Stock Preacher

Goldman Sachs and JPMorgan Chase Co. have emerged two bellwethers of the US finance sector in the post-bailout Wall Street, leading the surge of optimism with their strong profits in the Y 2009 Q-2. Six major US banks have reported their second-quarter profits in the past two weeks, vastly beating analyst predictions. The business of Goldman has little to do with common consumers, its quarterly earnings of more than US$3.4B posted were buoyed by record results in its trading and underwriting business. According to the quarterly report, the Wall Street giant generated a record US$6.8B in revenue from fixed income, currency and commodities trading during the quarter. Revenue from equity underwriting jumped to US$736M form UD$ 48M in the first quarter compared with US$616M last year. JP Morgan Chase, the largest US bank by market value, posted a US$2.72B earnings, and made its profits mainly from investment-banking services including bond and equity trading, and underwriting debt to help companies issue shares and bonds, not commercial loans and consumption credit.

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The start of Y 2009 Q-2 earnings season begins this week and may be a Key factor for determining how much faith investors will have in an economic recovery. After a rally of as much as 40% for the S&P 500 on expectations the economy will begin to turn around by year end, analysts will hone in on companies’ projections to see if their hopes are corroborated. The light menu of economic data will help keep the spotlight on earnings releases, with bellwethers Alcoa and Chevron posting their quarterly’s. Of even more importance will be any outlook companies give for what they expect to see for the rest of the year. A large US Treasury auction could buoy the market if it shows there is good demand for government debt. Concern that the appetite for debt is waning as the government tries to fund its stimulus efforts was soothed by solid demand in last week’s record US$104B auction of Treasury securities.

Popularity: 2% [?]

Personal income in the US surged in May thanks to an infusion of government stimulus funds, while consumers raised their spending modestly as confidence about the state of the economy continues to improve. Most of the monthly rise was the result of Federal benefit transfers and lower taxes. Americans, still facing rising job cuts and falling home prices have been saving most of the additional funds, lifting the savings rate to a 16 yr high in May. “Households are reverting to a more sustainable spending path vis-à-vis income that allows scope for paying down debt and adding to savings,” said Joshua Shapiro, chief US economist at MFR. Official figures showed last Friday that incomes jumped by 1.4% last month, or US$167.1B, beating economists’ expectations and doubling the previous month’s revised rise of 0.7 %. Personal consumption expenditure rose by 0.3% or US$25.1B last month, in line with estimates, and a rebound from April’s pull-back.

Popularity: 2% [?]

The US$ hit a 5 month low against a basket of major currencies on Friday and the euro rose above US$1.41 for the first time this year as investors bought higher-yielding currencies and assets on hopes of a global economic recovery. Sterling approached US$1.62, almost an 8 month high, and capped its best month since 1985, while data showing the US economy shrank less than expected in the first quarter lifted global stocks and dulled the dollar’s safe-haven allure. Concern about the expanding amount of debt needed to fund a record US$1.8T US budget deficit added to dollar woes this week and put the benchmark 10-year Treasury yield en route to its biggest 2 month spike since 2004. Those worries amplified a report that South Korea’s National Pension Service intends to reduce exposure to US government bonds and equities in its 5 year portfolio. “There’s a visceral concern about the debasement of the US currency because the United States has a lot of debt to finance” and may have to print more money to do it, said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut

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Last weeks long awaited G20 Summit Communique lifted the hopes of the world’s investors and leaves a lot of work to be done going forward by the Group. The language of the was vague and optimistic

The Highlights:
On Resources: The G-20 announced US$50B for low-income countries, and an additional US$100B in lending for Development Banks.

On Reform: Developing countries will have greater representation in the international financial institutions and that election to World Bank/IMF leadership will be based on merit.
On Regulation: The G-20 announced regulation of illicit tax havens.

As with all world summits, the G-20, just stated the goals and heralded the agreements of the parity countries leaving the hard specific work to be done.

The powers that be need to work to ensure that money going to developing countries is given as grants, not loans that trigger another debt crisis.

There remains much work to be done on the Green Agenda in the interests of developing countries at the UN Climate Change Conference in Copenhagen later this year.

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US investors are decamping foreign ventures and bringing their US$s home, entrusting them to the supposed bedrock safety of United States government bonds, and China continues to buy huge quantities of the USA’s debt. These actions are lifting the value of the US$, and providing the Obama administration with a crucial infusion of financing as it directs trillions of US$s toward rescuing banks and stimulating the economy, enabling the government to pay for these efforts without raising interest rates. The movement of this money back to the United States appears to be exacerbating the financial crisis world wide. A US$ invested by foreign central banks and investors in US government bonds is a US$ that is not available to Eastern European countries desperately seeking to refinance debt, also, it is a US$ that cannot reach Africa, where many countries are struggling with the loss of aid and foreign investment.

Popularity: 7% [?]