Markets Rally

Wednesday, April 11, 2012

“Greece was a zit, Portugal is a boil, Spain is a tumor. You can’t fix a debt crisis with austerity and more debt.” Bill Gross

After peaking at 1419 last Monday, the S&P 500 pulled back 4.3% into yesterday’s close. This morning the equity markets are getting a bump after Alcoa beat earnings estimates to officially open the first quarter earnings season. Six European countries were able to sell debt, with Spanish bonds rising and yields hitting 6% on the 10 year for the first time all year. Much of the recent downturn in equities was fueled by a weak March jobs report, with non-farm payrolls rising 120K vs. an expected increase of 205K. The unemployment rate fell again to 8.2% from 8.3%, but once again that measure has come under fire due to the method used to calculate the number of people in the workforce.

Rick Santorum ended his campaign for President yesterday, leaving the GOP nomination open to Mitt Romney. Mr. Romney picked up endorsements from GOP governors Rick Scott of Florida and Bobby Jindal of Louisiana as well as Senator Patrick Toomey of Pennsylvania. Mr. Romney is not unscathed as the primary battles combined with his inability to deliver a coherent message have damaged his campaign so far.

The New York Times is reporting that banks have begun offering credit to those with weak credit, including recent bankruptcy filers. Credit card issuers gave 1.1 million cards to people with poor credit histories in December, a 12.3% increase over December 2011. Just a quick recap, but we suffered from a financial crisis caused by loose monetary policy, poorly executed regulation, and weak lending standards. Thank goodness we’ve learned from those mistakes.

Soybean futures hit their highest level since 2008 after export estimates for Argentina and Brazil were slashed. Soybean futures are up 20% year to date.

The Energy Information Administration is estimating US gasoline prices to average $4.01 in May. That should push prices in California well north of $5.00 per gallon.

In a blow to states’ efforts to right size their budgets, US courts have recently been siding with public employee unions on suits related to pension plan changes. Without the ability to cut back on employee pensions and pension contributions, many states are facing massive spending cuts in services combined with recovery killing tax increases in order to balance their budgets.

Acting FHFA director Edward DeMarco, whose agency oversees Freddie Mac and Fannie Mae, said yesterday in response to a question regarding principal reductions for underwater homeowners “Most Americans that are underwater on their mortgage realize they’ve signed a contract, they’ve got an obligation to make that payment and, in fact, they are.”

Indonesia suffered an 8.6 magnitude earthquake, and a tsunami warning has been issued throughout Asia. In 1994 a quake off the coast of Sumatra unleashed a tsunami that killed 200K people throughout the region, including 170K in Indonesia.

Facebook agreed to pay $1 billion for Instagram, a photo-sharing website with no revenues. The company has 13 employees. Shutterfly (SFLY) was hit on the news.

Inside and/or unauthorized trading is a sure way to lose your job in the US, and possibly even go to jail. In China, it can cost you your life. A Chinese trader, Wang Caipang, used borrowed money meant for other purposes to speculate on futures and gold. She has been sentenced to death while her co-conspirator brother, Wang Guanglin, remains at large.

Bye for now

Ned