April 9, 2010Market Matters…
How low the mighty have fallen. Just a decade or so ago, the names (Alan) Greenspan and (Robert) Rubin were synonymous with genius as these masters of finance were considered among the brightest and sharpest economic minds the country had to offer. Now, following the debacle of the past few years, the former Fed Chair (AG) and treasury secretary (RR, not to mention past Goldman Sachs and Citigroup head) found themselves facing the wrath of an investigative panel over their roles in the crisis and what they knew (or should have known) about the events leading up to the global collapse. Greenspan played the blame game and pointed to virtually everyone but himself (ratings agencies, speculators, international investors, etc.), while Rubin did his best Sergeant Schultz (Hogan’s Heroes) imitation by applying the “I know nothing” defense. While Greenspan and Rubin tried (in vain) to save their discredited reputations, more signs of recovery emerged. Same-store sales rose 9.1% in March, the best showing ever recorded, as consumer sightings were prevalent across the retail spectrum. Improved weather and an early Easter helped lift the shopping data as Target, JC Penney, and Kohl’s (among others) all raised their first-quarter forecasts. Wal-Mart didn’t participate in the survey, but announced a new price-cutting campaign as it tries to recover from a few months of weaker sales. In other news, GM posted a $4.3 billion loss, but management indicated a return to profitability could be just a few quarters away and the automaker expects to repay its government loan (bailout) early by June. Apple launched its new iPad and enjoyed sales that met all but the most optimistic projections. Struggling US Airways and United (UAL) seemed to be reconsidering a merger, though analysts view Continental as a better potential partner for United (though most think any airline merger idea is a bad one from the start). Finally, in the “the more things change, the more they stay the same” category, financial institutions (i.e. Goldman, Morgan Stanley, Citi, Bank of America, JP Morgan) are accused of misleading investors and regulators by showing lower levels of debt for reporting purposes, and then increasing firm borrowings just days later. Oil prices continued the recent upward trek and even pushed close to $87/barrel before reversing course on a surprisingly large inventory report that implied continued weakness in demand. On the other hand, with the peak driving period of summer rapidly approaching, escalating gas prices take on even greater significance. Fixed income investors were greeted (again) by an abundance of new treasury supply ($82 billion), though the ongoing concerns in Greece (see below) and some well-timed Fed comments aided the auction results. After briefly trading above 4% for the first time since October 2008, the yield on the benchmark 10-year treasury note fell again on “safe-haven” perceptions. The Dow made another ever-so-close push to 11,000 as analysts remained optimistic about the upcoming earnings season and investors welcomed the return of the consumer. Thomson Reuters projected a solid 36% increase in S&P 500 companies’ earnings over last year’s level, though some analysts contend that the strong forecast is already built into equity prices. Anyone care what Greenspan and Rubin think these days? Doubt it. Economic Calendar
As goes Greece, so goes the rest of the world (or not). Still, the small country seems to be “enjoying” its prolonged day-in-the-sun as its tiny, but struggling economy makes unwanted headlines daily. First…the EU/IMF bailout is supposed to provide the backdrop for a nice safety net as the government tries to get his house in order. Then…the vagueness of the bailout plan scared away investors and new liquidity concerns emerged among the private banking system. Then…Fitch downgraded the country’s debt to the lowest investment grade, just in time for it to try to raise additional funds (now at a higher cost). Finally…the Greek finance minster tried to provide a calming voice to the hysteria by contending that any rescue plan is not yet needed, but final terms will be worked out shortly. (Somewhere, Portugal and others are watching closely.) While his predecessor was taking a nice grilling (see above), Dr. Bernanke returned to the limelight and sounded a bit like a man hedging his bets on the economy (or simply worried about being called before an investigative panel down the road). Regarding housing…"We are far from being out of the woods; many Americans are still grappling with unemployment or foreclosure or both." He added that while labor seems to be improving, the unemployment rate remains at its highest level since the early 1980s. Bernanke also addressed the escalating debt problem in the country, warning about the challenges of an aging population and how increased health care costs will add to the ongoing budgetary challenges. And yet, despite some cautious words, the Fed’s policy meeting minutes revealed an optimistic tone about the recovery and expressed concern that hiking interest rates too soon could hinder its continued path of growth. Elsewhere, a few fed officials engaged in an inflation policy debate; some believe price pressures are well contained, while others (or, at least, one other) fear the situation is more dire than meets-the-eye as depressed housing costs cover-up the true inflation picture. The CEO Business Roundtable released survey results that shows 29% of execs expect to hire workers over the next six months, while only 21% predict labor contraction within their firms. These results mark the first time since first quarter 2008 that more CEOs predict such jobs increases. In other news, the March ISM services index climbed at its fastest pace since January 2008, depicting growth in non-manufacturing sectors. Consumer credit fell in February as individuals continue to trim back debt and improve their overall budgetary conditions (either for fear of job loss or simply more frugal spending habits). Jobless claims rose unexpectedly in the latest week though analysts claim Easter holiday adjustments are always difficult to project. On the Horizon…With analysts relatively optimistic about the season, Alcoa (4/12) is now on the earnings’ clock and companies across various industries will be quick to follow: Intel (4/13), JP Morgan Chase (4/14), Google (4/15), Bank of America (4/16), GE (4/16). Inflation (CPI) and retail sales highlight the data of the upcoming week and expect analysts to keep a watchful eye on Greece and the EU for results of bond issues. Any additional word hedging, Dr. B.? Brounes & Associates is a Houston-based consulting/marketing firm that performs research, marketing, and education projects for financial services companies and other professionals. “And That’s the Week That Was” is a weekly market/economic commentary that is distributed each Friday afternoon. Any financial professionals who have interest in rebranding the piece and sending to their investors should inquire to:
Ron Brounes 713-962-9986 (Direct) (c) Brounes & Associates
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