Market Matters…         

                           

Market/Index	Year Close (2010)	Qtr Close (06/30/11)	Previous Week (09/23/11)	Current Week (09/30/11)	YTD Change
Dow Jones Industrial	11,577.51	12,414.34	10,771.48	10,913.38	-5.74%
NASDAQ	2,652.87	2,773.52	2,483.23	2,415.40	-8.95%
S&P 500	1,257.64	1,320.64	1,136.43	1,131.42	-10.04%
Russell 2000	783.65	827.43	652.43	644.16	-17.80%
Global Dow	2,087.44	2,134.29	1,700.42	1,725.68	-17.33%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.31%	3.16%	1.81%	1.92%	-139 bps

 

As Greece goes, so goes the rest of the world.  Or so it seems these days (and for the past year and a half-ish).  This tiny country with the smallish economy continued to receive inordinate attention, dominate the global headlines, and impact decisions of much larger countries with more significant economies.  This week, Greek’s parliament approved new property taxes and pledged to avoid default in hoping to secure more aid from the EU community.  First “mighty” Finland agreed to an expanded bailout fund.  Then, after much drama, mightier Germany jumped on board as well.  And now, the larger European Financial Stability Facility hopefully has sufficient capacity to protect the euro-zone from contagion and “right the ship” that has threatened global stability for as long as can be remembered.  (At least, until next time.)  And closer to home, in the spirit of conciliation, the US House and Senate actually passed bills to avoid a government shutdown (until November 18) without much grandstanding and pandering. 

While boardroom confidence had shown itself in the form of renewed merger and acquisition activity early during the first half of the year, deals seemed to come to a relative standstill in the third quarter.  In fact, the dollar value of such transactions declined almost 25% from last year this time, the worst quarterly decline since the third quarter of 2009.  As execs apparently see fewer values, they still have been rewarding shareholders through dividends and share buybacks.  This week, King Warren (Buffett), expressed his belief that Berkshire Hathaway’s stock is undervalued.  His company authorized what is thought to be tens of billions of dollars to buy back shares, a move that Buffett has opposed in the past and one that Berkshire has not implemented since 2000.  In other corporate news, Amazon launched its Kindle Fire, the first tablet that actually has a chance to compete with Apple’s iPad.  After much delay, Boeing’s 787 Dreamliner finally took to the friendly skies.  Bank of America will be raising money off the backs of its depositors by charging debit-card users a $5 per month transaction fee.  Advanced Micro Devices delivered a weaker forecast for tech and cuts its revenue projections. 

The third quarter could not end soon enough as double-digit losses ruled the day and equities experienced their worst period since late 2008.  Investors liked what they heard initially from Europe regarding the bailout fund this week (though with plenty of caution and excess volatility).  Early on, stocks bounced back from last week’s trouncing as some analysts believe that Europe is finally taking measures to overcome the never-ending sovereign debt crisis.  Late-week (quarter) selling (en masse) indicated that investors are still quite concerned that the deal could fall apart (or the fund could fall short of protecting against default and contagion). Triple-digit moves in the Dow remained the daily norm.  Window-dressing also contributed as managers positioned portfolios for the new quarter.  Oil bounced around a bit and even staged the best one-day jump in four months, though reports of weak crude demand kept the gains in check and prices dropped late week to levels not seen in a year.   When the dust had settled, investors were pleased to say good-bye and good riddance to the third quarter (and a lousy September for that matter).

Economic Calendar

Date	Release	Comments
September 26	New Home Sales (08/11)	4th straight monthly decline
September 27	Consumer Confidence (09/11)	Slightly worse than expected
September 28	Durable Goods Orders (08/11)	2nd drop in 3 months
September 29	Jobless Claims (09/24/11)	Below 400k for 1st time since August
	GDP-  2nd quarter (revised)	Faster than reported economic growth
September 30	Personal Income/Spending  (08/11)	Surprising decline in incomes
The Week Ahead
October 3	ISM (Manu) Index (09/11)
	Construction Spending (08/11)
October 4	Factory Orders (08/11)
October 5	ISM (Services) Index (09/11)
October 6	Jobless Claims (10/01/11)
October 7	Non-farm Payroll (09/11)
	Unemployment Rate (09/11)
	Consumer Credit (08/11)

 

Much of the world remained focused on Greece and hoped activity in the euro-zone would resolve that situation once and for all (or, at least, for now).  By week’s end, inflation became the latest concern as EU price pressures jumped to the highest level in about three years (and a rate hike is not an option now).  Meanwhile, Fed officials took to the airwaves to discuss their latest actions.  After careful review, some analysts believe Operation Twist could prove more successful than QE2 as it main target is the long-end of the treasury yield curve.  They expect the move to provide benefits for mortgage borrowers and corporate debt issuers.  Boston Fed Prez Rosengren hopes the action will address the “challenges” that have plagued the housing sector for what seems like eternity.  Still, Dallas Fed Head Richard Fisher, one of the three “no” votes at the latest policy meeting, doesn’t believe that low rates will prompt banks to lend or companies to hire and invest.  In fact, Fisher points out that corporations have been stockpiling cash for a while and could have been putting it to work if they saw value in M&A or were confident that expanding biz operations made sense at this time.  Instead, they merely sit on the cash (or give to shareholders through dividends and buybacks).  Fisher worries that the Fed is sending the wrong signal to investors…that the policymakers believe the economic situation is more dire than it really is and fewer companies will invest, hire, or expand because of the perception. 

 

News was mixed on the domestic economic front.  New home sales fell again for the fourth consecutive month, its worst showing in six months.  Consumer confidence edged higher in its recent release, though the slightly elevated number was still below analyst’ expectations, and personal income dropped for the first time in almost two years.  Durable goods orders fell in August, though orders for non-defense items excluding aircrafts actually increased significantly.  Though jobless claims fell below the crucial 400k level (a indication of labor expansion), many (pessimistic) analysts believe that the release may be an aberration based on seasonal factors and could reverse itself in future weeks.  The second quarter GDP, while still weak by traditional GDP standards, rose a bit in its latest revised release and many remain hopeful that the fourth quarter will prove far better for economic growth as the year ends on a positive note. 

On the Horizon…While investors are still trying to figure out just what is going on in Europe, they must change their news feeds to follow events closer to home.  The economic calendar will be quite hectic and investors have recently shown a propensity to over-react to each big release.  Manufacturing and labor highlight the week’s (not weak) data.  Investors want to see a rebound in sector activity since the factory slowdown after the Japan earthquake; optimistic analysts hope the jobless claims report was not an aberration and the unemployment rate could fall below the nine percent level with plenty of new jobs created.  Any chance the third quarter was just a bad dream?  

 

 

 

(c) Brounes & Associates

www.ronbrounes.com