March 2, 2009

Better Trades US News

The beginning of March saw the markets continue last week’s selling and resulted in the Dow Jones breaking through the 7,000 level for the first time since 1997. The markets were helped lower by AIG earnings and additional economic reports showing the unhealthy state of the economy.

American International Group, Inc. (AIG), a world leader in insurance and financial services, and the leading international insurance organization with operations in more than one hundred thirty countries and jurisdictions, announced before the opening bell on Monday that the insurer posted a loss of $61.7B in the 4Q, which amounted to $22.95 per share.

Today’s announcement comes as the largest quarterly loss in U.S. corporate history. AIG and the government have restructured their bailout plan that is now totaling more than $30B in additional aid. Last year’s 4Q saw the insurer post a loss of $5.3B, or $2.08 per share with current revenues posting a negative $23.8B.

"We have made meaningful progress in addressing liquidity issues related to AIG Financial Products and our securities lending activities and have announced several divestitures," AIG Chairman and CEO Edward Liddy announced today. "However, the economy and capital markets remain in turmoil and we are taking additional steps to preserve the value of our businesses and maximize the ultimate proceeds for the benefit of all stakeholders, including taxpayers."

In economic news, the Institute for Supply Management released their data this morning showing that the manufacturing index in February contracted for the 13th consecutive month, with a reading of 35.8. Although the reading was slightly higher than the 35.6 in January and above economists’ forecast of a 33.8 reading, the index is still shrinking with any reading below 50.

Within the readings, the ISM also showed that manufacturers were steadily cutting their workforce throughout the month. The firm’s employment index showed a reading of 26.1 in February, a new record low following January’s reading of 29.9. Furthermore, the ISM revealed that new orders to manufacturers slipped to 33.1 from 33.2, while the production index increased from 32.1 to 36.3, its second straight month of advancing.

In a report released by the Commerce Department earlier today, the government agency confirmed that consumer spending increased in January, reversing a six-month trend that saw spending decline. In the report, spending increased 0.6% during the month, higher than the 0.4% increase economists were anticipating.

The 0.6% increase in spending comes after a 1% drop in December, as consumers tightened their wallets, which in turn, gave retailers their worst holiday season sales figures in more than 40 years. In fact, Macy’s Inc. (M) posted a decline in earnings of 59% during the 4Q, while JCPenney Co. (JCP) saw their profits drop more than 51% during their 4Q.

Moreover, personal income advanced during the month as well, increasing by 0.4%, higher than the 0.2% increase analysts were looking for. Even with spending and incomes up for January, the personal savings rate jumped to 5%, its highest levels since 1995 as many remain concerned with the state of the economy as a whole.

Lastly, a price gauge, or inflation, tied to consumer spending revealed a slight increase of 0.2% in January, after three consecutive months of declines that were directly related to huge drops in the price of energy. Omitting energy and food costs, the price gauge increased 0.1% for the month and has posted only a 1.6% increase over the past 12 months.

In an additional release from the Commerce Department, construction spending in January plunged 3.3%, marking the fourth straight month that spending has receded. Within the report, residential construction dropped 2.9%, while nonresidential activity slipped 4.3%, the largest drop since January 1994. Analysts, in the meantime, were looking for construction spending to decrease by a more modest 1.5% during the month.

Within the commodities markets, the price of oil slipped in trading on Monday as disheartening economic news and dire earnings reports curtailed investors buying sentiment. By the end of the trading session, the price for a barrel of light, sweet crude for April delivery plunged $4.61 to $40.15 a barrel, following Friday’s modest decline of $0.46 a barrel.

In additional NYMEX trading, gasoline for April delivery slipped $0.0863 to $1.2862 a gallon, while heating oil dropped $0.116 to $1.1512 a gallon and natural gas for April delivery declined $0.046 to $4.152 per 1,000 cubic feet. Nationally, the price for a gallon of gasoline increased nearly $0.01 overnight to an average of $1.93.

As the markets tanked to start the week, the bond markets benefited from the downtrend as investors went in search of safer securities to put their capital in. By the close of trading, the benchmark 10-year note jumped 1 7/32 to 98 30/32 as its yield slipped from 3.01% to 2.87%. Furthermore, the 30-year note gained 1 19/32 to 97 28/32 while yielding 3.61%, and the 2-year note added 6/32 to 99 31/32 with a yield of 0.88%.

In the Forex markets, the U.S. Dollar advanced on the major currencies of the world on Monday as investors look towards the greenback as a safe haven for their capital. By late afternoon, the 16-nation Euro declined to $1.2577, down from Friday’s price of $1.2697 as investors are looking for the ECB to reduce interest rates from 2% to 1.5%. Additionally, the British pound retreated against the Dollar as well, falling to $1.4043 from last week’s price of $1.4320. Versus the Japanese yen, the greenback slipped to 97.24, down from Friday’s price of 97.84.

Moreover, in additional Forex trading, the Dollar advanced to 1.1752 Swiss francs, up from 1.1685 last week, while increasing to 1.2911 Canadian dollars from Friday’s price of 1.2696 as the Canadian government announced that their economy slipped at a rate of 3.4% during the 4Q of 2008.

By the sound of the closing bell, the Dow Jones Industrial average plummeted 4.24%, or 299.64 points, to close out Monday’s session at 6,763.29, its first close below 7,000 since May 1, 1997. So far this year, the Dow Jones is down more than 22%, while the broader market indicators concluded the session deep into the red as well.

At the close, the S&P 500 index plunged 4.66%, or 34.27 points, to end the day at 700.82, while the tech-heavy NASDAQ composite index declined by 54.99, or 3.99%, to finish the first trading session of the month at 1,322.85.

2009 Better Trades Article

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BRIAN MULLIN