The New York Times article is titled "AIG Rises, and Many Ask Why". After all, the company is 80% owned by the government, owes around $180 billion, is cash-flow negative and would be in even worse shape were it not for accounting changes that help it keep toxic mortgage assets unfairly valued.
And to top it off, the company is actively seeking buyers for its best business units, which will impair its ability to earn its way back to health.
As if there had been any doubt, Fed Chief Ben Bernanke was nominated for a second term. This is a good move in my opinion. Especially now, switching horses midstream would seem like a dangerous move. Plus, my biggest gripes about the various stimulus plans and bailouts are with Congress, not the Fed.
Yesterday, the Challenger jobs report showed more jobs were lost in July than expected. It wasn’t a big miss, but it was a miss. And after buyers stepped in early, the market’s reaction wasn’t a big one, either. By the end of the day, the Dow Industrials lost 30-some points.
Stocks have traded in a pretty tight range over the last several sessions. There’s been an appearance of weakness, and some comments from talking heads that a correction is coming, or may have started. It’s sure not looking that way today.
Stocks are big in the early going. The sell-off in China I mentioned the other day has reversed. All the talk of an imminent overheating of China’s economy now sounds like a deliberate attempt to work stocks lower so dips could be bought.
There should be no doubt that games are being played right now.
Once again, early strength for stocks yesterday quickly turned to weakness. There is a battle going on between the bears and the bulls. Despite all time lows for consumer sentiment, there is a growing number of analysts and market strategists who believe a rally is at hand.
We’ve been seeing signs of a rally for a couple weeks now. That’s why I recommended taking a few positions in select stocks.
The late rally Friday left stocks up for the day and provided some evidence that we may have seen a short term low. It would be good to see some follow through today, though it will be something of a victory if the lows for the S&P 500 hold at 666.
Stocks didn’t exactly finish higher yesterday. In fact, they gave back all of Wednesday’s gains, and then some. But now, in a particularly ironic move, stocks appear to be ready to move back to the upside after the unemployment rate is reported to have risen to 8.1%.
Of course, we know why stocks would rally under these seemingly negative circumstances….
Investors know unemployment is rising. Fed Chief Bernanke has called for the unemployment rate to peak somewhere in the 9% range during this recession. At 8.1%, we’re almost there.
Warren Buffett’s annual report for Berkshire Hathaway was released over the weekend. His letter to his shareholders is one of the most widely read investment documents there is. Buffett’s down home charm, inviting sense of humor and investment savvy are always a great read.
Perhaps the biggest surprise was that the net asset value of Berkshire Hathaway dropped by $11.5 billion. Buffett was not immune to the market’s drop. Despite well-publicized investments in General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS) that are down considerably, the lion’s share of balance sheet loss has come from derivatives, what Buffett has called “financial weapons of mass destruction.”
After last week’s declines, stocks look set to move higher. Is bouncing off lows a rally? Not really. You need a little optimism to call it a rally. A little enthusiasm. But even if stocks do move higher this week, investors won’t be particularly happy about it.
Americans are mad - mad at the banks, mad at their financial advisor, mad at the mortgage industry, mad at people who bought too much house. We’re mad at Paulson and Bernanke, Congress and Obama, too.
By now you’ve probably seen the rant from CNBC’s Rick Santelli I included in last Friday’s Daily Profit. It’s gotten a lot of attention the past few days, even getting airtime on Meet the Press this Sunday.
More depressing forecasts for the big banks from the best big bank analyst out there, Meredith Whitney. You may recall it was Whitney who forecast the dividend cut at Citigroup (NYSE:C) back in October 2007. That was three months before Citigroup actually cut its dividend. Whitney should also be credited as one of the few analysts to see the financial meltdown coming.
*****Apparently we’ll hear more about the bank bailout plan over the next couple of days; In the meantime, President Obama will sign his massive tax and spending bill into law today.
The bill is being called the biggest piece of legislation since FDR. We’ll see how the market likes it. It occurs to me that passage of this stimulus bill was very much in doubt until the amended version passed the House on Friday. It may be that we still get some upside in the stock market now that it’s passed.
The headline at Bloomberg reads “Stocks in U.S. Climb on Speculation Job Losses to Spur Action on Stimulus”. Apparently, the employment news is so bad that it’s actually good because it means the government will have to do something about it.
Sounds a bit backwards, right? Shouldn’t investors wait until there are actual signs of improvement before they start plunking their money down?
Makes sense – if financial markets were rational. But of course, they’re not rational. If they were, it would be very difficult to make money on stocks. Fear and greed move stock prices. And that’s why investors like Warren Buffett say they’re greedy when others are fearful, and vice versa.
Stocks gave up their early gains yesterday. As I’ve been saying, I don’t think we see much upside until earnings season is closer to the finish line. It looks as though a vote on the stimulus bill may not come until next week. That could give us a double-whammy of upside catalysts.
The Dow Industrials is below support at 8,000. But the S&P 500 is above its support at 825. It seems highly likely that the S&P 500 will test those levels today. It’s important to understand that support is often expressed as a range rather than a specific number. Just because an index or stock moves below support doesn’t mean it’s crashing.
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Once again, the buyers have stepped in at obvious support levels and sent stocks higher. We’ve identified support for the Dow Industrials at around 8,000. And while the index traded below 8,000 this week, the fact that buyers continue to step in remains one of the few positives for stock prices.
The news reported there were 1.4 million people on the Mall to watch Obama get sworn in. And there had to have been that many more in the city. It was nuts. We’re slowly returning to normal today.
Despite the painfully cold weather, the crowds were energized by Obama’s speech. I wish I could say the same for the stock markets. The Dow Industrials lost 330 points to close below 8,000 for the first time in two months. Seems like just Friday I was mulling the potential for the Dow to retest those November 20 lows…
No, the U.S. economy is not getting better. It’s getting worse. Daily Profit has been saying that unemployment will go higher and that we will see many more bankruptcies, especially in retail. But that doesn’t mean it’s any easier to take in the bad news.
I hope everyone had a great holiday. There’s nothing like a few days off work to connect with friends and family and recharge the batteries. Next week, we all get back to a regular schedule. And there’s a lot of work to do as we look forward to 2009. But before we get to that, here’s the next round of reader mail I promised you last week.
Posts tagged with: Recovery Portfolio
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