Stock Preacher

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% [?]

Over the weekend US President Obama ordered the US Treasury on Saturday to implement tax cuts for 95% of Americans, fulfilling a campaign pledge he hopes will help jolt the economy out of recession. The tax cuts are part of a US $787B economic recovery plan passed by the Congress. The aim is to put more money in the pockets of Americans and stimulate the economy by increasing consumer spending.”I’m pleased to announce that this morning the Treasury Department began directing employers to reduce the amount of taxes withheld from paychecks, meaning that by April 1st , a typical family will begin taking home at least US$65 more every month,” Obama said in his radio address.

Popularity: 5% [?]

The Group of Seven, convened again in Rome, has ceding its traditional power to rebuild the world economy to a broader body of governments that now wield greater sway over global growth., the Group of Twenty. The U.S. Treasury Secretary and European Central Bank President joined their G-7 counterparts, for the discussions but it is the G-20 that now occupies the responsibility in responding to the world financial crisis.

The shift in influence to the G-20, whose members range from the USA to China to Saudi Arabia, reflects the fact that industrial nations alone lack the resources to fix the world’s economic problems. That curbs the G-7’s scope to deliver new initiatives this week, say economists and former officials. “The world has changed,” says Paul Martin, Canada’s former prime and finance minister who attended G-7 meetings and helped establish the G-20 a decade ago. “The G-20 reflects the realities of the global economy. Its finance ministers are becoming the dominant policy-making body.”

Popularity: 6% [?]

The United States and Europe have committed a lot of money to rescuing ailing banks to date. Japan’s veterans have just two words of advice: More and Faster.

The Japanese have experience as they endured a decade of economic stagnation in the 1990’s, because their banks struggled under crippling debt, and successive governments wasted trillions of yen on half measures to restore them.

In 2003 the Japanese government finally took actions that led to a recovery: forcing major banks to submit to merciless audits and declare their bad debts; spending two trillion yen, or US$22.23B at today’s rates. Thus effectively nationalizing a major bank at the expense of shareholders; and allowing weaker banks to fail.

But by the time that went into effect the Nikkei 225 stock index dropped by about 75% from its highs. Prices for real estate ultimately fell for 15 consecutive years, and public debt grew to exceed gross domestic product as deflation took hold. Some scholars of the Japanese debacle see the USA heading to a similar fate.

“I thought America had studied Japan’s failures,” said Hirofumi Gomi, a top official at the Japanese Financial Services Agency during the crisis. “Why is it making the same mistakes?”
Some US critics of the plan announced last week by US Treasury Secretary Timothy Geithner said it lacked details. Experts on Japan found it timid at best, especially given the size of the banking crisis the Obama administration faces.

“I think they know how big it is, but they don’t want to say how big it is,” said John Makin, an economist at the American Enterprise Institute, referring to administration officials. “It’s so big they can’t acknowledge it.”He added: “The lesson from Japan in the 1990s was that they should have stepped up and nationalized the banks.”

Instead, the Japanese first tried many of the same remedies that the administration of President George W. Bush tried and the administration of President Barack Obama is trying, i.e., low interest rates, fiscal stimulus and ineffective cash infusions, among other things.
The Japanese also tried to tap private capital to buy some of the bad assets from banks, as Geithner proposed.

One of the reasons Japan was so timid was fear of public outrage, which grew with each act of the bailout, but the Japanese experience shows that resolving the mess will require a firm government hand and will be extremely expensive. Delay in doing it now will only cause the cost to soar, and the bank rescue will determine the fate of the wider US economy. While President Obama has prioritized his stimulus plan, no stimulus is likely to succeed unless the banking sector is repaired, and the United States probably will not be able to count on a growing demand for its products as the global economy worsens. A further lesson is that the bank rescue will determine the fate of the wider economy. While Obama has prioritized his stimulus plan, no stimulus is likely to succeed unless the banking sector is repaired.

“The way things are going right now the U.S. taxpayers’ burden will keep going up and up.” said Takeo Hoshi, an economics professor at the University of California at San Diego.

Popularity: 7% [?]

US Treasury yields have moved South to the lowest levels since the ’40s, because investors are very fearful of this global economic downturn + the potential deflation on the horizon and have rushed to purchase the US government issued debt paper considered among the safest asset classes. The fact is that this may turn out to be the biggest investment bubble to date and may be on the edge of popping. According to a article in Barron’s today, the big risk to the Treasury market comes from the potentially inflationary impact of both the Federal Reserve’s extreme accommodative monetary policy, which sent short rates to zero +, and the huge fiscal stimulus slated to come from the US government this year. It is expected that it will take higher yields to attract investors, particularly foreigners, as the US Treasury works to fund an estimated deficit of US$1T + this year. Savvy analysts are saying “get out now”. Why, because other parts of the bond market are calling including municipals, corporate bonds, convertible securities, some mortgage securities and preferred stock. The average junk bond now yields 20%, compared with 9% at the start of 2008. Triple-A-rated Muni’s with 30-year maturities are yielding about 5.25%, almost double the yield on 30-year Treasuries. The yield differential between the two markets is unprecedented. Until this year, Munis almost always yielded less than US Treasuries because of their tax benefits. A Bearish stance toward US Treasuries and a Bullish one toward the rest of the bond market represents the consensus view. Most equity and bond analysts surveyed last month by Barron’s projected the US Treasury 10-year note would carry a yield of 3% or higher by the end of 2009. At the same time, it’s hard to find Bears on corporate bonds. It’s nice to be contrary. Sometimes, however, the consensus view is right.

Popularity: 6% [?]

All of us at StockPreacher.com have been working tirelessly to keep our members up to date with breaking information from across the markets during this historic and troubled time. Our team has been expanding our information base as we have recruited analysts from around the world to provide current market forecasts and summaries of the days and weeks occurrences. There is an example of this on the left hand side of this report, titled:  “Some Wisdom from a Reader: The world belongs to those who adapt.” It is written by Paul Ebeling Jr. better known as the Red Roadmaster, a US market analyst and commentator.

Popularity: 2% [?]