The Sun is Shining on Wall Street

This morning, the sun is shining on New York City and on Wall Street.

President-elect Barack Obama was one of the few people that could have restored confidence in the financial markets through the appointment of a Cabinet members that the market trusts and a clearer plan of action for tackling the economic crisis. On Friday, his appointments for Treasury Secretary and the Secretary of State were leaked, sending stocks soaring and according to the Washington Post, Obama and leading Democrats are planning a 2 year fiscal stimulus package that could amount to 5% of GDP. He also named former Treasury Secretary Larry Summers to head the National Economic Council. Summers is Geithner’s mentor and was one of the leading candidates for Obama’s Treasury Secretary post.

With 2 well respected powerhouses on his Economic Team, Obama has a good chance of turning the economy around in late 2009, early 2010. The new Administration is beginning to grease the wheels and the market is liking it.

Q3 GDP Could Fall as Much as 1%

However in order for the gains in the equity and currency markets to be sustained, hope needs to supersede reality because as of Tuesday, the US economy should be in a technical recession. Third quarter GDP numbers are due for release and after contracting by 0.3 % in the second quarter, first quarter GDP growth could fall as much as 1% (consensus is -0.5%). The US economy would not be a stranger to such a deep contraction as growth fell by 1.4% in the third quarter of 2001, 3% in the fourth quarter of 1990 and a whopping 6.4% in the first quarter of 1982.

Existing Home Sales Drop 3.1%

It is no secret that the housing market is in trouble and the latest existing home sales numbers confirm that. Resales dropped 3.1% to 4.98 million rate, which is the lowest since June 2008. The big story however is the drop in house prices, which was the largest on record. The combination of a slowing economy and tight credit markets has prevented real estate from recovering and with the recent layoff announcements, I expect demand to slow even further.

Another Big Bank Will Not Fail

Citigroup was another major uncertainty that made the markets nervous. The US government has announced that Citi will be receiving $20B in cash from the Treasury and $306B of asset guarantees. In return, the US government will receive preferred shares in the bank. This step indicates that the Bush Administration believes that the financial system could not afford another big bank failure which is probably right.

For those of you that are interested, here is a quote from Obama’s radio address on Saturday outlining his Economic Recovery Plan:
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In the Financial Papers: Today’s Top Forex News 05.21.08

kathysmallHere is the “In the Financial Papers Radio Broadcast” (Length: 5:14 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy

In the Financial Papers:

 

Podcast Covers:

Fed Chairman Kohn Paints Dour Picture
Japan Weighs Releasing Rice Reserves
Vietnam Considers Ending Rice Export Curbs
Is Inflation NExt Fight for the Fed?
UK Rentals See Boom as House Prices Fall
2016 Oil Futures Near $140 Barrel
M&A Deals May Increase as Companies Look for Bargains
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US Economy Is Still in Trouble, Weaker Dollar Needed

Even though sales of existing homes rose for the first time in 6 months, today’s reports on house prices and consumer confidence tell us that the US economy is still in trouble. According to S&P CaseShiller, house prices dropped over 10 percent, the largest decline on record. With the values of homes quickly slipping, it is hardly surprising to see consumer confidence drop to a 5 year low.

The weakness of the housing market spells trouble for the US dollar because housing is the backbone of the US the economy. The Federal Reserve will be forced to reconsider their plans to slow monetary easing.

As one of the lowest paid central bank Governors (if not THE lowest paid), Bernanke’s job is at stake. He can be dismissed by the sitting US President for practically any reason. Therefore he will do all that he can to avert a serious recession in the US economy in fear of backlash from US politicians.

If the US housing market weakens at a time when the slide in the dollar begins to moderate, the US economy could find itself in even more trouble. Over the past 6 quarters, exports have on average contributed nearly 1% to annualized economic growth whereas housing has subtracted slightly more than 1% during the same period. Therefore if the housing market continues to deteriorate and the dollar simply stays at current levels, GDP growth could quickly deteriorate.

That is why the path to a stronger dollar must be through a weaker one.
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In the Financial Papers: Today’s Top Forex News 03.25.08

kathysmallHere is the “In the Financial Papers Radio Broadcast” (Length: 05:36 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy

In the Financial Papers:

 

Podcast Covers:
Canadian Retail Sales Rebound in January
Existing Home Sales Rebound because of Foreclosures
Fannie Mae and Freddie Mac to buy more mortgage backed securities
The Problems With College Loans
Housing Market Problems Not Limited to the US
Wages Crimp Japanese Growth

In the Financial Papers: Today’s Top Forex News 02.26.08

kathysmallHere is the “In the Financial Papers Radio Broadcast” (Length: 07:41 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy

In the Financial Papers:

 

Podcast Covers:
– US Producer Prices: Fastest Pace of Annualized Growth Since 1981
– German IFO Report Improves, Reflecting Increased Business Confidence
– ECB Orphanides: Eurozone has ducked US slowdown
– Home Foreclosures in U.S. Surged 90% in January After Mortgage Rates Reset
– Ambac: $3bn may not be enough
– Sovereign Wealth Funds Pushed to Open Themselves Up to Outside Scrutiny
– Wheat Prices Soar 25% in One Day
– UK Reduces Oil Investments
– China: Reminibi Liberalization May Continue
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