Business & Finance
Business and Finance
Business and Finance
Wed, September 1, 2010
Tue, August 31, 2010 Barclays, American International Group, Morgan Stanley, Bank of America and Citigroup
CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Barclays (NYSE: [ BCS ]), American International Group (NYSE: [ AIG ]), Morgan Stanley (NYSE: [ MS ]), Bank of America (NYSE: [ BAC ]),and Citigroup (NYSE: [ C ]).
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Here are highlights from Mondaya™s Analyst Blog:
Another Recession Ahead?
Are we heading into another financial meltdown? That is what the data released by the U.S. government last Friday seems to suggest. Statistics revealed by the Bureau of Economic Analysis shows economic growth that is stalling and may even flatten out over the rest of the year, raising specters of another recession ahead.
While the expected economic growth of 2.4% in the second quarter of 2010 was viewed as feeble, only about 1.6% was actually achieved. A slower build-up of stocks by companies and largest import surge in 26 years were primarily responsible. Compare this to a GDP growth rate of 3.7% in the first-quarter of 2010 and 5% in the fourth quarter of 2009, and we are looking at a potential crisis.
However, the growth rate has surpassed the 1.3% that many economists had forecasted. Though this marks the fourth straight quarter of economic growth, the annualized growth rate averaged only 2.9%. In the second quarter, investment in new machinery, computers and software increased nearly 25%, driving most of the growth. According to the economists, the economic growth needs to be about 3% just to stop the unemployment rate rising above the current rate of 9.5%.
Following the last recession, consumers are now saving more than they spend. Also, the CARD Act has ensured that card issuers clip the credit they provide to borrowers. This is forcing card holders to tighten their purse strings; consequently, businesses are experiencing lower volumes. Considering these trends, economistsforecast the GDP growth for the current quarter to less than or equal to 1%. Also, with a sharp dip in new home sales, moderate manufacturing and an unpleasant unemployment rate, the economic growth rate may even reverse and re-enter the red.
Soaring Imports
The Commerce Department figures show that imports increased 32.4%, the most since 1984, after rising 11.2% in the first quarter. However, exports increased only 9.1%, compared with 11.4% in the first quarter. This trade imbalance has significantly threatened the economic growth rate. Without the trade deficit, the economy would have grown at 5%, in line with the healthy growth rate during the recovery phase in the fourth quarter of 2009.
Is the Federal Reserve Prepared?
Shortly after the grim report, in a speech to central bankers, Fed Reserve Chairman Ben Bernanke reassured investors by saying that if the situation were to worsen significantly, the Federal Reserve was ready to inject more money into the economy to keep the recovery on track and prevent a further recession.
However, the question that lingers is the extent that the Federal Reserve can intensify its efforts to protect the economy. Even with near-zero interest rates, banks have failed to encourage investment. On the other hand, Congress remains reluctant to provide more bailout funds to the banks as the governmenta™s deficit is significantly increasing.
Nevertheless, Bernanke laid out several possible measures, including the Federal Reserve buying more securities such as government debt and mortgage investments. These actions are expected to lower the interest rates on debt, enhancing private-sector spending. With increased consumer savings and the willingness of healthier bank loans, consumer spending should increase, leading to a stronger growth in 2011.
Where Have All the TARP Funds Gone?
Criticizing the structure of the U.S. Treasurya™s Troubled Asset Relief Program (TARP) that was created to rescue the nationa™s financial industry, the Congressional Oversight Panel said in a report earlier this month that foreign companies got greater benefit from the U.S. bailout program than U.S. companies realized from other countries' bailout programs.
Following the collapse of Lehman Brothers in September 2008, which was acquired by Barclays (NYSE: [ BCS ]), the U.S. government injected billions of dollars into several national financial institutions including giants like American International Group (NYSE: [ AIG ]), Morgan Stanley (NYSE: [ MS ]), Bank of America (NYSE: [ BAC ]),and Citigroup (NYSE: [ C ]) to stabilize the financial system. The government took this step to alleviate the sector, as financial institutions are the lifeblood of an economy.
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