REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR WEEK ENDED AUGUST 7 2009

REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR

WEEK ENDED  AUGUST 14 2009.

 

 

 

 

Market Statistics                  52 week
            Low High
Dow Jones (48.67 points) (0.52%) to 9,321.40   6,547.05 13,058.20                                             
Nasdaq (7.91   points) (0.49%) to 1,611.58   1,268.64 2,549.94
S&P 500 (6.39   points) (0.63%) to  1,004.09      676.53 1,426.63
Crude Oil ($3.42/barrel) (4.82 %) to  $67.51   $33.87 $145.29
Gold ($10.30/oz) (0.80%) to  $947.00   $704.90 $1,001.80
10 Year Tsy (0.294%) to 3.558%   2.04% 4.32%
             
             

 

 

 

 

 

 

 

 

 

 

 

 

OVERVIEW:

We heard the same rhetoric this week  that we have been hearing for some while now, that the economy is no longer in a tailspin, that it appears to be leveling out rather than declining at a slower rate and that we appear to be moving into the recovery stage, albeit at a slow rate with continued high unemployment.

Our previous weekly blogs have been emphasizing our belief that without effectively addressing some fundamental issues, far from seeing an economic recovery, however tepid, we can see the economy falling back into a recession sooner rather than later.

Weakness in the banking sector, (another of our concerns ),particularly at the regional level , was highlighted last Friday with the closure by the FDIC of Colonial BancGroup, AL, the sixth largest bank failure in US history and by far the largest this year. With $25 billion in assets ,the closure is estimated to cost the FDIC trust fund $2.8 billion.

We do not envy the Administrations task, because there is a fine line between managing a sustainable recovery without overshooting and creating high inflation and taking action to stop another freefall into a recession.

Why do we continue to be the ‘downers’ in what has been a clear recovery away from the near collapse of the financial system last year? It is because, it is not enough to have enacted a stimulus plan (which in any event, we consider too slow to trickle down to spur growth and have too little emphasis on job creation at the expense of entitlements) without addressing the core issues we keep listing in our weekly blog.

Bill Clinton’s famous phrase that was effectively used in the  1992 Presidential campaign against George H.W. Bush  “It’s the Economy, Stupid”, may come  back to haunt the Democrats in the 2010 mid term elections where there are 36 of 100 Senate seats being contested, as well as the next Presidential election in 2012.

At the moment we can say “It’s the Consumer, Stupid” and there will be no recovery without the consumer feeling better about daily issues such as housing, employment ,taxes, stock market stability which need to improve and be sustainable for consumer spending to recover.

 

STOCKMARKET:

 The declines, albeit modest in all the major indexes, reflected the concern we referred to above, namely about consumers. The latest index of consumer sentiment, from Reuters/University of Michigan last Friday showed a drop from 66 in July to 63.2 in August (consensus was 68.5). This followed weaker than expected retail sales for July (down 0.1%) after rising 0.8% in June (consensus was 0.7% gain).

 

COMMODITY MARKET:

 As confidence in any meaningful economic recovery waned this past week, so did investor appetite for commodities, which typically they have been turning to as a hedge against inflation and as their appetite for more riskier assets increased. With nothing to change this past weeks scenario, at least in the short term, we should expect to see further declines in prices of oil/gold as investors move back to less riskier assets such as Treasuries.

 

CREDIT MARKET:

 As the markets absorbed the auctions this past week, prices rose modestly (yields inversely declining ). To the extent we continue to see a weaker economic picture continuing ,with equities and commodities declining, we should see continued movement into the ‘safe haven’ assets with the US Dollar rising; Bond demand rising and it’s  yields continuing to fall.

 

John Jacobs 

 

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