Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (03/31/10)	Previous Week (04/16/10)	Current Week (04/23/10)	YTD Change
Dow Jones Industrial	10,428.05	10,856.63	11,018.66	11,204.28	7.44%
NASDAQ	2,269.15	2,397.96	2,481.26	2,530.15	11.50%
S&P 500	1,115.10	1,169.43	1,192.13	1,217.28	9.16%
Russell 2000	625.39	678.64	714.62	741.92	18.63%
Global Dow	1,984.48	2,021.70	2,052.54	2,037.28	2.66%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	3.83%	3.77%	3.82%	-3 bps

 

What did more long-term damage to the global economy: Iceland's Eyjafjallajokull volcano or Goldman Sachs.  This week, both stories dominated the news and the volcano eruption seemed likely to go away long before the recurring financial “villain.”  While the rising price tag of the airline shutdown in Europe pushed close to $2 billion (see below), the harm caused by the alphabet of subprime mortgage derivatives (CDO/CDS – both real and synthetic) had even greater implications.  Hedge fund manager John Paulson and management firm Abacus emerged as the other key players in an SEC lawsuit over an elaborate scheme to bet on the housing market through high-risk structured securities (which contribute nothing to the economy or society as a whole).  While Goldman may or may not be guilty of “misleading” the “sophisticated” investors involved (who have duties to perform due diligence), the whole mess reeks of arrogance and greed.  In the coming days, new (old) participants are sure to make similar headlines: Deutsche Bank, Merrill Lynch, UBS, and more.  In the meantime, Goldman has plenty to answer for (including some well-timed tips made to another hedge fund client, Galleon, about a Berkshire Hathaway investment).  While Congress had grandstanding field days and even cast blame on rating agencies (it’s about time), Prez O pushed hard for financial reform and seems unlikely to encounter much public resistance (except from lobbyists and some Tea Party activists). 

By the way, Goldman’s earnings skyrocketed over 90% in the first quarter (ill-gotten gains?), while Citigroup posted its best showing in about three years and fellow financials Morgan Stanley and American Express enjoyed nice results as well.  Techs continued to lead the recovery as IBM, Apple, Microsoft, and Amazon.com reported strong quarters (though the latter raised eyebrows with its lower-than-expected revenue projections).  The boardrooms were buzzing this week and IPOs emerged from the dead with six deals priced in one day, though the results were mixed at best and analysts feared the supply was more than investors could absorb.  Visa looked to jumpstart its e-commerce biz with the $2 billion purchase of CyberSource and CenturyTel and Qwest are joining forces to the tune of $10.6 billion in a huge telecom deal (does anyone use landlines anymore?).  The on-again/off-again US Airways/UAL (United) deal is off-again and some analysts expect Continental to reenter the potential merger mix. 

Crude prices remained volatile as investors weighed the economic impact of the volcano and the Greek debt fiasco (see below) with better earnings reports and signs of an improving economy.  Despite larger-than-expected supply numbers, prices rose to around $85/barrel by late-week.  The latest Goldman (and SEC) actions threatened the markets early and some investors feared the enhanced regulations proposed by Obama and the overly eager Dems; however, most simply overlooked the financial concerns as “more of the same” and embraced the positive earnings and economic news.  Equities bounced between positive and negative territory during several trading days, though the bulls carried the strongest weight and pushed the indexes to new 2010 highs.  (Perhaps Goldman offered a few well-timed tips to key clients to sway the attention from itself.)
Economic Calendar

Date	Release	Comments
April 19	Leading Eco Indicators (03/10)	Fastest growth rate in 10 months
April 22	Jobless Claims (04/17/10)	Fell after 2 prior weeks of unexpected increases
	PPI (03/10)	Volatile food prices rose by most in 26 years
	Existing Home Sales (03/10)	Climbed to highest level since December
April 23	Durable Goods Orders (03/10)	Unexpectedly dropped due to transportation orders
	New Home Sales (03/10)	Rebounded after weak Feb. report from poor weather
The Week Ahead
April 27	Consumer Confidence (04/10)
April 28	Fed Policy Meeting Statement
April 29	Jobless Claims (04/24/10)
April 30	GDP (1st qtr)

In 1821, the Eyjafjallajoekull volcano encountered intermittent eruptions over a 13-month period.  Fortunately, air travel was far less prevalent back then (a mere 50 years before the Wright brothers were born)  and the overall global economic impact was limited.  These days, British Airlines, SAS AB (Scandinavia), and Air France claimed to be losing over $75 million in combined revenues per day, while TUI Travel (Europe’s largest tour company) reported losses in excess of $30 million as the airlines were grounded.  While flights resumed during the week, manufacturers continued to feel the pain as well as supply chains were disrupted at a BMW plant in Germany and a Nissan plant in Japan (among many others) as critical shipments were delayed.  Meanwhile, Greece threw in the towel once and for good and moved closer to asking the EU/IMF for the much anticipated bailout funds.  During the week, Moody’s downgraded the country’s debt and union workers took to the streets again to protest the cost-cutting measures.  Finally, its leaders had no choice but to turn to its “White Knights” who can hopefully act before the country defaults on a significant payment due on May 19. 

Closer to home, the housing market finally appeared to be on the road to recover (any side bets, Mr. Paulson?) as mortgage delinquencies fell for the second consecutive month in March.  Additionally, both existing (+6.8%) and new (+26.9%) home sales rebounded dramatically last month, though both were coming off of dismal February performances when poor weather conditions across the country brought activity to a standstill.  PPI rose more than expected in March as volatile food prices soared and gasoline pushed closer to the inevitable $3/gallon level.  While most analysts and policymakers do not seem overly concerned (and core prices barely budged from February), surging costs of raw materials driven by growing emerging market (China) demand threatens to spur the dreaded “I” word in the months/quarters to come.  Already, Goodyear and Bridgeway have warned about future earnings as escalating rubber costs, for example, could hinder the operations at tire-makers. 

On the Horizon…The Fed gets together for another policy meeting and all eyes will be on the concluding statement to see if the “extended period” line (about the low Funds rate) remains.  Also, expect some “heated” discussions about selling a portion of the Fed’s new $1.25 trillion mortgage portfolio that was accumulated as part of the stimulus to keep rates low and open the frozen credit markets.  Some believe the Fed should begin to unwind these positions as the economy shows signs of rebounding; others fear such actions would be premature and an accompanying spike in mortgage rates could severely hinder the would-be recovery in the housing sector.  Oil companies take center stage in the earnings game as ExxonMobil (4/29) and Chevron (4/30) highlight the week’s reports.  Analysts and investors get their first look at 1st quarter 2010 GDP.  After a strong 5.6% increase in the 4th quarter, prognosticators expect a rise more in the 3% neighborhood.  Finally, the Goldman investigation continues and CEO Lloyd Blankfein is expected to testify before mouthwatering Congresspersons in the days to come.  (Set those DVRs to C-SPAN for some riveting, long-winded, holier-than-thou tongue-lashings.) 

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

(c) Brounes & Associates

www.ronbrounes.com