Economy Update as of June 10, 2009 – Facts and Figures


Mortgage Bonds are down. The 200-Day Moving Average now appears to be a strong overhead resistance level. The 4.5% Mortgage Backed Security did test the 200-day Moving Average on Friday but was turned back lower.

The huge rally in Stocks from the March 9 multi-year lows may be stalling. The S&P 500 failed to break above resistance at 943 and continues to show negative technical signals. A pullback in Stocks could help Bonds with a much needed bounce. However, it doesn't appear as though prices are regaining all the ground lost over the past couple of weeks. In addition to the enormous new supply hitting the Bond market to pay for massive government spending programs, Bond pricing is starting to react negatively to any news that an economic recovery is in sight.

By The Numbers

1. ABOVE AND BELOW
   When the S&P 500 closed at 945 last Tuesday (6/02/09), the stock index was +40% above its bear market closing low of 677 set on 3/09/09 (i.e., 12 weeks earlier). At 945, the S&P 500 was also 40% below its all-time closing high of 1565 set on 10/09/07 (i.e., 20 months ago). The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).
   Chart source: Google Finance
2. DURING THE LAST BULL
   When US stocks rose during the bull market that ran from 10/09/02 to 10/09/07, the S&P 500 more than doubled in value over the 5-year period. Value stocks outperformed growth stocks by +5.0% per year during the 5-years (i.e., a +20.6% annual return for value stocks vs. a +15.6% annual return for growth stocks). The value and growth components of the Russell 3000 were used in the calculation. The Russell 3,000 is an unmanaged stock index (largest 3,000 US stocks) representing 98% of the domestic stock capitalization (source: Russell).
3. SOME IN, SOME OUT
   The Dow Jones Industrial Average made 2 changes to its lineup of 30 . The index has made 3 stock changes since our nation's recession began in December 2007. The 4 best percentage gain days ever for the 113-year old index all occurred during the 1929-33 recession. The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy (source: Dow Jones).
4. IT HAPPENED IN JUNE
   During the last 3 years (i.e., 2006-08), the highest yield achieved by the 10-year Treasury note in each of those years took place during the month of June. The 2006 peak yield took place on 6/28/06, the 2007 peak yield took place on 6/12/07 and the 2008 peak yield took place on 6/13/08 (source: Treasury Department).
5. SPENDING LESS
   The personal savings rate in the USA at the end of April 2009 was 5.7%.
   Just over a year earlier (i.e., 3/31/08), the nation's personal savings rate was 0.2% (source: Commerce Department).
6. JOBS
   Our unemployment rate was 9.4% as of the end of May 2009, representing 14.5 million idle Americans. As of May 2008, our unemployment rate was 5.5%, equal to 8.5 million workers without a job (source: Department of Labor).
7. FOUR BAD STATES
   10.6% of all mortgages in the state of Florida were in some stage of foreclosure during the 1st quarter 2009. Nationally, 3.9% of mortgages were in some stage of foreclosure. Excluding the states of Florida, Nevada, California and Arizona, only 1.0% of mortgages in the other 46 states were in the foreclosure process during the 1st quarter 2009 (source: Mortgage Bankers Association).
8. VERY TEMPORARY
   80% of subprime mortgages originated from 2001-06 were either prepaid (i.e., they were refinanced) or they defaulted within their first 3 years (source: Federal Reserve Bank of St. Louis).
9. THE DOCTOR WILL SEE YOU NOW
   The average American spends twice as much per year on health care expenditures as the average German. The average American spends $6,714 per year vs. $3,371 for the average German (source: Senate Finance Committee).
10. SUPPLY AND DEMAND
    The total production capacity of automakers worldwide is 86 million vehicles annually. Total auto sales are projected to be 56 million in 2009 (source: Financial Times).
11. TARP AND WARRANTS
    For every bank that received TARP funds from the government (in the form of a preferred stock purchase by Uncle Sam), the Treasury Department also received warrants (equal to 15% of the preferred stock purchase) to buy the bank's common stock at a set price for 10 years (source: BTN Research).
12. SOME PROFIT
    The above warrants (see bullet # 11) owned by the Treasury Department, are worth an estimated $5.7 billion, i.e., the banks' common stock that could be obtained through the warrants held by the government is worth $5.7 billion more than the warrants' exercise price (source: Credit Suisse, Wall Street Journal).
13. OUT OF BUSINESS
    43,546 US businesses filed for bankruptcy protection in 2008 (source: U.S. Courts).
14. SOME BIG ONES
    5 of the 8 largest corporate bankruptcies in US history (as measured by assets at the time of filing) have occurred in the last 9 months (source: BankruptcyData.com, Denver Post).

June 2009

Larry Barton, RA, CENTURY 21 All Islands Kauai
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