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March 2009 Market Review

By Larry Doyle on April 1, 2009 at 4:40 PM in Current Affairs, Economy, treasury department

march-market-review1

**Sorry for the blurred transcription.**
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.

LD

  • oowawa

    Hi Larry. Good article–thanks. Here is something I have been meaning to ask you for some time: I like to read the comments on the Market Watch site, because they are funny, lively, and endearingly bearish. Anyway, the commenters there frequently invoke the PPT, or “Plunge Protection Team” as a shadowy government manipulator of the markets. Doing some research, I find that the PPT is another name for the Working Group on Financial Markets, which was created by Reagan after the “Wall Street Meltdown” of 1987. (See

    http://www.marketoracle.co.uk/Article464.html

    Anyway, I wonder. Is it possible that such a government “team” manipulates the markets from time to time, or is this strictly an urban legend of the Wall Street variety? I am suspicious. For example, I can see how the government would not want Mr. O to be embarrassed by a plunging stock market during the G20 meetings. What do you think?

  • oowawa

    I just wrote a long question that was gobbled by the Almighty Spam Filter. At any rate, thank you for the informative article LD.

  • CMartin

    What’s your thought on Krugman’s graph showing a slight upturn in 1931?

    If you happen to be in the job market it sure doesn’t feel like things are getting better or stabilizing. If you believe these numbers (unemployment for March: 742,000), then it explains the frightened feelings many people have.

    Also, though the housing sales look good, construction spending in non-residential went down, in addition to residential.

    Are these numbers cause for concern, as Krugman speculates could be the case?

    • http://www.senseoncents.com LD

      I agree with Krugman. The global economic brakes don’t bring the auto to a virtual complete standstill and have it turn the corner in the matter of what amounts to 6 months.

      The economy is seeing some of the benefits of all the govt dough that has been injected.

      Private sector is still comatose.

      • CMartin

        How can the private sector get jumpstarted? Since ou mentioned credit/lending, I know people with great credit who are not being allowed to borrow or refinance. Part of me is worried that banks may be worse off than we think. Yesterday or two days ago I was reading that something like 52 banks in WA state were facing troubles. Have we heard the worst about banks balance sheets?

        • http://www.senseoncents.com LD

          CMartin…it is widely speculated and accepted that our domestic banking system has anywhere from $500 billion to potentially $1.5 trillion in embedded losses on loans of all stripes.

          Don’t expect credit to flow anytime soon.

          I tried to link to my story at Sense on Cents but was unsucessful. Read Hancock Tower Cut In Half to get more color on the shadow banking system.

  • http://www.senseoncents.com LD

    My pleasure. The markets are benefitting from the govt bailout $$ but is that going to outlast the anemic activity in the private sector and lack of real credit.

  • termo

    I disagree that we are in a rebound.

    First, I would use as a reference point for the market when Obama entered office: 8228.10. He is still 500 points from that benchmark.

    If Obama’s budget (and some of the state budgets) goes through we will be seeing a spending/deficit explosion that will result in enormous inflation. At which point the the economy will relapse into a deep recession.

  • Peggy Sue

    Hi Larry!

    Personally, I have a very queasy feeling about where this is all going. I do not trust the uptick in the stock market. In fact, I think we’re going to see a major dive, making the past lows look like something we wish were still around. None of this looks or feels good to me. It’s like the calm before the storm. Those unemployment figures are already leaking out–bad, really bad at 700,000 + for the month.

    I just don’t think we’re being told the truth because the truth is too ugly and politically damaging. And that is something I really resent. Something really radical would be our representatives telling us the truth! Hello, we’re grownups here.

    I hope I’m wrong. But I fear I’m not.