The mood on The Street has been a bit more upbeat this week. The S&P 500 has advanced 20% since last Friday's bottom ending with the first four day up-streak since April. Much of this holiday glee has been attributed to another $800 billion aid package from the U.S. Government.
The Fed plans to purchase up to $600 billion of debt issued or backed by Fannie, Freddie, Ginnie Mae and the Federal Home Loan Banks. In addition, with the help of the Treasury, the Fed may provide up to $200 billion in financing to investors purchasing securities related to student loans, credit-card debt, car loans and small-business loans. The hope is that this will not only provide additional liquidity to these areas, but also indirectly lower mortgage rates and help put a spark back in the housing market.
A real test of this new found optimism may be retail sales estimates from the upcoming Black Friday. This will be used as a barometer to gauge the success of the holiday shopping season. Given the resilience the market has shown this week and the already bearish estimates for Friday, even a modest showing from shoppers may giver further legs to the market's recent gains.
We wish you and your family a happy Thanksgiving. As always, feel free to contact us with any questions or concerns.
Sean and Adam
smansell@evanstonadvisors.com
aerickson@evanstonadvisors.com
Wednesday, November 26, 2008
Friday, November 21, 2008
Good News?
Hello Everyone. This is Sean.
In filling in for Nate this week, I decided to take a stab at finding the silver lining in yet another tumultuous week on Wall Street.....................
In preparation, I did an article search on the Wall Street Journal website for "good news." First hit on the list: Obama. Given the election coverage, I can't say I was all that surprised. Regardless of political affiliation, it appears that Wall Street is looking to the President-elect for direction. Today's end of day rally (494 point rise in the Dow Jones Industrial Average, 47 points on the S&P 500) was attributed to news that the NY Fed President Timothy Geithner will be nominated as President-elect Obama's Treasury secretary. An economist and Fed veteran, Mr. Geithner adds experience as the central bank's liaison to Wall Street and was a major participant in discussions regarding Lehman Brothers and AIG. There are plans to introduce the entire economic team on Monday.
Uncertainty is one of the many factors affecting this market. As announcements of other appointments (especially the economic team) become known, they should reduce some of the uncertainty surrounding the next administration's policy. If the economic advisors the Obama team leaned into during the election are any guide (Volcker, Buffet, Summers etc.), the market should view positively the depth of experience and leadership his appointees bring to the table.
Though the news coming from the economy may not be positive. There is "hope" (forgive my audacity) :) surrounding the new leadership to tackle the tough decisions ahead.
Given the holiday next week, we expect decreased trading volume. In the past, this has meant a "slow" or less volatile market. Given the current state of affairs, we might see a bumpy ride instead.
We continue to look for value and opportunity in the equity markets and invite that you contact us with any questions or concerns.
-Sean Mansell
smansell@evanstonadvisors.com
nsnodgrass@evanstonadvisors.com
In filling in for Nate this week, I decided to take a stab at finding the silver lining in yet another tumultuous week on Wall Street.....................
In preparation, I did an article search on the Wall Street Journal website for "good news." First hit on the list: Obama. Given the election coverage, I can't say I was all that surprised. Regardless of political affiliation, it appears that Wall Street is looking to the President-elect for direction. Today's end of day rally (494 point rise in the Dow Jones Industrial Average, 47 points on the S&P 500) was attributed to news that the NY Fed President Timothy Geithner will be nominated as President-elect Obama's Treasury secretary. An economist and Fed veteran, Mr. Geithner adds experience as the central bank's liaison to Wall Street and was a major participant in discussions regarding Lehman Brothers and AIG. There are plans to introduce the entire economic team on Monday.
Uncertainty is one of the many factors affecting this market. As announcements of other appointments (especially the economic team) become known, they should reduce some of the uncertainty surrounding the next administration's policy. If the economic advisors the Obama team leaned into during the election are any guide (Volcker, Buffet, Summers etc.), the market should view positively the depth of experience and leadership his appointees bring to the table.
Though the news coming from the economy may not be positive. There is "hope" (forgive my audacity) :) surrounding the new leadership to tackle the tough decisions ahead.
Given the holiday next week, we expect decreased trading volume. In the past, this has meant a "slow" or less volatile market. Given the current state of affairs, we might see a bumpy ride instead.
We continue to look for value and opportunity in the equity markets and invite that you contact us with any questions or concerns.
-Sean Mansell
smansell@evanstonadvisors.com
nsnodgrass@evanstonadvisors.com
Friday, November 14, 2008
Down...Again...
I'm sure everyone is getting tired of me talking about the market going down. I certainly am!
Down Monday, down Tuesday, and down again Wednesday. The first three days cost the Dow 660 points, or 7.4%. Thursday started out looking much the same, and by lunch time the Dow was trading below 8,000 again, a decline for the first half of the day of about 315 points. And then the switch got flipped. The second half of the day was pure rally, climbing 870 points out of the hole, and closing up 554 points on the day.
Going into the weekend, some of Thursday's gains were "reclaimed" by the market at the open this morning, but in the next hour the Dow tried to climb back to positive territory. The steam ran out after that first hour, and by lunch we were down over 300 again. I went into a meeting just after lunch, and when I came out the market was in the black! But alas, it was not to be. Two minutes before market close, the Dow stood at 8,892, struggling to get to 8,900. In the last two minutes, it fell 395 points... will the volatility never end?!?
The market's gyrations were not the only news for the week though. And none of the news has been good. Henry Paulson's speech to Congress on Wednesday was the official announcement of the Treasury's change of direction for the TARP funds (the $700 billion rescue plan). The plan was originally sold as a purchase of troubled assets from financial institutions. In fact, that's what TARP stands for: "Troubled Asset Relief Program". However, instead of buying the troubled assets, they are now going to use the money to buy preferred stock of banks. They are basically using the funds to recapitalize the banks. This is not necessarily bad, but it's not what they said they were going to do with the money, and a number of the Congressmen are not happy.
Worse yet, Congress is now pushing for a bailout of the auto industry using the TARP funds. GM, Ford, and Chrysler that are about to collapse. In fact, DeutscheBank analysts set their price target for GM at $0. Those analysts are saying that GM is going to have to file bankruptcy. GM itself has stated that at the current burn rate, they'll be out of money early next year. Do these companies need a bailout? While the bankruptcy of any or all of them would result in hundreds of thousands of jobs lost, allowing them to continue to operate under the status quo would only delay the inevitable, and cost taxpayers real money. That would not be an investment, it would be a further drag on the economy.
Many of the politicians talking about it have said that they would tie bailout funds to "green" cars, essentially forcing the auto manufacturers to build more efficient vehicles. That makes a great sound byte, but it wouldn't fix the problem. The small vehicles (the little fuel efficient cars)have no profit in them, and the hybrids are too expensive in terms of technology for widespread adoption. Either way, the manufacturer would not make enough money to dig themselves out of the hole they are in.
So why the big bounce on Thursday? There have been a number of reasons put forth, including the G-20 meeting this weekend (the hope for another coordinated round of...well... anything to fix this mess!). I believe that it was pent up demand for stocks. The Dow got below 8,000, and people saw opportunity. The same thing happened a month ago. Stocks got to absurdly cheap levels, and buyers stepped in. Once the buyers begin to outnumber the sellers, the frenzy starts. On Thursday, was there anything different in the world at 3 PM versus at noon? There was no good news, no announcements, nothing. In fact, any news that was coming out was to the negative. But buyers perceived cheap prices, and stepped in. I believe that this is what we are going to see for a while now. A lot of volatility, with the market really doing nothing but moving sideways.
If you have any questions, e-mail me at nsnodgrass@evanstonadvisors.com
Down Monday, down Tuesday, and down again Wednesday. The first three days cost the Dow 660 points, or 7.4%. Thursday started out looking much the same, and by lunch time the Dow was trading below 8,000 again, a decline for the first half of the day of about 315 points. And then the switch got flipped. The second half of the day was pure rally, climbing 870 points out of the hole, and closing up 554 points on the day.
Going into the weekend, some of Thursday's gains were "reclaimed" by the market at the open this morning, but in the next hour the Dow tried to climb back to positive territory. The steam ran out after that first hour, and by lunch we were down over 300 again. I went into a meeting just after lunch, and when I came out the market was in the black! But alas, it was not to be. Two minutes before market close, the Dow stood at 8,892, struggling to get to 8,900. In the last two minutes, it fell 395 points... will the volatility never end?!?
The market's gyrations were not the only news for the week though. And none of the news has been good. Henry Paulson's speech to Congress on Wednesday was the official announcement of the Treasury's change of direction for the TARP funds (the $700 billion rescue plan). The plan was originally sold as a purchase of troubled assets from financial institutions. In fact, that's what TARP stands for: "Troubled Asset Relief Program". However, instead of buying the troubled assets, they are now going to use the money to buy preferred stock of banks. They are basically using the funds to recapitalize the banks. This is not necessarily bad, but it's not what they said they were going to do with the money, and a number of the Congressmen are not happy.
Worse yet, Congress is now pushing for a bailout of the auto industry using the TARP funds. GM, Ford, and Chrysler that are about to collapse. In fact, DeutscheBank analysts set their price target for GM at $0. Those analysts are saying that GM is going to have to file bankruptcy. GM itself has stated that at the current burn rate, they'll be out of money early next year. Do these companies need a bailout? While the bankruptcy of any or all of them would result in hundreds of thousands of jobs lost, allowing them to continue to operate under the status quo would only delay the inevitable, and cost taxpayers real money. That would not be an investment, it would be a further drag on the economy.
Many of the politicians talking about it have said that they would tie bailout funds to "green" cars, essentially forcing the auto manufacturers to build more efficient vehicles. That makes a great sound byte, but it wouldn't fix the problem. The small vehicles (the little fuel efficient cars)have no profit in them, and the hybrids are too expensive in terms of technology for widespread adoption. Either way, the manufacturer would not make enough money to dig themselves out of the hole they are in.
So why the big bounce on Thursday? There have been a number of reasons put forth, including the G-20 meeting this weekend (the hope for another coordinated round of...well... anything to fix this mess!). I believe that it was pent up demand for stocks. The Dow got below 8,000, and people saw opportunity. The same thing happened a month ago. Stocks got to absurdly cheap levels, and buyers stepped in. Once the buyers begin to outnumber the sellers, the frenzy starts. On Thursday, was there anything different in the world at 3 PM versus at noon? There was no good news, no announcements, nothing. In fact, any news that was coming out was to the negative. But buyers perceived cheap prices, and stepped in. I believe that this is what we are going to see for a while now. A lot of volatility, with the market really doing nothing but moving sideways.
If you have any questions, e-mail me at nsnodgrass@evanstonadvisors.com
Friday, November 7, 2008
A new President has been elected
For a moment, all eyes left Wall Street and focused instead on the election. At first, it looked like the market liked what was happening, as the Dow soared on Tuesday in anticipation of the election cycle finally being over. But the excitement was short-lived, at least as far as the markets are concerned.
After climbing over 300 points on election day, Wednesday and Thursday were a dramatic reversal, with each day registering losses of 486 points and 443 points respectively. So what happened? Why the huge decline after all the celebration surrounding the election?
Since the election is over (finally!), the focus shifted back to the economy. And the economy is in bad shape, and looks to be getting worse. Nonfarm productivity growth fell to 1.1% from 3.6% in three months. New claims for unemployment benefits rose. 3.8 million people are currently drawing unemployment benefits, the most in 25 years. Hours worked declined, an indicator that layoffs may be pending. Even so, labor costs were higher than expected. Unemployment numbers released Friday gave even more evidence that things are slowing down. The ISM (Institute for Supply Management) index is an indicator of service sector activity. The index declined to 44.4, below expectations that it would come in at 47. Anything below 50 is seen as indication that the economy is contracting.
The market did rebound 2.85% today (Friday), ending the week down 382 points. As we've said before, we believe that the market angst is going to be with us for a while. However, it is likely to be a bit manic depressive, with its moods swings dependent on what data has hit the market most recently (and more importantly, how the data was interpreted).
If you have any questions or comments, please e-mail me at nsnodgrass@evanstonadvisors.com
After climbing over 300 points on election day, Wednesday and Thursday were a dramatic reversal, with each day registering losses of 486 points and 443 points respectively. So what happened? Why the huge decline after all the celebration surrounding the election?
Since the election is over (finally!), the focus shifted back to the economy. And the economy is in bad shape, and looks to be getting worse. Nonfarm productivity growth fell to 1.1% from 3.6% in three months. New claims for unemployment benefits rose. 3.8 million people are currently drawing unemployment benefits, the most in 25 years. Hours worked declined, an indicator that layoffs may be pending. Even so, labor costs were higher than expected. Unemployment numbers released Friday gave even more evidence that things are slowing down. The ISM (Institute for Supply Management) index is an indicator of service sector activity. The index declined to 44.4, below expectations that it would come in at 47. Anything below 50 is seen as indication that the economy is contracting.
The market did rebound 2.85% today (Friday), ending the week down 382 points. As we've said before, we believe that the market angst is going to be with us for a while. However, it is likely to be a bit manic depressive, with its moods swings dependent on what data has hit the market most recently (and more importantly, how the data was interpreted).
If you have any questions or comments, please e-mail me at nsnodgrass@evanstonadvisors.com
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