The Week In Review
by Lou Scatigna
The last week in February was a dismal week all around. Almost every economic number was worse than expected and in some cases, far worse. The stock market continued it's relentless decline and closed at a 12 year low.
More of the world's financial companies were defacto nationalized as governments worldwide struggle to save the financial system from complete collapse. President Obama gave his vision of an America that mirrors European Soicialism. The next day he follwed up by releasing the most expensive budget in the history of the country, filled with expensive new entitlements, a 1.75 trillion dollar deficit, higher taxes on those making over $250,ooo, higher taxes on corporations and thousands of "earmarked" pet projects.
Friday the government effectively began the nationalization process of the country's largest banks by upping it's stake in Citigroup to 36%. My guess is that taxpayers will have to increase that stake significantly if Citi is to survive.
Horrible economic numbers, bank nationalization and the realization that the Obama Administration is not business friendly was the perfect reciepe for a depressing market this week. Let's take a look at the numbers:
GDP
Fourth quarter Gross Domestic Product was revised down to -6.2%, a 25 year low and much worse than expected. The initial release was -3.8% so the revision is dramatic. Worldwide economic activity came to a virtual standstill in the fourth quarter. It is expected that the first quarter of this year may have been worse. The country is in the midst of a very strong recession or more likely a depression.
Unemployment
First time claims for unemployment benefits rose to 667,000, the highest number in 26 years. Over 5.11 million americans are currently collecting unemployment, the highest ever. The economy will not stabilize until we start to see some improvement in this number. It's accelaration at this time is a major cause for concern. Next week we get the all important non-farm payroll report. Do not be surprised to see that a record 800,000 jobs were lost in February. The unemployment rate may be near 8%.
Consumer Confidence
Consumer confidence continued to plunge to record lows in February. The consumer confidence index dropped to 25 from an already bad 37.4.
Fears of job losses and continued economic weakness has kept consumer spending in check. Retail sales will continue to be weak for at least the rest of the year.
The Housing Market
The S&P/Case Shiller National Home Price Index recorded an 18.2% decline in the 4th quarter of 2008, the largest decline in it's 21 year history. Sales of new family homes fell 10.2% in January a record low of 309,000 annual units. More downside for housing this year I'm afraid.
Durable Goods Orders
Orders for items expected to last at least 3 years declined for a record six months in a row. Durable Goods Orders dropped 5.2% in January. Year over year orders dropped a whopping 23.3%.
Stock Market
It is the most brutal time for the stock market. Investors are continually in search of the bottom that never comes. The S&P 500 closed at a a bear market low of 735, the lowest level in 12 years. The Dow closed at 7,063, it looks the industrials will trade down to 6,500 level next. The market is in terrible shape both technically and fundamentally.
This February was the second worst on record for stocks with the Dow dropping 11.7% and the S&P 500 falling 11%. For the year the Dow and S&P500 are down over 18%, hardly the return of the bull that many had hoped for.
During this income tax season I have been meeting with many clients and have found that most of them are fearful about the future. There is a real sense of hopelessness that I have never seen before. Their distrust of politicians, CEOs, Wall Street are at all time highs. This week's numbers reflect those emotions.
Buffet's Berkshire Hathaway Stock Chart
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