AND THAT’S THE WEEK THAT WAS…

For the Week Ended April 30, 2010

 

Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (03/31/10)	Previous Week (04/23/10)	Current Week (04/30/10)	YTD Change
Dow Jones Industrial	10,428.05	10,856.63	11,204.28	11,008.61	5.57%
NASDAQ	2,269.15	2,397.96	2,530.15	2,461.19	8.46%
S&P 500	1,115.10	1,169.43	1,217.28	1,186.69	6.42%
Russell 2000	625.39	678.64	741.92	716.60	14.58%
Global Dow	1,984.48	2,021.70	2,037.28	1,992.64	0.41%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	3.83%	3.82%	3.66%	-19 bps

 

Nothing like a little grandstanding and blame-placing by politicos who refuse to look in the mirror and accept any responsibility.  Congress seemed to enjoy themselves this week, doing what they do best…kowtowing to cameras and constituents.  As Goldman Sachs superbly played its villain role and may soon face criminal charges, lawmakers lashed out at execs for misleading “innocent” victims about complex securities.  While no one seems to know if any laws were broken (regulators may not understand what was going on?), Goldman’s actions clearly fail the smell test.   Even Warren Buffett’s right-hand man had some harsh words, stating "They were very competitive in maximizing profits in a competitive industry that was permitted to operate like a gambling casino…The whole damn industry lost its moral moorings."  BTW, Berkshire Hathaway made a $5 billion investment in this “immoral” company in the midst of the debacle (if you can’t beat them…?)  The holier-than-thou politicos have additional motivations of trying to pass financial reform.  While folks agree that changes to the system and enhanced oversight are needed, be leery that bad regulation often emerges in trying times (Sarbanes-Oxley, anyone?) 

 

Earnings season plugged along as companies from diverse industries revealed improvements in the domestic (and global) economy.  Economic bellwether UPS posted nice gains; Visa depicted renewed consumer activity; Starwood enjoyed an uptick in travel and hospitality; Procter & Gamble used discounting to attract those cost-conscious shoppers; builder DR Horton took advantage of the last days of the homebuyer tax credit; ConocoPhillips and ExxonMobil reaped rewards of higher crude prices, though the latter suffered a significant charge due to health-care reform (as did Caterpillar, Bristol-Myers Squibb, and others).  Shifting to the boardroom, Continental and United moved closer to merging into the world’s largest airline (is bigger really better?); Hertz looked to buy Dollar Thrifty for $1.2 billion; HP entered the smart-phone arena by agreeing to acquire Palm for cash and debt totaling $1.2 billion; IBM greeted investors with increased dividends and a share buyback plan; and the gov began unwinding its Citigroup position by announcing a sale of 1.5 billion shares.  In other biz news, Wal-Mart may have discriminated against female employees (so says a class-action suit) and Baidu grew its market share in China as Google chose morals over profits. (WWGD: What Would Goldman Do?)    

 

On the energy front, BP PLC turned to the gov to help clean up its mess in the Gulf and environmental “challenges” appear inevitable.  Despite oil inventories climbing to their highest level since June, crude prices jumped back above $85/barrel as corporate earnings depicted a stronger economy which implies a future rise in demand.  While the EU moved closer to resolving the Greek crisis, Portugal and Spain emerged as the leading countries to need a bailout (see below).  Investors raised eyebrows and stocks turned volatile, tumbling early on the global developments, before rebounding on Fed comments and earnings reports, only to fall again on Goldman’s legal concerns.  Fixed income benefited from a flight-to-quality, despite considerable treasury supply hitting the street.  Ethics and scandals aside, any new stock tips, Mr. Buffett? 

 

Economic Calendar

Date	Release	Comments
April 27	Consumer Confidence (04/10)	Best showing since September 2008
April 28	Fed Policy Meeting Statement	More confident but still cautious
April 29	Jobless Claims (04/24/10)	Fell again, though moving average rose slightly
April 30	GDP (1st qtr)	3rd consecutive quarter of economic growth
The Week Ahead
May 3	Personal Income/Spending (3/10)
	Construction Spending (3/10)
	ISM – Manu (4/10)
May 4	Factory Orders (03/10)
May 5	ISM – Services (03/10)
May 6	Jobless Claims (05/01/10)
May 7	Unemployment Rate (04/10)
	Nonfarm Payroll (04/10)
	Consumer Credit (03/10)

 

Et tu, Portugal and Spain?  After S&P dropped its rating on Greece’s debt to junk, Germany stepped up with a plan to “fast-track” the bailout funds and help the ailing country avoid a default on a major bond payment due May 19.  While politicos (and investors) may have breathed a collective sigh of relief, Greek citizens took to the streets (again) in mass protest over plans for nationwide tax hikes, entitlement cuts, and job losses expected over time.  Meanwhile, S&P continued to serve in its naysayer role by downgrading both Portugal and Spain and warning about their debt situations and economic prospects for the immediate future.  After all, Spain’s unemployment rate recently touched 20% as its economy continued to prove sluggish in the aftermath of the global recession.  (And, folks here worry about a mere 10% jobless rate.) 

 

Closer to home, a light week on the economic calendar was highlighted by the release of 1st quarter GDP.  While the annual growth rate of 3.2% represented a decline from the 6.5% increase of 4th quarter 2009, economists were expecting such a pace.  Still, GDP rose for the third consecutive quarter and the jump in consumer spending was a welcome indication of continued  economic growth.  Bernanke and friends met during the week to set monetary policy and all eyes were on the accompanying statement for signs of a future rate hike.  Fed watchers rejoiced that the wording “extended period” remained and most do not expect any change in the funds rate until the 4th quarter at the earliest.  The Fed statement seemed to express a more optimistic tone about the labor market and consumer activity, though the policymakers continued to urge caution as housing remains depressed (the end of the homebuyer tax credit can’t help matters) and bank landing activity has been lackluster at best.  During the week, Dr. B. was called before a bipartisan commission created to address threats to the country’s fiscal condition and took the opportunity to address the budget deficit.  He even implied that changes to the tax code may be needed as the Administration and Congress try to get their house of cards in order. 

 

On the Horizon…The Senate debates financial reform so expect plenty of Goldman bashing (and news of the criminal investigation) as they attempt to make their cases.  Will that consumer protection agency be created?  Will the Fed reap enhanced (or diminished) powers over “too big to fail” banks?  What about those dreaded derivatives?  Will Warren Buffet extend his blessings to tighter regs or maintain selfish motives?  Earnings season moves forward, but, by now, investors are expecting more favorable reports (though big companies continue revealing losses from health-care reform).  A hectic economic calendar brings news from manufacturing, housing, and labor.  While the recent unemployment report depicted new job creation and a rate below 10%, analysts remain cautious and concerned about how labor will impact other segments of the economy.  Then again, things could always be worse…we could be looking for jobs in Spain.

 

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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