Weekly Recap & Outlook – 03.19.10

Tower Private Advisors


  • New high
  • Greece not going gentle into that good night
  • Give and take economics

Prior Posts

Capital Markets Recap

  The following index update was produced at 3:41 on this Friday on account of a 4:00-er.

Market Chart of the Week

I think we’ve seen this movie before; hopefully, not.  The S & P 500 marked a new high, at least to the extent that it took out a previous high.  The resistance that was that high should now become support, stymying a decline–or at least it’s supposed to.  Oh, and in case you wanted to know, according to Bloomberg, the market declined today on account of the unexpected rise in India’s central bank policy rate.  Sure.










Top Stories

“For Greece, the problem is completely over.  I don’t see any other case now in Europe.  I don’t think there is any reason to think the Euro system will collapse or suffer greatly because of Greece.”

Romano Prodi, both former European Commission President and Italian Prime Minister

And yet Greece issue refuses to quietly go away.  Germany, arguably Europe’s strongest economy, doesn’t want to subsidize Greece’s earlier retirement age, and earlier this week called Greece’s bluff, telling it to go ahead and talk to the IMF about that loan.  Earlier in the week, Greece’s Prime Minister, George Papandreou, gave the EU a week to get its act together, otherwise it would have to go to the IMF.  That cabal of nasty credit default swap traders called it like they saw it and slapped a higher insurance premium on Greek debt, as shown in the chart below.

If the concerns expressed in the headline immediately below have any relationship to Greece–they do riot there, don’t they?–than you can understand why Mr. Papandreou might say just about anything.

“Moody’s fears social unrest as AAA [sovereign] states implement austerity plans.”

Here is a stream of consciousness list of top stories as I bang on the keyboard in advance of a 4:00 meeting.

  • Markets on Monday were freaked out at the prospect of what Connecticut senator Christopher Dodd‘s financial regulation overhaul might do. Equities shrugged off the details and powered higher later in the day, Monday.
  • Boston Scientific, a hedge fund favorite, dropped like a bank stock in 2008 after it halted sales of its defibrillator.
  • The FOMC continued its pledge to keep its policy rates low for an “extended period.”  When that wording changes, the market tanks.  There are no other two more important words to markets these days.
  • Certainly not these two:  Alan Greenspan.  He said, in a Bloomberg story today, that “regulators”–not, of course, the Federal Reserve, failed in the Crisis.
  • In a blow to the Federal Reserve, a court ruled that the Fed had to turn over documents that would show which banks–in the crisis that was not caused by the Federal Reserve and certainly not Alan Greenspan–were too big to fail and which received lifelines of cash.  The Fed insisted that revealing the documents would also reveal trade secrets.
  • Palm, maker of wannabe Blackberry-like devices, announced its 11th straight quarterly loss.  Round that, and it’s three years.
  • Bull markets end on good news, and news of a five-year high in Ford‘s stock on news that Moody’s upgraded the firm’s debt ratings might coincide with a recent Barron’s article that the shares had gotten ahead of themselves.  Still, no Ford shares  being sold here.
  • Nike‘s profit more than doubled.

This Week

Please disperse–nothing to see here.

There were few surprises this week, as most economic indicators were in line with economist estimates.  The Empire State Manufacturing survey, released by the New York Fed, was about 10% less than February’s release, but in line with economist estimates.  This series looks like a lot of the other surveys, as shown in the chart below-right (click to expand).  The index fell from 24.91 to 22.86, but the component indexes showed some strength.  For example, the Employment indexes rose to their highest levels in more than two years; the Inventory index was positive (inventories rose) for the first time in more than a year; and the New Orders index rose sharply.

That chart also shows the Philly Fed index, which was released yesterday.  In contrast to the Empire State survey, the headline figure increased from 17.6 to 18.9, but the component indexes belied that strength.  New Orders and Shipments fell and Inventoriesfell back into negative territory.   Respondents did, however, indicate that employment improved for the fourth straight month.

In housing, the National Association of Home Builders Housing Market Index fell from 17 to 15.  For perspective, that index has spent the last two years between 8 and 20, but  between 8 and 72 over the last five.  Housing Starts fell by 5.9%; Building Permits fell by 1.6%; Mortgage Applications fell by 1.9%.

Neithther the Consumer nor the Producer Price Index showed much in the way of inflation.  The Core CPI rose by 1.3% on a year-over-year basis; Core PPI 1.0%.

Jobless Claims fell slightly, from 462,000 to 457,000.

Next Week

TuesdayExisting Home Sales is the first of four housing data points this week.  Economists expect that sales in February were at an annualized rate of 5 million, which, as the chart below shows is about 1 million below the average rate of the last ten years, and that leaves about an eight-month supply of homes.  The House Price Index (2/4) is expected to show that the average sale price in January was 1% lower than in December.  This is our broadest measure of home prices.

Wednesday – the MBA Mortgage Applications (3/4) index is released (no estimates are provided).  Durable Goods Orders are released a bit later in the morning.  They are expected to have grown by 0.5% in February.  With recent data showing that businesses are flush with cash, this report, with its categories like Computers and related products, Communications equipment, and the like, should prove key to determining if capital spending is increasing.  With the consumer deleveraging–although recent figures on retail sales and personal income and savings are contradicting the deleveraging idea–it’s left to businesses to pick up the slack and move the economy from recession to growth.  Business appears to be in a good position to do so.  New Homes Sales (4/4) for February gives us the final housing data point.  January new home sales fell to the lowest level (309,000) since they’ve been recorded (1963).  The next lowest rate was 329,000 in 1976–and that’s when there were 82.8 million households; today there are 117.2 million.  For the analytically inclined, that was a ratio of sales:households of 0.40:1 in 1976; 0.26:1 today.

ThursdayInitial Jobless Claims are expected to have drifted lower, closer to the 400,000 that is said to demarcate an expanding/contracting economy.  Before we anticipate that, we have to remember that initial claims are still in a rising trend that began with a low of 432,000 the week of Christmas, and which was confirmed with a higher low of 442,000.  We have to take out those levels before the downtrend can be considered to have resumed. 

Friday – the third and final public iteration of Q4 2009 GDPwill be announced.  The initial–as they say–print of GDP was 5.9%, driven largely by government spending and a reduced rate of inventory destocking.  There was no revision in February, and economists don’t expect one this time, leaving Q4 GDP labeled as phenomenal.  Unless we get a strong follow-through figure for Q1 2010 GDP (released at the end of April), however, Q4 will be seen as a one-quarter, Super Sugar Crisp high.  The last data point for the week is University of Michigan Consumer Confidence.  It’s expected to be largely unchanged from last Friday’s reading of 72.5.

Graig Stettner, CFA, CMT, Dad

Vice President & Portfolio Manager

Tower Private Advisors


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