Economic Data Spooks the Markets

Yesterday, the President rolled out another plan to get loans to small businesses. I'm glad that it was a low key event because it was but a very small step in the right direction. The President said all the right things about the role of small business, and he could have said so much more since they are the backbone of our economy. Just think, I can't remember the last time the Challenger Gray survey reported big businesses hiring employees. That said, the latest offering from the Administration misses the point, and maybe that is on purpose. The SBA itself is such an antiquated agency and needs to revamp the way it goes about assessing risks and qualifications. Moreover, small banks are reluctant to do business with the government and TARP, which explains why none have taken the bait thus far.

On the topic of TARP, the most recent news on those giant too-big-to-fail banks that got your tax money is another heartbreaker. According to an article, the 22 biggest TARP recipients haven't increased their small business lending; instead they've cut their outstanding balances by $8.0 billion. Keep in mind that TARP banks spent $77.0 million on lobbyists and $37.0 million on federal campaign contributions last year, making the TARP payout a pretty good return on investment. I don't fret about lobbyists and such but I do fret about the lack of respect afforded small businesses and the fact so much money has been sprinkled elsewhere. We were promised trickle up economics, but that hasn't been the case at all...the exact opposite in fact.

TARP Funds Outstanding (billions)

Note: For AIG, part of the taxpayer cash poured into the company was from a different source. The SBA has gotten the smallest amount by far, and yet has a better chance of jumpstarting the economy than AIG, auto companies, loan modifications, the PPIP program (designed to make wealthy hedge fund managers richer) or TALF.

Spooking the Market

It became clear on Tuesday that this market was prepared to take its marching orders from economic data rather than earnings. But, it was a combination of sub-par economic trends and a delayed, but deadly reaction to an earnings report released earlier in the session that hit equities. Dick Bove, normally a very bullish bank analyst, downgraded his rating on Wells Fargo (WFC) to "sell" after coming to the conclusion that the results lacked quality. For instance, the company saw a 28.0% jump in assets no longer collecting interest to $23.5 billion total. Yet, it only raised its loan loss provision from the previous quarter by $1.0 billion to $24.5 billion.

The news sent Wells Fargo shares plunging, and brought the banking index (BKX) and the broad market (S&P 500) along for the ride.

When this news came out the market was already waffling as word of a "strong" public healthcare option continues to gain momentum in Washington and action was taken to establish anti-trust charges against health insurers. This news also coincided with the latest regional assessments of the economy via the various Federal Reserve banks. The "Beige Book" was a disappointing reminder of the problems the nation faces.

Economic Data

Initial Jobless Claims

Volatility is the name of the game with the jobless claims reports. This week's release was pretty much dour across the board, reversing the positive tone stemming from last week's issuance. Initial jobless claims were 531,000 (consensus: 515,000), +11,000 from the previous week. Continuing claims declined to 5.92 million, but reflected those rolling off the benefit rolls; those seeking extended benefits advanced week to week.

Comments

[Papaswamp:]

Didn't spook the market enough apparently. I think the 'everything will be ok if we just don't look' mentality prevailed or everyone is trying to make as much money as possible before the market makes it's second dip.

Oct 22 05:14 PM