Back and fill, or still chipping away at the foundation?

The New Year jubilance has come to abrupt sobriety the past few days. As of yesterday, markets are officially negative again year to date in 2009. How will the month finish out? This is a question we will not be able to answer… for another 18 days.
The past few trading days have served to work off some over-bought levels that had spiked on the major indices. This could be constructive. We are watching key trend supports for an indication of whether this action will serve to fill in the technical base for a more sustained rally, or fall apart again for another downside test. The big spook over the next few weeks will be disappointing corporate earnings reports for Q4 2008. Yes you would think this bad news has been priced in, but it is more the forecasts companies make going forward that will rule the day.
Conventional thinking to date has called for a bad first half 2009 with a recovery starting for the world economy after that. If that scenario were to hold, then stocks could well begin to rally into the next cyclical bull from here. This thesis will falter if too many companies admit they cannot see hope for a 2H recovery as of yet. Another risk factor will be the magnitude of corporate write-downs and defaults on outstanding loans.
Now moving into the 14 month of the US recession, strains are starting to extenuate in most other (lagging) countries around the world. The Euro-zone is bickering among itself as their unified currency continues to falter. Yesterday, ECB President, Trichet, said that the global economy would “slow down significantly in 2009” but advanced his hope that “2010 should be the year of the recovery”.
This week oil prices have re-coupled again to the on-going saga of plunging world demand. Reality dawned as the OECD warned China, Germany and Russia are showing the fastest pace of deterioration among large economies as the entire global system succumbs to a “deep slowdown”. And China's Banking Commission said it would prove “exceptionally difficult” to meet the country's 8% growth target for 2009, the level seen as crucial to prevent unemployment from rising and setting off civic unrest.
On a positive note, scared out of their wits, many oil producers and car companies are now pledging serious capital and commitment to greener, sustainable energy.
“As President-elect Obama talks about promoting green jobs as America's route out of recession, Gulf States, including the emirates, Qatar and Saudi Arabia, are making a concerted push to become the Silicon Valley of alternative energy. They are aggressively pouring billions of dollars made in the oil fields into new green technologies. They are establishing billion-dollar clean-technology investment funds. And they are putting millions of dollars behind research projects at universities from California to Boston to London, and setting up green research parks at home.” See Gulf Oil States seeking a lead in green technology.
Even the Big 3 auto makers say they have pinned their hopes on “green” models. GM said it was on track to offer the revolutionary Chevrolet Volt in November, 2010, and on Monday announced a major contract with Korean manufacturer LG Chem Ltd to make the batteries. See: Too little, too late?
All of this is encouraging. But companies still have to stay solvent long enough to see their ideas through. So far they are budgeting for a second half recovery in consumer demand. That may not come.
Those that make confident pronouncements about how this year will go are blowing hot air. This is no time to be reckless. Responsible, practical management needs a survival plan for financial security should this downturn last until 2010. If it bounces back sooner, that will be a welcome gift.

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10 Responses to Back and fill, or still chipping away at the foundation?

  1. Anonymous says:

    Stock prices topped when companies reported great earnings and said the future looked wonderful. At the bottom they will say earnings were terrible and have no idea when they will improve.
    It's the reaction to the news that matters, not the news itself.

  2. Anonymous says:

    hey bozo anonymous..get off the air…it's idiots like you that always ruin it for everyone.
    sorry folks…had to do it

  3. Anonymous says:

    “hey bozo anonymous..get off the air…it's idiots like you..”
    disrespecting others with this kind of unnecessary flaming behavior should not be permitted.
    Hopefully Danielle will agree.

  4. Anonymous says:

    How come gulf states dont sign long term contracts with China and sell crude for higher prices like Venzula is doing? Accepting U.S dollars that will surley go down in value over time for a finite resource is bad policy. Re-investing the money back in U.S banks like Citi is even a worst deal the should invest in there countries and infrastructure.
    Also waisting money on green energy research in which 1 in 100 projects will be cost effecient and make it to market is not the way to prosperity. They instead should invest in viable green energy that will generate power right away like wind turbines. Let someone else waist the money on research and jump on the “green” buzz word.

  5. Anonymous says:

    Thanks for your comments Danielle!
    The recession will not end completely until people reduce debt, increase savings, and manufacture what we consume instead of importing everything into the company store (Wal-Mart).
    Japan found out that a service-only economy doesn't work, then we verified it!

  6. Anonymous says:

    Ms Park
    I've just discovered you on BNN and reviewed some of your stuff on the web and at your company web site VenablePark.com.
    Thanks for the insight into the financial advisor industry (sales people not money managers). It's like a light has been turned on! Decades of riding this rollercoaster, changing advisors in frustration every 3-5 years due to dismal returns. Endless promises about the long term being up. Not one recommendation to move to the sidelines in 23 years of investing! The only moves were from one underperforming mutual fund to another chasing last years stars. Even when I changed to a 'fee for service” advisor I found out two years later that the trailer fees were still higher than my monthly fee. How could I have been so nieve? Keep blogging, I need to see the next train wreck coming so I can TELL my advisor to get my portfolio out of its way.
    Signed: your latest fan and financial industry convert

  7. Anonymous says:

    thanks for the feed-back, its is appreciated. D

  8. Anonymous says:

    Hi Danielle,
    TD Bank issues $1-billion of notes. Series 1 notes at 9.50% and Series 2 notes at 10.0%.
    http://www.investmentexecutive.com/client/en/News/DetailNews.asp?Id=47729&cat=149&IdSection=149&PageMem=&nbNews=&IdPub=
    My question is why they went to the public to raise money when they could just borrow from the central bank for much less, say 2% or less? Is this a sign of their subprime or abcp exposure? Could a major Canadian bank go banrupt be a possiblity?

  9. Anonymous says:

    Canadian banks do not go to the central bank to meet thier long term financing needs. These are very long issues and apparently they were needed to bolster their existing debt mix. Very illiquid, unusual payment terms, first interest payments starting years into the future. This is not an attractive issue for retail investors, maybe for some institutions. I do not see it as evidence of solvency problems. I do expect the Canadian banks will continue to deliver below trend earnings for some time now given that there is likely at least a year more of recession to go in Canada. But so far at least, we are not seeing cause for concern as to the viability of the big 6.

  10. Anonymous says:

    Was there a “mark to market” accounting rule change in Canada in late 2008? what does that mean? I might be reading mis-information.
    Thank you for lovely blog. In my eyes, Danielle is a “robin hood” of financials 😀
    Tony
    richmond

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