Client & Advisor Update - November 17, 2008
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Another Dismal Week
The financial markets were forced to confront a variety of awful consumer and economic news, an announcement of major changes in the government’s bailout plan, the specter of a GM bankruptcy, and the realization that a lame-duck administration and Congress are very unlikely to get anything meaningful done until after January 20, 2009.
In spite of Thursday’s all-time, third best, one-day point gain for the Dow Jones index, all three major indexes gave up lots of ground for the week. The Dow Jones fell 5 percent, the S&P 500 lost 6.2 percent, and the NASDAQ plummeted 7.9 percent.
It seems the investor herd has abandoned hopes of a recovery taking hold. According to the tracking firm Trim Tabs, investors pulled nearly $31.8 billion out of equity mutual funds for the week ended November 12. The previous week, investors added $2.2 billion, breaking a 14 consecutive week redemption streak.
That money is surging into Treasury bills, pushing yields down. The yield on the 3-month Treasury bill fell to 0.11 percent, meaning buyers prefer to get almost no return on their money than risk the stock market. In September, the 3-month yield fell to 0.0 percent as investors panicked following the epic collapse of Lehman Brothers. Treasury prices and yields move in opposite directions.
I think it is fair to say that the lack of confidence that investors and consumers have will likely continue until the Presidential inauguration, at the least. According to Scott Anderson, senior economist at Wells Fargo, the recession we are in (unofficially as of yet) will get much uglier in the fourth quarter. Retail sales fell 2.8 percent in October following a revised 1.3 percent drop in September. Except for spending at grocery stores and on health care, “Sales were pretty awful across the board,” he said. Anderson added, “With consumers only spending on the essentials, that’s pretty dire.”
With consumers driving 70 percent of the economy, the prospect of tightly gripped wallets and pocketbooks during this holiday season must be sending shivers down the spines of retailers. The day after Thanksgiving, traditionally called “Black Thursday” in retailing, marks the beginning of the season when stores finally begin to show a profit (in the black) for the year.
If government leaders, including the Treasury Department, want to be “Heroes”, they should keep eponymous NBC show’s first season tagline (slightly altered) in mind:
“Save the consumer,
Save the economy”