September 16, 2011: Market Update
Don’t Ignore Me
Concerns about Europe seemed to impact the market only slightly this week as investors shrugged off concerns on Monday and managed to hold a week-long rally into the close on Friday. It seemed Europe was supplying us with Jekyll and Hyde news all through the week. Concurrent positive and negative news out of Europe – sometimes within just a few hours of each other – started to be ignored later in the week as a more cohesive European leader front started to advance in addressing the Greece situation. On Thursday, the Greek, French and German leaders emerged from a conference call saying that they were “convinced that the future of Greece is in the euro-zone”. Adding to the market confidence was a commitment on Friday by the world’s leading central banks to provide unlimited dollar funding to European banks if needed. We will be looking for more potential action coming out of a 2-day meeting of European finance ministers being held in Poland.
If European banks were not having enough difficulty already trying to convince investors and the rest of the financial community that their world is stable, along comes trader Kweku Adoboli to throw a wrench into it. On Thursday UBS, a Swiss bank, announced that a rogue trader allegedly racked up and hid $2 billion in trading losses. While this will have a huge impact on UBS’s earnings for the third quarter the bigger issue that will need to be addressed is oversight of risk management within these large financial firms.
With economists predicting slower growth in the U.S. and globally, China announced this week that imports into their country surged over 30% in August from a year ago – which followed an almost 23% increase in July. This data helps alleviate economists’ concerns over a slowdown in Chinese demand. With this silver lining comes the threat that China will need to raise their interest rates further to help keep inflation in check.
The story of the week comes from the executive branch of our government. With many still questioning the use of taxpayer money to help bail out “too big to fail” financial institutions, a story emerges that President Obama may have wanted to consider letting it happen in at least one case. Ron Suskind in his upcoming book on the Obama administration claims that the U.S. Treasury ignored a March 2009 order by President Obama to consider dissolving Citibank. Of the event, President Obama is quoted with saying that he was trying to be decisive but “the speed with which bureaucracy could exercise my decision was slower than I wanted.” Regarding his feelings about being ignored, he is quoted with saying, “Agitated may be too strong a word.”
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