[img]456|left|||no_popup[/img] Most of us have been to carnival or street fair.
There are the ubiquitous rides. There’s midway with its barkers, games of chance and tacky prizes.
My favorite has always been the fun house with its distorted mirrors, oddities and cheesy special effects.
We know it’s going to be inane and goofy. But, in the end, we’re sucked in by the garish lights and promise “that you won’t believe your eyes.”
It’s rarely worth the price of admission.
It’s a little like Wall Street of late.
After selling-off for the last few days, a rally was sparked by a queer array of news.
Wells Fargo Bank, the country’s second-biggest home lender is reporting that it expects earnings of about $3 billion in the first quarter, exceeding even the most optimistic Wall Street estimates. This news spurred a rally in bank shares on speculation that the industry may finally be shaking off the global credit crunch.
According to several industry reports, Wells Fargo’s merger with Wachovia is creating a positive synergy that is adding significantly to the bank’s depositor base. As Wachovia began to slip into trouble last year, it paid extraordinarily high rates to attract deposits. Analysts believe these deposits will add luster to the bank’s balance sheet.
With interest rates at historic lows, banks like Wells Fargo are also benefitting after more than 100 mortgage industry companies folded in the worst housing market since the 1930s. All of this caused Wells Fargo’s stock to jump nearly 30 percent.
Despite the good news from the banking sector, reports on retail sales were still below par. Wal-Mart, the world’s largest retailer, reported comparable-store sales in March that rose less than some analysts estimated, pushing the shares down the most in two months in New York trading.
Market watchers had hoped that big box discounters like Costco, Target and Wal-Mart would make a better showing. With the highest U.S. unemployment since 1983, consumer spending has been restrained.
Lower prices on groceries and household items and $4 prescriptions helped Wal-Mart lure more consumers. But on average, these customers spent less per transaction. The mini-boom that many retailers see in the run-up to Easter has also been disappointingly subdued.
[img]457|left|||no_popup[/img] Some retailers like Gap and the Limited have been helped by spring fashion promotions. The number of units sold may be up, but the overall profit margins are still down.
The drop in domestic consumer demand has had a positive impact on the U.S. trade gap. The U.S. trade deficit in February unexpectedly narrowed to the lowest level in nine years as demand for Asian cars, toys and electronics collapsed.
Our foreign trade deficit declined 28 percent, the biggest drop since October 1996. These numbers show that slowing demand by American consumers and businesses hurts our trading partners more than it does U.S. manufacturers. The weaker dollar also has put a competitive price damper on imports.
Even though the jobless numbers continue to pile up with first time claims for unemployment insurance exceeding 600,000 for the 10th week in a row, those seeking benefits were 20,000 less than expected. While the news is not good, some investors see this as a sign that job losses are starting to slow, indicating that the bottom may be in sight.
The jump in equities has also pushed up oil and grain prices on anticipation that demand will amplify. Crude oil in New York’s NYMEX increased more than $2 a barrel moving the price above $51 mark.
On news that the projected harvest may fall by 2.3 percent, corn edged up to $3.97 a bushel on the Chicago Board of Trade, after earlier dropping to $3.90, the lowest since March 31. Gold fell to $874 an ounce in New York, heading for a third straight weekly loss, as equities rallied worldwide, reducing demand for the precious metal as an alternative investment. Silver also has continued to marginally decline trading at a low of $12.10 an ounce.
Welcome to the fun zone.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
