance in this difficult economy. What is of greater significance for the market is not what has happened but where companies will guide in terms of future performance over the subsequent quarters. That’s where investors will focus.

 

COMMODITY MARKET:

All commodities were under selling pressure this past week as risk aversion was the underlying tone in the financial markets, which shows up in selling equities and commodities; buying the US$ and Treasuries. Oil was particularly affected by the Commodity Futures Trading Commission (Commodity Regulator) focus on the speculative impact on the huge run up in oil prices this year (34.3%) and it’s recommendation for proposed limits on such speculative trading.

 

CREDIT MARKET:

 Strong demand in the auctions (safe haven effect) pushed 10 year Treasury yields down for the week. The Wednesday 10 year auction saw the biggest demand since 1995.As recently as one month ago the yield went over 4% and so if there is any positive news it is that a likely continued lower yield would help mortgages and help with home refinancings.

 

 

 

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