Market Update – February 26, 2010

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Slightly shorter blog today as it just seems like a day that is light on news.  Now, on to what I read…

1. Markets

The Dow dropped 53 points. There was bad news about jobs and more concern about Europe.  But, the market had been down almost 200 points and rallied in the afternoon.




Palm dropped 19%.  Apparently, it was a surprise that their smart phones aren’t selling?




Yields dropped (bond prices rallied) as signs of low inflation (high unemployment and weak durable goods orders) accompanied a flight to quality resulting from more concern about Greece and the EU.  In addition, there was very strong demand for the Treasury’s auction of seven-year bonds.




The SEC said that it is examining credit default swaps for potential abuses and destabilizing effects.




2. Economy

Weekly jobless claims increased by 22,000 to 496,000.  This was the highest level in three months.  The four-week moving average increased 6K to 473.75K.  Part of the problem was caused by past snowstorms.  State agencies were processing a backlog of claims.  Regardless, this was somewhat dismal news.  It’s simply reinforcement that we have no real evidence of a recovery in the jobs market.  There’s fear about what will happen when the stimulus spending slows.




Durable goods orders increased 3%, but fell 2.9% if you exclude defense and aircraft.  This led Morgan Stanley to lower their Q1 GDP estimate from 2.5% to 2.2%.




Bernanke continued to warn that investors could lose confidence in the US if we don’t get our budget and deficit in line.  He said that this could affect interest rates and the dollar.  He said, “and those things could directly or indirectly affect the state of the economy.”  You think?




I watched a little of the “bipartisan” health care meeting that President Obama held.  As a teacher, I can best compare it to trying to do a business case with first year students.  No one listens to anything anyone else has to say.  They simply make their prepared statements.  With that said, I don’t want to carry this analogy too far.  It’s insulting to first-year MBAs to compare them to these idiots.  I think that most of our students actually understand how to balance a budget.




JPM CEO Jamie Dimon said that he doesn’t want to raise the firm’s dividend because “there are huge potential negatives out there.”  He said that he worries about a double dip recession.




3. International

The Fed is looking into the transactions that Goldman used to help Greece appear to have lower debt levels.  It’s alleged that JPMorgan set up similar transactions for Italy.




Greece had planned to issue $2.7 billion – $3.4 billion of debt this week.  They have delayed the offering until next week because of the one-day strike and S&P’s threat that the sovereign debt could be downgraded.  Greece is hoping that the markets will be calmed when they issue additional austerity measures.  They are also hoping for more direct support from the other EU members.  Personally, there’s not much that would make me feel better about Greece.  As I’ve said many times, they are structurally unsound; this is not a short-term cyclical issue.  I’m particularly bothered by the strikes during the past two weeks – they serve as glaring evidence that a huge percentage of Greeks just don’t get it.




Betting against the euro. The WSJ reports that several star hedge fund managers are making career bets that the euro will fall to parity with the dollar.  Currently, it’s around $1.35.




No defaults any time soon. S&P said that they don’t expect any sovereign defaults among the EU nations.  They also said that they don’t expect any nation to leave the EU in the intermediate term.




Here’s something Democrats and Republicans can agree on: China! A bipartisan group of Senators asked the President to investigate allegations that China keeps their currency artificially low.  It was also reported that China is conducting stress tests to understand the impact of letting the yuan rise.




4. Random

Shares of Rosetta Stone (RST) increased more than 10% after the close when they announced good earnings.  The company makes software to learn foreign language.  This is more evidence that it won’t be long before we’re all speaking Chinese.




I found this on cnn.com (Sports Illustrated), where they had the “Quote of the Day” from the Olympics:

My name is Odd-Bjoern Hjelmeset. I skied the second lap and I f—– up today. I think I have seen too much porn in the last 14 days. I have the room next Petter Northhug and every day there is noise in there. So I think that is the reason I f—– up. By the way, Tiger Woods is a really good man.
– Norway silver medalist Odd-Bjoern Hjelmeset, on his performance in the men’s 4 x 10 relay (Writer’s note: By far the craziest quote released by the VANOC information desk over the past 13 days.)




Now, I think my students will understand the problem whenever I have a bad lecture…
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