AND THAT’S THE WEEK THAT WAS…

For the Week Ended March 27, 2009

Market Matters…         

Welcome to “bull market 2009?”  As of Thursday’s close, the Dow had surged over 20% in a few week’s time, a percentage gain that typically constitutes a “bull market.”  Then again, with the index down over 40% since the highs set in 2007 and the economy languishing in recession, can the recent rally really be considered bullish?  By Friday, profit-taking set in and pessimists re-emerged with talks about false hope and temporary rebounds.  Still, March remains on pace for its best performing month in years and investors have some reason to feel a bit more optimistic (too strong?) about the future.  After all, if the government throws enough “stuff” (federal programs of various initials…TARP, TALF, etc.) against the wall, something is bound to stick (eventually). 

During the week, Treasury Secretary Geithner provided more details of the “private/public” venture (OK…more public) to remove toxic assets from ailing banks’ balance sheets.  PIMCO, the world’s largest fixed income manager, revealed its intent to participate and Morgan Stanley (among others) threw its support behind the program (though many economists remained skeptical).  Investors apparently liked what they heard (though few probably understand the fine print) as the Dow skyrocketed 500 points on the day of the announcement.  And suddenly Geithner had been transformed from evil villain (tax evader) to rock star status.  Riding his newfound popularity, he announced a plan to completely revamp the entire financial system, complete with an expanding oversight role for Treasury (and FDIC) and stronger regs for hedge funds and firms deemed “too big too fail.”  Prez O. met with the nation’s top banking execs to discuss the administration’s proposals, the financial “stress tests” that will be initiated in April, and compensation/bonus issues that have raised the ire of the American people.  Speaking of compensation (and public outrage), a financial publication reported that the top 25 highest paid hedge fund managers together earned $11.6 billion in 2008.  (Any of them work at AIG?) 

In non-financial news, Best Buy raised its outlook for annual profits; IBM laid the groundwork for future layoffs; GM announced that 7,500 union employees chose to accept “early retirement” offers; Fedex decided against buying 30 new planes until the economy rebounds (and the administration tones downs it pro-union rhetoric); and Suncor will be acquiring Petro-Canada for $15.5 billion to become the biggest oil company in Canada.  Crude remained above $52/barrel as an energy study showed that companies have delayed key development projects in the global downturn, a trend that could lead to reduced supply (and higher prices) in the years to come. 

Despite some late-week profit taking and a few ill-timed comments about the continued struggles of the nation’s banks (thanks Bank of America and JP Morgan-Chase), stocks ended a third-straight week in positive territory.  Even the economic data (housing, in particular…see below), revealed some positive (though ever-so-slight) signs of a rebound.  The Dow jumped on the toxic-asset proposal and never looked back (for the most part) as the other indexes followed suit.  The Nasdaq even moved into positive territory for the year (for a short time) before selling off again on Friday.  Bull market?  Perhaps a bit premature.  But, not a bad feeling, just the same. 

Weekly Economic Calendar

Most analysts believe the sector that started this whole economic mess eventually must lead the country back into recovery.  Finally, a few signs have emerged that housing may just be on the mend.  (Of course, it took a dramatic decline in property values and home prices for this renewed activity to occur.)  In February, both existing home sales (+5.1%) and new homes sales (+4.7%) unexpectedly jumped as homebuyers took advantage of foreclosures and some bargain basement prices.  Additionally, the economic stimulus package provides tax relief to eligible first-time homebuyers, and, undoubtedly, these sales numbers include more than a few folks who finally are able to realize the American Dream. 

Hopefully, the renewed activity will serve to benefit the economy as a whole in the current and future quarters, as GDP 2008 was finally laid to rest.  The Commerce Department downwardly revised the 4th quarter GDP again (-6.3%) though some economists breathed a collective sigh of relief that the release was not worse.  Personal income rose for the second month in a row, another positive development, especially since the mighty consumer contributes about two-thirds of the growth of the economy.  Manufacturers also got some good news during the week as durable goods orders in February surprisingly soared 3.4%, breaking a six-month losing streak and offering purchasing managers a bit of encouragement. 

On the Horizon…As the end of the 1st quarter rapidly approaches, investors continue to lick their wounds and dream of better times ahead.  While January and February represented months to forget for the markets and the global economy, the past few weeks in March provided some welcome relief and momentum that hopefully will be built upon in the days to come.  Some late month window-dressing will give portfolio managers the opportunity to position their funds for the 2nd quarter.  Earnings season follows (Alcoa is on the clock) and investors get their first look into the performances of their favorite corporations and the likelihood of a rebound occurring within 2009 (as Fed Chair Bernanke “promised”). 

In global news, Obama heads to London in the days to come to meet with his foreign counterparts and debate the ills of the world and how the “best and brightest” can fix it.  Expect some “heated” (but civil) dialogue as various approaches are discussed (enhanced regulation vs. increased stimulus) to revive the global economy and Obama makes his case for the policies his Administration  has enacted.  On the domestic front, the economic calendar appears quite full as news from labor and manufacturing highlight a hectic week.  With unemployment hovering around 8.1% (on the way to 10% according to many?), all eyes will be on Friday’s crucial release.  Let’s hope the news de jour translates into a fourth straight week of market gains. 

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)

ron@ronbrounes.com

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