December 18, 2009AND THAT’S THE WEEK THAT WAS… For the Week Ended December 18, 2009
Market Matters…
The last full week of trading in 2009 was met with “controversial” bailout news, a presidential reprimand to banking execs, a major transaction announcement in the energy sector, some favorable reports from techs, newfound strength in the dollar, volatility within crude, and a Fed statement that provided little new insight into future moves (and a marginal vote of confidence for the Chairman). With investors monitoring positions closely and trying to hold on to gains as best as possible, some chose to lock in profits in advance of scheduled vacations, while others looked to stay ahead of the curve in terms of what sectors may be hot in the coming year.
With Citigroup looking to join its (somewhat healthier) counterparts and move out from the long arm of the government, investors have chosen not to make the process very easy. Early in the week, treasury announced a plan to begin selling its significant “investment” in Citi by unloading about $5 billion in common stock. Unfortunately, investors (like Abu Dhabi Investment Authority) were “none-too-happy” with proposed terms of the sale and Geithner and friends were forced to scrap their best-laid-plans rather than face a loss exceeding $750 million. Meanwhile, Wells Fargo raised another $10 billion to help pay down its debt to the gov. While the bailout had been devised to support ailing financial institutions and jumpstart the economy by providing them needed capital to reinstate key lending programs, Team Obama has not been very enthusiastic with the progress. After referring to certain execs as “fat cats” on national TV, the Prez met with reps from Goldman Sachs, American Express, Citi, Bank of America and others to express his general dissatisfaction over (lack of) lending and compensation structures.
In a deal aimed at potentially promoting natural gas as the fuel source of the future, Exxon Mobil announced its intent to purchase XTO Energy for $31 billion, though the merger faces serious hurdles before completion. In other corporate news, Boeing’s Dreamliner finally made its inaugural flight; Microsoft settled long-standing antitrust conflicts with Europe; the FTC launched a new fight against Intel over anti-competitive practices; GM prepared to say goodbye to Saab (and not via an anticipated sale); and Fedex throw a wrench into the recent economic optimism by claiming that “full recovery could still be a long way off…” Oracle surprised analysts with a favorable earnings report, while Research in Motion (Blackberry) posted some stellar quarterly results of its own (though Palm disappointed again with its 10th straight loss).
The dollar reversed its recent negative trend and pushed to a three-month high. Crude, which tends to move opposite the currency, fell below $70/barrel on demand concerns before shifting gears on an Iranian seizure of an Iraqi oilfield and expectations that OPEC will keep production steady at next week’s meeting. Equities remained virtually flat as the disappointing Citi pricing developments and the Fedex comments offset positive news from Oracle and RIMM. While the Fed non-moves were expected, analysts want more details about the future of the stimuli. The Dow gave up some ground as investors took profits in advance of those well-deserved vacations. Weekly Economic Calendar
Who says Ben Bernanke is the Rodney Dangerfield of Fed Chairs (and don’t get no respect)? After months of enduring harsh criticism by grandstanding politicos over his handling of the worst financial crisis since the Great Depression, Dr. B. was chosen as Time magazine’s “Person of the Year.” He then learned that he has some friends in Congress (just not many Republicans) as the Senate Banking Committee voted 16-7 in favor of granting him a second term as Fed Chairman. For good measure, Bernanke guided the final policy meeting of the year and confirmed that interest rates will stay at current levels (virtually 0%) “for an extended period.” While the economy appears to be on the road to recovery (though ever-so-slightly and several Fed lending programs are set to wind down shortly, the policymakers stand prepared to extend them if situations demand such actions.
Both the manufacturing and housing sectors recorded some favorable news during the week. Industrial production climbed more than expected as factories, mines, and mills are beginning to increase output and are now operating at higher capacities (though still substantially below levels of a few years back). Housing starts and building permits surged in November as buyers reemerged once they realized they could still take advantage of the extended tax credit for first-time homeowners. Leading economic indicators increased for the eighth consecutive month, another appealing sign for the recovery.
Though the November inflation gauges rose by more than many analysts expected, the optimists believe the increase will be temporary as energy prices have been falling over the past few weeks. Though most do not view price pressures as primary concerns in the short-term, some investors have begun to adjust portfolios for that day that the dreaded “I” word again becomes a major issue. In November alone, investors sought the perceived safety of “inflation-protected” funds to the tune of $2 billion and added close to $4 billion in commodity (namely gold) funds. Gold is generally believed to act as an inflation hedge and TIPS (treasury inflation protected securities) bonds offer protection during periods of rising prices.
On the Horizon…The next few weeks in the markets could be difficult to project as traders begin to leave for the holidays and the remainder of the year. Some have already begun to position portfolios for year-end by locking in profits and engaging in window-dressing for shareholders’ benefits. Certain managers wish to own (or not own) specific securities and will make related trades as the quarter-end approaches. OPEC meets next week and crude should remain range-bound between $70 and $80/barrel. Retailers have one last opportunity to lure shoppers into their stores so let the mass discounting begin (again). Enjoy the holiday season.
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)
(c) Brounes & Associates
|
Most Popular Articles
