Posts Tagged ‘Finance’

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

August 17, 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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REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR WEEK ENDED AUGUST 7 2009

August 10, 2009

 

 

 

 

Market Statistics                  52 week
            Low High
Dow Jones +198.46 points +2.16% to 9,370.07   6,547.05 13,058.20                                             
Nasdaq +16.13   points +1.01% to 1,619.49   1,268.64 2,549.94
S&P 500 +23.00   points +2.33% to  1,010.48      676.53 1,426.63
Crude Oil +$1.48/barrel +2.13 % to  $70.93   $33.87 $145.29
Gold +$3.60/oz +0.38% to  $957.30   $704.90 $1,001.80
10 Year Tsy +0.10% to 3.852%   2.04% 4.32%
             
             

 

 

 

 

 

 

 

 

 

 

OVERVIEW

 What  an amazing ride this has been these past weeks! Despite our continued skepticism in our previous blogs about what we see as weak market fundamentals

not justifying the surge in prices ,the markets continue to defy what we thought was a logical analysis of the economy. In our June 5 blog we opened with a quote attributed to John Maynard Keynes which deserves repeating here:

“The market can stay irrational longer than you can stay solvent”.

Like everyone else, we too have read all the prognostications from respected market observers effectively signaling the end of the recession by years end, pointing to all the economic data as justification. We produced a list of issues we have been greatly concerned about and despite the big market moves,none of them have been effectively addressed. At the risk of repetition they are from our July 17 blog:

  • Serious damage to consumer equity which will take time to repair.
  • Unemployment which will continue to rise.
  • Toxic assets on Bank’s balance sheets which have not been effectively addressed.
  • Deterioration in the Commercial mortgage sector.
  • Stress on States with large Budget Deficits.
  • Rising National Budget Deficit due to the Stimulus Package, funding for Afghanistan and Iraq and declining tax revenues tied to the recession.
  • Economic impact of proposed legislation on Health Care and Climate Control .

We’ll keep pointing them out, even as the market continues to rise!

 

STOCK MARKET.

A myriad of positive news propelled the broad based market increases this past week, whether it was the success of the ‘Cash for Clunkers Program’, better than expected factory orders, fewer jobs cuts in July than June, drop in new claims for jobless benefits etc, etc. Goldman Sachs, on top of all the news, declared U.S stocks as having entered a new bull market with the S&P in a range of 1,050-1,100 toward year end. We have no idea how high this new up phase in the markets will go, we do believe that, while it is on the upward part of an apparent ‘V’ shape, there will be a significant retreat below that which would represent even the downward leg of the ‘W’.

We are now still in the “relief rally” and far from any positive growth/earnings news as opposed to “less bad”, we still have the issues bullet pointed above that are going to hit and create a return to reality, perhaps not challenging the  52 week lows ,but nevertheless a significant retracement.

 

COMMODITY MARKET;

Just as the confidence levels have returned to the stock market, so the move away from risk averse assets such as Treasuries  into commodities has accelerated. Whenever economic optimism grows, so do prices ,particularly of industrial metals such as Copper, Palladium, Platinum and Silver. Gold continued to increase although oil fell of it’s six week highs.

 

CREDIT MARKET:

We have talked in the past about the importance of the 10 year Treasury on mortgage rates. The rise in this rate over the past weeks has been because of the brightening economic outlook as well as the increased supply of debt coming to market. It could well test the 4% level soon and have a significant impact on any housing market recovery due to rising mortgage costs.

John Jacobs

 

 

 

 

 

 

 

 

 

 

REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR WEEK ENDED JULY 24 2009

July 27, 2009
Market Statistics                   52 week
            Low High
Dow Jones +349.30   points +3.99% to 9093.24   6,547.05 13,058.20                                             
Nasdaq +79.35     points +4.21% to 1965.96   1,268.64 2,549.94
S&P 500 +38.88     points +4.13% to   979.26      676.53 1,426.63
Crude Oil +$3.47/barrel +5.37% to $68.05   $33.87 $145.29
Gold +$15.60/oz +1.66% to $952.80   $704.90 $1,001.80
10 Year Tsy +0.020% to 3.671%   2.04% 4.32%
             
             

 

 

                                                                                                      

 

 

 

 

 

 

 

 

WALL ST JOURNAL

 

 

 

OVERVIEW:

 

We could almost replicate our blog of last week.  It was another strong performance, in terms of how the markets reacted to continued “good news” on the earnings front. Even when there was disappointing earnings news, as with Microsoft and Amazon, the markets stayed remarkably resilient. Let’s remember however that earnings expectations were set  low to start with and so any improvement was likely to result in cash sitting on the sidelines being deployed into the equities markets.

 

 CIT obtained $3 billion  financing from it’s bondholders, giving it breathing space, rather than any long term security and  justified the Administrations strategy not  have it come under the “too big to fail category” with the resultant taxpayer rescue package.

 

In keeping with our “let’s not pop the champagne just yet” mentality, the economy at large, as well as the States  and the financial institutions , remain of great concern to us ,despite all the euphoria in the press this past week. We have spoken at length in previous blogs about the continued weakness of the consumer and the negative drag to any future growth, so we won’t repeat that here( we listed seven areas of concern only last week about the economy at large).

 

 Fed Chairman Bernanke’s testimony before the Senate Banking Committee this past week rightly addressed the concern of rising unemployment, which if not addressed, would inhibit any recovery, which, by general consensus was likely  to be modest, at best. One of the companies we feel  indicates which way the economy is going, is UPS. This past week, it’s CFO gave a sobering  indication of where the company was and is likely to go. In a conference call Kurt Kuehn stated that there was no material uptick in growth in July and questioned when business activity was likely to strengthen. He indicated that “The business environment in the third quarter should be similar to the second quarter”.

 

State tax collections, according to the Rockerfeller Institute of Government, fell 11.7% in the first quarter, compared to the same period last year, the sharpest decline since records began 46 years ago. Revenues declined in 47 of 50 states and an early look at the second quarter indicates a drop near 20%. This has significant implications for states in terms of cutting back on spending and/or raising local taxes.

 

From the Banking perspective ,we continue to be concerned, particularly with respect to the deteriorating quality in the  residential and commercial loan portfolios. We question whether the latter has been effectively addressed by the sector, in terms of adequate loan loss allowances to cover non performing loans.

 

STOCK MARKET:

Another 2009 milestone was reached this past week, as the Dow crossed the 9000 mark and more importantly, held there. With the huge gains of the past two weeks all of the major indexes are in positive territory for the year, with the tech laden Nasdaq the most impressive performer up 24.7% .Even with this, it is still 20.5% below it’s 52 week high. The Dow and S&P have even more ground to make up.

Goldman Sachs added to the positive mood in the markets, by raising it’s S&P forecast from 940 to 1060,based on earnings improvement driving a second half rally (the Index having passed the initial forecast anyway). We should also note an unusually large bearish options position was placed this past week, by one trader (believed to be $10 mill) fearing the S&P benchmark ETF could suffer significant losses between now and December.

 

COMMODITY MARKET:

As in the previous week, the commodity markets were beneficiaries, along with the stock market, of funds moving out of risk averse assets into these higher risk ones. Crude oil is now up 52.58% for the year while gold a much more modest 7.83%.

 

 

CREDIT MARKET:

The market held up quite well this past week as money poured into equities and commodities. This coming week, however, will be a big test for the credit market ,with a record amount of new debt being offered ,amounting to $200 billion. If the increase in  risk appetite carries over from the past two weeks ,then we are going to see higher yields by week’s end.

 

John Jacobs.

 

REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR WEEK ENDED JULY 17 2009

July 20, 2009

 

 

 

 

Market Statistics                   52 week
            Low High
Dow Jones +597.42  points +7.33% to 8743.94   6,547.05 13,058.20                                             
Nasdaq +130.58  points +7.44% to 1886.61   1,268.64 2,549.94
S&P 500 +61.25  points +6.97% to   940.38      676.53 1,426.63
Crude Oil +$3.67/barrel +6.13% to $63.56   $33.87 $145.29
Gold +$25.00/oz +2.74% to $937.20   $704.90 $1,001.80
10 Year Tsy +0.354% to 3.651%   2.04% 4.32%
             
             

 

 

                                                                                                      

 

 

 

 

 

 

 

 

 

 

WALL ST JOURNAL

 

 

 

OVERVIEW:

Take a deep breath and hold onto that smile after the sizeable gains in all the “at risk’’ investments this past week, but keep the indigestion tablets nearby.

We said last week that eyes would be on second quarter earnings reports and the “big names” did not disappoint a market looking for good news. Goldman Sachs in the financials and Intel/IBM in the technicals reported strong results and positive guidance. The credit card issuers reported lower delinquencies in June, leading to a big rise in shares of American Express and others for the week.

Those investors moving back and forward between risk aversion and increased risk appetite threw caution to the wind and bought up equities and commodities and moved out of Treasuries.

 We really aren’t gloom and doom (you might think otherwise after our previous blogs), but we continue to be concerned about the dark clouds out there. While it is perhaps no longer the “Day After Tomorrow” scenario, it’s also not clear blue skies and calm sailing, just because of the past week. We have talked about the following issues and they still loom large over the economy:

  • Serious damage to consumer equity which will take time to repair.
  • Unemployment which will continue to rise.
  • Toxic assets on Bank’s balance sheets which have not been effectively addressed.
  • Deterioration in the Commercial mortgage sector.
  • Stress on States with large Budget Deficits.
  • Rising National Budget Deficit due to the Stimulus Package, funding for Afghanistan and Iraq and declining tax revenues tied to the recession.
  • Economic impact of proposed legislation on Health Care and Climate Control .

 

We believe there is still a disconnect between market optimism and reality of the  economic fundamentals.

 

STOCK MARKET:

The numbers speak for themselves in the strength across the board , the best since March. The unknown last week was whether CIT, a key lender to small and medium size businesses was going to be able to avoid bankruptcy, as it did not appear to fall in to the Government’s “too big to fail” category with respect to systemic risk. While it may not fall within the definition, the financial impact on the business sector which is the driver for economic recovery will be significant.

Where are the markets after such a huge week? They are still in negative territory for the year albeit in single digits. The momentum of last week is likely to carry through for part of this week, but we cannot see any significant forward movement .

 

COMMODITY MARKET:

As the good news poured in last week, the commodity sector shared in the appetite for more risk .But just as the stock market rose in the face of concerns we have raised above, so have the commodity markets, particularly in the light of likely continued  weak demand .How long does the momentum last ?We haven’t a clue ! We do know that as is typical in these  markets, the pros will be out just as the smaller players buy in.

 

CREDIT MARKET:

Treasury prices  fell (yields rose)  as investors moved away from  risk averse assets into equities and commodities, reversing the trends of the past month. With no major auctions this week, any movements will be reflective of the equities and commodities.

 

John Jacobs