AND THAT’S THE WEEK THAT WAS…

For the Week Ended June 26, 2009

Market Matters…         

“Hell has no wrath like a ‘grandstanding Congressman/woman’ scorned.”  Federal Reserve  Chairman Ben Bernanke faced such wrath as he was peppered with confusing question after stern comment after harsh lecture by blood-thirsty politicos (many of whom did not seem to truly comprehend what they were saying).  “Gentle” Ben remained true to his name and responded with poise, while insisting that the Fed did not exert any pressures on CEO Ken Lewis to move forward with the Bank of America/Merrill Lynch transaction.  Despite insinuations that he was a liar, a meddler, a betrayer of the American people, Bernanke confidently discussed the “significant systematic risks” the global financial system faced at the time.  His performance may have even served as a campaign play for another term in office. (Does Obama watch CNBC?)   

In non-financial news, Boeing struggled through a miserable week as it postponed testing of the new 787 Dreamliner aircraft and also lost orders from Qantas Airways as the entire industry continued to suffer the ill-effects of the economic downturn on travel.  Apple Inc. reported better than expected early sales of its new iPhone 3G and appeared close to welcoming its fearless leader, Steven Jobs, back to work.  Tech giant Oracle announced declining profits, but offered favorable forecasts for the current quarter and beyond.  Likewise, retailer Bed Bath and Beyond experienced a surprisingly strong quarter, a nice sign that the ailing consumer may be showing renewed life.  State owned Sinopec Group is attempting to purchase Swiss-based Addax Petroleum for $7.2 billion in what would be the largest global acquisition by a Chinese company. 

Investors breathed a collective sign of relief when the final leg of the record $104 billion treasury auction came to a close and interest rates had not soared through the roof.  Instead, institutions and sovereign funds seemed to maintain a hearty appetite for US government securities, despite rumors to the contrary.  In recent weeks, naysayers have been predicting that foreign buyers would shun domestic fixed income as the ballooning deficit spiraled out of control with new expensive programs to cure all that ailed the country.  For the time being, at least, treasuries remain a safe-haven investment and the yield of the benchmark 10-year even fell to around 3.5%. 

From an equity standpoint, investors remain confused about the future direction of the markets and whether to ride the prior upward trend or take profits from that 30%+ run-up in anticipation of a return to the lows set in early-March.  Some believe the indexes will trade sideways for the foreseeable future.  The Dow lost ground (thanks in large part to Boeing), while other major indexes closed relatively flat from the prior week’s levels.  Despite a bit of volatility, oil hovered neared $70/barrel and gas prices fell (slightly) for the first time in almost two months.  While the economic numbers appear to be getting stronger (see below), many investors want to see more than just “less” contradiction or “slower” weakness in the economy and various sectors.  Many believe that the “worst of times” may be over, but the “best of times” may still be far away.  Some even approve of the job Bernanke is doing (despite what their elected reps are saying).

Weekly Economic Calendar

A Congressional tongue-lashing didn’t keep Dr. B. and his crew from completing their business at hand.  The policy meeting provided few surprises as the Fed left the funds rate unchanged at (virtually) 0% and announced that no rate changes seem likely in the near-term.  The Fed also confirmed its intent to buy $1.45 trillion in mortgage-related securities and $300 billion in treasuries, though made no commitment to purchase more than that previously announced amount.  The accompanying statement depicted an economy that remained weak, but seemed to be exhibiting some signs of rebounding (ever so slightly).  For the time being, inflation (or even deflation) does not appear to be of major concern.  The policymakers also continued to apprise the public on the success of the various “stimulus” actions and announced the closing of several lending programs that they no longer deem necessary. 

The World Bank slashed its forecast for global growth (rather, contraction) from its prior prediction in March and claimed that activity would be the worst on record.  By contrast, the Paris-based Organization for Economic Cooperation and Development reported that the “worst may soon be over” and revised its economic forecast to more favorable terms for the first time in two years.  Among weekly releases, new home sales declined in May and existing home sales rose less than expected as much of the buying centered around distressed sales and foreclosures.  The median price of an existing home purchased in May was over 16% below last year’s level.  Higher durable goods orders lent some confidence to manufacturers as activity rose for the second consecutive month.  Personal income and spending both increased in May and the administration is quick to praise the benefits of the stimulus package.  However, the savings rate also climbed to its highest level in 15 years as consumers remain uncertain about the economy in general and their job situations in particular.  On a bright note, the Reuters/U of Michigan Sentiment index increased to its highest level since February 2008.  GDP in the first quarter was revised again to -5.5% (from -5.7% reported last month), a positive sign, though impatient economists and investors alike seem ready for even better (positive) data in the quarters to come.    

On the Horizon…A holiday-shortened trading week provides investors with an array of key statistics ranging from manufacturing to housing to labor. Prez Obama, who once predicted unemployment to peak at 8%, now seems to believe 10% is a foregone conclusion.  The (slight) reprieve at the pumps should be welcome relief for travelers heading into the holiday weekend.  The quarter (and half year) comes to an end and institutions will be performing some last-minute window-dressing to position their portfolios for reporting and to prepare for the periods to follow.  Finally, Bernie Madoff learns his ultimate fate (and just in time for his 4th of July vacation).  

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

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