A Strong Week for the Stock Market
Posted by Jody Eisenman | Filed under Uncategorized
Led by several bellwether stocks such as Goldman Sachs and Apple Computer, the equity markets completed a solid week. The S and P 500 has now risen for six straight days, and wound up over three per cent for the week. We are now at the highest levels since January 19, and we are just below the October 2008 levels.
What has fueled this rally has been a steady unemployment rate of 9.7%. This number was expected to rise seasonally due to the weather, so the unchanged figure was viewed as another sign that the economy is recovering. In addition, the situation in Greece seems to be improving from the brink of disaster, as they were able to raise $6.8 billion in a bond offering last week. They also had $4.8 billion in budget cuts. Of course, the Greek unions opposed this move, and strikes reigned throughout the country.
The market looks incredibly strong here. It is rising in the face of a high unemployment rate and a very low consumer confidence figure. As I have stated previously, it is almost as if the financial crisis of 2008 and early 2009 never happened. Can this continue? Even supposed experts are divided on this. http://finance.yahoo.com/news/Diviners-Divided-Economists-apf-2346209182.html?x=0&.v=1
As always, things should be interesting in the coming weeks.
Rev. Ike and Sovereign Debt
Posted by Jody Eisenman | Filed under Uncategorized
The late Reverend Ike was a minister with a church in New York City. With a radio show that reached an audience of millions, he preached not that money was the root of evil, but rather, it was the lack of it. Meanwhile, good old Ike lived in luxurious homes and drove exotic cars. There is a story about him that goes like this:
One day after Sunday services, a man came to him and told him that he had a big problem. Rev. Ike shrugged it off, telling him that the Lord would solve it for him. However, the man persisted, so Ike asked him to explain the nature of his discomfort. The man explained that he had a big loan coming die the following morning, and he had no means to pay any of the interest, let alone the principal. Rev. Ike didn’t miss a beat. He said, “My son, you don’t have a problem. The BANK has the problem!”
Similarly, if Greece were to default, the real losers will be the debt holders. The biggest holders are banks in France, Switzerland and Germany. What seems to be happening now is the classic death spiral that occurred many times in 2008. As the debt situation worsened, the cost of insuring this debt via Credit Default Swaps (CDS) skyrockets. This in turn leads to a further drop in Greek bond prices as investors dump them, which then leads to even higher CDS prices. And the circle continues, until either a bailout happens, or the country defaults. These is some fear that in the case of default, this could spread to other European countries. Most of the European Union has extremely high debt to GDP ratios, which means the same thing could happen to them. For that matter, so does the United States. While I don’t think the US is anywhere near default, the major losers would be countries that hold lots of treasuries, like Japan and China. Could this be the reason that China was started to cut back on treasury holdings? A further declinein holdings, along with a rise in interest rates, could really hurt the US debt situation.
Meanwhile, the financial markets seem to shrug this off. The stock market seems to be churning in a rather tight range. For the month of February, the Dow and the S and P closed slightly above their January numbers, and we are roughly even for the year. The resolution of the Greek situation, one way or another, could have a big effect on the markets in March.
Consumer Confidence Plunges
Posted by Jody Eisenman | Filed under Uncategorized
In a surprising blow to the apparent economic recovery, the Conference Board announced today that the Consumer Confidence Index fell almost 11 points from 56.5 to 46. This number was expected to be around 55, and it ended three straight up months. Generally, increased consumer confidence indicates economic growth. These numbers are tabulated by polling 5000 households each month as to current business conditions, anticipated business conditions, current and anticipated employment, and total family income. The number is then based as an index, with 100 being “normal” or at equilibrium. This number was arbitrarily set in 1985. The index hit its’ lowest level since last April. The average number has been 95.6 since the tracking began in 1967.
In addition, Sheila Bair announced that thanks to the massive number of bank failures, the FDIC is now over $20 billion in debt. In order to make up the deficit, the FDIC is going to require that member banks pre pay thirteen quarters in advance. After a total of 28 banks failed over the 2007-2008 period, 140 failed last year. Thus far this year, 20 have been shuttered, which is a pace slightly above last year. Not good.
As such, the stock market is giving back ground. As of 3 PM, the DJIA is down about 80 points. I will try to write about the debt situation in our country shortly.
