Moving Up on Glimmers of Good News
03/19/2009 11:15 am EST
It was a pretty good week for global markets, although overseas markets gave back some of their gains Wednesday—before news of dramatic action by the Federal Reserve pushed US stocks solidly into the green again.
The Dow Jones Industrial Average added 90.88 points. And bond yields moved higher when the Fed said it will buy long-term bonds for the first time in more than 40 years. The Fed will also buy up consumer debt, adding over $1 trillion to its balance sheet in an effort to jump start the economy.
Global markets also liked the news that US housing starts jumped 22% last month, although this surge is most likely temporary, coming from an upswing in multifamily units. Meanwhile, Bank of America (NYSE: BAC) chairman Ken Lewis hinted that the bank could repay its $45 billion in government aid by early next year.
That followed announcements that BAC, JPMorgan Chase (NYSE: JPM), and Citigroup (NYSE: C) actually made money in both January and February (although that’s not hard when you’re getting free money from the government). And in a widely watched television interview, Fed chairman Ben Bernanke said he thought the US economy could begin to recover later this year.
Europe got a nudge up when the ZEW investor confidence indicator for Germany showed a rise of 2.3 points to minus 3.5, its best level since July 2007, and prompting ZEW’s president to predict that the recession will peter out this summer.
Analysts at Morgan Stanley disagreed, downgrading their 2009 Euro zone forecasts to a contraction of 3.3%, and forecasting no end in sight for the economic downturn until 2010.
Joining in the pessimism, the Office for National Statistics reported that the number of unemployed in the UK soared to over two million, while the International Monetary Fund (IMF) forecast that the British economy would continue sinking, contracting 3.8% this year and 0.2% in 2010. The IMF added that Britain would be “the only major economy still in recession next year.”
UK bankers are anxiously awaiting the Financial Services Authority’s (FSA) publication of its plan to “shake up” global banking regulation, which contributed to the FTSE 100 index’s 1.4% drop on Wednesday. The FTSEurofirst index also closed 0.8% percent lower, and is off some 14% so far this year.
China took another blow, as the World Bank once again dropped its 2009 growth forecast from 7.5% to 6.5%, although the bank did say that China was still going to grow faster than other world economies. The government of China is still holding firm to its official 8% growth forecast, commenting that it would be willing to expand its four-trillion-yuan ($586 billion) stimulus package if needed.
Meanwhile, the US Treasury said that China is still the US’s top creditor, holding $739.6 billion in US Treasury bonds as of late January, up from $727.4 billion in December, and considerably higher than the $492.6 billion China owned at the beginning of 2008.
Japan is our second largest creditor, with $634.8 billion in US Treasury bonds.
The Nikkei rose 3.18%, following a government announcement that it was considering a stimulus package for its high-tech industry. It was also reported that the Bank of Japan increased its purchase of government bonds by 29%, in an attempt to promote bank lending.
We can no doubt look forward to continued market volatility, but while we wait for a clear sign of market recovery, investment advisors are seeking opportunities around the world.
This week, Lawrence Roulston, editor of Resource Opportunities, explained the unique relationship of gold to supply and demand.
Roger Conrad, editor of Canadian Edge, recommended a real estate investment trust paying high distributions, and John Snowden, editor of The IRS Report, told us about an information technology firm servicing the financial sector.
Have a great and prosperous week.