AND THAT’S THE WEEK THAT WAS…

For the Week Ended September 10, 2010

 

Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (06/30/10)	Previous Week (09/03/10)	Current Week (09/10/2010)	YTD Change
Dow Jones Industrial	10,428.05	9,774.02	10,447.93	10,462.77	+0.33%
NASDAQ	2,269.15	2,109.24	2,233.75	2,242.48	-1.18%
S&P 500	1,115.10	1,030.71	1,104.51	1,109.55	-0.50%
Russell 2000	625.39	609.49	643.36	636.46	+1.77%
Global Dow	1,984.48	1,710.71	1,860.16	1,871.81	-5.68%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.95%	2.71%	2.80%	-105 bps

 

So let the political grandstanding begin...With the mid-terms but two months away, now begins the season when politicos propose surefire fixes for all that ails the country (but have been overlooked for the past two years).  Their opponents then scoff at those “ridiculous” ideas and step up with their own equally crucial pieces of legislation, designed to rally the base all the way to November.  Plenty of blame-placing and back-stabbing will follow and, at the end of the day, nothing of note will get passed (but voters will see how hard their favorite officials are working and realize how much their rivals “hate” this country).  In one corner, Prez O got the ball rolling with plans for tax incentives for corporate investment in plants and equipment and a permanent credit for biz research and experimentation.  He also offered another $50 billion stimulus plan for infrastructure spending.  He then took a few parting shots by acknowledging that his proposals have little chance of passing as the opposition is content “riding…fear and anger all the way to Election Day.”  In the other corner, House Minority Leader Boehner fell back on his party’s “old reliable” by proposing tax rate freezes for two years and rolling back government spending to 2008 levels.  He even “compromised” on the Bush tax break debate by offering to limit the extension to two years instead of making the cuts permanent.  He also took a few stabs at “excessive government spending and the uncertainty Washington Democrats’ policies…are causing.”  The ideas are coming fast and furious.  The actual positive results…well, not so much. 

 

In corporate news, Oracle showed that you can’t keep a good man down by hiring Mark Hurd (as in the scandalous ex-CEO of HP) to guide it into the future (and into several biz segments that HP serves).  HP countered with another lawsuit, claiming violation of a prior severance agreement.  BP produced its long-awaited report on the oil disaster and placed blame at the likes of Halliburton and Transocean, while accepting some responsibility itself.  Toys “R” Us announced plans to open 600 temp “express” stores in shopping malls to meet the demand of the holiday season.  (Is this move a sign that management expects strong activity or are they merely taking advantage of growing retail vacancies and cheaper rents?)  With interest rates at historically low levels, corporations are rushing to borrow as over $50 billion in new bond offerings hit the market in two days alone and yield hungry fixed income investors jumped in to buy the “higher yielding” assets (at least compared to the 0% earned on money markets). 

 

Labor Day brought a shortened trading week and the Rosh Hashana holiday meant even lighter volume in the markets.  With little data on the economic calendar, investors dissected the “inspiring” political messages, while looking for signs from the Fed about any future stimulus moves.  While Dr. B and friends confirmed a weaker recovery (see below), equities traded relatively flat as investors found no real reason to take a stand one way or the other.  In addition to the corporate offerings, the treasury auctioned another $67 billion in government securities so the fixed income markets came under pressure from supply issues.  New stimulus plans and tax breaks…Good news for business and consumers?  Or just more political rhetoric?  ‘tis the season!

Economic Calendar

Date	Release	Comments
September 6	Labor Day	Markets closed
September 8	Fed Beige Book	Continued expansion with signs of deceleration
	Consumer Credit (07/10)	6th consecutive decline
September 9	Jobless Claims (09/04/10)	New claims and 4 week moving average declined
	Balance of Trade (07/10)	Highest level of exports in almost 2 years
The Week Ahead
September 14	Retail Sales (08/10)
September 15	Industrial Production (08/10)
September 16	Jobless Claims (09/11/10)
	PPI (08/10)
September 17	CPI (08/10)

 

Europe headlined the global economic news again this week as the favorable results from their recent bank “stress tests” came under question.  Apparently, many banks failed to disclose certain positions in government securities (make that, potentially risky government securities) and the overall strength of the European financial sector may not be what the initial test results revealed.  Ireland’s politicos announced their intentions to break up a major financial institution into two components and form an “asset recovery bank” to hold all of the bad loans.  (Guess “too big to fail” is still alive and well…at least, overseas.) 

 

Meanwhile, Germany reported a substantial decline in its July manufacturing orders, a concerning sign for Europe’s strongest economy.  On a more positive note, Portugal’s government debt  auction was met with fine demand, alleviating the recent fears that no one would want to hold securities of such an ailing economy.  Government officials from China and US made nice this week as the economic “Superpowers” met to discuss currency and trade issues and may now  realize that cooperation between the two is paramount to help the global economy move forward. 

 

Though the economic calendar was relatively light, investors seemed to like that they saw.  The trade deficit declined in July by the largest amount in 17 months as exports surged and “Made in America” products once again were in demand.  Additionally, initial jobless claims fell to its lowest level in two months and even the more widely followed four-week moving average dropped, lending new hopes for a future rebound in labor (or less fear about further workforce cuts).  The Fed Beige Book indicated that domestic economic expansion continued, though “with widespread signs of deceleration.”  Still, the reports revealed decent activity in manufacturing, despite prior concerns of a sector slowdown, and even consumer spending may be on the rise. 

 

On the Horizon…With congressional and White House officials taking to the airwaves to make their economic cases to the American people, expect more of the same in terms of tax and stimulus talk (not action) for the next eight weeks.  In a nutshell, some feel that stimulus for the sake of stimulus serves no purposes and only those programs that aid small biz and help generate real consumer demand will prove worthwhile.  While cash-for-clunkers and the homebuyers tax credit may have accelerated quite a few transactions, much of the impact appears to have been temporary and naysayers fear that similar moves will promote artificial growth as well.  The upcoming week finds releases from retail and manufacturing as well as the inflation data.   While the dreaded “D” word (deflation) has crept into many office water cooler conversations as of late due to the weakened state of the economy, most analysts do not adhere to such fears and will be looking for the first signs of price pressures as a precursor to the next Fed rate hike.   Meanwhile, the retail sales release lends some additional insight into the mind of the consumer and the overall success (failure) of the back-to-school shopping season.  Of course, the playful banter between Obama and Boehner is sure to continue as each attempts to convince those independent voters about the “madness” of their opponents (and, therefore, more DC gridlock appears inevitable). 

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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