Market Review - 16 July, 2009

Couple of things to review:

HIGHLIGHTS FROM FOMC JUNE MINUTES

• At the June meeting, Fed Chairman Bernanke and his colleagues pledged to hold its key bank lending rate near zero for an extended period of time to help brace the economy.
• The Fed expects the US economy this year will sink at a slower pace than it previously thought, but that unemployment will top 10% and remain high for the next few yrs, according to a new forecast released on Wed.
• The Fed now predicts the economy will shrink between 1 and 1.5% this year, an improvement from its old forecast issued in May. At that time, the Fed projected the economy would contract between 1.3 and 2%. For 2010, the Fed predicted the US economy would grow between 2.1 and 3.3%. That's a slight upgrade from its old forecast of growth between 2 and 3%.
• The Fed last month also decided against expanding its US$1.2 trillion program of buying government bonds and mortgage-backed securities to drive down rates on mortgages and other consumer debt.
• The Fed expects inflation to rise between 1 and 1.4% in 2009, reflecting the influence of higher oil and commodity prices. The old forecast called for a gain of between 0.6 and 0.9% this year.

Generally, it is good to see that caution is being practised in a time when the outlook is more deceiving than you can imagine. I will ignore all the short-term fluctuations of Wall Street and other stock markets which too many analysts and investors are quick to call a recovery.

While it is good to hear good news such as the record earnings of US$3.44 billion for second quarter reported by bank Goldman Sachs, does it really warrant the confidence it jolted through all the investors and the markets? I’ll wait further to Thursday next week when another troubled US lender – CIT Group – is due to report its results. Let me give you a hint how important it is, CIT might fail if it cannot roll over short-term debts of US$1 billion next month and when it collapses, it would be the fourth biggest bankruptcy in US history. Sounds familiar? Citigroup’s second quarter results is due to be released later this week. Can they follow up their first quarter positivity?

Meanwhile, I had taken an interest in Korea mainly because of the Korean interest in B.C.. There are many Korean small businesses struggling as Korea struggles. The devaluation of its currency and seasonally adjusted unemployment rate rising to its eight-year high of 4.0% translate into a difficult time for Koreans in a more expensive city, Vancouver. When you look at international schools and supermarkets, you can get a feel of how affected the local Korean community is.

Locally, businesses are down. Sales and clearances signs are everywhere, more and more stores are closed while new ones keep coming. It is summer and people seem to have all gone for their vacation.