Week In Review

The week that was:

Problems continued to mount this week for banks involved in delayed foreclosure proceedings.  Investors sold off U.S. banks stocks after seeing the huge cost that financial institutions might face to put the foreclosure crisis behind them.  According to a report from Branch Hill Capital, Bank of America might be hit with more than $70 billion in losses if it is forced to buy back mortgage assets from investors. 

On the economic policy front, Ben Bernanke sounded cautious when he spoke on Friday about a second round of quantitative easing, but most economists think that some sort of stimulative program will take place in the next few months.

Stocks:

The S&P 500 rose 11.04 points this week, or 0.95%, to 1176.19.  The Nasdaq Composite rose 66.86 points, or 2.78%, to 2468.77.  The Dow Industrials rose 56.30 points, or 0.51%, to 11062.78. 

• Standard Chartered Bank is hoping to raise about $5.2 billion through a rights offering, as they prepare for implementation of Basel III rules.  Shares will cost existing investors 33% less than the bank’s most recent closing price.
• Google (GOOG) shares rose sharply on Friday after the company posted a significant increase in 3^rd quarter profit, attributable to rising demand for online advertising.  GOOG shares are up more than 30% over the past six weeks.
• Google and others back a 350-mile transmission line to collect power from offshore wind farms.  Experts say this could transform the electrical system along the U.S. Atlantic seaboard.  Transmission company Trans-Elect hopes to begin building the $5 billion project in 2013.

Bonds:

End of week bond yields:

2 Year yield = 0.36%, up 10 bps from last week.

3 Year yield = 0.55%, up 3 bps from last week.

5 Year yield = 1.19%, up 9 bps from last week.

10 Year yield = 2.56%, up 17 bps from last week.

30 Year yield = 3.98%, up 23 bps from last week.

• A recent study by economists at Northwestern University and the University of Rochester has forecasted that Chicago’s pension will run out of assets in 2019.  Municipal retirement plan obligations across the country are estimated to be about $574 billion in aggregate. Certain cities’ taxpayers fall into multiple districts, raising the amount that households in that area fund with their tax dollars. For example, Chicago residents would have to pay $42,000 per household to cover the unfunded liabilities of seven different municipalities’ retirement plans each of which receives tax dollars from the residents. If you add in the state shortfall, it raises the total for each household to $71,000.

What to look for next week:

• Look for earnings releases from Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Johnson & Johnson, Abbott Laboratories, Eli Lilly, AT&T, Verizon, IBM, Apple, and many others…

8:15 AM          Monday           Industrial Production

7:30 AM          Tuesday           Housing Starts

• Expected to show declines from August when they reached the highest level since the end of the homebuyer tax credit in April

9:00 AM          Thursday         Philadelphia Fed Survey