Oct
6
2009
An Olympian Challenge!
Author: Randall GoltzmanDashing the hopes of USA’s bid, the International Olympic Committee voted and decided that the Olympic torch will travel south to Rio de Janeiro, which will host the Olympic Games in the summer of 2016. Brazilians are naturally very happy. The Games will spur a host of infrastructure construction activities, benefit travel and tourism sectors, and provide much required impetus and jobs to a growing economy. This rubbed off on Brazil’s stock market Friday, with the Bovespa gaining 1.2 percent.
Several heavenly objects journeyed southward within the recent week. Beginning September 22nd (equinox), the Earth tipped its southern hemisphere towards the sun. Some of us, stationed in the northern hemisphere, have already started feeling the cold nip in the air, typical of the fall season, as the winter solstice (Dec 22) approaches.
Meanwhile, after a spirited rally from July through September, the stock markets in the U.S. also cooled and in tandem with the zeitgeist, headed southwards this past week. The three major indices lost around 2 percent in value. Reports of a weak job market, with unemployment touching 9.8 percent, raised concerns about the pace of recovery. It is reported that upward of a half a million people have given up looking for a job or have taken up part-time work. Economists refer to such people as underemployed. If the number of underemployed workers is included, the unemployment rate could be as high as 17 percent. Even with the hope of an optimistic annual 3 percent compounded economic growth, the Fed Chairman, Ben Bernanke, expects the unemployment rate to remain above 9 percent through the end of 2010.
On the positive side, the housing market is showing some signs of stability. For the 7th straight month, sales of existing homes have risen. The S&P Case-Shiller index — which tracks home prices across 20 metropolitan regions in the U.S. — has continued to rise for the third straight month. One hopes that the housing market has finally bottomed out and that it continues to stabilize and improve in the coming months.
Mortgage rates are also looking very attractive. The 30-year fixed mortgage rate averaged 4.94 percent this week, falling to a four-month low. The 15-year fixed rate at 4.36 percent is the lowest rate since Freddie Mac began tracking in 1991. First-time home-buyers should note that the $8,000 tax credit for buying a home is valid only until December 1, 2009, unless the government extends the subsidy. The hope is that buyers will clinch a good deal while the market remains extremely attractive.
It has been a year since the $700 billion TARP bailout package was announced. To date, $450 billion has been used to stabilize various sectors in the economy. Some economists feel that these efforts helped avoid a global economic collapse. However, on the flip side, this massive government spending has weakened the U.S. dollar and increased the debt envelope, which has ballooned decisively. Since March, the dollar has lost 14 percent of its value against a basket of seven currencies, raising concerns as to whether the dollar can maintain its status as the world’s leading currency.
Despite all the above issues, Treasury Secretary Timothy Geithner indicated that the government is not yet ready to roll back stimulus plans. An exit strategy, requiring a careful and measured macro approach, would have to be contemplated in a phased manner, and only once “conditions stabilize and growth strengthens.”
Gold, in particular, and precious metals in general have risen and gold prices crossed the threshold $1000 per ounce mark, notwithstanding the news that the IMF has decided to sell around 380 tons of the precious metal to bankroll their governmental lending programs. Base metals and commodities are also showing signs of recovery while oil is still moving sideways in a tight price band of $66 – $72 per barrel.
Paraphrasing Baron Pierre De Coubertin, founder of the modern Olympic movement, The Olympic spirit is not just about winning the game; it’s also finding joy in that effort as well as respecting fundamental ethical principals. Restoring the health of our economy is an Olympian challenge. To beat this economic downturn will require teamwork, will-power and a sense of dedication from each individual to bring about a positive end to this chapter in human history.
Hope you have an enjoyable and profitable week and thank you for your patronage.