TRADE Focus

04/30/2009

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The Trade Focus commentary was written Wednesday, April 29th and the market analysis section was written Thursday, April 30th.

There was a heavy calendar of economic news scheduled for this week as opposed to last week which was nearly devoid of news. First we saw consumer confidence improve from the previous month, and although still at a low level, the improvement was better than expected. European confidence levels were said to be better than expected as well. GDP was actually worse than anticipated and this quarterly decline of 6.1 percent came on the heels of the previous 6.3 percent contraction and reportedly combined for the worst two consecutive quarters in 60 years. Apparently, though, there was an optimistic portion of the report as consumer spending showed an improvement while inventory levels registered a decline. Early Wednesday afternoon there was the conclusion of the 2-day FOMC meeting resulting with its decision on interest rates and the statement of its findings. Interest rates were left unchanged maintaining their 0 - .25 percent range. The associated statement said that the economic outlook had improved moderately since March and although the economy continues to contract, the pace of economic contraction is slowing. It also said that inflation should remain "subdued" for some period of time. The last few days of the week will now be packed with additional economic news. Still to come as we write midweek are the Personal Income and Spending reports, the Employment Cost Index, Chicago PMI, University of Michigan Sentiment Index, Factory Orders, the ISM Index and finally auto and truck sales. That is a lot of data but we feel at this time that none out of this bunch will have the power to make a lasting impression.

The markets had much more to contend with this week than the schedule of economic data. Some of the major issues that contributed to the mix were the swine flu, the bank stress tests, Chrysler's potential bankruptcy and the celebrative atmosphere marking the first 100 days of the Obama administration. The swine flu issue creates a great deal of uncertainty. There is no telling what the longer ranging effects will be. Travel, trade and consumption are a few of the major categories expected to be victimized by what could turn in to a pandemic. We all know the market hates uncertainty and its participants not only worry about contracting the disease but also stress over the associated economic ills that may arise. The initial effects proved rather wide ranging while stock prices along with commodities such as metals, grains and livestock saw prices fall. So far, though, the damage has been limited and many areas have staged significant recovery including major stock indices which made new post March 6 highs. The early rumors surrounding the stress tests have Citi Bank and Bank of America needing to raise more capital. Apparently here too, the market believes there are solutions as non core bank assets can be sold and preferred shares can be converted to common. Chrysler's looming bankruptcy and its restructuring seems to be coming together. There are meetings with its creditors ongoing and reports are that progress is being made on restructuring a major portion of its debt. The labor union too has been reported making additional concessions. The potential for a partnership or merger with Fiat, which seems to be favored by the government, remains a viable possibility as of this writing. We had thought this had become a closed or dead issue.

We mention the first 100 days of the Obama administration because it has been in the forefront of the media and in particular the financial media. These are difficult times indeed and the destruction of capital the global economy has suffered may truly be unprecedented. We believe it will be quite some time before we know how successful these first 100 days have been. There has been a great deal of attention given to this and action taken by the new administration. The level of employment will be such a key factor in determining how effective these plans and actions are. It has an effect not only on gross wages but the gross amount of money there is to spend. There is also the psychological effect on the mood of the nations. There is a fear that pervades at times like these where people have deep concern whether they will be losing their job. A good measure of success will be how this mood and this feeling can be lifted and resolved. Unfortunately, employment is a lagging indicator. We have talked before about what we refer to as giddiness. It is an emotion that can cause a trader to lose focus and let down his guard. We would caution that the severity of the global economic crisis demands the giddy emotion, as it pertains to economic recovery, be kept under complete control.

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