News and Notes for April and May

So, first off, I'd like to apologize for the lack of activity on the blog over the last few months. As I've mentioned numerous times, all of us have been on exchange, and we're now just finishing up. (For those actually at Queen's, which I hope is most of our readers, I highly, highly recommend going on exchange - easily the best decision you can make). We were literally traveling for 1.5 months straight, so little time to sit down and update this blog. Regardless, we've all kept one eye on the markets over the last few months, and a lot of things have happened in that time.

Now, getting to the markets. Way back in March, Bear Stearns was purchased by JPM in what some describe at the watershed moment of the Credit Crisis of 2007/2008. It was the denouement of the saga that has wreaked havoc on the markets since July and August of last year. With two month's hindsight, it appears to have been the bottom of the market. The Fed acted pretty quickly and swiftly, and really calmed both retail and institutional investors. Moreover, the economic stimulus package that was authorized by President Bush and Congress has just begun to kick in. This package is intended to kickstart the U.S. consumer, which makes up about 70% of the U.S. economy. This is all done in order to avoid or mitigate the consequences of the first-consumer led recession since 1991.

Many economists and analysts believe that we are already in a recession. Others believe that we will narrowly avoid one. Whichever view is correct, it's pretty clear that the road ahead is anything but smooth. Over the last two months, we've seen: more writedowns from banks, a decrease in consumer confidence (a 28-year low), a huge spike in oil prices, the fall in the U.S. dollar, rumours of ratings downgrades at major insurers, layoffs and weak job growth, a continuing slump in the U.S. housing market, and rising commodity prices and food shortages around the world. However, in the most recent earnings season, we've also seen some companies at the very least meet and, in a handful of cases, exceed analyst's expectations.

We've also seen some investors jump into the market in a big way in order to take advantage of low valuations. For instance, Warren Buffet bought a giant heap of candy, Nelson Peltz bought some burgers, Steve Ballmer and Carl Icahn have each made runs at Yahoo, and HP purchased EDS for $13 billion. Moreover, in another sign of increasing investor confidence, equity markets have rallied since Bear was bailed out in March. Turning to the credit markets, in another positive sign, yields on junk bonds have rallied since March. The Merrill Lynch Junk Bond Index now yields about 7 points more than low-risk treasuries, which is better than the 8.6% high the day after Bear collapsed. (As investors become less risk-averse, yields on junk bonds falls). Although it must be pointed out the spread was around 2% before stuff hit the fan in July '07. So, there is good and bad in the market. Have we rebounded from the lowest of the lows? Most likely. Are we out of the woods? Most definitely not. In the interim, the market will continue to digest data on a piecemeal basis.

Just getting back to the Competition for a second. We are currently working on determining an outright and risk-adjusted winner. You will get an e-mail as soon as we have the final results. The winners can claim their prize at our first meeting for the next school year in September.