After the close it was reported that Bank of America CEO Ken Lewis and five directors bought 500,000 shares and JP Morgan CEO Jamie Dimon purchased 500,000 JPM shares. That’s a big confidence booster, let’s hope it holds.
Technology stocks also jumped yesterday after IBM issued a 2009 profit forecast that topped estimates. Last night’s strong profit release from Apple should help the NASDAQ again today -- at least at the open, from there it’s anyone’s guess.
Energy shares gained good ground as oil prices jumped 12.42% yesterday. This is part of the contango trade, as the February contract expired on Tuesday and crude for March delivery traded higher. There seems to be some flow through there if I gauging things properly.
Looking over the next couple of weeks this trade should wane and crude prices will likely revisit the $30 handle as it’s all about global growth right now. We’ll get some really ugly GDP readings and that’s going to affect demand expectations and thus the price of crude. (Looking out a bit longer, say six months, I wouldn’t be surprised to see oil settle in around $50-$60 as demand rebounds a bit.)
Market Activity for January 20, 2009
Treasury Nominee
While the street seems to like Geithner, after reading his prepared text for testimony before the Senate yesterday, I’m not terribly impressed. What we have hear is another Keynesian, and the economy really needs better than that. He’s certainly very smart, you don’t become President of the New York Federal Reserve Bank (and by definition a permanent member of the FOMC – the monetary policy committee) without real knowledge of financial intermediation. But then this also reinforces the fact that he is a Keynesian, or demand side thinker, as it is tough for those with opposing views to gain high Federal Reserve posts.
His comments involved too mention of what the world thinks of us and the typical utopian view that regulations can make sure the U.S and global economy “never again face a crisis of this severity.”
On the first, this is completely unrealistic, crises are a fact of life. Further, maybe he should look inward, as it was years of Fed monetary policy mistakes that encouraged the event of over-leverage that the market is now working to correct.
On the international view, he mentions caring what the world thinks of our “ideas and actions” from a regulatory standpoint. A Treasury Secretary needs to focus on making sure his/her country welcomes and treats capital well – nothing more.
Look, we are the engine of global growth. The sooner we get back to being the place where capital seeks to reside (this means higher returns and a stable currency), the rest will take care of itself. Let’s not worry what Europe – economies that are smothered by a massive public sector due to their cradle-to-grave entitlement system and therefore higher rates of unemployment and lower rates of growth – thinks of us. We’ll lead and they will follow if they desire to.)
The soon-to-be Treasury Secretary gave no specifics on what needs to be a plan to house “troubled” assets and no mention of mark-to-market. (The reason we have so many “troubled” assets is not because the vast majority fail to produce cash flow, but because of this insane accounting rule.)
Geithner acknowledged that one of the major issues right now is a lack of confidence, but seems to believe that more regulation is what will bring confidence back. This is a huge mistake.
I know, people these days believe we need more regulation. I’d submit, maybe the Fed should have been engaged in the financial-sector oversight for which they are responsible. If our goal is to add on more overlapping regulation for the sake of it, it will only curtail growth and force business to escape this grip – such as off balance sheet entities that banks used to avoid the current regulatory regime. More regulation results in opacity; less, but enforced regulation, means transparency.
With regard to confidence, we need a bold tax-rate response to deal with this issue. You want a higher level of confidence? Give the market a real sense economic growth will have a chance to flourish and higher after-tax return expectations. That’s what gets confidence rolling.
In any event, we wish him luck with getting the economy back on its feet. But I do not wish him luck with regard to demand-side spending initiatives that create work, instead of longer-run job creation, and a level of budget deficits that help tax hikers sell their agenda to the public.
Today’s Economic Data
It’s been a very quiet week but we get back to it this morning with weekly jobless claims, mortgage applications and housing starts.
The claims data is expected to show a rise for the week ended November 17; we’ll be watching to see if the reading holds below 550k.
Claims moved below the 500k level in the previous couple of readings, reversing a trend that had approached 600k just before Christmas. That move lower was due to poorly adjusted seasonal factors (result of the holidays), which was evident by the 54,000 jump in the week ended January 10. It will be important to hold below that 600k mark over the next several weeks, as it may show the major labor market damage has already occurred. Today’s data will give a good indication – holding below 550k will be helpful for stocks.
On housing starts, residential construction plunged 18.9% in November, to a record low of 625,000 units at an annual rate. On an unadjusted basis, only 29,800 single-family homes were started for the month (the average is roughly 130,000). Building permits – a gauge of future activity – dropped 15.8% in November, which is a good indication we’ll make another new record low when the December starts figure is released today.
Mortgage applications for the week ended January 16 are already out this morning. The Mortgage Bankers Association stated total apps fell 9.8% after a 15.8% rise in the previous week. Purchases rose 2.5% and refinancing was down 12.4%, but that does follow a big 25.6% jump in the previous week.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment