 |
 |
 |
Alert: John Collins, William Barnet and Gary Countryman resign from BofA board. 10 Bank of America Board Members have resigned 2009.
The big number came out today and the U.S. economy contracted by 1% in the second quarter of 2009. Contracting 1% is good news when you compare it to the 6.4% (revised down from 5.5%) contraction of the first quarter. This -1% is the fourth quarter in a row of negative growth. Here are the four negative GDP quarter number; Q3 2008 -0.3%, Q4 2008 -3.8%, Q1 2009 -6.4%, Q2 2009 -1.0% which total to the U.S. economy shrinking by 11.13% in the past year. In the last four quarters a full 1/9th of the U.S. economy has disappeared.
Since the recession began we have lost about 6.5 million jobs and another number that came out today was a decline in consumer spending which fell 1.2% vs. a forecast loss of 0.5%. The U.S. consumer fuels 71% of the economy and with jobs disappearing like they have, consumer spending is bound to drop, but this drop is more than double what we expected. The greater loss along with the revision (-5.5 to -6.4) downward to Q1 GDP caused the dollar to drop to its lowest closing level since September 22, 2008. This drop in the dollar spiked the prices of commodities from aluminum to zinc with commodity related stocks being the big movers today.
The iShares gold ETF (NYSE: GLD) rose modestly off the open but took off at at about 11:44 a.m. today as the dollar started to break down. At 11:28 the Powershares Dollar ETF (NYSE: UUP) traded to a new low on the year briefly and then bounced off this level. At 11:44 a.m. the the gold buyers had a feeding frenzy driving the GLD from $92.59 to $94.03 which corresponds to roughly an increase in the price of gold of $14.44 an ounce. On the day the GLD finished up $1.73 (+1.88%, $93.35) and the shiny yellow stuff itself was last seen trading at $954.50/ounce (+$20.80, +2.23%) at 4:47 p.m. est. NYMEX WTI Crude gained $2.09 a barrel trading at $69.03 at 4:49 p.m. est.. If nothing else, that signal at 11:28 from the dollar trading a new multi-month low was a screaming BUY GOLD signal and trades of buying the GLD or many of the gold miners would have made you good money. Agnico Eagle Mines (NYSE: AEM) took off at 11:44 a.m. as well.
The Dow Jones Industrial Average closed up 17.55 points today (+0.18%, 9171.61), gaining 0.82% for the week and 8.6% for the month of July. The S&P 500 closed up 0.73 points (+0.07%, 987.48), gaining 0.84% on the week and 7.4% for July. The Nasdaq 100 lost 6.51 points today (-0.40%, 1603.36) and gained 0.27% on the week and for the month of July was up 8.5%.
As mentioned, other than commodities, the markets did not move much today with the lead sector being energy tacking on 0.91% with the next highest gainer being consumer non-cyclicals up 0.41%. Tech was the down most sector losing 1.03%.
The politicians in D.C. had a winner and they didn’t even know it. their ‘cash-for-clunkers’ program has already burned through the budgeted $1 billion in one week alone. Now who would have thought that a government program that gives away money would catch on?
This program is supposed to encourage people to trade in their less fuel efficient gas guzzling cars and buy a shiny new gas nibbling car. Over 200,000 of these trade ins have happened with one dealer reporting the average car traded in got 15 mpg and the cars the buyers drove off with averaged 27 mpg. On top of all this the dealerships are selling more cars, the car makers are making more cars and the cars parts makers are making more parts. More jobs, less oil, free money! This is great! Ohhh the wonders of socialism!
OK wait – where is the money coming from? Oh yeah – taxes, debt, future taxes, the printing press? There is no free lunch and as free money programs are always popular with the voters Congress promptly voted to approve more money to give away. I think these vote junkies would throw billions of dollars out the window, regardless of whether or not it is good for the country, if they thought it might get them re-elected.
While you get all excited about some type of bail out or some type of free something or other from the Government remember this – the money needs to come from somewhere. Here are a few quotes to think about over the weekend;
“Socialism works until they run out of other peoples money to spend.” – Margaret Thatcher
“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money. “- Alexis de Tocqueville
Have a great weekend.
Alert: Q2 GDP down only 1% — better than expected
S&P 500 futures up +4 to 986.20 @ 8am
GDP numbers today. President Obama weighed in on the issue, saying he expects the Q2 number will show the economy has contracted. Analysts are predicting however that we’ll see that the recession has slowed down.
European markets get weighed down by Total S.A. (NYSE:TOT) and Italian oil firm Eni. Eurozone CPI keeping going down. According to Eurostat, CPI fell 0.6% in July
Deutsche Bank’ Josef Ackerman says credit delinquencies among the consumer class will launch a new phase of financial crisis. Earlier this week, Deutsche Bank revealed that they set aside $1.4bb for risky and bad loans. This loan provisions was 7x more than what they set aside last year.
Yesterday, New York Attorney General Andrew Cuomo, released data on bonus numbers from TARP recipients. In some cases, bonuses paid out were greater than company’s net income. This argument has two very compelling sides to it. The big question is do we want to encourage risk and behavior that got us into this mess?
WSJ reports that retailers are trying Christmas in July programs to jump start sales. Sears Holdings (NASDAQ:SHLD) is inviting shoppers to visit “Christmas Lane” on its website and even has “Christmas Lane” in some of its Sears’ and Kmart stores.
The “Cash for Clunkers” program already ran through the $1bb Uncle Sam gave it. Unless the program gets more funding, it will have to be shut down after only a few days. The good news is that it’s boosting car sales, which makes General Motors and all Michigan politicians very happy.
Autonation (NYSE:AN) reported adjusted EPS of $0.29 vs. $0.24 estimates. Profits are down though, from $51mm to $36mm. Of course the most famous living Michael “Mike” Jackson, Autonation CEO, is on CNBC again. To no one’s surprise, he’s a “Cash for Clunkers” fan.
In another sign that Manhattan is becoming a giant mall, JC Penney (NYSE:JCP) is opening its first ever department store in the city.
Cell phone maker Motorola (NYSE: MOT) posted a profit when a loss was expected, MasterCard (NYSE: MA) beat their earnings number by almost 10% and General Electric (NYSE: GE) got saluted by Goldman Sachs with an upgrade on speculation the government would not make GE dump their finance arm today sparking a rally of 83.74 points in the Dow.
MA +$5.56 (+2.94%, $194.11), GE +$0.85 (+6.93%, $13.11), MOT +$0.62 (+9.43%, $7.19).
All week the bears have been attacking the market trying to push it down, but each day an afternoon rally ran the indexes back up and cut what could have been mid-sized to large losses to small losses each day. The market hung in there this week until today, when a raft of good news took us to new highs on the year and to our highest since November 5th of last year – the day after election day which was Day One of November’s brutal 1600 point, three week collapse in the market. Today’s market action ran counter to the past three days, as the market was up over 160 points within the first ninety-minutes of trading, but a sell off in the last half hour took 80 points off sending the close of the Dow right back into the general range of closes of the past four trading days.
The economy stayed out of the stock market’s way today as the Jobless Claims number came in right where expected (-584,000 vs. -585,000) and the $28 billion 7-year Treasury note auction went reasonably well with a 2.63 bid-to-cover at 3.369%. Looking at the last six monthly 7-year auctions shows that the yields on this note have increased from 2.748% to 3.369% showing that rates are increasing. The 1 p.m. auction went better than yesterdays 5-year and that kept the treasury market from throwing water on a stock market rally that was in full bloom by that time.
All eyes will be on the GDP release tomorrow which will be the first release of Q2 productivity. The importance and respect the market is showing this number is being illustrated by the sell off late today, as traders do not want to be holding too much stock when this number is released before tomorrow’s open. In the disastrous first quarter of 2009 the revised final GDP came in at -5.5% and the expected number for tomorrow is -0.7%. This would mark quite an improvement and put us with an economy that is contracting at a rate of less than 1% showing a huge move in terms of the rate of growth (or shrinking loss) in percentage terms as a move from -5.5 to -0.7 is quite significant. Also, tomorrow is the last trading day of the month so be ready for some crazy-makes-no-sense action as traders square their books and there also may be some minor window dressing going on.
The S&P 500 was the percentage gain leader today coming within 4 points of 1,000 at its peak closing up 1.18% (+11.60, 986.75) with the Dow Jones Industrial Average in second up 0.92% (+83.74, 9154.46). The Nasdaq 100 had the smallest percentage increase but still had a nice day up 0.64% (+10.26, 1609.87).
Oil surged back almost making up all of yesterdays losses with NYMEX WTI Crude adding $3.42 a barrel trading to $66.77 a barrel at 4:16 p.m. est.. Oil traders could also be setting up for the GDP number tomorrow as if that number comes in where expected it will be showing the economy getting back on its feet and moving towards positive growth once again. Gold was up as much as $9 an ounce but got hit in the late day sell-off that caught the rest of the market. New York Spot Gold closed up $3.50 an ounce ($932.90/ounce at 4:19 p.m. est).
The sector watch shows the hot sector today was finance up 3.03% followed by energy on the bounce in oil up 2.48%. All sectors were in the green with tech and the consumer cyclical sector bringing up the rear up 0.28% and 0.21% respectively.
At 6 p.m. Obama has beers with Henry Gates and Sgt. James Crowley as everyone tries to make nice after the incident up in Cambridge, Massachusetts on July 16th. There has been much written that this debacle is taking attention away from the task at hand, which is socializing (or destroying – your choice) our health care system. They will be drinking a beer that, while an American icon and a good friend of mine, is now owned by InBev from Belgium. Over the past few years we have seen Miller sold off to South Africa, Coors sold to Canada and now good ole’ Budweiser is housed in Europe. I think if the bailout happy politicians in Washington D.C. want to get on better relations with the voters they should stop spending billions upon billions bailing out banks and ailing car companies and buy us back one of our breweries! Now that is a socialization plan I could get behind! Problem is, if the government got involved it would probably end up just like that sign at my favorite watering hole; “Free Beer Tomorrow”
