Wall Street Hoping For Better Returns This Week
March 6, 2008
As the fears of recession are at there highest, investors are looking to economic data scheduled to be released on the Monday for a brighter outlook. At this stage, investors seem to be quite used to the declining employment market service sector. Some analysts have stated that investors are, however, willing to turn a blind eye to these factors and start investing once again. Wall Street is clinging to the hope that economic reports due this week will indicate some upward momentum, as fears are that reports of another downward moving quarter will once again turn investors away.
The week is scheduled to start off with the Institute for Supply Management’s report on the nation’s manufacturing in the month of February. Forecasts are, however, that these reports will show a decrease in production, especially after the slight increase the industry saw in January. Another report due this week is the ISM’s calculation of the Service Sector activity for February. Economists are again predicting another decline , unfortunately right on the back of the dramatic plunge that was witnessed in the previous month.
The turmoil in the market is only reinforced by the reductions that occurred in the manufacturing industry in December; which was the first time such a decrease had been seen since January 2007. The service sector also showed large-scale reductions in the past few months which is the first time it has done so for the last five years.
However, the most important report to be released this week for Wall Street is employment figures for February. This data is scheduled to be released on the last day of the week. Friday’s report is, irrespective of the data in it, going to pull the investors in one way or the other. Though when one group of economists in the country are predicting a small rise in payrolls, another group are saying that payrolls are likely to dip and make it two months in a row of reductions. Speculations of this nature are fueled by the Labor Department of USA announcing that net jobs for the nation saw a loss for January. This was the first time this had happened in the last four years.
However, the former group of the economists are of the view that the Labor Department might actually revise the January report if they later find out later that jobs had actually risen during the month. This has occurred previously, in August of 2007, and the labor market had then revised figures one month later. According to analysts, Wall Street has its fingers crossed for good figures in the coming economic data, either way.
Value Of Dollar To Decline Further
March 6, 2008
According to many currency experts, the US dollar is predicted to weaken further in the near future. The dollar has been enduring severe losses in the past few weeks, and according to analysts, it is only going to get worse.
Many analysts are of the view that the greenback is going to be in a bad state until the middle of the year. It is believed that it will receive some sort of relief after this point.
The main reason for the massive decline in value of the dollar this week, is due largely to statements made by the Federal Reserve chairman last week. Ben Bernanke, Federal Reserve chief, had mentioned during his testimony at Capitol Hill last week, that the Federal Reserve might implement another rate slash during the Federal Reserve’s meeting in March, which resulted in the dollar losing a lot of ground.
Bernanke’s words, along with the other issues already facing the dollar, where enough to send the value of the dollar down the drains. This drop saw the Dollar touching decade lows against many currencies; the Japanese yen, Swiss Franc and the Malaysian ringgit are some of the currencies against which the dollar took an especially large fall. Last week the dollar hit its all time low against the Euro.
Most currency strategists are saying that the weak value of the currency is indicating the economy of the nation is going to go from bad to worse. The dollar last week was very consistent in recording all time lows against the Euro.
Currency analysts are very sure that the dollar is going to stay in its current state for the next month at least, if not longer. The dollar is going to go even further down if the employment report that is scheduled to come out later this week also turns out to be as bad as economists are forecasting. If it indeed turns out to be a depressing report the result might be that the dollar hits rock bottom.
As per the forecasts that have been made recently the dollar is going to hit a top of $1.55 to the fifteen nation currency very soon and this it will drop further in front of the Japanese Yen. The fall might be as low as ¥101 or ¥102.
Although currency experts are united in saying that the dollar will recover towards the middle of the year, as the economy of the nation starts to get back on its legs. The dollar again would reach a more stable position as soon as the Federal Reserve puts a stop to the rate slashes it has been employing so frequently nowadays.
Stocks manages to stabilize towards the day’s end
March 5, 2008
On the 4th of March the Wall Street finally managed to cut the losses as the day came to a close after a tough session of trading. The day however saw the Blue Chips taking a fall. The broader section of the market however was able to neutralize the losses it had incurred in the tough session which was influenced by the questions regarding profit forecasts of Intel and the Citigroup. The grim comments about the state of the economy which came from various Fed officials were also influential on yesterday’s trading.
The Dow Jones industrial average dropped by almost 0.4 percent and the Standard and Poor’s 500 lost 0.3 percent. The NASDAQ composite index which is heavy on the tech industries however remained almost unchanged. All these three main indexes had fallen a lot more during the after noon session. The DOW had actually lost 1 point to be down by 200 points. But the stocks were able to decrease the margin of losses as the day came to an end. The main reason which contributed to the stocks gaining some respect towards the end was because of the reports that the Ambac Financial was close to a bailout package. The encouraging comments which came from the CEO of Cisco also greatly helped the stocks to cut down on its losses.
The 5th of March is scheduled to bring out a lot of economic data and this would play its share of role in determining the value of shares. The main report for which the investors are eagerly waiting is the employment report for the month of February. This report would be coming out on the 7th of March. Reports about the manufacturing sector as well as the service sector are also scheduled to come out this week. Another piece of economic data which the investors are waiting for is the intervallic beige book evaluation of the nation’s economy. This is planned to come out by the evening of the fifth of March.
The reason for the early loses the stocks took was because of the 4.3 percent slump the Citigroup took to reach the lowest level in the last nine years. The full year earnings of the company were cut by Merrill Lynch. Merrill reported that the Bank was still, in a position to take another $18 billion in the form of write downs linked to mortgage bets which went bad. In separate news the Dubai International CEO said that the Citigroup might need extra funds to cover for its losses.
The Intel Company also reported that there might be a decrease in its profits. This warning along with the news from Citigroup was bad news enough for the market to go down. But the news which came out later in the evening about the growing possibilities of a bailout for the bond insurer Ambac together with some upbeat remarks from the CEO of the Cisco Company ensured that the stocks were able to gain some amount of respect and cut the losses by some extent.
Fed Head calls on the lenders for leniency
March 5, 2008
On the fourth of March the Federal Reserve chairman Ben Bernanke called on the mortgage lenders to show more leniencies towards the homeowners who are facing foreclosures and to help them by decreasing the loan amounts. He made this statement on Tuesday as a result of the large amount of home foreclosures that were happening recently. He urged the lenders across the country to provide extra relief to the suffering homeowners.
On Tuesday, when he was addressing a meeting of a banking group in Orlando, he said that the current situation calls for a spirited response. He warned that although many relief attempts were on their way from both the government as well as the industry the number of foreclosures and delayed repayments of home mortgages are going to be very high for some more time at least.
The very high numbers of foreclosures that are happening in the country are now contributing to worsening the various problems that exist in the country’s housing market. Bernanke also said that this was again making the economy of the nation look more fragile. It also strengthens the beliefs that the economy is in a recession or is on the verge of one.
The chairman of the Fed said that if the rates of stoppable foreclosures were to be reduced it would help in providing economic steadiness to the households, neighborhoods as well as to the nation. Acknowledging the efforts many service’s and lenders have already undertaken an action, Bernanke said that more needs to be done to get the housing market out of the mess it is already in. He especially appreciated the efforts the lenders have taken in widening the various loss-mitigating methods.
Talking to the meeting of the banking group he suggested that the numerous mortgage companies must decrease the amount of their loans and offer more support to the struggling home owners. He also said that reductions in the principal would help in refurbishing some amount of equity for the owners. This would, according to him, be a better way to avoid delinquencies and foreclosures. Bernanke admitted that this was going to be a very difficult idea to sell to the lenders. This is because the lenders are very unenthusiastic about writing down principals. This is because the lenders feel that if they wrote down the principals and if the house prices were to take another fall, they might yet again be pressurized to write down the principals.
An official from the banking association responded to this suggestion of the Fed head and said that they will discuss the issue amongst the bankers. He also said that the decision was going to a very difficult one. Another official was of the view that if every one was going to be given reliefs it would anger many people who had taken mortgages they could handle. If such a move was to be made it would create a lot of animosity amongst many people. Bernanke however countered these arguments saying that such long terms will have to be taken if some improvements were to be made in the nations housing sector.
Credit disaster proves to be an economic threat
March 4, 2008
What a year ago was just one amongst many other problems has now become one of the most serious threats to the economy of the USA. On the 2nd of March a group of experts got together to come to the alarming conclusion that the credit crisis that is occurring in the country is becoming a huge threat to the nation’s economy. In fact many economists are of the view that this is the gravest risk the economy is facing now.
The results of the survey which was conducted by the associates of the National Association for Business Economics would come out on the 3rd of March. The overwhelming thing that caught the attention of many is that, 34 percent of the total number of economists who participated in the meeting was of the view that ranked the turbulences in the financial market out of loan defaults as the number one threat to the country for the coming two years.
The rise in opinion is by almost double. The last time the survey was conducted in the month of August the percentage of economists who had ranked a credit crisis as the prime threat was only 18 percent. At that point of time 20 percent of the economist saw the rising terrorism and conflicts of the Middle East as the gravest threat.
The interesting thing, and a rather alarming thing, to note here is that one year ago the risks of credit crisis were not even considered as a considerable threat. The fact that it has risen to the number one spot in this relatively small time period shows how grave the situation is. The recent survey which was conducted found out that almost 18 percent of the members pointed out to massive debts which are held by the businesses and households as the main problem right now.
The survey was conducted by questioning 259 economists from across the country. It was conducted in the first 14 days of February. As a result of the various other things that have happened since then the credit crisis have been highly underscored.
On the 29th of February the INDU (Dow Jones industrial average) took a dive by 315.79 points. The main reason for this steep decline was because of the number of disheartening economic reports that had come in during the week. One of the economic data that came in was from the UBS Securities which said that losses that the financial system would have to suffer from those securities are backed by mortgages and other such debts which would equal to almost $600 billion. This figure was a lot more than what the economists had projected till then. The previous prediction the economists had made was that the total was going to come up to $400 billion.
The main problem behind the credit crisis is the securities which are backed by different sub prime mortgages. Most of these people defaulted on their loans as a result of the crash which the housing market took.
Government keen on helping people but not babysitting them
March 4, 2008
On the second of March, word came out from the white house that the government of the nation was very much concerned about paying heed to the woes of its subjects but babysitting the people was impossible. The news came out in a time when a lot of hue and cry was being sounded about the government not doing enough to help the housing market of the nation. President Bush however said that some of the plans with which the Congress are coming up, to help the victims of the housing crisis, would be nothing but the reckless use of the tax paid by the citizens. Henry Paul the Treasury Secretary also shared this idea with the President.
The Democrats, who hold the majority in the Congress at the moment, responded to this statement of the President by saying that the Bush administration was more concerned about saving the Wall Street rather than the people of the nation. They said that all the plans with which the Congress had come lately were solely for the purpose of bailing out the victims of the crash in the housing and mortgage market.
However, even while all this is happening, more and more sustenance offers are being tossed around to help the suffering people. The latest one to get approval from the administration was Project Lifeline.
Now with the presidential elections this close the government officials are likely to come out with more number of plans, proposals and rescue missions to rescue the borrowers and debtors. This is because all the presidential nominees have been quick to take hold of the issue of the housing market which has been doing very badly for the last many months.
One thing both parties in the nation are very careful about while proposing new measures is to make sure that these plans are only meant for the assistance of homeowners and not for the money lenders and mortgage providers. This is almost impossible as both the other categories are mutually related and helping one while not helping the other is not going to happen, especially in the current scenario when the economy is going through a very bad patch.
Since all the ‘bailout’ plans with which the parties come out will be just dead rubber when it arrives, what matters the most is how well they have been framed. It is mandatory to make sure that these plans are designed as a stop gap measure to help the housing market as well as the nation’s economy and not as a means to aid the individual investors or lenders.
It has been found in the past also that the congress has always been dramatic about coming out with many such bailout plans. But what, according to many senior lawmakers in the nation, is that necessary action had to be taken. This must not get hung on a debate as to whether or not it is a bailout plan or not. Many are of the opinion that the Bush administration must go ahead with the proposals of the Congress as the taxpayers would eventually be paid back when the economy returns to a stable state.
Iraq war played a major role in slowdown of the US economy
March 4, 2008
According to economist Joseph Stiglitz, a Nobel laureate, the economy of the United States of America took a severe blow from the War of Iraq. He says that the war has contributed heavily to the slowdown of the nation’s economy and is delaying an economic recuperation. This view of his was let out on the 2nd of March.
For now however the US government is heavily underestimating the expenditure of the war, said Stiglitz in his book which has been named ‘The Three Trillion Dollar War’. The book is scheduled to be published on the 3rd of March.
The Iraq war till date has cost the treasury of the nation almost $845 billion as direct expenses. The war, which started almost 5 years ago, was said that it would generate enough money to pay for itself through the increase in the Iraqi oil exports. This in itself shows how badly the expenditure of the war was calculated.
He went on to add that there once used to be a time when it was believed that wars would help in making the economy stronger, but in today’s world no true economist would second this notion. This is because a war nowadays would mean taxing the State treasure heavily.
Stiglitz along with the co-author of his book is of the opinion that the Iraq war actually cost the treasury much more than what the government claims it did. Through a method they call as ultraconservative method, they say that the actual cost of the war was almost $3 trillion. They say that it might have been more than the cost of World War II also which after adjusting for inflation would have been somewhere around $5 trillion.
Since the direct cost of a war would not include the expenses incurred as interest on the amount of money that was raised as debt to fund the war and the medical expenses for the war veterans heading back home the total expenditure would be short by a very huge amount indeed. The direct expense further excludes the costs for replacing that hardware which got destroyed or degraded in their capacity of work as a result of the war. These are also things which would need a lot of money. To top it all, there are expenses which are not accounted in the budget. Some such expenses are the increasing oil prices and other social and macroeconomic expenses. These are however expenses that would be recorded in this book.
The issue attains a new dimension when we come to know that the total amount of money that has been allocated for Autism research in the latest US budget is $108 million. The truth is that this is the amount of money that is being spent on Iraq every 4 hours. He says that the cost of the war could have been used in many other ways to enhance the state economy. It would also have meant that the US economy would not have been facing such a bad time.
The Democratic fundraising makes the GOP edgy
March 3, 2008
As the Grand Old Party watches the amount of cash the two Democratic Party nominees are sweeping in as campaign funds the Republicans are starting to feel a bit edgy. Many people in the country believe that what is happening is a look into the future. The Republican Party members, when they see Hilary Clinton and Barack Obama raking in tons of cash suddenly get the feeling that they may be outrun in the race just because of lack of funds.
The fact that the amount of money the Republican is certain for the presidential elections have been able to get is only one by seventh of what the 2 democratic nominees put together was able to get. This itself reflects the amount of cash the Democrats are receiving in the form of donations. Out of the two Democrat nominations, Barack Obama especially has been able to develop a very broad base of enthusiastic donors. The good thing for him about this is that the help that these people are willing to give is far more than just money. This is what is ringing the alarm bells in the Republican camp.
The gap that had been existing between the 2 parties since the mid term election in 2006, has been maintained by the Democrats with fervent vigor. Even the republicans have started to feel that the Democrats raise more money, have better crowd support and a lot of excitement during their campaign trail. If all these put together with the fact that the Democrats have more turnout during their campaigns, the Grand Old Party is going find it very tough during the fall when the elections will be held.
In the month of January Barack Obama raised close to $36 million and in the month of February Hilary Clinton was able to raise $35 million according to her campaign aides. It is estimated that Obama would have received at least $50 million as funds in the month of February. But the amount of money McCain was able to raise in the month of January was only $12 million. It is said and believed that he is going to get only the same kind of money in the month of February as well.
The amount of money that is flowing into the Democratic camp hints strongly towards the possibilities of a presidential candidate for the first time since the Watergate scandal forgoing public finance for the purpose of General Elections. This would result in the setting aside of almost $85 million for the months of September and October if he or she is able to raise more money.
As if the Republican Party is sensing this, McCain had been asking Obama to agree on holding the general elections using public funds. But it is learnt that the Democrats are advising Obama not to give ears to the Republican request. This is because they fear that the republicans would then use outside parties to raise any amount of cash to flatten any advantage the Democrats may have in terms of cash.
Buffett’s advice on investing
March 3, 2008
On the 29th of February the Berkshire Hathway announced that it had completed an excellent year with respect to making profits. They said that the company was able to make a gain of almost 11 percent on its net worth at the end of the year 2007. the CEO of Berkshire Hathway announced on the 29th of February while he was facing the shareholders that Berkshire was able to grow it’s book value of per share by an overwhelming 21 percent on an yearly basis ever since he had taken the reins of the company almost 44 summers ago.
However the cautious crooked investor was quick in remarking that the performance the company was able to showcase in the last years might not be a guarantee for the future outcomes of the company’s ventures. He cautioned the investors that Berkshire is going to be restrained by the success the company has been able to achieve in the past few years. Berkshire, whose interest rates from chocolate making to making planes is predicted to be hit by the slimming in the gain margins.
While he was giving the report Buffett went on to boast that the successful record Berkshire has been able to maintain in the past can be neither duplicated nor repeated. He went on to say that the pool of assets as well as the revenues the company has now is too huge for any one to outsize. He however also noted that because of these huge earnings the company itself might not be able to make very big profits after a point of time.
The fact that such a comment was made right when most of the component companies of Berkshire had finished an exceptionally brilliant year, is a very good example to show how crooked an investor Buffett is. The underwriting gains dropped to almost $3.37 billion in 2007 from $3.84 billion in the year before that is taken into consideration. But this was the year when Buffett had announced that the insurance executives of his company had ‘simply shot the lights out’.
Another thing about which Buffett is concerned about is apart from natural disasters is the bill the government will come out with. This would force the company to tell the shareholders of the US companies that the company had actually been increasing their incomes by decreasing the amount of money that would be used for funding the different insurances.
If that situation isn’t bizarre enough, Buffett continues to note that if stocks were to return 10% yearly through this century, then Dow would touch 24 million by 2100. He advices all potential investors that investing in the equities blindly taking heed from various advisers wont be a good idea as the math just isn’t right.
Buffett, who is 77 at the moment, is unfazed about his age. He looks as fit as always and has no plans of retirement in his mind. The only thing he advised the people present at the meeting was to be careful when going ahead with their investments.
Consumer spending almost at a standstill
March 3, 2008
On the 29th of February the consumer spending in the country came to an almost standstill. The consumer spending throughout the country has been threatening to freeze up for a long time. The reason behind the declining consumer spending is said to be the completely battered consumer sentiment prevailing in the US. The consumer sentiment has been reducing frequently as a result of the sky high energy prices and the fallout in the housing sector.
The economists in the nation said that the reports about the consumer spending that came in on the 29th were clear indications that the county’s economy was moving from bad to worse. They are of the opinion that the fallout in the consumer spending is because of the looming prospects of an economic recession.
The Commerce Department of the nation however, on the 29th, announced that the spending had actually gone up by 0.4 percent in the month of January. This according to them was much better than what the analysts had been predicting. However the fact is that the gain in consumer spending that the Commerce Department announced was as a result of the gush in inflation that had happened during the course of the month. If the impact of the rising prices were neglected the consumer spending for the month of January did not really show any gain. This was the second month in a row when the amount of money spent by the consumers did not increase.
Ever since the last two months of the year 2001, when the country was down with the previous recession, this is the first time that the consumer spending has touched this low barring the 2 months in the year 2005 when the disruptions due to the Hurricane Katrina had weakened the consumer spending by a considerable amount. This is rather an alarming fact because the last time the consumer sentiment was in a negative state the country was in a recession.
A survey to measure the consumer sentiment that was conducted recently found out that consumer confidence has dived to an even lower limit in the month of February. The reading about the consumer sentiment in the nation which is displayed at Reuters/University of Michigan showed that the consumer sentiment has taken a fall to reach 70.8 in the month of February. In the last 16 years the consumer sentiment has never taken this big a fall. A survey which was conducted by the Conference Board suggested that the consumer sentiment reading that was recorded for the month of February was even lower than what it was during the war of Iraq in 2003. The consumer sentiment that was recorded for the month of January was 78.4 and the amount by which it fell in just one month is quite disturbing.
The common opinion of the analysts around the nation is that the slowing down of the spending and decline in consumer confidence is reflecting the bad time through which the economy had gone through in the last few months.
Economic growth still the same as predicted
February 29, 2008
On the 28th of February when a revised evaluation on the GDP came out, it showed that the growth rate of the US economy which was predicted in the last quarter is going to remain the same. The growth rate which was announced earlier was of almost 0.6 percent.
Gross Domestic Product is the widest measure of a country’s economic activity. The Commerce Department on Thursday said that the Gross Domestic Product after getting adjusted for inflation is going to be at an annual rate of 0.6 percent in the last quarter. The results of the announcement that came out on the 28th were in line with the estimates that were released late in the month of January. Even though the rate has managed to stay at the same position without slipping further below, this rate is still way below the finishing reading in the third quarter. The final reading in the third quarter was 4.9 percent annual rate.
The various economists of the nation who were surveyed said that they had expected the revised reading to show that the economy had grown at an annual rate of 0.8 percent in the final quarter. However there are quite a lot of positive things that can be inferred from the revised report.
Some of the positive signs are that the alterations in the non-farm catalog sheared off almost 1.4 percentage points of the total predicted growth. This was more than the prediction in the previous report where it had said that the percentage point was going to be 1.2 percent.
Many of the surveyed economists were of the opinion that the economy was stronger than what most people were thinking. True that the numbers in the various economic reports that are coming out are not all that great, but the economy is managing to stay in a fixed position without slipping further. The economist say that the numbers in the revised inventory hints that the real Gross Domestic Product growth rate was up from the previously forecasted 1.8 percent to 2 percent.
Other economists said that the boost in the inventory insolvency indicates that the business sector will pick up on its production during the first quarter to refill those inventories. This would then provide for the first quarter to show some signs of positive growth. But most of the economists who were surveyed said that the country’s economy is going to grow at a very slow pace indeed. Although most of them were of the view that USA would be able to stay clear of any recession.
Another interesting thing that was there in the report was that it showed a mixed view for inflation in the previous quarter. The Federal Reserve has cut the interest rates several times after September. While many economists are of the view that the Fed must slash the rates further to improve the current economic condition, many others are of the view that further key interest rate cuts would result in the nation going into an inflation.
Stocks drop again as fears of recession mounts
February 29, 2008
The Stocks slumped again on the 28th of February as the worries of a coming recession mounted to higher levels. The stocks took a drop on Thursday after the remarks made by the Federal Reserve chairman Ben Bernanke on the banking division enhanced the fears of a recession. Another reason for the drop was the feeble reports that came in on Thursday about the nation’s economic growth and the employment market. His remarks together with the weak reports that came in was enough to scare away the Wall Streeters who were looking for some sign of financial recovery.
The Dow Jones industrial average fell by 0.9 percent. The Standard and Poor’s 500 index also took a fall of 0.9 percent at the end of the day. The day also saw the tech heavy NASDAQ Composite as well taking a fall of 0.9 percent. After the trading closed at the end of the day Dell announced a quarterly profit as a result of the numerous charges it had taken in the quarter. The profit that it has reported is however lesser than what it was in the previous year. This resulted in the shares falling in the extended hours of trading.
AIG, Dow Stock, announced that the group has taken an $11 billion write-down and also declared a huge $5.3 billion loss in the quarter. The reason the company gave for the heavy loss in the quarter is because of the fall-outs the company had to suffer in the investments the company had made in the home loans. The shares of AIG fell during the extended hours of trading after this announcement came in.
Once the trade closed the Gap company said that its quarterly incomes had met with the forecasts. They also said that the board of the company had approved a $1 billion shares buy back plan. This announcement resulted in the shares of the company taking a jump by almost 5 percent during the after-hours trading.
The last day of February is going to be very crucial as the reports on the personal spending and earning would come out on the 29th. The inflation factor of the report would also be very important. The fact that all this comes before the start of trade makes them all the more important. Another report that is scheduled to come in on 29th is one on the manufacturing sector in the Midwest. A report on the consumer sentiment is also due on the 29th. The last two reports are listed to come in shortly after the trade has commenced.
The treasury prices went for a roll on the 28th and resulted in the yields going down even lower. This prompted the investors to take up the safety of a government debt. During the day the oil prices went above a record trading high of $102 per barrel. The gold price was also at a very high level. To make things worse the dollar once again took a record low against the Euro. It also took a fall in front of the Yen.
A half-point cut by the Fed a sure bet
February 29, 2008
After the Federal Reserve chairman finished his testimony in Capitol Hill, one thing was quite clear and obvious from whatever he said. A cut in the interest rates by at least half a percent is an almost sure bet. Although Bernanke did not exactly mention what course the Fed would be following next, the Fed head left the place only after giving everyone the strong impression that the central bank most probably will make another cut in the interest rates. From the gist of things, the cut is going to be by around half a point.
The policy makers of the Federal Reserve are planned to meet once more on the 18th of March to discuss their future course of action. As of now the futures registered on the Chicago Board of Trade point towards the investors believing completely on a half-point cut. Ti also shows that there is 32 percent chance that the Federal Reserve would cut the interest rates by somewhere around three-quarters of a percentage point.
Some of the leading economists are of the opinion that a 50 point slash would be a reasonable compromise considering the present economic scenario. However if the cut is going to be by more than that, the Federal Reserve would be in the line of fire for triggering a nation wide inflation.
Ben Bernanke had spent 2 whole days on the Capitol Hill testifying in the House as well as the Senate as a part of his semi annual hearing on the central bank’s monetary policies. During his testimony he had portrayed the three main problems the Fed is facing at the moment: the nation’s economy which is almost at the verge of a recession, completely unpredictable and unstable markets and the ever rising fears of inflation.
But throughout his testimony the main focus of his speech was on the health of the U.S. economy. Bernanke throughout the 2 day testimony was focusing on the downside risks to the economy that exists in the nation currently. Some of the main reason for the economy doing badly, according to him, is because of a housing sector that is doing very badly at the moment and because of the reduced consumer confidence in the country.
The remarks he made along with the various other economic reports that came out on the 27thand 28th of February indicates strongly towards the possibilities of Fed decreasing the rates. Even before Bernanke had finished with his testimony the leading investors in the country were talking about a half-point cut with almost utmost certainty. After the testimony was over the chances of Fed implementing a half-point cut is said to be at almost 94 percent.
If the Fed actually does implement the rate slash, it would mean the Fed fund rates would come to almost 2.5 percent. The Fed fund rates affect the prices on a number of consumer loans together with credit cards as well as mortgages.
Google shares recuperates slightly
February 28, 2008
On the 27th of February the Google shares were able to recover a bit after almost three days of massive selling. The company was able to do so as a result of the support of some analysts in the internet field. Some days back a report had come out saying that the ‘Pay-per-click’ advertising sector of the company is slowing down a bit. However the analysts of the field came to the rescue of the company to suggest that nothing of that sort is happening.
Throughout the year the Google shares has been on quite a slide. After starting the current year at a stock value near the $700 mark it has been falling steadily. By now it has lost almost one by third of that value. The slide was a bit too much in the last few days as it came down by almost 8 percent in the last couple of days. The main reason for this sudden drop was the report that comScore let out, which said that the growth of paid clicks that was happening in the Google supported site was declining. The growth rate is calculated by the number of times a Web user will click on an advertisement supported link.
Since most of the websites make a heavy chunk of revenue in this fashion, the news came out as a blow to the company. Just like any other Google also got a large amount of its revenue from these ‘paid clicks’. As the report came out saying that these clicks were reducing it led to worries amongst the investors that the company would be a victim of the economic slowdown if the consumers decided to put a check on their spending.
Many analysts came in defense of the internet giant as the report came out. Many of them admitted that the escalation of the company’s paid search had to slow down over a period of time. But they made it very clear that the company will not be affected by the present macroeconomic conditions that exist in the society now. Many believe that such things will in the least way affect the paid clicks of the company.
As an explanation to the report the company executives said that this was only a short term phenomenon that was happening and as a result of improved technology Google has implemented to make sure that accidental clicks by the users were kept to a minimum. This they believe would result in reduced revenues for a short period of time. This was the explanation the company used to justify the drop in the number of paid clicks as it came out with its fourth quarter earning report.
The shares of the Google based in Mountain View, California rose by $8.67 which is almost 1.9 percent to finish on the 27th at $472.86. This was the first time in three days that the shares increased. The stocks however are still at a very low level as compared to where it was one year back.
Stocks neither gain nor lose
February 28, 2008
On a day when the stocks decided to play funny the trade ended with markets closing on a mixed territory. On the 27th of February the investors were in a mixed state of mind on whether or not to carry forth with their investment plans. While the comments made by Ben Bernanke, the chairman of the Federal Reserve in front of the House Financial Service Committee was encouraging for investing, the ongoing worries about inflation was heavily playing on the back of the investors.
The NASDAQ index was able to increase slightly but other indexes remained in a neutral position. The Dow Jones industrial average went up by a few points while the Standard & Poor’s 500 went down by a few points. The tech heavy NASDAQ as earlier mentioned was able to gain slightly. At the end of the day NASDAQ had gone up by 0.4 percent
The investors, it seems, are waiting for the modified reading on the fourth quarter Gross Domestic Production and the final day of the Fed head’s congressional testimony.
On the 27th the trading started off on a low note as the investors were pulled back from investing as a result of the very weak reports that were coming in about the housing and manufactured goods. The almost record high oil prices and a record low of the dollar when compared to the Euro were some of the other factors which played on the investors minds. But the early losses were wiped out as a result of a couple of mid-morning incidents that took place. These two incidents not only helped in erasing the early morning loses but also in helping the stocks go higher. It seemed as if the day might end on a good note until late in the day when sluggishness set in and wiped out most of the gains.
Freddie Mac and Fannie Mae shares are some of the shares which went higher on the news that the mortgage lenders are to find restrictions in the size of their portfolios removed as on the first of March. This would mean billions of dollars would be free for investing in the housing market.
The investors were also glad to hear about Bernanke’s testimony before the House Financial Service Committee where he reaffirmed the statements that Fed has come up with in the past few weeks. It was quite obvious from his statements that the Fed was prepared to go forward with its interest rate cuts to get the economy to a state of stability. He however admitted that turbulences that are there in the housing and credit market is going to be a big hurdle that Fed will have to overcome to go forward with its current economic outlook. Bernanke also acknowledged the fact that chances of inflation are very high at the moment.
The Federal Reserve is expected to decrease the Fed funds rate when it meets on the 18th of March. They are expected to cut this important short term interest rate by almost half percentage point.
Bernanke concedes that the economic growth is going to be very slow indeed
February 28, 2008
On the 27th of February when the Federal Reserve chairman Ben Bernanke appeared before the House Financial Service Committee on Capitol Hill for the first day of testimony, he admitted that the growth rate of the nation in the current year is going to be very slow indeed. He also raised his concern about the overwhelming chances of the nation going into inflation.
The entire pool of investors and financial experts had their eyes on the Fed head on Wednesday as he embarked upon the mission of trying to summarize the huge amount of challenges the Federal Reserve was facing at the moment. Some of the main problems it is facing at the moment, according to him are that, the economy is currently at a very high risk of falling into a recession; the financial markets are totally unstable and volatile and the ever rising possibilities of inflation.
Bernanke as he faced the House Financial Service Committee admitted that the economy is facing a ‘difficult situation’. His remarks were made on the first day of the semi-annual trial regarding the Federal Reserve’s monetary policies till now. He told the House Financial Service Committee that the main challenge the Fed was facing was to make sure that a balance was attained between the risks involved and the activities that Fed was undertaking. He also said that determining at a particular point of time which risk is more serious is also very important for the journey ahead.
The testimony he made to the lawmakers however made one thing very clear: the economy was the still the prime concern of the central bank. His prepared testimony gave enough evidence to imply that the downside risk to growth that was there earlier is still there at large. All the comments and remarks Bernanke made was in sequence with the Federal Reserve’s recent stance. It was also a follow-up of the comments he had made almost two weeks earlier along with the Treasury Secretary Henry Paulson in front of a Senate panel. At that time both of them had said that the U.S. economy was not going to do to well this year but that it would be able to avoid the recession that has been forecasted as a result of a $170 billion plan that had been approved by President Bush on the 13th of February. The interest rate cuts the Fed have been implementing is also another factor according to him that will help the country in avoiding a recession.
As his testimony was released, the markets at the outset turned higher. This is because the investors found enough from his words that the Federal Reserve was prepared go forward with its interest rate cuts to boost the economy even further.
Speaking about Bernanke’s testimony on the 27th many of the e
Bernanke to focus on the monetary policies
February 27, 2008
When the Federal Reserve chairman Ben Bernanke faces the House Financial Services and Senate Banking committees it is believed that he is going to focus remarking about the monetary policies. Only last week had Bernanke along with Treasury Secretary Henry Paulson testified before the lawmakers about the various actions of the Fed. Now he returns to the Capitol Hill on the 27th to appear before the committees.
It is believed that his remarks are going to revolve around the current state of the central bank’s economic policy. Ben Bernanke, it is believed, will have to face a lot of questions about the wobbly state of the U.S. economy. The position of the credit markets and the possibilities of the inflation are the other areas on which he will have to give answers. It has only been two weeks since Bernanke had to face questions from the Senate Banking committee.
In the meanwhile however the 2 policy makers said that the economic growth in the year is going to be rather slow. But they expressed their belief that the economy would stay well clear of the recession. This they believe so because of the $168 billion economic plan President Bush had signed on the 13th of February. The recent interest rate cuts that Fed brought about in the last week is another factor which strengthens this belief.
Bernanke is expected to elaborate on these believes but he is not expected to steer away from his current script of thoughts. This is because it would not be good for the image of Fed if its chairman was found to be deviating from his ideas.
Lately Fed has taken a sterner stand on issues regarding the economy of the country. Only last week did they announce that the forecasted growth rate for the current year was going to be lesser than what they had predicted earlier. They also said that the unemployment rate was going to climb more than 5 percent in the current year. The various economic data that has come out in the recent past are also suggesting that this is true.
A survey about the residential real estate on Thursday revealed that the turn-down in the home prices gather pace as the previous year came to an end. The New York based Conference Board reported that the consumer confidence fell to the lowest level in the last five years. The main reason for this fall in confidence is because of the fears that exist about the job market and the slowing business activity.
Another item that will remain as a main concern for the Federal Reserve and Bernanke will focus a lot on is the fragility of the credit markets. This is because the credit markets continue to face major liquidity issues. The commercial paper market is another area which continues to remain under a whole lot of pressure. This market is one of the important sources of short term funding.
Stocks gain inspite of discouraging economic news
February 27, 2008
On the 26th of February the stocks closed for the day on a positive note. The stocks had gained for the third session in a row on a Tuesday to end the day higher. The main reason behind the rally was the upbeat news that came from IBM and the bond insurer MBIA. The good news that came from these companies was enough to counter the relatively discouraging economic reports that were released earlier in the session.
At the end of the day the Dow Jones industrial average had gone up by 0.9 percent and the Standard & Poor’s 500 was able to gain by 0.7 percent. The tech heavy NASDAQ composite also was able to gain more than 0.75 percent.
This is despite the fact that the bond prices in the country went up in the day. The crude oil price leaped by $1.65 a barrel to reach a record high. The U.S. dollar also came down to a record low with respect to the Euro.
The shares had gone down a bit in the morning when various economic reports started coming in. Most of the reports that were coming in were indicating the rising possibilities of a wholesale inflation, frail consumer confidence and further disturbances in the housing market. The investors however had the confidence to go forth with their investments after IBM announced that the company would purchase back $15 billion in shares. This news seemed to be enough to steer the stock throughout the early session. Stock maintained its climb in the later part of the session as well. Moody’s investor service said that they will uphold the bond insurer MBIA’s credit rating and this also helped the stocks in its gaining spree. As the day came to a close the stocks sliced the gains it had received.
The investors are now focusing their attention on Ben Bernanke, the chairman of the Federal Reserve, who will appear before the House Financial Services and Senate Bank committees on the 27th of February to discuss monitory policy. He will also talk about the current state of the nation’s economy.
On the 27th however the trading is bound to be affected by the various economic reports that will be released on the latest home sales and the durable goods orders let out. Another important economic data which is considered to affect the trading is the Government’s weekly energy inventory report that will come out on the 27th.
On the market doing well despite all the discouraging news that came out on the 26th the market analysts are saying that the market nowadays has gotten quite resilient. It seems as if the market is quite used to the gyrations now and that it is now trying to move forward.
It was IBM’s positive outlook together with the optimistic news about the bond insurer MBIA that gave the investors the courage to go forth and create an upbeat sentiment on Wall Street.
Chairman of American Express gets huge pay increase
February 26, 2008
The chief executive and chairman of the American Express Co. received a very huge boost in pay for the year 2007. On the 25th of February it was announced that Kenneth l. Chenault is getting a compensation which is approximated at a value of $53.2 million in the year 2007. This amount is almost twice the amount he got in the previous year. The news was let out in a regulatory filing on the 25th of February.
The main reason for him getting this big increase is because of a very high rise in the stock and options grant the American Express gave him. Chenault who is only 56 got an enormous amount of $42.8 million as stock awards for his performance in the year 2007. Apart from this he also got a special incentive stock option grant. This is way more than what he had got in the previous year in the form of stock awards. He had got only $16.9 million in 2006 as stock awards.
American Express also increased the base salary of Chenault in the year 2007 by an incredible figure of 13 percent to bring it to $1.24 million. Last year his base salary was only $1.10 million. Apart from the huge increase in base salary the company also gave him $6.5 million as bonus. He had received the same amount in the previous year as well.
He also got compensation in the range of $1.04 million for the year 2007. This amount however covers perquisites like a home security system worth $126,992, $323,884 for the personal use of the company plane as well as $102,601 for the personal use of company owned cars. For the time being the chairman was able to pull in $1.55 million above-market returns in the form of deferred compensation in 2007.
The total amount Chenault had received in the year 2006 was almost $27.3 million as per the statistics that was let out by the Associated Press. According to the calculations Associated Press has made the total pay which includes salary, incentives, bonuses, perquisites, and the approximate value of stock options and awards granted in a year. The calculations which are made do not include the changes in current value of pension benefits.
Chenault however might not be able to realize the 2007 grant–date value of his stock award unless American Express is successful in bouncing back from the tough consumer credit surrounding. In the year 2007 the American Express shares had fallen by more than 14 percent. The fall in 2008 till date has been 13 percent. The company however was able to gain 15 percent on the 25th of February to close at a price of $45.21.
The company however is doing rather well. They announced that the net income in the year 2007 rose from $3.71 billion to $4.01 billion. The revenue in the year 2007 also went up to $24.14 billion from $22.16 billion in the previous year.
The write downs continue
February 26, 2008
On the 25th of February the Wall Street took another hit of write downs. After the analysts predicted that the struggling financial firms are going to go through another round of multi billion dollar losses the shares of Fannie Mae, Citi, and Freddie Mac went down heavily.
These write downs are coming at a time when the falling economy and crashing house prices are weighing heavily on the shoulders of the Americans. The write downs are actually reflecting the increasing loan defaults as well as the steep declines in the indexes which track the safety related to the securities.
Shares of Citi went down by 2 percent on the 25th of February after an Oppenheimer analyst cut the full year earning prediction from the previous prediction of $2.70 to almost 75 cents per share. The person also went on to say that the bank’s profits are going to be thrashed by the group’s need to decrease the values of bonds and loans in its balance-sheet. Citi however is not the only group that is facing trouble at the moment. There are many other companies as well that are taking major hits to their earnings. It is expected that Fannie is going to announce a $4.2 billion and Freddie a write-down worth $2.6 billion later this week when the organizations which are sponsored by the government report their earnings in the fourth quarter. The experts are saying that it would be better for people to get rid of Freddie Mac shares before Thursday’s expected earnings report.
The experts are also reducing the predicted earnings for quite a lot of Wall Street companies as well. These giants include Bear Stearns, Morgan Stanley, Merrill Lynch and Lehman Brothers. But the fact is that most of the investors who have been there long enough are finding the huge write downs as a part of the game. The best example for that is that in the last 2 months Citi took a write down worth $8.1 billion of its securities holdings on mortgage. UBS is another group which took write-downs of almost $13.7 billion. These write-downs are mostly mortgage related. The massive list in red ink is now no big surprise for the people as the banks and other brokerage firms now realize that they are hauling loans and securities related to mortgages which are worth billions. These loans are actually those whose worth has declined sharply along with the sudden slow down in the arrears markets.
Some people, however, are of the opinion that these write downs in most cases exaggerate the degree of troubles in financial firms. Most of the write downs that happen are as a result of need to ‘mark-to-market’. Because most of the securities never trade the managers start looking at the various market indexes to get help on the enormity of the writes down which would be appropriate.
Since most of the brokers and banks need to make use of such indexes as well as other such market information to ‘mark-to-market’ their existing loan commitments, the banks have no other option but to replicate these market turn downs.