If It's Broke, Keep Trying to Fix It
03/05/2009 10:00 am EST
By golly, if one stimulus plan won’t work, maybe the next one will! You have to give President Obama and his team credit for really trying to communicate what they are up to, but every time someone opens his mouth (like Treasury Secretary Tim Geithner), Wall Street takes another bath.
The administration’s lack of details on how they intend to spend our money—as well as American International Group’s (NYSE: AIG) coming back to the trough for another handout after losing $62 billion in the fourth quarter—sent the Dow Jones Industrial Average below the unthinkable 7,000 level on Monday—its lowest close since April 25, 1997.
These guys need to learn that the investing public is hanging on every word (exacerbated by the dozens of media talking heads who drone on and on, dissecting every phrase) to try to discern exactly what they are saying. Maybe that’s why former Federal Reserve Greenspan was so cryptic much of the time!
Fortunately, China seems to have bailed out the Dow—as well as other markets in Asia and Europe—with its latest stimulus plan. Bloomberg reported that China’s government is considering another four trillion yuan ($585 billion) spending stimulus to jump-start China’s economy, saying that the existing stimulus plan may not be enough. Pundits believe a big part of the package will go towards boosting manufacturing and infrastructure.
The news sent the Shanghai Composite Index up 6.1%, Japan’s Nikkei average up by 0.9%, and Hong Kong shares up 2.5% on Wednesday.
Let’s hope the stimulus works, although there was some good news already, with the report that China’s own purchasing managers’ index rose to 49 in February from 45.3 in January. According to the China Federation of Logistics and Purchasing, a reading above 50 suggests expansion, leaving the experts to explain that manufacturing is still contracting, but is recovering.
Both Japan and Australia chimed in with their own versions of stimulus plans: Japan approved a bill for another $50 billion and Australia, A$28 billion.
And while the US saw private sector employment decline by a record 697,000 in February—higher than the 630,000 estimates—the Chinese news seemed to sweep the employment numbers out of investors’ minds. The Dow closed up nearly 150 points Wednesday.
Europe’s bourses also looked good, with the FTSE closing up 133.78 points, the FTSEurofirst 300 up 4% and Germany’s DAX and Paris’s CAC rising 5.4% and 4.7%.
Not to be outdone by AIG, Europe’s largest bank, HSBC (NYSE: HBC), announced that it was writing down the value of its US consumer lending units—HSBC Finance and Beneficial—and laying off 6,100 workers. The bank is trying to issue new shares to raise $17.9 billion after having suffered a 70% fall in profits for its fourth quarter.
Banking giant UBS (NYSE: UBS) has its own set of problems. Its chairman quit on the heels of the bank’s staggering $49-billion subprime write-downs, as well as the most recent news that UBS is cooperating with a US government inquiry into some 52,000 US clients who have tried to use Swiss banking secrecy laws to outwit the IRS. They just need to believe what my dad always said: They’re going to find you, one way or the other, so you might as well just pay up!
And speaking of paying up, the Daily Mail reported that City of London law firms are offering their recruits up to £10,000 to defer their employment for a year. Boy, you have to like getting paid for nothing—even in depreciated British pounds!
Meanwhile, investors and traders are still searching for ideas to help them jump start their portfolios.
And the advisors are rising to the occasion. This week, Andrew Leung, chairman of Andrew Leung International Consultants Limited, gave us a comprehensive overview of China’s 2009 economic and market climate.
Andrew McHattie, editor of the Investment Trust Newsletter, chimed in with a look at how specific regions in Asia were likely to fare. Gordon Pape, editor of The Canada Report, recommended a utility paying a high dividend, while Nick Lanyi, editor of High-Yield International, put in a good word for a global steel producer.
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.