AND THAT’S THE WEEK THAT WAS…

For the Week Ended March 13, 2009

Market Matters…         

What’s that…A faint trace of optimism in the sea of ongoing negativity?  For weeks, investors have claimed that plenty of cash remains on the sideline as they wait for some catalysts to give them reason to jump back into the markets.  Well…Citigroup announced that its first quarter would actually show positive earnings (and other financials followed with similar projections); AND GM claimed that it may NOT need another $2 billion government loan (for now); AND a few business mergers moved forward (within Big Pharma), indicating that some confidence may be returning to the boardrooms; AND rumors of positive revisions to a couple of regulatory issues (uptick rule, mark-to-market accounting) could help limit short-selling activity and improve banks’ balance sheet; AND the week’s economic data depicted a (slight) rebound in retail sales and a decline in the trade deficit (see below); AND the wheels of justice may be working as Ponzi-schemer Bernie Madoff headed off to serve a potential 150-year jail sentence that could leave him 220 when he gets out (and too old to enjoy his stolen retirement nest-egg); AND a voice for the “little guy” emerged as comedian Jon Stewart blasted CNBC and Mad Money’s (often hyper) star Jim Cramer over poor financial reporting and the disservices they provide for viewers.  The catalysts investors have been desiring?  Or a few more false signs that derailed the continuous bearishness for just a few days?  Time will tell (but a welcome relief just the same). 

In financial-land, a little good news (for a change).  Citi’s CEO stated that the one-time megabank has been profitable for the first two months of the year and JP Morgan-Chase’s top exec echoed the cheerleading on his own institution’s behalf.  Not to be outdone, Bank of America’s Ken Lewis claimed that his bank should not need any additional government capital.  Investors are waiting with bated breath for the Financial Accounting Standards Board to offer guidance on mark-to-market accounting in a few weeks (what’s taking so long?), a regulatory change that could dramatically improve the financial positions of these banks as their most toxic assets may not have to be written down any further.  Not all sector news was good, however.  Freddie Mac lost $24 billion last quarter and needs another $30 billion in bailout funds; Merrill Lynch stands accused by the NY AG of misleading Congress (and investors) about its bonuses; and Goldman Sachs’ employees now have to stay at Embassy Suites instead of Ritz-Carltons (how tragic). 

Oil rose late in the week to close over $46/barrel as traders speculated that OPEC could limit production even more at its weekend’s meeting after an energy agency cut demand projections by another 200,000 barrels a day.  Investors welcomed news that Citi’s situation may not be quite as dire and continued buying on rumors that FASB may suspend mark-to-market rules.  (Beware of “buy the rumor, sell the fact” in a few weeks.)  Financials led the rally and health-care climbed as well on the merger news concerning Merck/Schering-Plough and Roche/Genentech.  The Dow even avoided the much anticipated week-end profit-taking by rising Friday as well and enjoyed its best week since November 2008.  The other equity indexes each jumped (over 10%) for the week as well as stocks from various sectors and market caps benefited from the newfound euphoria.  BTW, it seems that Cramer somehow missed this turnaround prediction on CNBC. 

Weekly Economic Calendar

"My forecasting record on this recession is about the same as the win-loss record of the Washington Nationals," quipped Fed Chair Bernanke as he suggested that the economy could begin to rebound by the end of the year.  (And, most people thought Greenspan was the funny one.)   Dr. B. also spoke during the week of the need to overhaul the entire financial regulatory system and hinted at a few crucial steps that could help avoid crisis in the years to come.  He also discussed bank liquidity and the valuation of certain illiquid assets, but did not go so far as to endorse any action concerning mark-to-market accounting rules.  On the heels of the upcoming G-20 meeting, Prez O. took Bernanke’s message a step further and suggested a more coordinated stimulus effort to help revive the worldwide downturn.  His remarks were not very well-received by some of his trading partners who perceived they insinuated that Obama feels the Europeans are not doing enough to jumpstart their respective economies.  Meanwhile, China lashed out at US officials about the outlook for the domestic economy and treasuries, in particular.  As the largest creditor nation, China remains concerned about its investments in US securities in light of the mass spending on domestic issues.  (Recessionary times bring out some grumpy bedfellows.)

While the economic calendar was relatively light, the actual numbers offered a tad bit of “promising” news.  Retail sales dropped 0.1% in February, but actually climbed once auto activity (rather inactivity) was dropped from the equation.  In fact, businesses as diverse as furniture, electronics, and attire all experienced increased sales last month.  The revised January retail number depicted the best increase in level of activity in three years.  The trade deficit shrank for the sixth straight month in January and now stands at its lowest level since October 2002.  Declining imports and exports revealed further contraction in the global demand for goods and services.  The weaker labor market remained quite concerning as claims for unemployment benefits have set records in six of the past seven weekly releases.  

On the Horizon…With Bernanke and friends meeting to set monetary policy, Fed watchers debate the actions that they can take this time.  With the funds rate already hovering around 0%, they can no longer offer their traditional easing move (lowering the rate), and some analysts are speculating they may choose to purchase long-term treasury bonds or even more Fannie or Freddie debt.  (Be prepared, fixed income investors.)  The inflation gauges highlight the week’s economic data and many economists have taken the dreaded “D” (deflation) word off of the table (for now).  Energy prices have stabilized at of late so this week’s releases could spark some heated pricing speculation for the months ahead.  Many fear that inflation will skyrocket in the years to come once the economy begins to recover and the country’s newfound indebtedness bears lasting negative repercussions.  (One economic challenge at a time.)  OPEC will always be a wildcard until Obama gets his way and changes the domestic energy policy in a concrete way.  The ongoing banter between the Prez and the G-20 leaders will set the tone for future coordinated efforts and potential global regulatory changes.  (BTW, Dr. B., the Washington Nationals were 59 and 102 last year…not a very encouraging track record…though 2009 promises to be better?)

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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