Bank earnings, housing, inflation on tap
I know your heart bleeds for the poor bankers, who face slashed bonuses and a significant slowdown in their industry. Before you get too carried away, remember that the banks will likely make up for lost revenue by increasing fees on all things consumer -- like bank accounts, credit and debit cards and other bank services like wire transfers and certified checks. Now you're not rooting against the banks so much, are you?
The financial services industry is downsizing for two simple reasons: Revenue in the once-lucrative trading and investment banking divisions are down and regulators are now requiring banks to keep more money on hand to cover potential losses. While some are proclaiming that this is a seminal moment for financial services, it's probably more like the boom and busts that characterize the business cycle.
Adding to the woes of the banking executives and their shareholders is the potential exposure to European sovereign debt. Those fears escalated on Friday, when S&P announced downgrades to nine Eurozone countries: France (to AA+), Spain (to A), Italy (to BBB+), Portugal (to BB), Austria (to AA+), Slovenia (to A+), Slovakia (to A), Malta (to A-) and Cyprus (to BB+). The French downgrade in particular could put a crimp in the bailout fund (European Financial Stability Facility), which relies on the triple-A rating of European nations to garner its own much cherished triple-A. Germany, the Netherlands, Finland and Luxembourg are the only countries that maintain the triple-A seal of approval.
-- DJIA: 12,422, up 0.5% on week, up 1.7% on year
-- S&P 500: 1,289, up 0.9% on week, up 2.5% on year
-- NASDAQ: 2710, up 1.3% on week, up 4.1% on year
-- February Crude Oil: $98.70, down 2.8% on week
-- February Gold: $1,630.80, up 0.9% on the week
-- AAA National Average Price for Gallon of Regular Gas: $3.39
FACTOIDS OF THE WEEK: Best of the Federal Reserve:
The FOMC transcripts for 2006 were released last week. Some notable quotes from a variety of Fed officials occurred at the peak of the housing market, proving that economists can fall prey to bubbles too.
-- "The bottom line is that overall mortgage credit quality is still very, very strong." (Bies)
-- "Housing is a relatively small sector of the economy and its decline should be self-correcting." (Yellen)
-- "The excesses in the housing sector seem to be unwinding in an acceptable way." (Mishkin)
-- "We just don't see troubling signs yet of collateral damage, and we're not expecting much." (Geithner)
-- "I'm still fairly skeptical of large indirect spillover effects on employment or consumption." (Lacker)
-- "We are not projecting large declines nationwide in house prices." (Fed staff)
-- "I think we are unlikely to see growth being derailed by the housing market." (Bernanke)
THE WEEK AHEAD:
Monday, 1/16: MLK DAY: U.S. markets are closed
Tuesday, 1/17:
Citigroup, Wells Fargo
8:30 Empire State Manufacturing
Wednesday, 1/18:
Goldman Sachs, Bank of NY/Mellon, US Bancorp, State Street, Charles Schwab, eBay
8:30 PPI
9:15 Industrial Production & Capacity Utilization
10:00 Housing Market Index
Thursday, 1/19:
Bank of America, Capital One, Morgan Stanley, American Express, AMD, Google, Microsoft, IBM
8:30 Jobless claims
8:30 CPI
8:30 Housing Starts
10:00 Philadelphia Fed Survey
Friday, 1/20:
GE, Schlumberger
10:00 Existing Home Sales