A Week in the Rearview – week ending 3/6/09
In the headlines
A look at some of the market movers over the past week:
- The US government pledged another $30 billion to troubled insurer AIG
- Two major banks opted to pay back TARP money
- Warren Buffett’s Berkshire Hathaway reported plunging profits
- Personal income, spending, and savings all rose in January
- General Electric slashed its dividend payout
- Freddie Mac CEO David Moffett resigned
- The Organization for Economic Cooperation and Development said the global recession will be worse than forecasted by the International Monetary Fund
- The government officially launched its Term Asset-Backed Securities Loan Facility (TALF)
- Fed Chief Ben Bernanke appeared before the Senate
- Blockbuster shares plunged on reports of financial hardship
- US auto sales continued to look ugly
- BP’s CEO said the company would likely freeze its dividend this year
- The Obama administration launched a $75 billion effort to help homeowners
- The Federal Reserve’s Beige Book report painted a less than promising picture
- Ford announced a new debt restructuring plan
- The Bank of England cut its key rate 0.5%
- General Motors’ auditors raised concerns over the company’s ability to continue as a going concern
- The US House approved the mortgage cramdown bill
- The US unemployment rate shot up to 8.1% in February
Commentary
For those looking for solace from what has become a seemingly unending rout on stocks, this week was not the medicine. Sellers continued to shell the market throughout the week and by the end the S&P 500 index was down 7%, bringing the year’s losses to over 24% and total losses since the collapse began to 56%.
The news of the week sounded mostly familiar notes. Debate raged on over the policies of the Obama administration and whether they are the best way to clear a path for economic recovery. At the same time, speculation continued over the future of the major US financial institutions, and pessimism over the state of the financial sector helped spur the major declines of the week.
Economic news was largely to the downside. The Federal Reserve’s Beige Book showed continued or growing weakness in most areas of the country. And though personal income and personal spending both rose in January, the sharp rise in personal savings showed the fear and uncertainty that’s still gripping US consumers. The outlook for global growth also took a hit during the week when the OECD stated that the IMF’s outlook was likely too optimistic. The OECD, however, did say that the current quarter would be the worst, suggesting that we could look for some improvement globally in the second half of the year.
Looking ahead
Though there will be plenty more earnings reports in the coming week, it will be even less of a focus for the market than in the previous couple weeks as there are very few large, market moving announcements among the group.
There is no question that the centerpiece of next week’s economics reports will be the retail sales numbers for February. As the largest piece of the US economy, consumption spending has been a major focus for market participants as consumers struggle with their mortgages and other debt. After a gain in retail sales in January, the market is expecting that February’s numbers will show a 0.4% contraction. Also notable in next week’s economics releases are the business inventories report and the consumer sentiment reading which will come out on Thursday and Friday, respectively.
Looking even further ahead, an article from the Associated Press on Friday claimed that the market has been suffering from “irrational pessimism,” the exact opposite of the irrational exuberance that Alan Greenspan coined when the Internet bubble was inflating. While stock valuations do appear to have already overshot the historical average, there are plenty of reasons for market watchers to be pessimistic on the economic front. Amid all of this, though, there is a more optimistic outlook. I’ll leave you this week with some of the thoughts that Warren Buffett shared in his annual letter to Berkshire Hathaway shareholders:
Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21 1/2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.
Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.
