Market/Index	Year Close (2009)	Qtr Close (06/30/10)	Previous Week (09/10/10)	Current Week (09/17/2010)	YTD Change
Dow Jones Industrial	10,428.05	9,774.02	10,462.77	10,607.85	+1.72%
NASDAQ	2,269.15	2,109.24	2,242.48	2,315.61	+2.05%
S&P 500	1,115.10	1,030.71	1,109.55	1,125.59	+0.94%
Russell 2000	625.39	609.49	636.46	651.44	+4.17%
Global Dow	1,984.48	1,710.71	1,871.81	1,904.55	-4.03%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.95%	2.80%	2.75%	-110 bps

 

“The typical error most countries make coming out of a financial crisis is they shift too quickly to premature restraint…You saw that in the United States in the 30s, you saw that in Japan in the 90s…It is very important for us to avoid that mistake…”  And now Treasury Secretary Geithner has weighed in on the “to stimulate or not” issue, by expressing his views that additional government intervention may be needed to help the economy stay on its path to recovery.  (Former Fed Chair Greenspan shared his contrasting two-cents, but no one much listens to him anymore.)  Interestingly, despite the $787 billion package enacted in early 2009 and various programs designed to enhance lending activity, the Federal Financial Institutional Examination Council reported that small business loans declined by 33% in 2009 to the lowest level since 2000.  While many analysts agree with Geithner’s position, they reject stimulus just for the sake of stimulus and want to ensure the right action is taken.  Some favor programs that offer more support for start-ups and small biz, the true job creators in this country.  Expect lots of political debate (discourse) in the days to come.  (What say you, Tea Partiers?  Like we really had to ask.) 

Merger mania (and implied boardroom confidence) continued as HP purchased security software company ArcSight for $1.5 billion (though IBM’s CEO scoffed at his rival’s recent moves to grow through expensive acquisition.)  Hertz took the upper hand in its bidding war with Avis by raising its offer for Dollar Thrifty.  Johnson & Johnson is attempting to acquire Dutch biotech company Crucell for over $2 billion.  Cisco announced its intent to reward shareholders by paying a dividend in 2011.  In other corporate news, Oracle and Research in Motion reported better-than-expected quarterly results; likewise, Best Buy rode the wave of stronger notebook and mobile phone sales, and bested analysts earnings’ forecasts.  (Obviously, consumers are buying something, despite many naysayers’ reports to the contrary.)  Fedex offered mixed results by revealing strong international operations, though the company will cut 1,700 domestic trucking jobs and its full-year projections came in below expectations.  China remains the place-to-be as Apple began selling iPads there to enthusiastic crowds and Dell soon will open a new ops center in Chengdu.  Fresh off its regulatory discipline, Goldman Sachs now faces the wrath of former female employees who claimed discrimination in terms of promotions.  Customers of JP Morgan Chase suffered through days without online banking services and had to return to the prehistoric times of using ATMs, telephones, or heaven’s forbid, interacting with a real person (teller). 

Investors continued to buck the negative monthly trend in September as equities pushed higher on the favorable tech reports and news that banking reform may not be implemented as quickly as planned.  Hopefully the delay helps prevent the economy from further weakening and doesn’t simply encourage bankers to assume greater risk (and earn higher bonuses) in the eight-plus year interim.  Oil remained range-bound as traders weighed news about a pipeline shutdown with larger-than-expected inventory numbers. Republicans vs Democrats…Obama vs Boehner…and now Geithner vs Greenspan.  Just maybe that discourse is actually good for the market? 

Economic Calendar

Date	Release	Comments
September 14	Retail Sales (08/10)	2nd straight monthly increase
September 15	Industrial Production (08/10)	12th increase in past 14 months
September 16	Jobless Claims (09/11/10)	Fell to lowest level in 2 months
	PPI (08/10)	2nd straight monthly increase eases deflation fears
September 17	CPI (08/10)	Core inflation basically flat
The Week Ahead
September 21	Housing Starts (08/10)
	Fed Policy Meeting Statement
September 23	Jobless Claims (09/18/10)
	Leading Eco. Indicators (08/10)
	Existing Home Sales (08/10)
September 24	Durable Goods Orders (08/10)
	New Home Sales (08/10)

 

While IT companies such as Apple and Dell (see above) continue to rush into China, banks engaged in similar strategies have not been so fortunate.  According to KPMG, banks with headquarters outside of China have struggled to earn profits there, while their Chinese counterparts have posted double-digit gains.  The strict regulatory environment has hindered their abilities to compete.  On a similar note, Congress has long offered harsh rhetoric against Chinese trade policies (particularly in an election year).  And now Geithner signaled a less than enthusiastic view as China remains slow to raise the value of its currency, despite its earlier promise to do so (and hopefully benefit US exports).  For its part, China reported a better-than-expected increase in industrial production and continues to experience strong economic growth.  In the same neighborhood, Japan engaged in some serious currency intervention of its own, a move that served to cease the rising yen and help its struggling economy.  Elsewhere abroad, the European Commission raised its growth outlook for the 16-member EU, though seemed to hedge its bet by warning about a late-year “softer patch.”     

Closer to home, retail sales climbed for the second straight month in August as back-to-school activity may not have been as weak as the naysayers feared.  (Some tax-free shopping days didn’t hurt matters either.)  Industrial production rose for the 12th month out of the past 14, though the pace has slowed somewhat as manufacturers try to avoid overproducing and instead match consumer demand.   Inflation remains well under control and the increase in PPI (for the second month in a row) helped to ease some of the growing deflation fears.  Jobless claims fell to the lowest level in two months and even the more closely watched four-week moving average declined as well.  Unfortunately, before investors could bask in the glory of the newfound consumer-driven economic rebound, Thomson Reuters/U of Michigan reported that its sentiment index dropped to its worst showing since August 2009.  While Greenspan spoke out against further fiscal stimulus and the need to address the ballooning budget deficit (and soon), the Fed prepares to meet to discuss monetary policy and Goldman analysts predict a new asset purchase program may be in the cards (though perhaps not until November). 

On the Horizon…The accompanying statement following the Fed’s upcoming policy meeting may be dissected even closer than normal.  Some believe the Fed should restart the bond buying program to help keep long-term interest rates low and, thereby, encourage additional corporate borrowing and bank lending.  Others fear that the program has a very limited chance of success and worry that inflation may become a not-so-welcome byproduct of such a move.  Housing highlights the economic news next week as new construction and homes sales data lend some additional insight into sector activity once the gov stepped aside and ended the tax rebate program.  With the summer well in the rearview mirror and trading desks back at full staff, market volume could pick up and hopefully the excessive daily volatility will ease somewhat.

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