Stock Preacher

US President Barack Obama will nominate Ben Bernanke to a 2nd term as Chairman of the US Federal Reserve Tuesday, keeping him on the job of guiding the world’s largest economy out of its deepest downturn since the Great Depression. Bernanke, whose appointment to a new, four-year term as head of the US central bank must be confirmed by the Senate, has flooded crippled financial markets with hundreds of billions of US$s in Fed liquidity and stepped in to attempt rescues of failing financial institutions such as Bear Stearns and AIG. Obama’s Democrats control the Senate, but Bernanke has faced criticism from lawmakers of both parties who say he has gone too far in extending Fed support that will be difficult to unwind, threatening future inflation. Investors have generally given Bernanke high marks on the job and had widely expected him to be kept on by Obama, although the announcement was not expected until later this year.

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The sharp decline in the US economy is ending and recovery will come about slowly according to a report released by the International Monetary Fund (IMF) yesterday.

In an annual report on the world’s largest economy, IMF stuck to its earlier forecasts that the US GDP will contract by 2.6% in 2009 and then rise by 0.8% in 2010.

Due to the large monetary and fiscal stimulus and wide range of measures to restore the financial stability, “the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened,” the IMF said in its report after the Article IV annual consultation with US officials. However, “financial strains are still elevated and the outlook remains for only a gradual recovery, with risks still tilted to the downside,” it said.

Also on Friday, the US Commerce Department reported that the US economy fell at a more subdued 1.0% pace in the Y 2009 Q-2, a strong signal that the worst recession since the Great Depression has eased, and is coming to a close.

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For some US stock analysts, yours truly among them, the start of the 1980’s Bull Market is a fitting historical precedent these days rather than the Great Depression era of the 30’s.

When comparing the the S&P 500’s chart in the advance since March 9, when it fell to its lowest level in 12 yrs, the recovery from a two year low set on Aug. 12, 1982 look very similar.

The S&P 500 rose 15% for all of 1982 and moved higher every year for the rest of the decade.

“Investor sentiment today is very similar to what I saw 27 yrs ago. ” said popular market observer, Paul A. Ebeling, Jr. AKA the Red Roadmaster of www.stockpreacher.com , I do not doubt economy’s ability to recover as real consumer and business confidence, retail sales, exports and other indicators point to a rebound, not depression, Ebeling said. The S&P 500 reached its August 1982 low during the second US recession in three years.

Technology is the only one of the S&P 500’s 10 broadest industry groups that has kept pace with its average move in nine other Bull Markets since 1962. Tech is the leader.

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Bank of America Corp. Chief Executive Officer Kenneth Lewis recently said that the US should consider separating commercial lenders from investment banking activities. Lewis made the comment on his way to a meeting with President Barack Obama and other peer US banking chiefs. Asked what he would tell Obama if given the chance, Lewis said it would be that “commercial banks are the fabric of any community in which they operate and we probably need to separate the commercial banks from the investment banking activities.” The remarks may reopen the debate on whether the U.S. should bring back laws put in place after the Great Depression designed to insulate lenders from the risks of investment banking. Bank of America, the biggest US bank by assets, bought Merrill Lynch & Co. in January, helping the largest US brokerage avoid the financial collapse that drove Bear Stearns Cos. out of business.

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The financial crisis will be harder to end than the Great Depression and may force banks to be nationalized, “Black Swan” author Nassim Nicholas Taleb said. A more complex financial system makes the current problems, which cut global stock market value by 55% to US$28T since October 2007, worse than the contraction in the 1930s, Taleb said in a Bloomberg Television interview today.

Bonuses paid on Wall Street encouraged risk taking with no regard for losses, he added. Rare and unforeseen events are known as “Black Swans,” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” The financial crisis isn’t one, he said. “The “black swan” for me would be for us to emerge out of this unscathed and return to normalcy,” Taleb said.

Compared with the Great Depression, this crisis is “very different, and it requires much more drastic action.” Taleb’s book was published in May 2007, about three months before the credit crunch led banks to announce write downs and credit losses that now total more than US$1T

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U.S. consumer confidence slipped to a record low in January, and governments around the world offered further help to banks and industries battered by the global financial crisis. U.S. industry group Conference Board said its sentiment index fell to 37.7 from a revised 38.6 in December, confounding forecasts for a small uptick after Europe’s biggest economy, Germany, showed a surprise rise in business sentiment.

Japan and Britain widened their efforts to help industries hurt by slowing economies, with the UK offering loan guarantees for automakers, while sources said Russia was preparing more support for banks. Japan enacted a US$53B extra budget and said it would offer a lifeline to the small- and medium-sized companies at the heart of the world’s second-largest economy with a US$16.7B fund to buy stakes. Britain announced it would guarantee up to 2.3B pounds (US$3.25B) of loans to the car industry, much of which is foreign-owned, including Ford Motor Co, Honda Motor Co and Nissan Motor Co..France and Italy are also planning aid while Germany and the United States have already announced plans to support automakers. In Russia, sources told Reuters that the government was set to help top bank Sberbank and other lenders with a second bailout package worth more than $27 billion.

One government source said Russia planned to offer Sberbank a 500B roubles subordinated loan. Last week, US Secretary of the Treasury, Timothy Geithner set to work overhauling a US$700B program to rescue the world’s largest economy from the worst financial crisis since the Great Depression. He is expected to propose new steps to unclog credit markets in the next two weeks. Canada’s budget and stimulus package will include incentives for home renovations and a promise of relief for credit card borrowers as well as tax breaks for middle- and lower-income Canadians, the Globe and Mail newspaper reporter.

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