It never seems to fail, but just as we get ready for quarterly account updates, the stock market decides to test it's lows for the year. While the market has technically avoided a bear market, and the economy has thus far avoided recession, the headwinds continue to mount. With the Presidential Election looming in the fall, this looks to be a summer of rhetoric and empty promises.
There are several solutions to the current mess we face concerning crude oil and energy. The Congress MUST override all environmental litigation and allow full scale drilling in ANWR and off the coasts. Full scale development of alternative energy sources is crucial, like the steps Honda has taken with their hydrogen/electric hybrid. Coal and nuclear energy sources must be utilized immediately, regardless of initial environmental impact. These steps would dampen speculation, even though this increased domestic energy production would not enter the market immediately, because much of the run up in oil prices is being driven by the same type of speculation that drove the dotcom bubble and the housing bubble. It is purely a perception of a lack of supply. Any chance the Congress has the nerve to take these steps? When you look at history, this was exactly the "nerve" which led to the development of the Alaskan Oil Pipeline. Had we only been serious about alternative energy solutions back in the late 70's and early 80's instead of conspicuous consumption!
Meanwhile, here is a reprint of a Marketwatch article on the threats facing the market a week before the end of the second quarter.
By Kate Gibson, MarketWatchLast Update: 6:00 AM ET Jun 21, 2008
NEW YORK (MarketWatch) -- U.S. stocks on Monday will attempt to recover from some hefty losses, but any comeback will likely be contingent on three factors: the price of crude oil, any hints of inflation, and developments in the troubled financial sector.
"Obviously this market is in lockstep with three things, the most important of which is the price of a barrel of oil," said Art Hogan, chief market strategist at Jefferies & Co.
On Friday, stocks sank as crude-oil futures gained, a trend that played throughout the week, as the weaker U.S. dollar added to the allure of oil and other commodities as a currency hedge. And, more trouble in the financial sector compounded market anxiety.
The Dow Jones Industrial Average ended at 11,842.69, off 220.4 points, or 1.8%, for the session. It lost about 465, or 3.8%, on the week.
Friday's finish marked the Dow's lowest close since March 10, when it settled at 11,740.15.
"Stocks finished a week that is best forgotten, and the Dow now finds itself flirting dangerously close with the pivotal 11,750 area," said Jon Nadler, senior analyst at Kitco Bullion Dealers.
And, while investors fretted about the impact of rising energy costs on the already soft economy, the credit crisis and its ongoing impact on the troubled banking sector last week continued unabated.
"We had a plethora of brokers talking about them, from the money centers to the regionals, and none of them were positive," said Hogan.
Merrill Lynch on Friday warned of investor capitulation on the regional banking sector, with analysts envisioning further dividend cuts as likely to be on the horizon. The broker cut its median earnings estimate for regional banks for 2008 by 15%, with J.P. Morgan analysts chiming in a prediction of further efforts to replenish reserves in the sector. .
"Merrill sees investors effectively throwing in the proverbial towel when it comes to bank stocks. With capitulation come buying opportunities, normally. A normal year 2008 has not been thus far," said Nadler.
Of the Dow's 30 components, 29 posted losses, with blue-chip financials among the hardest hit. Citigroup Inc. fell 4.3%, American Express Co. fell 3.4% and American International Group Inc. declined 3%.
The S&P 500 fell 24.9 points, or 1.9%, to 1,317.93, with all 10 of the index's industry groups posting declines, led by consumer discretionary, off 3.1%.
The S&P closed with a weekly loss of 3.1%.
Midway between its March low of 1,273 and May high of 1,426, the S&P appears headed back down toward its lows of three months ago, "as investors lose confidence that an economic recovery is just around the corner," said Kenneth Tower, chief market strategist at Covered Bridge Tactical LLC.
The Nasdaq Composite Index dropped 55.97 points, or 2.3%, to close at 2,406.09, giving the technology-laden index a loss of 3.1% for the week.
Bonded
As stocks sank, bond prices climbed, with the yield on the benchmark 10-year note, which moves in reverse of its price, falling to 4.16%.
The U.S. dollar declined against most currency rivals, while the price of gold climbed. .
And, with the price of crude already on the rise, the climb was further fueled by a published report of an Israeli dry run of an attack on Iranian nuclear facilities.
Crude for July delivery climbed $2.69 to end at $134.62 a barrel on the New York Mercantile Exchange, while uncertainty ahead of a meeting of oil producers and consumers this weekend in Saudi Arabia and China's hike in fuel prices helped push prices down 0.2% for the week.
In addition to energy concerns, next week brings a slew of reports that could shed further light on whether other costs are climbing as well.
"We will also be scouring the economic data calendar for signs of inflation," said Hogan.
The economic docket looks to be a busy one, particularly in regards to the ailing housing sector. Analysts expect the S&P/Case-Shiller Home Price Index will fall to 168.8 in April from 172.2 in March, with the report slated to be released Tuesday.
The second day of the week also brings June consumer confidence, which is projected to weigh in at a 16-year low.
On Wednesday, investors will receive durable goods in May, with the data expected to show a 1.0% rebound, along with an expected small hike in May new home sales, which are projected to rise to 530,000.
Thursday brings final first-quarter GDP, which analysts expect to be revised up to 1.2% from an initial 0.9%, along with initial jobless claims and existing home sales for May.
The May personal income report is due on Friday, along with a measure of consumer sentiment.
Added to the mix is the Federal Open Market Committee, or FOMC, which on Tuesday begins a two-day meeting, with Federal Reserve Chairman Ben Bernanke and his colleagues widely expected to step up talk about the risks of inflation, while not hiking benchmark lending rates from the current 2%.
"Fed projections on economy and inflation are also likely to be revised higher, laying the groundwork for a hike or two this fall," wrote analysts at Action Economics.
With any luck, the Saudi's will decide to add a bit more crude to the market as they conclude the oil summit held this weekend. However, even with facing strong U.S. pressure and global dismay over oil prices, Saudi Arabia could only say on Sunday it will produce more crude this year if the market needs it. Unfortunately, the vague pledge fell far short of U.S. hopes for a specific increase and may do little to lower prices immediately. For now, the current "oil shock" leaves Western countries with little choice but to move toward nuclear power and change their energy consumption habits, Britain's prime minister warned at a rare meeting of oil producing and consuming nations.
John Kaighn
Jersey Benefits Advisors
Monday, June 23, 2008
Monday, June 2, 2008
Crude Oil Prices Continue To Buckle
As a follow up to my blog last week, it is interesting to see oil dropped below $126 a barrel due to fear that prices are cutting into demand and concerns about a probe into futures trading by a U.S. regulator. Light, sweet crude for July delivery was down $1.81 to $125.54 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. On Friday, the contract settled at $127.35 a barrel, up 73 cents after dipping below $125 and then rebounding. July Brent crude futures fell $1.27 to $126.51 a barrel on the ICE Futures exchange in London.
In the U.S., which has just started its summer driving season, there is a real concern about record high fuel and energy prices. This has helped to bring oil down from the $135.09 a barrel trading record hit May 22. Data from the U.S. Energy Department and Federal Highway Administration and several surveys in recent days suggest American consumers are driving less.
The decision by some countries in Asia, like Indonesia and Taiwan, to lower subsidies on oil products, also was seen as having a bearish effect on the market. Additional selling pressure came with last week's announcement from the Commodity Futures Trading Commission about an investigation into possible price manipulation in oil futures markets. The commission also announced new rules designed to increase transparency of U.S. and international energy futures markets.
"There are more concerns on the high pricing we have seen, that it will have a negative impact on demand, and the fact that the CFTC is expanding its investigation of manipulation in the oil markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The seesaw we've seen in the last few days is an indication that the oil market may have peaked," Shum said. "Having said that ... the reality is that even though we have crude off the peak of $135 there are still supply-side issues going forward," he said. "The hurricane season is certainly one factor to contend with."
Tropical Storm Arthur formed Saturday afternoon, one day before the official start of the 2008 Atlantic Hurricane season, and though it caused the temporary closure of two of Mexico's oil export ports, it wasn't expected to cause any severe disruptions to oil shipments. On Sunday, the storm weakened to a tropical depression. "Tropical storm Arthur, the first of this season, gave more support to the market," said a research note by JBC Energy in Vienna, Austria.
Investors also had other supply worries on their mind. On a trip to the Mideast over the weekend, U.S. Treasury Secretary Henry Paulson said there is "no quick fix" to high oil prices because it is an issue of supply and demand. He was on the trip to deliver a message to officials of Saudi Arabia and other oil-producing nations that soaring oil prices are putting a burden on the global economy.
Global demand remains strong while "production capacity has not seen new development," Paulson said Sunday in Qatar. His trip was designed to urge Mideast producers to allow more outside investment to boost output. The day before, though, the current president of the Organization of Petroleum Exporting Countries again blamed the weak U.S. dollar, speculation and the subprime crisis for the spiraling price of oil. Algerian Energy Minister Chakib Khelil said the cartel will make no new decision on production levels until its Sept. 9 meeting in Vienna. He said oil's record prices do not reflect markets conditions, an oft-repeated OPEC position.
As you can see from the various points made here, most of the blame for high energy prices is being blamed on the weakened dollar and global demand. If global demand falters as it has in the US, the resulting supply increase could be just the stimulus to send oil prices tumbling. This would also result in a strengthened dollar against global currencies, which is probably the most important factor necessary to bring relief from high oil prices. Unfortunately, any supply disruptions will bring the oil bulls out in force.
John Kaighn
Jersey Benefits Advisors
Web Business Review
In the U.S., which has just started its summer driving season, there is a real concern about record high fuel and energy prices. This has helped to bring oil down from the $135.09 a barrel trading record hit May 22. Data from the U.S. Energy Department and Federal Highway Administration and several surveys in recent days suggest American consumers are driving less.
The decision by some countries in Asia, like Indonesia and Taiwan, to lower subsidies on oil products, also was seen as having a bearish effect on the market. Additional selling pressure came with last week's announcement from the Commodity Futures Trading Commission about an investigation into possible price manipulation in oil futures markets. The commission also announced new rules designed to increase transparency of U.S. and international energy futures markets.
"There are more concerns on the high pricing we have seen, that it will have a negative impact on demand, and the fact that the CFTC is expanding its investigation of manipulation in the oil markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The seesaw we've seen in the last few days is an indication that the oil market may have peaked," Shum said. "Having said that ... the reality is that even though we have crude off the peak of $135 there are still supply-side issues going forward," he said. "The hurricane season is certainly one factor to contend with."
Tropical Storm Arthur formed Saturday afternoon, one day before the official start of the 2008 Atlantic Hurricane season, and though it caused the temporary closure of two of Mexico's oil export ports, it wasn't expected to cause any severe disruptions to oil shipments. On Sunday, the storm weakened to a tropical depression. "Tropical storm Arthur, the first of this season, gave more support to the market," said a research note by JBC Energy in Vienna, Austria.
Investors also had other supply worries on their mind. On a trip to the Mideast over the weekend, U.S. Treasury Secretary Henry Paulson said there is "no quick fix" to high oil prices because it is an issue of supply and demand. He was on the trip to deliver a message to officials of Saudi Arabia and other oil-producing nations that soaring oil prices are putting a burden on the global economy.
Global demand remains strong while "production capacity has not seen new development," Paulson said Sunday in Qatar. His trip was designed to urge Mideast producers to allow more outside investment to boost output. The day before, though, the current president of the Organization of Petroleum Exporting Countries again blamed the weak U.S. dollar, speculation and the subprime crisis for the spiraling price of oil. Algerian Energy Minister Chakib Khelil said the cartel will make no new decision on production levels until its Sept. 9 meeting in Vienna. He said oil's record prices do not reflect markets conditions, an oft-repeated OPEC position.
As you can see from the various points made here, most of the blame for high energy prices is being blamed on the weakened dollar and global demand. If global demand falters as it has in the US, the resulting supply increase could be just the stimulus to send oil prices tumbling. This would also result in a strengthened dollar against global currencies, which is probably the most important factor necessary to bring relief from high oil prices. Unfortunately, any supply disruptions will bring the oil bulls out in force.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Thursday, May 29, 2008
The Chicken Or The Egg
Oil continues to dominate the headlines, as recent price spikes followed by a $10.00 per barrel decline from its high, reignite discussion about fundamentals. Having witnessed the significant decline in automobile traffic at the Jersey Shore firsthand over the Memorial Day weekend, it is quite evident consumers are cutting back. Traffic on the corridor from Philadelphia to Atlantic City was subdued and nowhere near the usual holiday volume.
Meanwhile, the stock market seems to be trading in a range between 12,200 and 12,800 with no compelling reason to break from this range. With the verdict on recession inconclusive at best, politicians are scrambling to use any definition, even a revised 0.9% growth rate in GDP for the first quarter, as a way to save face. Most major candidates have already come out and pronounced the economy in recession, when in fact, we are not even close to delivering two full quarters of negative growth. It just amazes me how loosely the true definition of recession is contorted for political purposes. While there is no doubt that the current rate of GDP growth causes pain, the economy was NOT in recession during the first quarter of 2008.
Inflation pressures, due to the dramatic rise in the price of crude oil are now being felt throughout the economy. The Fed can't lower interest rates any further, because it makes the dollar less attractive as a currency. This in turn causes the price of oil to rise as investors seek crude oil as a hedge against the debased dollar. The drop in the value of the dollar, coupled with the rise in the price of crude, which permeates every facet of our economy, creates an expectation of higher prices, which is the very definition of inflation. The only way to break this cycle is an economic slowdown or raising interest rates. The question is which will come first, the chicken or the egg?
John Kaighn
Jersey Benefit Advisors
Web Business Review
Meanwhile, the stock market seems to be trading in a range between 12,200 and 12,800 with no compelling reason to break from this range. With the verdict on recession inconclusive at best, politicians are scrambling to use any definition, even a revised 0.9% growth rate in GDP for the first quarter, as a way to save face. Most major candidates have already come out and pronounced the economy in recession, when in fact, we are not even close to delivering two full quarters of negative growth. It just amazes me how loosely the true definition of recession is contorted for political purposes. While there is no doubt that the current rate of GDP growth causes pain, the economy was NOT in recession during the first quarter of 2008.
Inflation pressures, due to the dramatic rise in the price of crude oil are now being felt throughout the economy. The Fed can't lower interest rates any further, because it makes the dollar less attractive as a currency. This in turn causes the price of oil to rise as investors seek crude oil as a hedge against the debased dollar. The drop in the value of the dollar, coupled with the rise in the price of crude, which permeates every facet of our economy, creates an expectation of higher prices, which is the very definition of inflation. The only way to break this cycle is an economic slowdown or raising interest rates. The question is which will come first, the chicken or the egg?
John Kaighn
Jersey Benefit Advisors
Web Business Review
Saturday, May 3, 2008
The Pause That Refreshes?
On Wednesday the Fed cut rates by another quarter point to 2%, lower than they've been since 2004. Year-to-date, prime rate cuts have been bigger and faster than they have for decades. The market response was initially enthusiastic but flagged by day's end on concerns that this cut would be the last for a while. The Fed's language hinted that more cuts might not be needed, but unfortunately it sounded to much of the market like more cuts might not be possible. And that's a fair concern. Bernanke's (and our) problem is that money can't get much cheaper without causing a slew of undesirable effects, so at a certain point we can't rely on the Fed for stimulus any longer.
John Kaighn
Jersey Benefits Advisors
Web Business Review
John Kaighn
Jersey Benefits Advisors
Web Business Review
Friday, April 18, 2008
Perhaps It's A Housing and Financial Company Recession!
Today Citi announced another loss, $5.1 billion on top of last quarter's $9.8 billion, nearly all of it a result of credit and real estate. In response, Vikram Pandit is expected to cut 9,000 jobs at Citi in the next few months on top of the 4,200 already announced. Some analysts are predicting total job cuts at Citi rising as high as 25,000 in the next few quarters. On Thursday, Merrill Lynch reported a $2 billion loss and said it would cut 4,000 jobs, many from its S&T and IBD divisions. At JPMorgan the cost is estimated at over 10,000 jobs, mostly from its purchase of Bear Stearns. What's the total job toll of the credit crunch? This week's news brings it to over 40,000.
However, Wall Street topped off a strong week with a big rally Friday, after results from companies like Citigroup Inc. and Google Inc. helped ease investor anxiety about the health of corporate profits. The major stock indexes at times rose more than 2 percent. Investors have been worried that recent data indicate a slowing economy, which would cut into profit growth at some of the nation's biggest companies. But, results so far have shown that earnings, for the most part, are meeting or beating expectations, and the major indexes all posted gains of more than 4 percent for the week.
This has been the first full week of earnings reports, and all of the major companies, especially IBM, came in with results which were in line with or slightly ahead of expectations. While many analysts have been saying the economy has been in recession since the beginning of the year, there is still no definitive consensus that this is the case. The beginning and end points of recessions are determined in retrospect, so all we can do at this juncture is plan for the worst and perhaps if there is a recession it will be shallow. Meanwhile, enjoy the good week, but be ready for more volatility going forward as the various forces which drive the market struggle for the upper hand.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
However, Wall Street topped off a strong week with a big rally Friday, after results from companies like Citigroup Inc. and Google Inc. helped ease investor anxiety about the health of corporate profits. The major stock indexes at times rose more than 2 percent. Investors have been worried that recent data indicate a slowing economy, which would cut into profit growth at some of the nation's biggest companies. But, results so far have shown that earnings, for the most part, are meeting or beating expectations, and the major indexes all posted gains of more than 4 percent for the week.
This has been the first full week of earnings reports, and all of the major companies, especially IBM, came in with results which were in line with or slightly ahead of expectations. While many analysts have been saying the economy has been in recession since the beginning of the year, there is still no definitive consensus that this is the case. The beginning and end points of recessions are determined in retrospect, so all we can do at this juncture is plan for the worst and perhaps if there is a recession it will be shallow. Meanwhile, enjoy the good week, but be ready for more volatility going forward as the various forces which drive the market struggle for the upper hand.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
Thursday, April 17, 2008
Obama and Clinton Debate Media Reactions
Reprinted from The Moderate Voice
April 16th, 2008 by JOE GANDELMAN, Editor-In-Chief
So who won the Pennsylvania Democratic presidential primary between rival Senators Hillary Clinton and Barack Obama?
While the “official” media consensus has yet to come in at this writing, monitoring live streaming, live blogging and early stories on the debate suggest it wasn’t Obama’s best night (possibly his worst debate performance), Clinton continued effectively and relentlessly on the attack — and ABC and the debate moderators will come under fire from Obama supporters and perhaps others due to the first 45-minutes being questions that basically put Obama on the defensive. One question asked was reportedly raised by conservative talk show Sean Hannity.
But even so even some of his supporters now wonder why Obama didn’t seem better prepared.
For a reaction to the debate itself, READ THIS earlier post by TMVer Jazz Shaw. In a move unusual for a news event such as this, ABC embargoed the debate for delayed viewing on the West Coast. This post is a roundup of website and blog reaction to the debate.
One of the best, least emotional live blogging accounts of the debate can be found on USA Today’s blog. Here are some extensive quotes from weblogs, news sites and stories on the debate:
–Andrew Sullivan:
It was a lifeless, exhausted, drained and dreary Obama we saw tonight. I’ve seen it before when he is tired, but this was his worst performance yet on national television. He seemed crushed and unable to react. This is big-time politics and he’s up against the Clinton wood-chipper. But there is no disguising the fact that he wilted, painfully.
Clinton has exposed herself in this campaign as one of the worst shells of a cynical pol in American politics. She doesn’t just return us to the Morris-Rove era, she represents a new height for it. If she somehow wins, it will be a triumph of the old politics in an age when that is exactly what this country cannot afford. But Obama has also shown a failure to be resilient in this grueling process. In some ways, I’m glad. No normal reasonable person subjected to the series of attacks on his integrity, faith, patriotism, decency and honesty would not wilt. And we need a normal reasonable person in the White House again. But this is still the arena we have. It is what it is. ABC News is what it is. The MSM knows no other way. Obama has to survive and even thrive under this assault if he is to win. He failed tonight in a big way.
And so this was indeed a huge night for the Republicans, and the first real indicator to me that Clinton is gaining in her fundamental goal at this point: the election of John McCain against Barack Obama. How else will she rescue the Democrats from hope?
–The Politico’s Ben Smith:
So, who won, who lost, how did Obama hold up under what was basically a public enactment of Clinton’s case against him.
AND: Didn’t those quotes from the Constitution really set the tone?
ALSO: How much money will Obama raise off his supporters’ perception that this debate was unfair?
–Americablog:
Wow. What the hell was that? Seriously, I’m a bit stunned. The level of discourse has reached a new low — a very new low. To be clear, I don’t think the debate was a disaster for Obama. He did fine. I think it was a disaster for our political system.
It was the worst debate ever. [ABC moderators Charles] Gibson and [former Clinton administration spokesman George] Stephanopoulos were horrible. The questions were literally right out of right wing talk radio.
–The Swamp:
Well, what we saw tonight was Hillary Clinton making a strong, last-ditch effort to pull her flagging campaign back from brink, get it back on track to victory on April 22 and make the superdelegates realize that she really is their last best chance to retake the White House.
She drummed on Obama not just for his remarks about small towns, guns and religion, but for his vast dearth of experience compared to hers–and that includes her experience of being ravaged by Republicans and living to see another day.
Obama, for his part, strove to defuse the negative ripples his aforementioned-ad-nauseum remarks might have engendered, not to mention the controversial comments of his former pastor–all of which appear not to have tarnished him much in polls.
Most importantly, he tried to get voters to imagine him as commander-in-chief, assigning “a mission” to his commanders–he’s the decider–although consulting with them re: tactics.
….And, for Hillary Clinton to get so giddy about the Wright question was really just sad. She was the official purveyor of fringe talking points. Shockingly so. And, she seemed to enjoy it. There’s a reason people think Clinton is dishonest as we saw today in the findings of the Washington Post-ABC News poll. She’s not only in this to win, she’s in it to win dirty — and to destroy Obama. She invoked Louis Farrakhan tonight for no reason — just to say it. Give me a break. Throughout this campaign, Clinton has pursued GOP attacks against Obama. He has not gone there against her.
–Daily Kos (one of several progressive sites calling on readers to flood ABC News with protests):
I used to think Republican operative and Karl Rove mentor Lee Atwater had died in 1991, after a nasty career of Republican race baiting, culture wars, dirty tricks, and a illness-induced conversion to Catholicism and public repentance for his dirty and divisive politics. I was wrong.
Lee Atwater apparently works for ABC News in devising…questions to ask Democratic Presidential candidates.
The questioning in tonight’s debate–—mostly straight out of 1988—was an abomination. Gun control. 60’s radicalism. Inflammatory black pastors. Respecting or disrespecting the flag. Taxes. Being out of touch with the military. Affirmative Action.
I’ll bet if they had more time, ABC anchors Charles Gibson and George Stephanopolus would probably have gotten around to asking Obama and Clinton about Willie Horton….The questions asked were not the kinds of questions Democratic primary voters care about. But they are the “gotcha” kinds of questions Republicans try to spring on Democrats in general elections.
I’m not afraid of those questions. I think Obama did fine tonight. Generally Clinton has performed best in debates, but as we first saw in the Texas debate, Obama appears to perform better one-on-one. I especially liked how he refused to get lured in to Charles Gibson’s conservative frames, and I like how he dismissed many of Clinton’s attacks on him as avoiding the substantive issues and hypocritical, as when he pointed out that Bill Clinton pardoned members of the Weather Underground.
–Hot Air’s Ed Morrissey feels the debate was “Obama’s Waterloo”:
The last Democratic debate has finally concluded, and perhaps the last chances of ending the primaries early. Thanks to a surprisingly tenacious set of questions for Barack Obama and Hillary Clinton from ABC moderaters Charles Gibson and George Stephanopolous, Barack Obama got exposed over and over again as an empty suit, while Hillary cleaned his clock. However, the big winner didn’t even take the stage tonight.
…The winner of this debate? John McCain. Both Democrats came out of this diminished, but Obama got destroyed in this exchange. If superdelegates had begun to reconsider their support of Obama after Crackerquiddick, they’re speed-dialing Hillary after watching Gibson dismember Obama on national TV tonight. And kudos to ABC News for taking on both candidates fearlessly. John McCain has to feel grateful not to be included.
–Josh Marshall:
9:46 PM … No Charlie. It hasn’t been a “fascinating debate.” It’s been genuinely awful.
9:50 PM … What happened to the League of Women Voters? Can we give the debates back to them? This sort of episode really sickens me. KB’s point above is sadly accurate. It’s stuff like this that really makes me think that whole big chunks of the established press needs to be swept away.
9:56 PM … As I noted above, I missed roughly the first half hour of this debate. But from what I heard about those thirty minutes and what I saw of the subsequent ninety minutes was basically debate by gotcha line with basically no discussion of any of the big questions the election is turning on.
–National Review’s Jonah Goldberg:
I’m no leftwing blogger, but I can only imagine how furious they must be with the debate so far. Nothing on any issues. Just a lot of box-checking on how the candidates will respond to various Republican talking points come the fall. Now I think a lot of those Republican talking points are valid and legitimate. But if I were a “fighting Dem” who thinks all of these topics are despicable distractions from the “real issues,” I would find this debate to be nothing but Republican water-carrying.
–Marc Ambinder:
Keeping the score card, there’s no way Obama could fared worse. Nearly 45 minutes of relentless political scrutiny from the ABC anchors and from Hillary Clinton, followed by an issues-and-answers session in which his anger carried over and sort of neutered him. But Hillary Clinton has a Reverse-Teflon problem: her negatives are up, and when she’s perceived as the attacker, the attacks never seem to settle on Obama and always seem to boomerang back on her. So it would be unwise to declare that Hillary “won” the debate in the dynamic sense just yet. (How much money will Obama raise off this debate? $3m million? $4 million?)
…..This sets up a blowback scenario wherein his supporters will rally to his defense and lash out at the media very loudly. But Obama’s going to be the next president of the United States, maybe. The most powerful person in the world. And questions about his personal associations, his character, his personal beliefs, his statements at private fundraisers — the answers to these questions tell us a lot. Sometimes the questions are unfair (( — nothing about Colombia and Mark Penn — )), but this ain’t Pop Warner; the artificial distinction between politics, personality and policy doesn’t exist in this league, and if you’re uncomfortable with it, then change the rules or don’t run for office.
–My DD’s Todd Beaton:
Although it was somewhat redeemed in the final half hour, I feel like taking a shower after that debate. It was tabloid hour on ABC, and certainly Obama did get the bulk of the more disgusting questions. Check out this post over at ABCNews.com: over 4,000 comments, the bulk of which seem to just rip ABC.
As for the candidates’ performances, neither was particularly inspiring and neither had his or her best night, although Obama did get plenty of opportunities to plead for an end to the issues of distraction and division and to call for a new style of politics and seemed to be the conscience of the audience as he called out the moderators. I think Clinton was stronger during the last half hour but not enough to tip the balance in her direction; certainly not enough for this to be a game changer.
It would almost be a shame for this to be the last debate, to go out on such a poor note.
–Chris Bowers:
Halfway through the debate, not a single question on any policy issue had been asked, it was obvious that this debate was prime-time hit job on Obama. The questions so far have been why he doesn’t wear a flag pin, whether or not his pastor loves America, why he can’t win, and how many people were offended by his bittergate comments. Except for Clinton being asked about why she wasn’t trustworthy, and both of them being asked about their vice-presidential choices, that has been the entire debate.
…..It appears that live focus group polling of undecideds favored Obama during the first round of questions that basically was a series of hit-jobs against him, while Clinton polled better in the focus group when it shifted to issues in the second half. Hmmm… perhaps her campaign should learn something from that.
–NBC’s Chuck Todd:
This debate is going to lead a lot of Obama supporters to ratchet up the calls on Clinton to either withdraw or tone down the attacks. Clinton supporters will point to this debate as proof that he’s not yet ready for the general, that’s why she should stay in, and that’s why superdelegates should overturn the winner of pledged delegates.
Overall, with the spotlight on him very bright, Obama didn’t step up. He got rattled early on and never picked his game back up. Clinton wasn’t very warm (outside of he first few minutes), but she didn’t have the spotlight on her very bright. And as we’ve noted in “First Thoughts” quite a few times, whenever the spotlight is on one candidate, the other seems to benefit. Tonight, the spotlight was on Obama, and for a short period of time, I expect Clinton to benefit. But the question is whether she can sustain any benefit since as the negativity goes on, she pays a bigger price than Obama. Let’s see what the PA Dem voting public decides in six days. A big Clinton victory and this debate will be seen as an important turning point, a narrow victory (less than five points) and she could find herself facing more calls to get out.
Could tonight’s true winner be John McCain? We’re betting that’s the unanimous pundit scoring tonight.
–Monica Crowley:
The final two Democratic candidates appeared to sleepwalk through tonight’s debate. I mean, quite literally, they looked so weary that they appeared to be napping while the other was talking. They swayed. They leaned on the podium. Their eyelids were heavy. Their speech was slow and deliberate, each response called up on auto-pilot.They moved as if through molasses.
They both survived. There were no earth-shattering gaffes or obvious slurring or devastating mangling of an issue. But to have both candidates looking ready to keel over is an indication of the toll this drawn-out campaign has had on them. A lot of Democrats are making an issue of John McCain’s age (71), but while he’s got 10 years on Hillary and 25 on Obama, McCain looks the most spry.
–Somervell County Salon:
Just got done watching the ABC Debate that was moderated by Charlie Gibson. Where were the questions about Bush’s torture, about executive signing statements, what about that permanent base in Iraq, what about the huge cost of the war, about bailing out investment bankers, about using PPPs (whether from this country or foreign) to lease out our infrastructure, what about the airline industry FAA problem? Nope. Had to listen to right-wing Republican talking points in a DEMOCRATIC DEBATE coming from Gibson and Steph. Now, on the one hand, maybe it’s a good thing because that’s what will happen when Gramps McCain goes head to head with Obama but you know, if I wanted to watch Fox News, I’d unblock it…
P.S. Hillary Clinton has a look on her face in much of the debate that reminded me of the pissy pursed look that Bush had in the second debate against Kerry.
–The Morning Call’s Pennsylvania Ave:
After the debate, both candidates surrogates rushed to the “Spin room” to field questions from a mass of media outlets about the debate.
The take from Clinton spokesman Howard Wolfson was that enough serious questions were raised about Barack Obama in the first half of the debate to give voters second thoughts about his electibility.
“A number of questions were asked really for the first time of Barack Obama,” Wolfson said, putting Obama “back on his heels.”
Wolfson also said he didn’t think Obama’s statements about small town voters who he described as “bitter” and clinging to guns and religion, was a gaffe, but rather “What he believes.”
The Obama campaign countered that most voters were probably frustrated with the first half of the debate, which had very little talk about the issues, instead focusing on political games.
U.S. Rep. Patrick Murphy, D-Bucks, said he thinks voters were more interested in hearing the candidates talk about issues like Iraq and the economy.
–Blue Ollie:
This night’s debate had potential to be very meaningful. Instead, it was a colossal waste of time.
No, I am not saying that because the moderators (including former Clinton official George Stephanopoulos) piled on Obama; I expect that.
It was because the piling on was over the warmed over trivial stuff: stuff Rev. Wright said, a party that Obama may have attended, why he stopped wearing a flag pin, etc. Yes, Clinton caught the Bosnia “sniper fire” question.
….ABC did more to make BHO’s point that today’s politics is petty and insubstantial….But as far as ABC debate: ABC News not a news organization but rather a tabloid organization.
--Ginger Snaps:
FLAG PINS? Is that what George Snuffalufagus thinks is one of the most important topics that needs to be discussed in a Presidential Debate?!?
Seriously, folks…the first 45 minutes of this debate really should have been relegated to Saturday Night Live. We were treated to questions about flag pins, the Rev. Wright issue that Obama has sufficiently addressed ad nauseum, implying that Obama should answer for the acts his friends committed 40 years ago, and, of course, the “b” word…
…and oh by the way, we have an economic crisis, a war, gas prices are through the roof, unemployment, veterans in crisis, a broken healthcare system…
You know…the things that affect us every single day?!?
…How are we going to get the right candidate in office if the media chooses to ask trivial questions that play on the FEAR of the country, when what we really need to know is their detailed plan for how they are going to fix the situation right now?
–Editor & Publisher Editor Greg Mitchell writing on the Huffington Post:
In perhaps the most embarrassing performance by the media in a major presidential debate in years, ABC News hosts Charles Gibson and George Stephanopolous focused mainly on trivial issues as Hillary Clinton and Barack Obama faced off in Philadelphia. They, and their network, should hang their collective heads in shame.
Wars in Iraq and Afghanistan, the health care and mortgage crises, the overall state of the economy and dozens of other pressing issues had to wait for their few moments in the sun as Obama was pressed to explain his recent “bitter” gaffe and relationship with Rev. Wright (seemingly a dead issue) and not wearing a flag pin — while Clinton had to answer again for her Bosnia trip exaggerations.
Then it was back to Obama to defend his slim association with a former ’60s radical — a question that came out of rightwing talk radio and Sean Hannity on TV, but was delivered by former Bill Clinton aide Stephanopolous. This approach led to a claim that Clinton’s husband pardoned two other ’60s radicals. And so on. The travesty continued.
–National Review’s Mark Hemingway declares McCain the winner and writes:
My prediction? The debate will be received so badly there will be increased pressure to kick Hillary out of the race. But since Obama was clearly the worse of the two in the debate, Hillary will win PA as expected and the goat rodeo will continue for the forseeable future with even more acrimony between the two candidates. Which only helps McCain.
–Newsday’s Spin Cycle:
The highlight of the debate tonight will be Hillary’s repeated efforts to use an electability argument as the basis for sharp attacks on Obama over Bittergate, Wright and 1960s radicals.
It was a tactic geared as much to superdelegates as to Pennsylvania voters, and Obama was not as sharp as he could have been in response. He seemed surprised sometimes, irritated others, and misspoke at least once (about disowning Wright, which he quickly corrected). So, if you’re scoring the debate like a prizefight, she wins a couple more rounds. But no game-changing moments.
–The New Republic’s The Stump blog:
For what it’s worth, I thought it was smart for Obama to go gracious on the Hillary-Bosnia scandal and suggest that they’re both entitled to make a mistake every now and then. Obviously, the choice of questions isn’t doing Obama any favors–bittergate, Wright, William Ayers!–but he’s doing a decent (if low-energy) job not getting dragged into the fray,* and Hillary is coming very close to over-reaching by rubbing his nose in it.
–Matthew Yglesias:
I had thought the Clinton campaign couldn’t sink any lower, but thus far she’s really just been giving us the full GOP. Listening to her talk about Barack Obama is like reading a Weekly Standard blog post. The lame excuse that she’s making this and that outrageous smear because the Republicans will do it later is pathetic. Maybe they will. But she’s the one doing it now.
HERE IS A CROSS SECTION OF NEWS MEDIA REPORT REACTION:
–The New York Times:
Senator Hillary Rodham Clinton went on the attack against Senator Barack Obama on a variety of issues during a contentious debate Wednesday, warning that he would be deeply vulnerable in a general-election fight if he won the nomination.
….
–The Boston Globe framed it this way:
Senators Barack Obama and Hillary Clinton took their hard-fought battle for the Democratic nomination down to a deeply personal level in a nationally televised debate tonight, trading barbs on honesty, their appeal to working-class voters, and who would be a stronger candidate in November.
Clinton, struggling to gain momentum in the dwindling weeks of the primary campaign, accused Obama of associating with unsavory people, including his own former preacher, and questioned whether Obama — whom she called “a good man” — could beat the GOP nominee in the fall.
“They’re going to be out there in full force,” Clinton said of the Republicans. “I’ve been in this arena for a long time. I have a lot of baggage and everybody has rummaged through it for years.”
Obama, meanwhile, criticized the New York lawmaker for running a negative campaign, and said Clinton herself could not pass the electability test she was imposing on him.
“By Senator Clinton’s own vetting standards, I don’t think she would make it,” he said.
–The Globe’s blog political intelligence was far more blunt:
Barack Obama tonight staked his presidential campaign on the idea that the American people will look beyond the inevitable gaffes and errors and character attacks of a 24-hour campaign cycle to meet the challenges of a “defining moment” in American history.
Hillary Clinton staked her campaign on the idea that Americans won’t — and that her tougher, more strategic approach to countering Republican attacks is a better way for Democrats to reclaim the White House.
The first half of tonight’s debate in the august National Constitution Center in Philadelphia was a tawdry affair, as ABC news questioners called on Obama and Clinton to address a year’s worth of dirty laundry, and each combatant eagerly grabbed at the chance to befoul their rival a little more.
But while some in the audience groaned, the litany of nasty questions — about such matters as Obama’s comments on the working class and Clinton’s exaggerations about dangers she faced in Bosnia — helped to flesh out a long-simmering subtext to the Clinton-Obama battle: The Clinton campaign’s insinuation that Obama is more vulnerable to GOP-style attacks on his patriotism.
….Clinton wasn’t so high-minded. At times, she seemed to revel in her tough-gal statements, sounding like a character in a 1940s film noir.
….The tit-for-tat comment showed how off-message Obama was for most of the evening, able to conjure up little of the hopeful energy that has marked his campaign for much of the year.
…What did come through, however, was how crucial Obama’s self-described “bet on the American people” will be to the future of his campaign.
Obama has said on countless occasions that he believes the American people want “an honest conversation,” and not a campaign of charges and countercharges.
–The Washington Post’s news report on the debate includes this:
With the race for the Democratic presidential nomination mired in a form of trench warfare that has left party leaders searching for a way to bring it to a conclusion before the party’s late-summer convention, Clinton (N.Y.) and Obama (Ill.) began their first head-to-head encounter in nearly two months focused on political disputes rather than their relatively narrow policy differences. Obama, who leads in the delegates needed to claim the nomination, fielded tough questions about his relationship with his former pastor, his patriotism and his description of small-town voters as “bitter,” the latter a controversy that has engulfed his campaign for much of the past week.
Obama argued repeatedly that voters are smart enough to differentiate petty issues from important economic matters.
“So the problem that we have in our politics, which is fairly typical, is that you take one person’s statement, if it’s not properly phrased, and you just beat it to death,” Obama said. “And that’s what Senator Clinton’s been doing over the last four days. And I understand that. That’s politics. And I expect to have to go through this process. But I do think it’s important to recognize that it’s not helping that person who’s sitting at the kitchen table who is trying to figure out how to pay the bills at the end of the month.”
–The Washington Post’s The Fix blog:
The choice between the candidates crystallized tonight. It is not, fundamentally, a choice about issues or even ideology — it is a choice about approach. Obama is an idealist, using nearly every question to appeal to the better angels in people; Obama sees the world as he wants it to be and believes he can make it. Clinton, on the other hand, is an unapologetic pragmatist; she has been through the wringer that is national politics before and knows how to play the game.
*The longer the Democratic campaign goes on, the more clips Republican Sen. John McCain’s campaign can harvest for use against the eventual Democratic nominee. It’s one thing for McCain to take note of ties between Obama and a former member of the Weather Underground; it’s quite another for McCain’s campaign to roll tape of Clinton making those accusations. You can bet Steve Schmidt of McCain’s campaign was Tivoing every minute of tonight’s proceedings for use when summer turns to fall.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
April 16th, 2008 by JOE GANDELMAN, Editor-In-Chief
So who won the Pennsylvania Democratic presidential primary between rival Senators Hillary Clinton and Barack Obama?
While the “official” media consensus has yet to come in at this writing, monitoring live streaming, live blogging and early stories on the debate suggest it wasn’t Obama’s best night (possibly his worst debate performance), Clinton continued effectively and relentlessly on the attack — and ABC and the debate moderators will come under fire from Obama supporters and perhaps others due to the first 45-minutes being questions that basically put Obama on the defensive. One question asked was reportedly raised by conservative talk show Sean Hannity.
But even so even some of his supporters now wonder why Obama didn’t seem better prepared.
For a reaction to the debate itself, READ THIS earlier post by TMVer Jazz Shaw. In a move unusual for a news event such as this, ABC embargoed the debate for delayed viewing on the West Coast. This post is a roundup of website and blog reaction to the debate.
One of the best, least emotional live blogging accounts of the debate can be found on USA Today’s blog. Here are some extensive quotes from weblogs, news sites and stories on the debate:
–Andrew Sullivan:
It was a lifeless, exhausted, drained and dreary Obama we saw tonight. I’ve seen it before when he is tired, but this was his worst performance yet on national television. He seemed crushed and unable to react. This is big-time politics and he’s up against the Clinton wood-chipper. But there is no disguising the fact that he wilted, painfully.
Clinton has exposed herself in this campaign as one of the worst shells of a cynical pol in American politics. She doesn’t just return us to the Morris-Rove era, she represents a new height for it. If she somehow wins, it will be a triumph of the old politics in an age when that is exactly what this country cannot afford. But Obama has also shown a failure to be resilient in this grueling process. In some ways, I’m glad. No normal reasonable person subjected to the series of attacks on his integrity, faith, patriotism, decency and honesty would not wilt. And we need a normal reasonable person in the White House again. But this is still the arena we have. It is what it is. ABC News is what it is. The MSM knows no other way. Obama has to survive and even thrive under this assault if he is to win. He failed tonight in a big way.
And so this was indeed a huge night for the Republicans, and the first real indicator to me that Clinton is gaining in her fundamental goal at this point: the election of John McCain against Barack Obama. How else will she rescue the Democrats from hope?
–The Politico’s Ben Smith:
So, who won, who lost, how did Obama hold up under what was basically a public enactment of Clinton’s case against him.
AND: Didn’t those quotes from the Constitution really set the tone?
ALSO: How much money will Obama raise off his supporters’ perception that this debate was unfair?
–Americablog:
Wow. What the hell was that? Seriously, I’m a bit stunned. The level of discourse has reached a new low — a very new low. To be clear, I don’t think the debate was a disaster for Obama. He did fine. I think it was a disaster for our political system.
It was the worst debate ever. [ABC moderators Charles] Gibson and [former Clinton administration spokesman George] Stephanopoulos were horrible. The questions were literally right out of right wing talk radio.
–The Swamp:
Well, what we saw tonight was Hillary Clinton making a strong, last-ditch effort to pull her flagging campaign back from brink, get it back on track to victory on April 22 and make the superdelegates realize that she really is their last best chance to retake the White House.
She drummed on Obama not just for his remarks about small towns, guns and religion, but for his vast dearth of experience compared to hers–and that includes her experience of being ravaged by Republicans and living to see another day.
Obama, for his part, strove to defuse the negative ripples his aforementioned-ad-nauseum remarks might have engendered, not to mention the controversial comments of his former pastor–all of which appear not to have tarnished him much in polls.
Most importantly, he tried to get voters to imagine him as commander-in-chief, assigning “a mission” to his commanders–he’s the decider–although consulting with them re: tactics.
….And, for Hillary Clinton to get so giddy about the Wright question was really just sad. She was the official purveyor of fringe talking points. Shockingly so. And, she seemed to enjoy it. There’s a reason people think Clinton is dishonest as we saw today in the findings of the Washington Post-ABC News poll. She’s not only in this to win, she’s in it to win dirty — and to destroy Obama. She invoked Louis Farrakhan tonight for no reason — just to say it. Give me a break. Throughout this campaign, Clinton has pursued GOP attacks against Obama. He has not gone there against her.
–Daily Kos (one of several progressive sites calling on readers to flood ABC News with protests):
I used to think Republican operative and Karl Rove mentor Lee Atwater had died in 1991, after a nasty career of Republican race baiting, culture wars, dirty tricks, and a illness-induced conversion to Catholicism and public repentance for his dirty and divisive politics. I was wrong.
Lee Atwater apparently works for ABC News in devising…questions to ask Democratic Presidential candidates.
The questioning in tonight’s debate–—mostly straight out of 1988—was an abomination. Gun control. 60’s radicalism. Inflammatory black pastors. Respecting or disrespecting the flag. Taxes. Being out of touch with the military. Affirmative Action.
I’ll bet if they had more time, ABC anchors Charles Gibson and George Stephanopolus would probably have gotten around to asking Obama and Clinton about Willie Horton….The questions asked were not the kinds of questions Democratic primary voters care about. But they are the “gotcha” kinds of questions Republicans try to spring on Democrats in general elections.
I’m not afraid of those questions. I think Obama did fine tonight. Generally Clinton has performed best in debates, but as we first saw in the Texas debate, Obama appears to perform better one-on-one. I especially liked how he refused to get lured in to Charles Gibson’s conservative frames, and I like how he dismissed many of Clinton’s attacks on him as avoiding the substantive issues and hypocritical, as when he pointed out that Bill Clinton pardoned members of the Weather Underground.
–Hot Air’s Ed Morrissey feels the debate was “Obama’s Waterloo”:
The last Democratic debate has finally concluded, and perhaps the last chances of ending the primaries early. Thanks to a surprisingly tenacious set of questions for Barack Obama and Hillary Clinton from ABC moderaters Charles Gibson and George Stephanopolous, Barack Obama got exposed over and over again as an empty suit, while Hillary cleaned his clock. However, the big winner didn’t even take the stage tonight.
…The winner of this debate? John McCain. Both Democrats came out of this diminished, but Obama got destroyed in this exchange. If superdelegates had begun to reconsider their support of Obama after Crackerquiddick, they’re speed-dialing Hillary after watching Gibson dismember Obama on national TV tonight. And kudos to ABC News for taking on both candidates fearlessly. John McCain has to feel grateful not to be included.
–Josh Marshall:
9:46 PM … No Charlie. It hasn’t been a “fascinating debate.” It’s been genuinely awful.
9:50 PM … What happened to the League of Women Voters? Can we give the debates back to them? This sort of episode really sickens me. KB’s point above is sadly accurate. It’s stuff like this that really makes me think that whole big chunks of the established press needs to be swept away.
9:56 PM … As I noted above, I missed roughly the first half hour of this debate. But from what I heard about those thirty minutes and what I saw of the subsequent ninety minutes was basically debate by gotcha line with basically no discussion of any of the big questions the election is turning on.
–National Review’s Jonah Goldberg:
I’m no leftwing blogger, but I can only imagine how furious they must be with the debate so far. Nothing on any issues. Just a lot of box-checking on how the candidates will respond to various Republican talking points come the fall. Now I think a lot of those Republican talking points are valid and legitimate. But if I were a “fighting Dem” who thinks all of these topics are despicable distractions from the “real issues,” I would find this debate to be nothing but Republican water-carrying.
–Marc Ambinder:
Keeping the score card, there’s no way Obama could fared worse. Nearly 45 minutes of relentless political scrutiny from the ABC anchors and from Hillary Clinton, followed by an issues-and-answers session in which his anger carried over and sort of neutered him. But Hillary Clinton has a Reverse-Teflon problem: her negatives are up, and when she’s perceived as the attacker, the attacks never seem to settle on Obama and always seem to boomerang back on her. So it would be unwise to declare that Hillary “won” the debate in the dynamic sense just yet. (How much money will Obama raise off this debate? $3m million? $4 million?)
…..This sets up a blowback scenario wherein his supporters will rally to his defense and lash out at the media very loudly. But Obama’s going to be the next president of the United States, maybe. The most powerful person in the world. And questions about his personal associations, his character, his personal beliefs, his statements at private fundraisers — the answers to these questions tell us a lot. Sometimes the questions are unfair (( — nothing about Colombia and Mark Penn — )), but this ain’t Pop Warner; the artificial distinction between politics, personality and policy doesn’t exist in this league, and if you’re uncomfortable with it, then change the rules or don’t run for office.
–My DD’s Todd Beaton:
Although it was somewhat redeemed in the final half hour, I feel like taking a shower after that debate. It was tabloid hour on ABC, and certainly Obama did get the bulk of the more disgusting questions. Check out this post over at ABCNews.com: over 4,000 comments, the bulk of which seem to just rip ABC.
As for the candidates’ performances, neither was particularly inspiring and neither had his or her best night, although Obama did get plenty of opportunities to plead for an end to the issues of distraction and division and to call for a new style of politics and seemed to be the conscience of the audience as he called out the moderators. I think Clinton was stronger during the last half hour but not enough to tip the balance in her direction; certainly not enough for this to be a game changer.
It would almost be a shame for this to be the last debate, to go out on such a poor note.
–Chris Bowers:
Halfway through the debate, not a single question on any policy issue had been asked, it was obvious that this debate was prime-time hit job on Obama. The questions so far have been why he doesn’t wear a flag pin, whether or not his pastor loves America, why he can’t win, and how many people were offended by his bittergate comments. Except for Clinton being asked about why she wasn’t trustworthy, and both of them being asked about their vice-presidential choices, that has been the entire debate.
…..It appears that live focus group polling of undecideds favored Obama during the first round of questions that basically was a series of hit-jobs against him, while Clinton polled better in the focus group when it shifted to issues in the second half. Hmmm… perhaps her campaign should learn something from that.
–NBC’s Chuck Todd:
This debate is going to lead a lot of Obama supporters to ratchet up the calls on Clinton to either withdraw or tone down the attacks. Clinton supporters will point to this debate as proof that he’s not yet ready for the general, that’s why she should stay in, and that’s why superdelegates should overturn the winner of pledged delegates.
Overall, with the spotlight on him very bright, Obama didn’t step up. He got rattled early on and never picked his game back up. Clinton wasn’t very warm (outside of he first few minutes), but she didn’t have the spotlight on her very bright. And as we’ve noted in “First Thoughts” quite a few times, whenever the spotlight is on one candidate, the other seems to benefit. Tonight, the spotlight was on Obama, and for a short period of time, I expect Clinton to benefit. But the question is whether she can sustain any benefit since as the negativity goes on, she pays a bigger price than Obama. Let’s see what the PA Dem voting public decides in six days. A big Clinton victory and this debate will be seen as an important turning point, a narrow victory (less than five points) and she could find herself facing more calls to get out.
Could tonight’s true winner be John McCain? We’re betting that’s the unanimous pundit scoring tonight.
–Monica Crowley:
The final two Democratic candidates appeared to sleepwalk through tonight’s debate. I mean, quite literally, they looked so weary that they appeared to be napping while the other was talking. They swayed. They leaned on the podium. Their eyelids were heavy. Their speech was slow and deliberate, each response called up on auto-pilot.They moved as if through molasses.
They both survived. There were no earth-shattering gaffes or obvious slurring or devastating mangling of an issue. But to have both candidates looking ready to keel over is an indication of the toll this drawn-out campaign has had on them. A lot of Democrats are making an issue of John McCain’s age (71), but while he’s got 10 years on Hillary and 25 on Obama, McCain looks the most spry.
–Somervell County Salon:
Just got done watching the ABC Debate that was moderated by Charlie Gibson. Where were the questions about Bush’s torture, about executive signing statements, what about that permanent base in Iraq, what about the huge cost of the war, about bailing out investment bankers, about using PPPs (whether from this country or foreign) to lease out our infrastructure, what about the airline industry FAA problem? Nope. Had to listen to right-wing Republican talking points in a DEMOCRATIC DEBATE coming from Gibson and Steph. Now, on the one hand, maybe it’s a good thing because that’s what will happen when Gramps McCain goes head to head with Obama but you know, if I wanted to watch Fox News, I’d unblock it…
P.S. Hillary Clinton has a look on her face in much of the debate that reminded me of the pissy pursed look that Bush had in the second debate against Kerry.
–The Morning Call’s Pennsylvania Ave:
After the debate, both candidates surrogates rushed to the “Spin room” to field questions from a mass of media outlets about the debate.
The take from Clinton spokesman Howard Wolfson was that enough serious questions were raised about Barack Obama in the first half of the debate to give voters second thoughts about his electibility.
“A number of questions were asked really for the first time of Barack Obama,” Wolfson said, putting Obama “back on his heels.”
Wolfson also said he didn’t think Obama’s statements about small town voters who he described as “bitter” and clinging to guns and religion, was a gaffe, but rather “What he believes.”
The Obama campaign countered that most voters were probably frustrated with the first half of the debate, which had very little talk about the issues, instead focusing on political games.
U.S. Rep. Patrick Murphy, D-Bucks, said he thinks voters were more interested in hearing the candidates talk about issues like Iraq and the economy.
–Blue Ollie:
This night’s debate had potential to be very meaningful. Instead, it was a colossal waste of time.
No, I am not saying that because the moderators (including former Clinton official George Stephanopoulos) piled on Obama; I expect that.
It was because the piling on was over the warmed over trivial stuff: stuff Rev. Wright said, a party that Obama may have attended, why he stopped wearing a flag pin, etc. Yes, Clinton caught the Bosnia “sniper fire” question.
….ABC did more to make BHO’s point that today’s politics is petty and insubstantial….But as far as ABC debate: ABC News not a news organization but rather a tabloid organization.
--Ginger Snaps:
FLAG PINS? Is that what George Snuffalufagus thinks is one of the most important topics that needs to be discussed in a Presidential Debate?!?
Seriously, folks…the first 45 minutes of this debate really should have been relegated to Saturday Night Live. We were treated to questions about flag pins, the Rev. Wright issue that Obama has sufficiently addressed ad nauseum, implying that Obama should answer for the acts his friends committed 40 years ago, and, of course, the “b” word…
…and oh by the way, we have an economic crisis, a war, gas prices are through the roof, unemployment, veterans in crisis, a broken healthcare system…
You know…the things that affect us every single day?!?
…How are we going to get the right candidate in office if the media chooses to ask trivial questions that play on the FEAR of the country, when what we really need to know is their detailed plan for how they are going to fix the situation right now?
–Editor & Publisher Editor Greg Mitchell writing on the Huffington Post:
In perhaps the most embarrassing performance by the media in a major presidential debate in years, ABC News hosts Charles Gibson and George Stephanopolous focused mainly on trivial issues as Hillary Clinton and Barack Obama faced off in Philadelphia. They, and their network, should hang their collective heads in shame.
Wars in Iraq and Afghanistan, the health care and mortgage crises, the overall state of the economy and dozens of other pressing issues had to wait for their few moments in the sun as Obama was pressed to explain his recent “bitter” gaffe and relationship with Rev. Wright (seemingly a dead issue) and not wearing a flag pin — while Clinton had to answer again for her Bosnia trip exaggerations.
Then it was back to Obama to defend his slim association with a former ’60s radical — a question that came out of rightwing talk radio and Sean Hannity on TV, but was delivered by former Bill Clinton aide Stephanopolous. This approach led to a claim that Clinton’s husband pardoned two other ’60s radicals. And so on. The travesty continued.
–National Review’s Mark Hemingway declares McCain the winner and writes:
My prediction? The debate will be received so badly there will be increased pressure to kick Hillary out of the race. But since Obama was clearly the worse of the two in the debate, Hillary will win PA as expected and the goat rodeo will continue for the forseeable future with even more acrimony between the two candidates. Which only helps McCain.
–Newsday’s Spin Cycle:
The highlight of the debate tonight will be Hillary’s repeated efforts to use an electability argument as the basis for sharp attacks on Obama over Bittergate, Wright and 1960s radicals.
It was a tactic geared as much to superdelegates as to Pennsylvania voters, and Obama was not as sharp as he could have been in response. He seemed surprised sometimes, irritated others, and misspoke at least once (about disowning Wright, which he quickly corrected). So, if you’re scoring the debate like a prizefight, she wins a couple more rounds. But no game-changing moments.
–The New Republic’s The Stump blog:
For what it’s worth, I thought it was smart for Obama to go gracious on the Hillary-Bosnia scandal and suggest that they’re both entitled to make a mistake every now and then. Obviously, the choice of questions isn’t doing Obama any favors–bittergate, Wright, William Ayers!–but he’s doing a decent (if low-energy) job not getting dragged into the fray,* and Hillary is coming very close to over-reaching by rubbing his nose in it.
–Matthew Yglesias:
I had thought the Clinton campaign couldn’t sink any lower, but thus far she’s really just been giving us the full GOP. Listening to her talk about Barack Obama is like reading a Weekly Standard blog post. The lame excuse that she’s making this and that outrageous smear because the Republicans will do it later is pathetic. Maybe they will. But she’s the one doing it now.
HERE IS A CROSS SECTION OF NEWS MEDIA REPORT REACTION:
–The New York Times:
Senator Hillary Rodham Clinton went on the attack against Senator Barack Obama on a variety of issues during a contentious debate Wednesday, warning that he would be deeply vulnerable in a general-election fight if he won the nomination.
….
–The Boston Globe framed it this way:
Senators Barack Obama and Hillary Clinton took their hard-fought battle for the Democratic nomination down to a deeply personal level in a nationally televised debate tonight, trading barbs on honesty, their appeal to working-class voters, and who would be a stronger candidate in November.
Clinton, struggling to gain momentum in the dwindling weeks of the primary campaign, accused Obama of associating with unsavory people, including his own former preacher, and questioned whether Obama — whom she called “a good man” — could beat the GOP nominee in the fall.
“They’re going to be out there in full force,” Clinton said of the Republicans. “I’ve been in this arena for a long time. I have a lot of baggage and everybody has rummaged through it for years.”
Obama, meanwhile, criticized the New York lawmaker for running a negative campaign, and said Clinton herself could not pass the electability test she was imposing on him.
“By Senator Clinton’s own vetting standards, I don’t think she would make it,” he said.
–The Globe’s blog political intelligence was far more blunt:
Barack Obama tonight staked his presidential campaign on the idea that the American people will look beyond the inevitable gaffes and errors and character attacks of a 24-hour campaign cycle to meet the challenges of a “defining moment” in American history.
Hillary Clinton staked her campaign on the idea that Americans won’t — and that her tougher, more strategic approach to countering Republican attacks is a better way for Democrats to reclaim the White House.
The first half of tonight’s debate in the august National Constitution Center in Philadelphia was a tawdry affair, as ABC news questioners called on Obama and Clinton to address a year’s worth of dirty laundry, and each combatant eagerly grabbed at the chance to befoul their rival a little more.
But while some in the audience groaned, the litany of nasty questions — about such matters as Obama’s comments on the working class and Clinton’s exaggerations about dangers she faced in Bosnia — helped to flesh out a long-simmering subtext to the Clinton-Obama battle: The Clinton campaign’s insinuation that Obama is more vulnerable to GOP-style attacks on his patriotism.
….Clinton wasn’t so high-minded. At times, she seemed to revel in her tough-gal statements, sounding like a character in a 1940s film noir.
….The tit-for-tat comment showed how off-message Obama was for most of the evening, able to conjure up little of the hopeful energy that has marked his campaign for much of the year.
…What did come through, however, was how crucial Obama’s self-described “bet on the American people” will be to the future of his campaign.
Obama has said on countless occasions that he believes the American people want “an honest conversation,” and not a campaign of charges and countercharges.
–The Washington Post’s news report on the debate includes this:
With the race for the Democratic presidential nomination mired in a form of trench warfare that has left party leaders searching for a way to bring it to a conclusion before the party’s late-summer convention, Clinton (N.Y.) and Obama (Ill.) began their first head-to-head encounter in nearly two months focused on political disputes rather than their relatively narrow policy differences. Obama, who leads in the delegates needed to claim the nomination, fielded tough questions about his relationship with his former pastor, his patriotism and his description of small-town voters as “bitter,” the latter a controversy that has engulfed his campaign for much of the past week.
Obama argued repeatedly that voters are smart enough to differentiate petty issues from important economic matters.
“So the problem that we have in our politics, which is fairly typical, is that you take one person’s statement, if it’s not properly phrased, and you just beat it to death,” Obama said. “And that’s what Senator Clinton’s been doing over the last four days. And I understand that. That’s politics. And I expect to have to go through this process. But I do think it’s important to recognize that it’s not helping that person who’s sitting at the kitchen table who is trying to figure out how to pay the bills at the end of the month.”
–The Washington Post’s The Fix blog:
The choice between the candidates crystallized tonight. It is not, fundamentally, a choice about issues or even ideology — it is a choice about approach. Obama is an idealist, using nearly every question to appeal to the better angels in people; Obama sees the world as he wants it to be and believes he can make it. Clinton, on the other hand, is an unapologetic pragmatist; she has been through the wringer that is national politics before and knows how to play the game.
*The longer the Democratic campaign goes on, the more clips Republican Sen. John McCain’s campaign can harvest for use against the eventual Democratic nominee. It’s one thing for McCain to take note of ties between Obama and a former member of the Weather Underground; it’s quite another for McCain’s campaign to roll tape of Clinton making those accusations. You can bet Steve Schmidt of McCain’s campaign was Tivoing every minute of tonight’s proceedings for use when summer turns to fall.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
Sunday, April 6, 2008
Jersey Benefits Advisors Newsletter Spring 2008
Market Watch
After months of downbeat news and the housing, credit and stock markets being pummeled almost daily, the first quarter of 2008 ended with a positive whimper and the second quarter began with a surge. Whether or not the positive signs continue will depend on the statistical information forthcoming in regard to the economic cycle. In the mean time, we’ve closed the books on the first quarter, and while the news seemed quite dire for much of the time, the DJIA and S&P 500 haven’t reached bear market levels.
The Dow Jones Industrial Average ended the first quarter at 12,262.89 down 7.6%, while the S&P 500 finished at 1,322.70 shedding 9.9%. The NASDAQ actually hit bear market territory (20% decline) during the quarter, but closed at 2279.10 which was 14% lower than where it started the year. Considering all of the headwinds the markets faced during the winter, the damage has been minimal thus far.
Of course, it is far from apparent if the carnage in the various markets is over, since we don’t even have a definitive answer on whether or not the economy is in recession. The latest GDP numbers indicated extremely slow growth, just .6% for the fourth quarter of 2007. The first estimate of GDP growth for the first quarter will be provided at the end of April.
While many economists felt the economy would avoid recession this year, when polled at the beginning of the year, the debate has shifted to how long and how deep the downturn will be. Officially, a recession is the contraction of GDP for two consecutive quarters. The length of the recession represents the trough or bottom of the economic cycle from which a new economic cycle begins.
The wild card right now is the stimulus the Federal Reserve has injected into the credit markets, which have been paralyzed due to the fiasco created by the housing debacle and subprime mortgage mess. The results of some of the Fed’s actions are already being felt, as banks and investment firms have utilized the Federal Reserve as the bank of last resort. While this is a function of the Federal Reserve for banks, opening the discount window to investment firms is something that hasn’t been done since the 1930’s.
Chairman Bernanke has taken some drastic steps with monetary policy to shore up the financial system, and his study of the blunders made during the Great Depression have been quite evident. Fiscal stimulus, like the rebates headed our way this quarter, will also be felt later this year. Whether the stimulus will be enough to keep the economy out of recession remains to be seen.
Of course the politicians are having a field day recommending bailouts of mortgage holders, job programs, protectionism, taxes on “big oil” and more regulation. Most of the programs being championed will not have the slightest chance of implementation, but they make great sound bites to constituencies during an election year. A huge “shot over the bough” was fired by Treasury Secretary Henry Paulson with his proposal to streamline US financial regulation. It should encourage debate for months!
Finally, it is sufficient to say that if you are like me and believe the sun will shine again tomorrow, this particular phase of the economic cycle represents a buying opportunity. All markets are the same, and when there is a 10% - 15% sale, it is time to buy.
What Happened to Bear Stearns’ Client Accounts?
With the demise of such a large investment firm as Bear Stearns so prominently discussed in the news, many investors have asked what happens to the client accounts held at the firm. Client accounts are insured by the Securities Investor Protection Corporation (SIPC) for $500,000 per account but only $100,000 can be cash, the remainder must be in securities.
In the case of Bear Stearns, the company will more than likely become part of a division of JP Morgan Chase and Bear Stearns’ client accounts remain unaffected. SIPC involvement was not necessary. Bankruptcies of securities firms usually result in client accounts being transferred to another firm. Client accounts of brokers, such as Transamerica, are held by a third party (Pershing) which segregates client assets.
Ways To Protect Assets During Market Turmoil
A bright spot during this particularly gloomy period in the markets has been the performance of the variable annuities developed after the dotcom bubble. Insurance companies responded to the market turmoil from 2000 - 2002 by developing living benefits, which could be used to protect assets from significant downside risk. While many acronyms have been used to describe the various riders companies have developed, the main theme is to allow participation in market gains through separate accounts, and also guarantee a minimum amount of asset appreciation each year, which is usually 5% or 6%.
Each year the principal (amount invested) basically has two calculated values. The market value is the amount invested plus whatever gains are made in the separate accounts during the year. The withdrawal value or guaranteed value is the amount invested plus the rider’s guaranteed appreciation, which is the 5% or 6% discussed above. If the market declines, the client knows the amount which can be withdrawn for retirement will still increase by the 5% or 6%. If the market increases 10% or 15%, then the client can withdraw even more during retirement. Newer versions of these variable annuity riders allow a step up of the market value on an annual and even monthly basis, reducing downside risk even more effectively.
While there are fees charged by the insurance companies for annuities and their living benefits riders, they are quite reasonable when compared to the downside risk protection they provide. If market risk to principal is a concern, as it is to many investors approaching retirement, the peace of mind provided by a variable annuity may be worth the additional expense. Mutual funds are a less expensive way to participate in the various markets, but they provide no downside protection.
Variable annuity fees don’t even begin to compare to the whopping fees charged by hedge funds, which are supposed to be inversely correlated to the stock market. Unfortunately, this inverse correlation has not held up during this market cycle as hedge funds have been imploding under the weight of subprime mortgage debt. In fact, the demise of Bear Stearns was due to the default of two of their hedge funds, which went belly-up during the summer.
An analysis of my clients’ accounts who have invested in a variable annuity since 2002 showed the market value higher than the guaranteed value for the most part. The few clients whose market value was less than the guaranteed value, made recent large investments in 2007. Everyone has a higher account value than the amount invested and are breathing a bit easier these days.
If you feel a variable annuity is worth discussing for your investments, be sure to contact me.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
After months of downbeat news and the housing, credit and stock markets being pummeled almost daily, the first quarter of 2008 ended with a positive whimper and the second quarter began with a surge. Whether or not the positive signs continue will depend on the statistical information forthcoming in regard to the economic cycle. In the mean time, we’ve closed the books on the first quarter, and while the news seemed quite dire for much of the time, the DJIA and S&P 500 haven’t reached bear market levels.
The Dow Jones Industrial Average ended the first quarter at 12,262.89 down 7.6%, while the S&P 500 finished at 1,322.70 shedding 9.9%. The NASDAQ actually hit bear market territory (20% decline) during the quarter, but closed at 2279.10 which was 14% lower than where it started the year. Considering all of the headwinds the markets faced during the winter, the damage has been minimal thus far.
Of course, it is far from apparent if the carnage in the various markets is over, since we don’t even have a definitive answer on whether or not the economy is in recession. The latest GDP numbers indicated extremely slow growth, just .6% for the fourth quarter of 2007. The first estimate of GDP growth for the first quarter will be provided at the end of April.
While many economists felt the economy would avoid recession this year, when polled at the beginning of the year, the debate has shifted to how long and how deep the downturn will be. Officially, a recession is the contraction of GDP for two consecutive quarters. The length of the recession represents the trough or bottom of the economic cycle from which a new economic cycle begins.
The wild card right now is the stimulus the Federal Reserve has injected into the credit markets, which have been paralyzed due to the fiasco created by the housing debacle and subprime mortgage mess. The results of some of the Fed’s actions are already being felt, as banks and investment firms have utilized the Federal Reserve as the bank of last resort. While this is a function of the Federal Reserve for banks, opening the discount window to investment firms is something that hasn’t been done since the 1930’s.
Chairman Bernanke has taken some drastic steps with monetary policy to shore up the financial system, and his study of the blunders made during the Great Depression have been quite evident. Fiscal stimulus, like the rebates headed our way this quarter, will also be felt later this year. Whether the stimulus will be enough to keep the economy out of recession remains to be seen.
Of course the politicians are having a field day recommending bailouts of mortgage holders, job programs, protectionism, taxes on “big oil” and more regulation. Most of the programs being championed will not have the slightest chance of implementation, but they make great sound bites to constituencies during an election year. A huge “shot over the bough” was fired by Treasury Secretary Henry Paulson with his proposal to streamline US financial regulation. It should encourage debate for months!
Finally, it is sufficient to say that if you are like me and believe the sun will shine again tomorrow, this particular phase of the economic cycle represents a buying opportunity. All markets are the same, and when there is a 10% - 15% sale, it is time to buy.
What Happened to Bear Stearns’ Client Accounts?
With the demise of such a large investment firm as Bear Stearns so prominently discussed in the news, many investors have asked what happens to the client accounts held at the firm. Client accounts are insured by the Securities Investor Protection Corporation (SIPC) for $500,000 per account but only $100,000 can be cash, the remainder must be in securities.
In the case of Bear Stearns, the company will more than likely become part of a division of JP Morgan Chase and Bear Stearns’ client accounts remain unaffected. SIPC involvement was not necessary. Bankruptcies of securities firms usually result in client accounts being transferred to another firm. Client accounts of brokers, such as Transamerica, are held by a third party (Pershing) which segregates client assets.
Ways To Protect Assets During Market Turmoil
A bright spot during this particularly gloomy period in the markets has been the performance of the variable annuities developed after the dotcom bubble. Insurance companies responded to the market turmoil from 2000 - 2002 by developing living benefits, which could be used to protect assets from significant downside risk. While many acronyms have been used to describe the various riders companies have developed, the main theme is to allow participation in market gains through separate accounts, and also guarantee a minimum amount of asset appreciation each year, which is usually 5% or 6%.
Each year the principal (amount invested) basically has two calculated values. The market value is the amount invested plus whatever gains are made in the separate accounts during the year. The withdrawal value or guaranteed value is the amount invested plus the rider’s guaranteed appreciation, which is the 5% or 6% discussed above. If the market declines, the client knows the amount which can be withdrawn for retirement will still increase by the 5% or 6%. If the market increases 10% or 15%, then the client can withdraw even more during retirement. Newer versions of these variable annuity riders allow a step up of the market value on an annual and even monthly basis, reducing downside risk even more effectively.
While there are fees charged by the insurance companies for annuities and their living benefits riders, they are quite reasonable when compared to the downside risk protection they provide. If market risk to principal is a concern, as it is to many investors approaching retirement, the peace of mind provided by a variable annuity may be worth the additional expense. Mutual funds are a less expensive way to participate in the various markets, but they provide no downside protection.
Variable annuity fees don’t even begin to compare to the whopping fees charged by hedge funds, which are supposed to be inversely correlated to the stock market. Unfortunately, this inverse correlation has not held up during this market cycle as hedge funds have been imploding under the weight of subprime mortgage debt. In fact, the demise of Bear Stearns was due to the default of two of their hedge funds, which went belly-up during the summer.
An analysis of my clients’ accounts who have invested in a variable annuity since 2002 showed the market value higher than the guaranteed value for the most part. The few clients whose market value was less than the guaranteed value, made recent large investments in 2007. Everyone has a higher account value than the amount invested and are breathing a bit easier these days.
If you feel a variable annuity is worth discussing for your investments, be sure to contact me.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Saturday, March 29, 2008
What Happens to Bear Stearns' Client Accounts?
With the demise of Bear Stearns, many investors are rightfully asking what happens to client accounts held at the firm. Client accounts are segregated from the assets of the firm and insured by the Securities Investor Protection Corporation (SIPC) for $500,000 in securities per account. Only $100,000 in cash is insured. If the firm were to file for bankruptcy, the client accounts would be transferred to another broker/dealer. However, in the case of Bear Stearns, the firm's client accounts will more than likely remain with Bear as a division of JP Morgan Chase.
The SIPC doesn't insure against losses in the value of securities, but rather against loss due to malfeasance. As is usually the case with securities firms that run into difficulty, SIPC insurance is rarely utilized. Instead, the securities held by clients are generally transferred to another broker/dealer that agrees to purchase the client accounts. Since client accounts are a valuable asset, there is usually no problem finding another broker/dealer ready to step in to service those accounts. This usually doesn't take long, as evidenced by the case of MJK Clearing, a Minneapolis brokerage firm that failed in 2001. Within a week, most clients were able to access their accounts after the assets were transferred to another firm.
In the case of our firm, Transamerica, client accounts are held by a third party clearing firm. The name of that firm is Pershing. The accounts are segregated from the assets of Transamerica and held in the client's name. Should there ever be any problem with the solvency of Transamerica, as in the case of MJK Clearing, client assets would continue to be held at Pershing until another broker/dealer stepped in to service those accounts. Protection of the client is of utmost importance to all of us in the securities industry, because client confidence is paramount to our success and survival.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
The SIPC doesn't insure against losses in the value of securities, but rather against loss due to malfeasance. As is usually the case with securities firms that run into difficulty, SIPC insurance is rarely utilized. Instead, the securities held by clients are generally transferred to another broker/dealer that agrees to purchase the client accounts. Since client accounts are a valuable asset, there is usually no problem finding another broker/dealer ready to step in to service those accounts. This usually doesn't take long, as evidenced by the case of MJK Clearing, a Minneapolis brokerage firm that failed in 2001. Within a week, most clients were able to access their accounts after the assets were transferred to another firm.
In the case of our firm, Transamerica, client accounts are held by a third party clearing firm. The name of that firm is Pershing. The accounts are segregated from the assets of Transamerica and held in the client's name. Should there ever be any problem with the solvency of Transamerica, as in the case of MJK Clearing, client assets would continue to be held at Pershing until another broker/dealer stepped in to service those accounts. Protection of the client is of utmost importance to all of us in the securities industry, because client confidence is paramount to our success and survival.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Wednesday, March 19, 2008
Stock Market Swings To Continue
Look for continued wild swings in the market for the foreseeable future as the current economic situation works itself out. At this juncture the Federal Reserve has committed to shoring up the financial system and mitigating the effects of a deceleration in economic growth. The current consensus of economists is that the US is in recession, or very close to it. While the definitive answer to the recession question will be confirmed after the fact, the Fed has seen enough downside risk to the economy to cut the Federal Funds rate to 2.25%, but has also stated that inflation is a concern.
Fed chairman Ben Bernanke, who studied The Great Depression in detail, feels one of the foremost causes of the prolonged downturn in the 1930's was the central bank's reluctance to lower interest rates. Unfortunately, when the Fed takes this type of action, the dollar becomes weaker and inflation becomes a very real risk. While last month's inflation news was muted, there are fears the renewed speculation in commodities, especially oil, will ignite another round of inflationary pressures. It is too soon to know if the Fed moves and the stimulus plan implemented by the Legislative and Executive branches of the government will stave off recession. There are concerns that the increased stimulus may actually overheat the economy in the second half of the year.
While the markets have been in a bit of a panic mode recently, Bernanke and company have taken the right steps to handle the crisis. If inflation begins to accelerate and global demand for commodities doesn't subside, look for the Fed to stop lowering rates and begin to raise them in the second half of the year. My guess is the Euro and other currencies, which have strengthened against the dollar, will weaken considerably as the global slowdown begins to take hold. Just as the stock markets of the world have not decoupled from the US stock market, the global economies and consequently their currencies have also not decoupled from the dollar.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Fed chairman Ben Bernanke, who studied The Great Depression in detail, feels one of the foremost causes of the prolonged downturn in the 1930's was the central bank's reluctance to lower interest rates. Unfortunately, when the Fed takes this type of action, the dollar becomes weaker and inflation becomes a very real risk. While last month's inflation news was muted, there are fears the renewed speculation in commodities, especially oil, will ignite another round of inflationary pressures. It is too soon to know if the Fed moves and the stimulus plan implemented by the Legislative and Executive branches of the government will stave off recession. There are concerns that the increased stimulus may actually overheat the economy in the second half of the year.
While the markets have been in a bit of a panic mode recently, Bernanke and company have taken the right steps to handle the crisis. If inflation begins to accelerate and global demand for commodities doesn't subside, look for the Fed to stop lowering rates and begin to raise them in the second half of the year. My guess is the Euro and other currencies, which have strengthened against the dollar, will weaken considerably as the global slowdown begins to take hold. Just as the stock markets of the world have not decoupled from the US stock market, the global economies and consequently their currencies have also not decoupled from the dollar.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Friday, March 7, 2008
How the Federal Reserve Battles Recession
Historically, capitalistic societies have gone through boom and bust cycles on a regular basis. The economic good times are enjoyable for everyone involved, but sometimes the exuberance can lead to downturns which are often painful. The Federal Reserve was created to help moderate the effects of an economic contraction and was given some powerful tools to affect the money supply and keep the economy out of recession.
The establishment of a Central Bank went through many convolutions prior to becoming a non partisan guardian of monetary policy. During the American Revolution, the Continental Congress printed the new nation's first paper money, known as "continentals”. Later, at the urging of Treasury Secretary Alexander Hamilton, Congress established the First Bank of the United States, headquartered in Philadelphia, in 1791. By 1811, with a backlash toward the large banking establishment brewing, the bank's 20-year charter expired and Congress refused to renew it by one vote.
By 1816, Congress agreed to charter the Second Bank of the United
States, but Andrew Jackson, a central bank foe, was elected president in 1828 and he was successful in allowing the charter to expire. State-chartered banks and unchartered "free banks" took hold and began issuing their own notes, redeemable in gold. The New York Clearinghouse Association was established in 1853 to provide a way for the city's banks to exchange checks and settle accounts.
During the Civil War the National Banking Act of 1863 was passed, providing for nationally chartered banks, whose circulating notes had to be backed by U.S. government securities. Although the National Banking Act of 1863 established some measure of currency stability for the growing nation, bank runs and financial panics continued to plague the economy. In 1893 a banking panic triggered the worst depression the United States had ever seen, and the economy stabilized only after the intervention of financial mogul J.P. Morgan.
In 1907 a bout of speculation on Wall Street ended in failure, triggering a
particularly severe banking panic. The Aldrich-Vreeland Act of 1908, passed as an immediate response to the panic of 1907, provided for emergency currency issues during crises. It also established the National Monetary Commission to search for a long-term solution to the nation's banking and financial problems. By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, it stood as a classic example of compromise -- a decentralized central bank that balanced the competing interests of private banks and populist sentiment.
Originally, the mandate of the Federal Reserve was not envisioned as an entity which would utilize an active monetary policy to stabilize the economy. The idea of using an economic stabilization policy only dates from the work of John Maynard Keynes in 1936. Instead, the founders viewed the Fed as a means of preventing the supplies of money and credit from drying up during economic contractions, as often happened prior to World War I.
The central bank’s function has changed since the days of the Great Depression, and the Fed now primarily manages the growth of bank reserves and money supply to help stabilize growth during expansions. In order to control the money supply, the Fed uses three main tools to change bank reserves. These tools are a change in reserve requirements, a change in the either the discount rate or the federal funds rate, and the use of Open-market operations.
Changing the reserve ratio is a seldom used, but quite powerful tool at the Fed’s disposal. The reserve ratio is the percentage of reserves a bank is required to hold against deposits. A decrease in the ratio will allow the bank to lend more, which will increase the supply of money. An increase in the ratio will have the opposite effect.
One of the principal ways in which the Fed provides insurance against financial panics is to act as the "lender of last resort", one of the tools used recently as the subprime mortgage debacle led to a credit crunch in the summer of 2007. When business prospects made commercial banks hesitant to extend credit, the Fed stepped in by lending money to the banks, thereby inducing banks to lend more money to their customers. The Federal Reserve does this by lending at the discount window and changing the discount rate.
The federal funds rate is the interest rate that banks charge each other. The federal funds rate target is decided at Federal Open Market Committee (FOMC) meetings. Depending on their agenda and the economic conditions of the U.S., the FOMC members will either increase, decrease, or leave the rate unchanged. It is possible to infer the market expectations of the FOMC decisions at future meetings from the Chicago Board of Trade (CBOT) Fed Funds futures contracts, and these probabilities are widely reported in the financial media.
The Federal Reserve’s open-market operations consist of the buying and selling of government securities by the Fed. If the Fed buys back issued securities (such as Treasury Bills) from large banks and securities dealers, it increases the money supply in the hands of the public. The Fed can decrease the supply of money when it sells a security. The monetary expansion following an open-market operation involves adjustments by banks and the public. When the Fed buys securities from a member bank, the bank’s reserves increase, thereby encouraging it to lend . When the bank makes an additional loan, the person receiving the loan gets a bank deposit. These actions cause the money supply to increase by more than the amount of the open-market operation. This multiple expansion of the money supply is called the money multiplier.
Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply. While the Fed's mission of "lender of last resort" is still important, the Fed's role in managing the economy has expanded since its origin. As we near the end of the first quarter of 2008, the Fed has been lowering interest rates because the threat to growth has taken precedence over the Fed’s concern about inflation. Therefore, at this juncture, the Fed is working to keep the economy out of recession and attempting a "soft landing".
John Kaighn
John Kaighn's Web Business Review
Plug In Profit
Jersey Benefits Advisors
John Kaighn's Guidance Website
The establishment of a Central Bank went through many convolutions prior to becoming a non partisan guardian of monetary policy. During the American Revolution, the Continental Congress printed the new nation's first paper money, known as "continentals”. Later, at the urging of Treasury Secretary Alexander Hamilton, Congress established the First Bank of the United States, headquartered in Philadelphia, in 1791. By 1811, with a backlash toward the large banking establishment brewing, the bank's 20-year charter expired and Congress refused to renew it by one vote.
By 1816, Congress agreed to charter the Second Bank of the United
States, but Andrew Jackson, a central bank foe, was elected president in 1828 and he was successful in allowing the charter to expire. State-chartered banks and unchartered "free banks" took hold and began issuing their own notes, redeemable in gold. The New York Clearinghouse Association was established in 1853 to provide a way for the city's banks to exchange checks and settle accounts.
During the Civil War the National Banking Act of 1863 was passed, providing for nationally chartered banks, whose circulating notes had to be backed by U.S. government securities. Although the National Banking Act of 1863 established some measure of currency stability for the growing nation, bank runs and financial panics continued to plague the economy. In 1893 a banking panic triggered the worst depression the United States had ever seen, and the economy stabilized only after the intervention of financial mogul J.P. Morgan.
In 1907 a bout of speculation on Wall Street ended in failure, triggering a
particularly severe banking panic. The Aldrich-Vreeland Act of 1908, passed as an immediate response to the panic of 1907, provided for emergency currency issues during crises. It also established the National Monetary Commission to search for a long-term solution to the nation's banking and financial problems. By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, it stood as a classic example of compromise -- a decentralized central bank that balanced the competing interests of private banks and populist sentiment.
Originally, the mandate of the Federal Reserve was not envisioned as an entity which would utilize an active monetary policy to stabilize the economy. The idea of using an economic stabilization policy only dates from the work of John Maynard Keynes in 1936. Instead, the founders viewed the Fed as a means of preventing the supplies of money and credit from drying up during economic contractions, as often happened prior to World War I.
The central bank’s function has changed since the days of the Great Depression, and the Fed now primarily manages the growth of bank reserves and money supply to help stabilize growth during expansions. In order to control the money supply, the Fed uses three main tools to change bank reserves. These tools are a change in reserve requirements, a change in the either the discount rate or the federal funds rate, and the use of Open-market operations.
Changing the reserve ratio is a seldom used, but quite powerful tool at the Fed’s disposal. The reserve ratio is the percentage of reserves a bank is required to hold against deposits. A decrease in the ratio will allow the bank to lend more, which will increase the supply of money. An increase in the ratio will have the opposite effect.
One of the principal ways in which the Fed provides insurance against financial panics is to act as the "lender of last resort", one of the tools used recently as the subprime mortgage debacle led to a credit crunch in the summer of 2007. When business prospects made commercial banks hesitant to extend credit, the Fed stepped in by lending money to the banks, thereby inducing banks to lend more money to their customers. The Federal Reserve does this by lending at the discount window and changing the discount rate.
The federal funds rate is the interest rate that banks charge each other. The federal funds rate target is decided at Federal Open Market Committee (FOMC) meetings. Depending on their agenda and the economic conditions of the U.S., the FOMC members will either increase, decrease, or leave the rate unchanged. It is possible to infer the market expectations of the FOMC decisions at future meetings from the Chicago Board of Trade (CBOT) Fed Funds futures contracts, and these probabilities are widely reported in the financial media.
The Federal Reserve’s open-market operations consist of the buying and selling of government securities by the Fed. If the Fed buys back issued securities (such as Treasury Bills) from large banks and securities dealers, it increases the money supply in the hands of the public. The Fed can decrease the supply of money when it sells a security. The monetary expansion following an open-market operation involves adjustments by banks and the public. When the Fed buys securities from a member bank, the bank’s reserves increase, thereby encouraging it to lend . When the bank makes an additional loan, the person receiving the loan gets a bank deposit. These actions cause the money supply to increase by more than the amount of the open-market operation. This multiple expansion of the money supply is called the money multiplier.
Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply. While the Fed's mission of "lender of last resort" is still important, the Fed's role in managing the economy has expanded since its origin. As we near the end of the first quarter of 2008, the Fed has been lowering interest rates because the threat to growth has taken precedence over the Fed’s concern about inflation. Therefore, at this juncture, the Fed is working to keep the economy out of recession and attempting a "soft landing".
John Kaighn
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Jersey Benefits Advisors
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Saturday, March 1, 2008
Commodity Express
In his testimony before Congress on economic conditions, Fed Chairman Ben Bernanke stated, "It is important to recognize that downside risks to growth remain." This was taken as a signal that the Fed will once again be lowering interest rates at the March FOMC meeting. This sent the dollar to new lows against the Euro and commodities prices soaring as gold futures approached $1,000 an ounce and oil futures rallied to $102.59 a barrel. Are we seeing the froth of another bubble, this time in commodities, as the speculators (who never quite seem to learn their lesson) seek to find yet another way to get rich quick?
Recently, economists and investors completely debunked the notion that the major economies of the world may have decoupled from the US economy. Yet the very idea that commodity prices will continue their dizzying upward spiral despite a slowdown in the US economy would almost indicate some denial going on here. Since a slowdown in the US would bring about lesser demand for foreign and domestic goods, which in turn will slow production in foreign countries, which will mean less money to purchase goods (which are made from commodities), it seems in the very near future the direction of oil and other commodities may be down.
Inventories of gasoline and heating oil have been higher than anticipated and winter is almost over. As gasoline hovers at $3.00 a gallon and threatens to go to $4.00 a gallon, can a slowdown in consumption be far behind. At this point, OPEC has not cut production, and why would they? At $100 a barrel their greed overwhelms their business sense, much as the builders, mortgage brokers and banks during the run up to the housing correction. It's no wonder consumer confidence fell in February to the lowest level in 17 years. All of this, and we are not even sure we are in a recession yet. Let's just hope the most recent homeowner bailouts being contemplated by Congress never get out of committee, or we could take a slowdown and create a disaster.
John Kaighn
John Kaighn's Web Business Review
Plug In Profit
Jersey Benefits Advisors
John Kaighn's Guidance Website
Recently, economists and investors completely debunked the notion that the major economies of the world may have decoupled from the US economy. Yet the very idea that commodity prices will continue their dizzying upward spiral despite a slowdown in the US economy would almost indicate some denial going on here. Since a slowdown in the US would bring about lesser demand for foreign and domestic goods, which in turn will slow production in foreign countries, which will mean less money to purchase goods (which are made from commodities), it seems in the very near future the direction of oil and other commodities may be down.
Inventories of gasoline and heating oil have been higher than anticipated and winter is almost over. As gasoline hovers at $3.00 a gallon and threatens to go to $4.00 a gallon, can a slowdown in consumption be far behind. At this point, OPEC has not cut production, and why would they? At $100 a barrel their greed overwhelms their business sense, much as the builders, mortgage brokers and banks during the run up to the housing correction. It's no wonder consumer confidence fell in February to the lowest level in 17 years. All of this, and we are not even sure we are in a recession yet. Let's just hope the most recent homeowner bailouts being contemplated by Congress never get out of committee, or we could take a slowdown and create a disaster.
John Kaighn
John Kaighn's Web Business Review
Plug In Profit
Jersey Benefits Advisors
John Kaighn's Guidance Website
Friday, February 15, 2008
Forecasting the Price of Oil and its Impact on the Economy
The following aricle is a reprint from a recent newsletter by Advisor Perspectives, a company that provides data showing the investment trends of high and ultra high net worth investors, whose money is managed by fee-only independent Registered Investment Advisors.
Higher oil prices make dramatic news.
In 2007, we saw a 50% jump from $70 to $100 per barrel from mid-August to the end of the year. Only during three other times – the Iranian Revolution (1979), Iraq’s invasion of Iran (1980), and Iraq’s invasion of Kuwait (1990) – was there a price increase of this magnitude.
Oil prices affect consumers on a daily basis, at the gas pump and in their home heating bills. No other goods or services have such an impact. Yet, for all its visibility, there are widespread misconceptions about what determines the price of oil and how it affects the economy.
In this article, we look at what drives the price of oil, the prospects for 2008 and the implications of these forecasts. In particular, we examine the 2007 price jump in order to see whether it is likely to be permanent.
Our analysis draws upon the research of Philip Verleger, an expert on energy prices and the author of numerous articles on the oil markets. (We interviewed Verleger on Jan. 30, 2008.)
Light and Sweet or Heavy and Sour?
When we hear that oil is at $80 per barrel, we assume that is the price in the U.S. market. This is not the case. The quoted price for oil is based on WTI, or West Texas Intermediate. This is a “light sweet” crude oil, low in sulfur content and easy to refine. But oil comes in more than one flavor, and WTI represents at most a third of US oil consumption. The majority of the oil refined in the U.S. is “heavy and sour,” driven in part by Canadian and Saudi supply. This oil is considerably cheaper – about $15 per barrel cheaper – than WTI, but costs more to refine.
Using WTI as a benchmark for oil prices is like using the price of an expensive French wine to gauge the price of the overall wine market.
Historically, WTI and sour crude prices have been closely correlated, so the quoted price of oil was an accurate indicator of the market. However, this relationship has started to break down, primarily because of new environmental regulations which limit the amount of sulfur in diesel fuel. These regulations have placed a premium on sweet crude that has caused price movements to diverge.
Oil in 2006 and a Year Later
Oil prices followed nearly identical paths until mid-August, when we saw the beginning of the dramatic increase that lasted until the end of the year. Verleger’s examines the oil markets in 2006-07 with the goal of isolating the underlying supply and demand factors causing the increase last year.
Debunking the Popular Myths
The most popular explanation for the 2007 price increase is growing demand from China, which now consumes 8.5% of the world supply (versus 24% for the U.S.). For an example of how this line of reasoning is presented by one prominent economist, see Dealing with the Dragon. Verleger’s data shows this is not a reasonable explanation. The Chinese market has been correctly forecasted for the last several years. There was no abnormal spike in demand from China (or from India or other markets) during the latter half of last year. As Verleger notes, “it is hard to attribute the sudden price boost to oil buyers waking up to the fact that the global economy was expanding and oil use was rising.”
Supply was not being adversely affected by political disputes or international conflict. If anything, the international dynamics were calmer in 2007 than they were in 2006, as evidenced by the declining casualty rate in Iraq. This was not the source of the price increases.
A shortage of sweet crude in the world markets in 2007 caused the Saudis to increase production of sour crude. This led to a price decline in sour crude prices relative to sweet crude, well-documented in publicly available data. The Saudis were not responsible for the spike.
Speculation did not cause a price spike. Verleger’s data shows investments in commodities, as an asset class, increased from $100 billion to $170 billion in 2007, but most of this increase occurred before the beginning of the August price rise. In addition, the open interest in oil futures contracts was decreasing while prices were increasing, showing that speculators (or whoever was investing in the futures markets at that time) had a diminishing influence on oil prices. Verleger argues the “data seem to exonerate speculators.”
In addition to the oil futures traded on the commodities exchanges, oil experts also look to price movements in “trust” securities (such as the BP Prudhoe Bay Royalty Trust) to calibrate expectations of future prices. If these trusts indicate that oil prices are heading for a sharp increase, oil producers will cut back supply and/or raise current prices until equilibrium is reached. Data show these trusts have a better record of predicting price movements than projections offered by government agencies. Yet future prices implied by these trusts were stable in 2006-07 timeframe, so they cannot explain the 2007 price increase.
Explaining the 2007 Spike
Verleger’s key contention is, beginning in mid-August, the Department of Energy began building up the strategic petroleum reserves, in particular using 1/3 sweet crude and 2/3 sour crude. In fact, approximately 0.3% of the world’s supply of sweet crude went to the SPR. Verleger estimates this action drove oil prices up as much as $10 per barrel, due to the elasticity of oil prices relative to demand, especially in the sweet markets.
On a percentage basis, the increase beginning in mid-August of 2007 may not appear that dramatic. But with sweet crude in high demand and tight supply, the effect on prices was extreme.
Unconfirmed reports suggested that China may also have been accumulating sweet crude into its own SPR during this period, and may be continuing to do so now. If this is true – and oil analysts are trying to confirm these facts – it would explain some of the 2007 price increase. But its effect would be dwarfed by the impact of oil flowing into the American SPR.
Oil companies were reducing their inventories over the last half of 2007 by 50 million barrels of crude stock, representing a little over two days of U.S. oil consumption. The turmoil in the financial markets increased the cost of borrowing for oil companies, making it unattractive for them to finance inventories. Econometric data suggest this inventory reduction contributed a few dollars per barrel to the overall price increases.
“Delta” hedging contributes to price increases. This is a tactic employed by large fuel consumers, particularly airlines, to hedge against price increases by purchasing call options, allowing oil to be bought at a fixed price. Bankers selling these call options hedge their exposure in the futures market, and the net effect is to magnify price increases in an escalating oil environment, such as the latter half of 2007.
Verleger’s bottom line is the US SPR usage contributed $10 of the increase from $70 to $100 per barrel, with inventory reductions responsible for $3 per barrel. Delta hedging was responsible for the remaining $17 per barrel.
Outlook for 2008 and the Impact on the Economy
A common concern is that the 2007 oil spike will lead to a repeat of the 1980s, when the US economic growth was stunted under the burden of expensive oil. This scenario is highly unlikely.
The world economy is less oil dependent. Research from Lehman Brothers shows 0.63 of a barrel is needed to produce $1,000 of GDP, as compared to 0.89 of a barrel in the 1980s. The inflation-adjusted price of oil would need to exceed $100/bbl over a sustained period to replicate the environment of the ‘80s. Additionally, the dollar was stronger then; the fall of the dollar has contributed to the current rise in the price of oil. To the extent the dollar strengthens against world currencies, the price of oil will decline.
The gating factor in today’s economy is not oil prices. It is credit and liquidity, driven by the housing market.
We asked Verleger if an easing of the credit crisis would translate to lower oil prices. “If banks solve their liquidity problem, then it will depend in large part on what oil exporters do,” said Verleger. “It is not a competitive market. If OPEC is aggressive and cuts production, or focuses on inventories, it will push prices higher.”
On the question of the risk of prolonged higher prices, Verleger says it “really depends on how aggressive the members of the cartel are.” More non-OPEC production in today’s market could force OPEC to be more aggressive.
“In 2008, if current flows to the SPR continue, and China continues to do what many believe it has been doing, it will result in a tight sweet crude market, with prices in the high $80s or mid $90s,” Verleger said.
For many in the oil industry, the ultimate question is how oil prices will behave if the economy and overall demand slows down, as many are predicting. Verleger lives in a data-driven world, and has closely studied the path of oil prices during the last five recessions. There is no pattern: in November of 1973 oil prices went up, in January of 1980 they went down, from 1981-2 they went down, in 1990 they went up, and in 2001-2 they went down.
Verleger said “it boils down to how the oil exporting countries behave.” In an economic crisis, he expects them to keep production tight and inventories low, which foretells higher prices. OPEC has seen crude go from $10 to $80 per barrel without a drop in demand in the US. He knows the analysts at OPEC watch the data as closely as he does, and believes they understand that dropping the price of crude from $80 to $10 would not stimulate our economy. “They would rather keep the money in their pockets,” said Verleger.
For his part, Verleger has recommended that the DOE change the composition of flows to the SPR, to increase the portion of sour crude and reduce the portion of sweet crude. This would relieve the primary upward pressure on prices, but so far the response has been negative.
Verleger believes refinery problems would be necessary for prices to go significantly higher than current levels. Alternatively, he cites concern for the oil exporting countries vis-Ã -vis the dollar, causing them to hold back on production. “A further decline in the dollar could cause OPEC countries to cut production,” Verleger noted, adding that “a problem in Nigeria could also cause this.”
Our final question for Verleger was how high oil prices would need to rise before they significantly impaired the economy.
“If the central bank controls inflation, then oil prices don’t have much impact,” he said on the day the Fed lowered interest rates by 50 basis points.
“Bernanke has offered a good explanation for his interest rate cuts,” Verleger said.
But Verleger is not convinced that the liquidity problem is solved, which he believes is the key to economic growth.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Higher oil prices make dramatic news.
In 2007, we saw a 50% jump from $70 to $100 per barrel from mid-August to the end of the year. Only during three other times – the Iranian Revolution (1979), Iraq’s invasion of Iran (1980), and Iraq’s invasion of Kuwait (1990) – was there a price increase of this magnitude.
Oil prices affect consumers on a daily basis, at the gas pump and in their home heating bills. No other goods or services have such an impact. Yet, for all its visibility, there are widespread misconceptions about what determines the price of oil and how it affects the economy.
In this article, we look at what drives the price of oil, the prospects for 2008 and the implications of these forecasts. In particular, we examine the 2007 price jump in order to see whether it is likely to be permanent.
Our analysis draws upon the research of Philip Verleger, an expert on energy prices and the author of numerous articles on the oil markets. (We interviewed Verleger on Jan. 30, 2008.)
Light and Sweet or Heavy and Sour?
When we hear that oil is at $80 per barrel, we assume that is the price in the U.S. market. This is not the case. The quoted price for oil is based on WTI, or West Texas Intermediate. This is a “light sweet” crude oil, low in sulfur content and easy to refine. But oil comes in more than one flavor, and WTI represents at most a third of US oil consumption. The majority of the oil refined in the U.S. is “heavy and sour,” driven in part by Canadian and Saudi supply. This oil is considerably cheaper – about $15 per barrel cheaper – than WTI, but costs more to refine.
Using WTI as a benchmark for oil prices is like using the price of an expensive French wine to gauge the price of the overall wine market.
Historically, WTI and sour crude prices have been closely correlated, so the quoted price of oil was an accurate indicator of the market. However, this relationship has started to break down, primarily because of new environmental regulations which limit the amount of sulfur in diesel fuel. These regulations have placed a premium on sweet crude that has caused price movements to diverge.
Oil in 2006 and a Year Later
Oil prices followed nearly identical paths until mid-August, when we saw the beginning of the dramatic increase that lasted until the end of the year. Verleger’s examines the oil markets in 2006-07 with the goal of isolating the underlying supply and demand factors causing the increase last year.
Debunking the Popular Myths
The most popular explanation for the 2007 price increase is growing demand from China, which now consumes 8.5% of the world supply (versus 24% for the U.S.). For an example of how this line of reasoning is presented by one prominent economist, see Dealing with the Dragon. Verleger’s data shows this is not a reasonable explanation. The Chinese market has been correctly forecasted for the last several years. There was no abnormal spike in demand from China (or from India or other markets) during the latter half of last year. As Verleger notes, “it is hard to attribute the sudden price boost to oil buyers waking up to the fact that the global economy was expanding and oil use was rising.”
Supply was not being adversely affected by political disputes or international conflict. If anything, the international dynamics were calmer in 2007 than they were in 2006, as evidenced by the declining casualty rate in Iraq. This was not the source of the price increases.
A shortage of sweet crude in the world markets in 2007 caused the Saudis to increase production of sour crude. This led to a price decline in sour crude prices relative to sweet crude, well-documented in publicly available data. The Saudis were not responsible for the spike.
Speculation did not cause a price spike. Verleger’s data shows investments in commodities, as an asset class, increased from $100 billion to $170 billion in 2007, but most of this increase occurred before the beginning of the August price rise. In addition, the open interest in oil futures contracts was decreasing while prices were increasing, showing that speculators (or whoever was investing in the futures markets at that time) had a diminishing influence on oil prices. Verleger argues the “data seem to exonerate speculators.”
In addition to the oil futures traded on the commodities exchanges, oil experts also look to price movements in “trust” securities (such as the BP Prudhoe Bay Royalty Trust) to calibrate expectations of future prices. If these trusts indicate that oil prices are heading for a sharp increase, oil producers will cut back supply and/or raise current prices until equilibrium is reached. Data show these trusts have a better record of predicting price movements than projections offered by government agencies. Yet future prices implied by these trusts were stable in 2006-07 timeframe, so they cannot explain the 2007 price increase.
Explaining the 2007 Spike
Verleger’s key contention is, beginning in mid-August, the Department of Energy began building up the strategic petroleum reserves, in particular using 1/3 sweet crude and 2/3 sour crude. In fact, approximately 0.3% of the world’s supply of sweet crude went to the SPR. Verleger estimates this action drove oil prices up as much as $10 per barrel, due to the elasticity of oil prices relative to demand, especially in the sweet markets.
On a percentage basis, the increase beginning in mid-August of 2007 may not appear that dramatic. But with sweet crude in high demand and tight supply, the effect on prices was extreme.
Unconfirmed reports suggested that China may also have been accumulating sweet crude into its own SPR during this period, and may be continuing to do so now. If this is true – and oil analysts are trying to confirm these facts – it would explain some of the 2007 price increase. But its effect would be dwarfed by the impact of oil flowing into the American SPR.
Oil companies were reducing their inventories over the last half of 2007 by 50 million barrels of crude stock, representing a little over two days of U.S. oil consumption. The turmoil in the financial markets increased the cost of borrowing for oil companies, making it unattractive for them to finance inventories. Econometric data suggest this inventory reduction contributed a few dollars per barrel to the overall price increases.
“Delta” hedging contributes to price increases. This is a tactic employed by large fuel consumers, particularly airlines, to hedge against price increases by purchasing call options, allowing oil to be bought at a fixed price. Bankers selling these call options hedge their exposure in the futures market, and the net effect is to magnify price increases in an escalating oil environment, such as the latter half of 2007.
Verleger’s bottom line is the US SPR usage contributed $10 of the increase from $70 to $100 per barrel, with inventory reductions responsible for $3 per barrel. Delta hedging was responsible for the remaining $17 per barrel.
Outlook for 2008 and the Impact on the Economy
A common concern is that the 2007 oil spike will lead to a repeat of the 1980s, when the US economic growth was stunted under the burden of expensive oil. This scenario is highly unlikely.
The world economy is less oil dependent. Research from Lehman Brothers shows 0.63 of a barrel is needed to produce $1,000 of GDP, as compared to 0.89 of a barrel in the 1980s. The inflation-adjusted price of oil would need to exceed $100/bbl over a sustained period to replicate the environment of the ‘80s. Additionally, the dollar was stronger then; the fall of the dollar has contributed to the current rise in the price of oil. To the extent the dollar strengthens against world currencies, the price of oil will decline.
The gating factor in today’s economy is not oil prices. It is credit and liquidity, driven by the housing market.
We asked Verleger if an easing of the credit crisis would translate to lower oil prices. “If banks solve their liquidity problem, then it will depend in large part on what oil exporters do,” said Verleger. “It is not a competitive market. If OPEC is aggressive and cuts production, or focuses on inventories, it will push prices higher.”
On the question of the risk of prolonged higher prices, Verleger says it “really depends on how aggressive the members of the cartel are.” More non-OPEC production in today’s market could force OPEC to be more aggressive.
“In 2008, if current flows to the SPR continue, and China continues to do what many believe it has been doing, it will result in a tight sweet crude market, with prices in the high $80s or mid $90s,” Verleger said.
For many in the oil industry, the ultimate question is how oil prices will behave if the economy and overall demand slows down, as many are predicting. Verleger lives in a data-driven world, and has closely studied the path of oil prices during the last five recessions. There is no pattern: in November of 1973 oil prices went up, in January of 1980 they went down, from 1981-2 they went down, in 1990 they went up, and in 2001-2 they went down.
Verleger said “it boils down to how the oil exporting countries behave.” In an economic crisis, he expects them to keep production tight and inventories low, which foretells higher prices. OPEC has seen crude go from $10 to $80 per barrel without a drop in demand in the US. He knows the analysts at OPEC watch the data as closely as he does, and believes they understand that dropping the price of crude from $80 to $10 would not stimulate our economy. “They would rather keep the money in their pockets,” said Verleger.
For his part, Verleger has recommended that the DOE change the composition of flows to the SPR, to increase the portion of sour crude and reduce the portion of sweet crude. This would relieve the primary upward pressure on prices, but so far the response has been negative.
Verleger believes refinery problems would be necessary for prices to go significantly higher than current levels. Alternatively, he cites concern for the oil exporting countries vis-Ã -vis the dollar, causing them to hold back on production. “A further decline in the dollar could cause OPEC countries to cut production,” Verleger noted, adding that “a problem in Nigeria could also cause this.”
Our final question for Verleger was how high oil prices would need to rise before they significantly impaired the economy.
“If the central bank controls inflation, then oil prices don’t have much impact,” he said on the day the Fed lowered interest rates by 50 basis points.
“Bernanke has offered a good explanation for his interest rate cuts,” Verleger said.
But Verleger is not convinced that the liquidity problem is solved, which he believes is the key to economic growth.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Sunday, February 3, 2008
Correction or Bear Market; Recession or Slowdown?
One of the worst January performances for the stock market is behind us and many investors are wondering just where we stand as we begin February. Are we just experiencing another correction, or are we in the throes of a full fledged bear market? While dipping close to bear levels for an hour on the Tuesday following the Martin Luther King holiday, the market has rebounded well off of those levels recently, despite much weaker than expected employment numbers. With the media and presidential candidates tossing the word recession around like a hot potato, Congress and the President brandishing a $150 billion stimulus plan and the Federal Reserve Chief slashing interest rates like a Samurai, is it any wonder main street investors are wondering what will happen next?
In a speech last week, Hillary Clinton sounded the alarm about the "second Bush recession". The media gave her a complete pass on the statement, because if my memory serves me correctly, The National Bureau of Economic Research confirmed the last recession began in the first quarter of 2001, so it is quite difficult to blame that recession on the current occupant of the White House. Furthermore, there is no confirmation of a recession at this juncture, and many economists believe the current fiscal stimulus being contemplated may well overstimulate an economy that could recover on its own from the current slowdown. So, what is the real deal?
The economy's anemic .6% growth rate for the fourth quarter does indicate a recession is a distinct possibility. A jobs number showing the economy shed 15,000 jobs also is cause for concern. With the credit crunch and housing debacle still raging, it is prudent for policymakers to manage the risk of recession proactively. However, the economic team at JP Morgan Chase recently stated that the current spate of economic stimulus being contemplated is like "risk management on steroids". Ed Yardeni, who heads his own research firm, said it succinctly in a letter to his clients when he noted, "I don't recall so much policy stimulus and so many bailout plans thrown at the economy so fast before there was compelling evidence of a recession". None of the plans being developed will have any impact on the economy in the current quarter or the second. All of the pump priming effects will be felt in the second half of the year.
If all of the doom and gloom predictions of recession turn out to be overblown, and the economy limps along with slow growth through the first half of the year, things just might improve on their own. When all of the monetary and fiscal stimulus kicks in during the second half of the year, the economy could heat up more than anticipated. The Fed could find themselves in the situation of having to raise interest rates to battle reignited inflation.
As I stated in an earlier blog, closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Until those levels are reached, we are officially only in a correction. Recessions and bear markets usually occur when most people are unaware of the possibility of their occurance. Perhaps a contrarian position might be the most prudent view to take at the present time.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
In a speech last week, Hillary Clinton sounded the alarm about the "second Bush recession". The media gave her a complete pass on the statement, because if my memory serves me correctly, The National Bureau of Economic Research confirmed the last recession began in the first quarter of 2001, so it is quite difficult to blame that recession on the current occupant of the White House. Furthermore, there is no confirmation of a recession at this juncture, and many economists believe the current fiscal stimulus being contemplated may well overstimulate an economy that could recover on its own from the current slowdown. So, what is the real deal?
The economy's anemic .6% growth rate for the fourth quarter does indicate a recession is a distinct possibility. A jobs number showing the economy shed 15,000 jobs also is cause for concern. With the credit crunch and housing debacle still raging, it is prudent for policymakers to manage the risk of recession proactively. However, the economic team at JP Morgan Chase recently stated that the current spate of economic stimulus being contemplated is like "risk management on steroids". Ed Yardeni, who heads his own research firm, said it succinctly in a letter to his clients when he noted, "I don't recall so much policy stimulus and so many bailout plans thrown at the economy so fast before there was compelling evidence of a recession". None of the plans being developed will have any impact on the economy in the current quarter or the second. All of the pump priming effects will be felt in the second half of the year.
If all of the doom and gloom predictions of recession turn out to be overblown, and the economy limps along with slow growth through the first half of the year, things just might improve on their own. When all of the monetary and fiscal stimulus kicks in during the second half of the year, the economy could heat up more than anticipated. The Fed could find themselves in the situation of having to raise interest rates to battle reignited inflation.
As I stated in an earlier blog, closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Until those levels are reached, we are officially only in a correction. Recessions and bear markets usually occur when most people are unaware of the possibility of their occurance. Perhaps a contrarian position might be the most prudent view to take at the present time.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Tuesday, January 22, 2008
Fed Cuts Interest Rate 75 Basis Points
The Federal Reserve, after reviewing the significant global stock market declines on Monday and again on Tuesday, which were at least partially caused by increased fears of a US recession, lowered the federal funds rate by 75 basis points, or three-quarters of a percentage point this morning and indicated further rate cuts were likely. This surprise reduction in the federal funds rate from 4.25% down to 3.5% percent is the most significant one-day rate move by the central bank since it cut the discount rate by a full percentage point in December 1991, a period when the country was struggling to get out of a recession.
In addition to cutting the federal funds rate, the Fed said it was reducing the discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4%. Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarters of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25% down to 6.50%.
The Fed's interest rate moves came after significant declines in Asian and European markets on Monday, while the US markets were closed in observance of the Martin Luther King Holiday, and again overnight and into this morning as global markets continued their sell off. By midday, the U.K.'s FTSE 100 was down 0.3 percent at 5,560.90, Germany's DAX was down 1.7 percent at 6,671.82, while France's CAC 40 dropped 1.3 percent to 4,681.07.
Japan's Nikkei 225 index tumbled 5.7 percent, its largest percentage drop in nearly 10 years, to 12,573.05, a day after falling 3.9 percent. Australia's benchmark index sank 7.1 percent, its steepest one-day slide in nearly 20 years. Hong Kong's Hang Seng index, which slumped 5.5 percent Monday, finished down 8.7 percent on Tuesday. In China, the Shanghai Composite index lost 7.2 percent to 4,559.75, its lowest close since August. Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 percent within minutes of opening. The Sensex rebounded some to close down 5 percent after plunging 7.4 percent Monday.
Early market reaction to the Fed's rate reduction was not positive, as the DJIA opened off 450 points. However, as the morning wore on, the losses subsided to a more palatable 150 points off of Friday's close. Whether this will be a complete capitulation and subsequent end of the bull market remains to be seen. Closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Even if a recession is avoided, I think global markets are making a huge statement regarding the theory of decoupling, that is, the belief global markets and economies could continue to thrive during a downturn in the US.
The positive news for the day is the European markets seemed to like the Federal Reserve's interest rate decision, because even though they were down at midday, they managed to end on the plus side, for the most part. European policymakers offered no hint on Tuesday they would rush to join the United States with a stimulus plan to inoculate their economies from the ravages of a global stock market rout. The economy is sound and fear and panic should not drive decision making, European Central Bank officials said after the U.S. Federal Reserve's surprise move to slash interest rates.
Jean-Claude Juncker, the senior finance minister for the euro zone economies, said he was keeping a close eye on developments but right now saw no danger of U.S. driven turmoil spilling over to cause a global recession. "When financial markets act irrationally, and are driven by herd behaviour, when stock markets demonstrate short-termism, there is no reason for finance ministers to do the same," Juncker told reporters on arriving for Tuesday's talks. Someone should show the above quote to the alarmist politicians in Congress and the White House before they overstimulate the economy, increase food stamp subsidies and who knows what else. Washington's overreaction and the election year grandstanding could further damage the economy or inflate a bubble in another sector by easing credit too much. Sometimes, less is better, especially when it comes to political demagoguery and bogus spending programs appealing to special interest groups.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
In addition to cutting the federal funds rate, the Fed said it was reducing the discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4%. Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarters of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25% down to 6.50%.
The Fed's interest rate moves came after significant declines in Asian and European markets on Monday, while the US markets were closed in observance of the Martin Luther King Holiday, and again overnight and into this morning as global markets continued their sell off. By midday, the U.K.'s FTSE 100 was down 0.3 percent at 5,560.90, Germany's DAX was down 1.7 percent at 6,671.82, while France's CAC 40 dropped 1.3 percent to 4,681.07.
Japan's Nikkei 225 index tumbled 5.7 percent, its largest percentage drop in nearly 10 years, to 12,573.05, a day after falling 3.9 percent. Australia's benchmark index sank 7.1 percent, its steepest one-day slide in nearly 20 years. Hong Kong's Hang Seng index, which slumped 5.5 percent Monday, finished down 8.7 percent on Tuesday. In China, the Shanghai Composite index lost 7.2 percent to 4,559.75, its lowest close since August. Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 percent within minutes of opening. The Sensex rebounded some to close down 5 percent after plunging 7.4 percent Monday.
Early market reaction to the Fed's rate reduction was not positive, as the DJIA opened off 450 points. However, as the morning wore on, the losses subsided to a more palatable 150 points off of Friday's close. Whether this will be a complete capitulation and subsequent end of the bull market remains to be seen. Closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Even if a recession is avoided, I think global markets are making a huge statement regarding the theory of decoupling, that is, the belief global markets and economies could continue to thrive during a downturn in the US.
The positive news for the day is the European markets seemed to like the Federal Reserve's interest rate decision, because even though they were down at midday, they managed to end on the plus side, for the most part. European policymakers offered no hint on Tuesday they would rush to join the United States with a stimulus plan to inoculate their economies from the ravages of a global stock market rout. The economy is sound and fear and panic should not drive decision making, European Central Bank officials said after the U.S. Federal Reserve's surprise move to slash interest rates.
Jean-Claude Juncker, the senior finance minister for the euro zone economies, said he was keeping a close eye on developments but right now saw no danger of U.S. driven turmoil spilling over to cause a global recession. "When financial markets act irrationally, and are driven by herd behaviour, when stock markets demonstrate short-termism, there is no reason for finance ministers to do the same," Juncker told reporters on arriving for Tuesday's talks. Someone should show the above quote to the alarmist politicians in Congress and the White House before they overstimulate the economy, increase food stamp subsidies and who knows what else. Washington's overreaction and the election year grandstanding could further damage the economy or inflate a bubble in another sector by easing credit too much. Sometimes, less is better, especially when it comes to political demagoguery and bogus spending programs appealing to special interest groups.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Saturday, January 12, 2008
Baby It's Cold Outside
It didn't take much time for the market to hit official correction territory from its October 2007 high. After a dismal drop at the end of 2007 and two weeks of trading in the new year, the S&P 500 and the Dow Jones Industrial Average have managed to retreat to that 10% milestone. The January trading barometer, which states that the first 5 days of trading in January set the tone for the month is indicating a chilly month ahead. While the indicator, popularized in 1972 by Yale Hirsch of the Stock Trader's Almanac is quite accurate (91%) when the first five days are positive, the accuracy is only 45% when the first five days are negative. I guess it is really way to early to try to figure out what the year ahead may be bringing, although most of those participants in the Barron's Roundtable seem to think the market won't even begin to come back to life until the second half of the year.
The small nuggets of upbeat earnings news were pretty much drowned out by a continued litany of economic and financial problems. The Dow Jones Industrial Average fell 246 points, or 1.9%, to 12,606 on Friday, losing 1.5% for the week. Since the start of 2008, the Dow has now lost 658.52 points, or 5%. The S&P 500 index was off 1.4% Friday and fell 0.7% for the week. The Nasdaq Composite dropped 2% Friday for a weekly loss of 2.6%.
Fear of bankruptcy at Countrywide Financial led to a 238-point plunge in the Dow on Tuesday, followed by another big drop Friday, even as Bank of America said it would buy the troubled mortgage lender for $4 billion. A year ago, Countrywide's market value was $24 billion. Seems like Bank of America may have gotten a pretty good deal on this transaction, which will be an all stock deal.
Meanwhile, results at major financial firms are expected to continue to reflect the impact of bad bets in subprime mortgages. Citigroup is expected to report earnings on Tuesday, along with US Bancorp and State Street Corp. J.P. Morgan Chase reports on Wednesday, along with Wells Fargo Co. and Northern Trust. Washington Mutual, Merrill Lynch, Bank of New York, and PNC Financial report on Thursday.
Intel's earnings on Tuesday along with IBM's results on Thursday could also further test recent market hopes that the technology sector might continue to benefit from global growth even as the U.S. slows down. Yet, those hopes have waned in the market, with the tech-heavy Nasdaq Composite posting some of the worst losses of major indexes, losing 8% since the start of the year. Investors will also monitor the results and forecasts of industrials giant General Electric Co., which reports Friday, for clues on global growth.
Some key data will also be closely monitored next week, with investors on high alert for signs that the economy might slide into recession. Tuesday will bring reports on December producer prices, retail sales and a key business survey in the New York region. Wednesday will see the release of the December consumer price index, industrial production data, a housing market index, along with the Federal Reserve's Beige Book of economic conditions.
On Thursday, December housing starts, weekly jobless claims and the Philadelphia Fed survey will be released. Friday will bring a key consumer sentiment survey along with leading economic indicators. With oil sitting near $100 a barrel, gold topping $900 an ounce on Friday, and food prices surging, investors remain worried that inflation pressures might prevent the Fed from cutting interest rates as much as hoped. However, "the U.S. economy seems to be facing ever-greater risks of entering a recession, in the light of the latest statistics on unemployment, activity in the manufacturing sector and household confidence," said Philippe D'Arvisenet, an economist at BNP Paribas, in a note. "Under these conditions, the Fed should give priority to avoiding a recession, pushing its concerns about inflationary risks onto the backburner," he said.
I'm sure all eyes will be on the Fed at the end of the month when the Federal Open Market Committee meets. Investors are anticipating a 1/2 point cut in the Federal Funds Rate at that meeting. Unfortunately, it really doesn't seem like monetary policy will be enough to breathe life into the stock market in the short term. There are a lot of excesses which have to be wrung out of the system, and it could mean some short term pain.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
The small nuggets of upbeat earnings news were pretty much drowned out by a continued litany of economic and financial problems. The Dow Jones Industrial Average fell 246 points, or 1.9%, to 12,606 on Friday, losing 1.5% for the week. Since the start of 2008, the Dow has now lost 658.52 points, or 5%. The S&P 500 index was off 1.4% Friday and fell 0.7% for the week. The Nasdaq Composite dropped 2% Friday for a weekly loss of 2.6%.
Fear of bankruptcy at Countrywide Financial led to a 238-point plunge in the Dow on Tuesday, followed by another big drop Friday, even as Bank of America said it would buy the troubled mortgage lender for $4 billion. A year ago, Countrywide's market value was $24 billion. Seems like Bank of America may have gotten a pretty good deal on this transaction, which will be an all stock deal.
Meanwhile, results at major financial firms are expected to continue to reflect the impact of bad bets in subprime mortgages. Citigroup is expected to report earnings on Tuesday, along with US Bancorp and State Street Corp. J.P. Morgan Chase reports on Wednesday, along with Wells Fargo Co. and Northern Trust. Washington Mutual, Merrill Lynch, Bank of New York, and PNC Financial report on Thursday.
Intel's earnings on Tuesday along with IBM's results on Thursday could also further test recent market hopes that the technology sector might continue to benefit from global growth even as the U.S. slows down. Yet, those hopes have waned in the market, with the tech-heavy Nasdaq Composite posting some of the worst losses of major indexes, losing 8% since the start of the year. Investors will also monitor the results and forecasts of industrials giant General Electric Co., which reports Friday, for clues on global growth.
Some key data will also be closely monitored next week, with investors on high alert for signs that the economy might slide into recession. Tuesday will bring reports on December producer prices, retail sales and a key business survey in the New York region. Wednesday will see the release of the December consumer price index, industrial production data, a housing market index, along with the Federal Reserve's Beige Book of economic conditions.
On Thursday, December housing starts, weekly jobless claims and the Philadelphia Fed survey will be released. Friday will bring a key consumer sentiment survey along with leading economic indicators. With oil sitting near $100 a barrel, gold topping $900 an ounce on Friday, and food prices surging, investors remain worried that inflation pressures might prevent the Fed from cutting interest rates as much as hoped. However, "the U.S. economy seems to be facing ever-greater risks of entering a recession, in the light of the latest statistics on unemployment, activity in the manufacturing sector and household confidence," said Philippe D'Arvisenet, an economist at BNP Paribas, in a note. "Under these conditions, the Fed should give priority to avoiding a recession, pushing its concerns about inflationary risks onto the backburner," he said.
I'm sure all eyes will be on the Fed at the end of the month when the Federal Open Market Committee meets. Investors are anticipating a 1/2 point cut in the Federal Funds Rate at that meeting. Unfortunately, it really doesn't seem like monetary policy will be enough to breathe life into the stock market in the short term. There are a lot of excesses which have to be wrung out of the system, and it could mean some short term pain.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Sunday, January 6, 2008
Jersey Benefits Advisors Newsletter Winter 2008
Market Watch
After a year of increased volatility and some major financial upheavals, the stock market still managed to finish in positive territory, despite some setbacks along the way. Overall, it was a year that saw many actively managed funds surpass the indices, index related mutual funds and ETF’s.
The Dow Jones Industrial Average ended 2007 with a gain of 6.4% at 13,264.82, while the S&P 500 only managed a gain of 3.4% to close at 1,468.36. The NASDAQ Composite was up 9.8% for the year, closing at 2,652.28 while the NASDAQ 100, an index of primarily technology stocks, managed to turn in the best performance of the year with an 18.7% gain. The Dow Jones Utility Average also had a stellar performance adding 16.6% for the year, while the Russell 2000, which had been on fire recently, had a –2.7% return for 2007.
The market reacted to the Fed’s latest 25 basis points cut in interest rates with a thud in December, mainly because traders wanted a 1/2 point cut. It seems like the traders might have missed the bigger point, because historically, the third in a series of rate cuts by the Fed is a charm for the market. In the year after three successive rate reductions by the Fed, the DJIA has gained an average of 18%. This has happened 14 times since 1921, according to Ned Davis Research. Stocks have risen with striking consistency after three rate cuts, except in 1930, at the onset of the Great Depression, when the Dow fell nearly 40% that year. Let’s hope history is on our side in 2008.
There has recently been a great deal of talk about the possibility of a recession, characterized by two or more successive quarters of negative GDP growth. According to a recent article in the Wall Street Journal, most economists polled put the risk of recession at around 38%, while John Lonski, chief economist at Moody's says, "The odds of a recession right now are just under 50-50." Gary Pollack a Managing Director at Deutsche Bank Private Wealth Management says," The economy will skip a recession because the decline in housing will be offset by increases in exports and government spending." As you can see from the various opinions it is almost impossible to know when or if the economy will slip into recession. Recessions are generally confirmed after the fact, so the best thing investors can do is be aware of the possibility of recession and understand the implications for their investments. Markets usually decline during recessions and assets can be bought at lower prices. If you don't NEED to sell anything during a market downturn, think about adding to and diversifying your investments.
The new year should see further volatility in the markets as investors reassess the risks they are willing to take with their investments. You can be sure there will be fewer subprime mortgages underwritten, and a paltry market for collateralized mortgage obligations. Real estate will probably continue to decline through 2008, as builders cut back on new projects. The number of housing starts many economists feel are needed to lessen the glut is about 500,000 per year, down from 2.6 million at the peak of the housing boom.
This should be an interesting election year as politicians pander to the plight of the plethora of homeowners facing foreclosure in 2008.
Mutual Fund Performance For 2007 VS 2006 And 5 Year Average
The list of funds below is a representative sample of client’s holdings recommended over the years. Many of you will recognize core holdings and sector funds from your account. Notice how returns fluctuate year to year, but the 5 year average remains very strong.
Is The Time Right For a 529 Plan?
Are you a parent or grandparent with a newborn or young school-aged child in the family? Saving money for college expenses is a goal I hear many young parents express, and one of the best ways to build tax-advantaged savings for college is the 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs.
The 529 plan, legally known as a “qualified tuition plan,” is sponsored by states, state agencies, or educational institutions and is authorized by Section 529 of the Internal Revenue Code. Changes in the tax code were made in 2006 making permanent the provision that earnings in a 529 plan are tax free upon withdrawal when used for education expenses. This has resulted in eliminating any change in status for earnings for the 529 plan and made it the premier savings vehicle for college savers.
There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan. There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs. Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.
College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.
DOLLAR COST AVERAGING through a systematic savings plan is an excellent way to build up an account without a sizeable minimum investment. This is the way many company retirement plans function. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, SUCH AS ROTH IRA’S, TRADITIONAL IRA’S, COVERDELL ACCOUNTS, 529 PLANS, BROKERAGE ACCOUNTS AND ANNUITIES can be opened, some for as little as $50 per month, and debited directly from your checking or savings account. For more information, just call to set up an appointment. REFERRALS ARE ALWAYS WELCOME.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
After a year of increased volatility and some major financial upheavals, the stock market still managed to finish in positive territory, despite some setbacks along the way. Overall, it was a year that saw many actively managed funds surpass the indices, index related mutual funds and ETF’s.
The Dow Jones Industrial Average ended 2007 with a gain of 6.4% at 13,264.82, while the S&P 500 only managed a gain of 3.4% to close at 1,468.36. The NASDAQ Composite was up 9.8% for the year, closing at 2,652.28 while the NASDAQ 100, an index of primarily technology stocks, managed to turn in the best performance of the year with an 18.7% gain. The Dow Jones Utility Average also had a stellar performance adding 16.6% for the year, while the Russell 2000, which had been on fire recently, had a –2.7% return for 2007.
The market reacted to the Fed’s latest 25 basis points cut in interest rates with a thud in December, mainly because traders wanted a 1/2 point cut. It seems like the traders might have missed the bigger point, because historically, the third in a series of rate cuts by the Fed is a charm for the market. In the year after three successive rate reductions by the Fed, the DJIA has gained an average of 18%. This has happened 14 times since 1921, according to Ned Davis Research. Stocks have risen with striking consistency after three rate cuts, except in 1930, at the onset of the Great Depression, when the Dow fell nearly 40% that year. Let’s hope history is on our side in 2008.
There has recently been a great deal of talk about the possibility of a recession, characterized by two or more successive quarters of negative GDP growth. According to a recent article in the Wall Street Journal, most economists polled put the risk of recession at around 38%, while John Lonski, chief economist at Moody's says, "The odds of a recession right now are just under 50-50." Gary Pollack a Managing Director at Deutsche Bank Private Wealth Management says," The economy will skip a recession because the decline in housing will be offset by increases in exports and government spending." As you can see from the various opinions it is almost impossible to know when or if the economy will slip into recession. Recessions are generally confirmed after the fact, so the best thing investors can do is be aware of the possibility of recession and understand the implications for their investments. Markets usually decline during recessions and assets can be bought at lower prices. If you don't NEED to sell anything during a market downturn, think about adding to and diversifying your investments.
The new year should see further volatility in the markets as investors reassess the risks they are willing to take with their investments. You can be sure there will be fewer subprime mortgages underwritten, and a paltry market for collateralized mortgage obligations. Real estate will probably continue to decline through 2008, as builders cut back on new projects. The number of housing starts many economists feel are needed to lessen the glut is about 500,000 per year, down from 2.6 million at the peak of the housing boom.
This should be an interesting election year as politicians pander to the plight of the plethora of homeowners facing foreclosure in 2008.
Mutual Fund Performance For 2007 VS 2006 And 5 Year Average
The list of funds below is a representative sample of client’s holdings recommended over the years. Many of you will recognize core holdings and sector funds from your account. Notice how returns fluctuate year to year, but the 5 year average remains very strong.
Is The Time Right For a 529 Plan?
Are you a parent or grandparent with a newborn or young school-aged child in the family? Saving money for college expenses is a goal I hear many young parents express, and one of the best ways to build tax-advantaged savings for college is the 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs.
The 529 plan, legally known as a “qualified tuition plan,” is sponsored by states, state agencies, or educational institutions and is authorized by Section 529 of the Internal Revenue Code. Changes in the tax code were made in 2006 making permanent the provision that earnings in a 529 plan are tax free upon withdrawal when used for education expenses. This has resulted in eliminating any change in status for earnings for the 529 plan and made it the premier savings vehicle for college savers.
There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan. There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs. Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.
College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.
DOLLAR COST AVERAGING through a systematic savings plan is an excellent way to build up an account without a sizeable minimum investment. This is the way many company retirement plans function. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, SUCH AS ROTH IRA’S, TRADITIONAL IRA’S, COVERDELL ACCOUNTS, 529 PLANS, BROKERAGE ACCOUNTS AND ANNUITIES can be opened, some for as little as $50 per month, and debited directly from your checking or savings account. For more information, just call to set up an appointment. REFERRALS ARE ALWAYS WELCOME.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
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