The Economic Outlook Remains Unusually Uncertain
Posted by Jody Eisenman | Filed under Uncategorized
So said Fed Chairman Ben Bernanke in testimony to the Senate Banking Committee. What does this mean? Well, the Chairman is saying that the economy is really not improving, and he doesn’t have the faintest idea what to do about it. As I have stated previously, http://www.jodyeisenman.com/2010/06/the-jobs-inflation-conundrum/,
The administration is in a tough spot. Interest rates as measured by Fed Funds are almost zero, yet the recovery is stagnating. Unemployment hovers around 10%. In addition, the debt situation is getting worse and worse.
As a president, it’s one thing to know you have a big fiscal problem. It’s quite another when a panel you appointed tells you the policies you have in mind will only make things worse.
That’s what happened Sunday, when leaders of President Obama’s deficit commission offered up the darkest of outlooks for our financial future — calling current trends in U.S. budgets a “cancer” that will “destroy the country from within” unless halted soon. Not exactly encouraging news.
Meanwhile, after a 200 point reversal in stocks yesterday after a weak opening, the market dropped on Bernanke’ remarks. After sitting slightly up for most of the morning, the markets dropped immediately during Bernanke’ testimony to eventually close down over 100 points. As I continue to expect, the equity markets continue to churn in a relatively narrow range. Year to date, the Dow has traded as low as 9686, and as high as 11, 204. However, for most of the year, the range has been less then 1000 points, or around 10%. Just to put this in perspective, in 2008, the Dow traded in a range of over 4000 points. In 2009, the range was over 3500 points.
Goldman Settles and the Week Ahead
Posted by Jody Eisenman | Filed under Uncategorized
The big news this week on the equity side was the settlement of Goldman Sachs with the Security and Exchange Commission for $550MM, well below most estimates. Their stock reacted favorably as well, with the stock rising over 8 points for the week. The market capitalization of GS (shares outstanding times the price of the stock) rose by over $4BB. In reality, the stock probably would have done better except that the financials took a tumble late in the week. After disappointing earnings from JP Morgan and Bank of America (among others), the financial index led the market lower. By the close on Friday, the Dow lost about 1 pct for the week, but was down about 300 points off its’ high to close at the low. For the year, the Dow is now down a little over 3%.
It is tough for analysts to get a feel for this market. When it rallies like it did between mid-February and early May, sentiment tends to be overwhelmingly positive. When it falls like it did last week, all the nay sayers come out of the woodwork with their doom and gloom. It would seem to me that on a technical basis, S and P 1100 is an important level. I would need to see a solid close above that level to get more positive on the market. We closed Friday at 1065. In the meantime, I expect the market to churn around, driven by earnings and external world events.
Meanwhile, consumer confidence dropped to its’ lowest level in a year, as signs that the recovery is stagnating continue to appear. Two year treasuries dropped below 0.6%. Although very low interest rates tend to lead to stock price increases (as investors figure they can do better in equities as opposed to very low bond yields), the faltering economy is causing great concern everywhere, but especially in Washington. The Obama administration has their work cut out for them.
Quite a Week for Stocks
Posted by Jody Eisenman | Filed under Uncategorized
Inter-day on July 6, the Dow Jones bottomed at 9685. It had been falling for days, and many technicians were predicting a long dreary summer for stock prices. Instead, the market turned on a dime. For the week, the Dow and S & P were up over 5%, their best week in about a year. For year to date 2010, the indices are down 2.2 and 3.3% respectively. The question is, where do we go from here?
There are several divergent opinions on this. For example, Doug Kass, who runs a hedge fund called Seabreeze Partners, has stated that he believes that the market has made its’ lows for the year. Kass is famous in my book for called the lows of the market, almost to the day, in March of 2009. Of course, he has been wrong before. However, Kass is known as a short seller, and the fact that he is now bullish has some significance.
On the other extreme, you have Robert Prechter. Prechter follows a form of technical analysis known as the Elliot Wave Theory. Prechter has made rather extreme predictions in the past, with some spectacular successes as well as failures. However, he now believes that the market is at the beginning of a long decline, which could eventually send the Dow down to 1000. Quite a difference of opinion!
I’m in between these two extremes. I think the direction of the market will greatly hinge of several economic factors, but earnings reports will play a big role. As second quarter earnings season begins this week with Alcoa, we should have a better picture of where the market is heading.
