Sense on Cents

The markets, overall, experienced a very solid rebound this month. Technically, the market got oversold bottoming out on March 6th when the S&P 500 hit the devilish level of 666!! Perhaps some divine intervention prevailed and shed a wee bit of grace on the market in the spirit of Saint Patrick. Perhaps not, as well. In any event, we rebounded close to 20% over the last three weeks. The bounce has allowed us to catch our breath but I caution everybody to remain on guard.

The rebound gained support from the following factors as well:

1. stabilization in the weekly unemployment claims at the 650k; level

2. improved figures in housing starts and new home sales;

3. speculation that the FASB will relax the mark-to-market;

4. a positive reception to Secretary Geithner’s plans (PPIP) to deal with toxic assets;

 5. a pleasant surprise in the form of a Federal reserve announcement of a MASSIVE quantitative easing program in which the Fed will purchase hundreds of billions in U.S. government securities and mortgage-backed securities. This announcement was the reason interest rates in those sectors came down on the month.

What are the risks going forward? If . . .
 
1. G-20 meeting in London later this week goes poorly and reflects the real lack of coordination that seems to be developing amongst many countries and regions of the world.  

2. Economy takes another leg down. First real indication will come this Friday with the release of the monthly Unemployment Report.

3. The embedded conflict between a relaxation in the mark to market and the PPIP (Public-Private Investment Program) plays out and banks are intransigent in negotiating the sale of toxic assets.

4. The results of the Bank Stress Test to be released by end of April show more banks in distress than previously thought. 

5. Auto companies are actually forced into a pre-packaged bankruptcy of some sort.

6. A major insurance company is forced into receivership.

7. AIG continues to require capital injections and Congress does not comply.

8. Budget negotiations are openly contentious and negatively impact the value of the dollar.

9. Ongoing waves of Treasury supply overwhelm the appetite of foreign buyers and our Federal Reserve is forced to underwrite more and more of our national debt.    

In summary, I neither expect a positive resolution on all of the above mentioned risks nor do I expect a negative outcome. I remain extremely cautious on the markets because I believe the economy is a LONG way from improving. As a result, I think we will remain in a trading range for another month or so. 

Longer term, though, I think the biggest moves will be toward higher interest rates given the global demand for credit for refinancing purposes, the likelihood that nations will subtly want to devalue their currencies, and an expectation that inflation concerns will grow. To that end, TIPS (Treasury Inflation Protection Securities) have had a huge move recently.

Fundamentally, the market remains a riddle wrapped inside an enigma and surrounded by a puzzle. Who knows what 1st quarter earnings may bring us. Those figures will be released in mid-April. I will not only review the quarterly earnings but more importantly look for guidance going forward. I do not expect to receive any degree of comfort in the guidance. 

Away from the market, Sense on Cents is just completing its first full month. I am thrilled with the growth of this site/blog. I had some fabulous guests on NQR’s Sense on Cents, including Michael Panzner, Chuck Doyle, and Lynn Marshall.  Ultimately, though, the pleasure of this site is the interaction with the readers. Please leave your mark whenever you visit.

Thanks.

LD

This entry was posted on Tuesday, March 31st, 2009 at 7:47 PM and is filed under Economy, Employment, Equity Markets, Risk, Unemployment, Wall Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.