The Week That Was

The Week That Was

Just by looking at the gains or losses for the week, one would notice that the major indices haven’t moved much. Dow Jones Industrial Average lost only 44 points, to close at 11,326, a drop of 0.39%; Nasdaq added 0.43 points (whew!) to close at 2310, or 0.02%; S&P 500 added 2.55 points, or 0.20%, to close at 1,260. The week wasn’t all lame, like these numbers suggested. The VIX – CBOE Volatility Index – had some mood swings this past week, especially Monday when it bounced wildly. Financials are again to blame for the volatility, but let’s not be partial here and add some other ingredients to the mix: the mixed economic data, mostly better-than-expected earnings reports, volatile crude prices, depressing news from the automakers and others.
Let’s list them one by one below:
• In another depressing story, General Motors has announced a $15.5 billion net loss for the second quarter. Reasons: diving auto sales, lease deals gone bad, massive restructuring costs.
• Wait, there is more bad news from automakers: Ford Motors sales were down 15%, and even Toyota’s sales declined 12%
• Crude-oil up and down week did not help – its price bounced as a response to geopolitical and demand concerns, ending at $125 per barrel on Friday, down 14.2% from its July 3 closing high. The investors will be better served focusing on big picture, and eliminate the daily noise from the markets.
• Unemployment rose at 5.7% for July, the highest level in four years, and the seventh straight month of job losses. Can you believe that many economists have expected worse? I guess I will see you all at the OCR this fall.
• U.S. is giving in to recession – the U.S. GDP grew just 1.9%, annualized, in Q2 08, versus expectations of 2.4% growth
• Happy Birthday, Credit Crisis! One year ago this time, we were entering the biggest credit crisis since the Great Depression. How young and naïve we were! Not that we’ve learned much today, as the banks predict more losses and the economists another 12-18 months of credit crisis delight.
• To end on a (slightly) happy note (“It’s that possible?” “Let’s see”) – The end may be near … I meant the bottom – Merrill Lynch is selling its CDO’s (collateralized debt obligations) with a notional value of $30.6 billion for $6.7 billion, or 22 cents on the dollar. If that’s not desperation, I don’t know what is. It also shows that the big banks are starting to give in (read “cave in”) and it will signal others following suit soon.

Buckle up everybody! Wild week coming up!

Other news:
• The crop of new babies born in the U.S. reached 4.3 million last year, matching the highs seen in 1957, the peak of the baby boom. For the last 5 years, the growth in births is 7.3%, the fastest since 1991. I guess the high cost of gas has its impact, forcing people to stay home more.
• All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20% or more since September. Last week Brazil became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco have avoided the bear so far.