Is a jump in the share prices of some retailers an early sign that the economy has seen the worst of the recession, and an upswing is just around the bend? That’s a possibility, according to a TheStreet.com report. The article points out that the S%P Retail Exchange-Traded Fund hit a low of $14.81 back in November, and is now trading at close to $24, a gain of 60 percent in just four months. At the same time, the Dow Jones Industrial Average dropped 10 percent. “If retailers are indeed among the early indicators that the economy has reached a bottom, the four-month turnaround in the retail sector could be an upbeat sign,” the article states. The fund features a wide range of retailers, including Walmart, Target and Amazon.com.
"All of the most leading indicators of a Main Street bottoming are basically seen first on Wall Street," James Paulsen, chief investment strategist with Wells Capital Management, told TheStreet.com. "So when you get a relative outperformance of retail stocks, it's suggesting that the worst may be over for the consumer when these stocks are pricing in a recovery. It's a pretty strong indicator."
Of course, the performance of the fund is no guarantee that the economy is about to turn around. After all, as we reported earlier today, consumer confidence remains near record lows. And at least one retailer isn’t likely to see its fortunes rise anytime soon: Gottschalks, a 105-year-old regional chain with over 60 stores, was sold to liquidators yesterday. Going-out-of-business sales could start as soon as this week, and the chain expects to be completely liquidated by July.
With just about every member of the financial world looking on, Treasury Secretary Tim Geithner detailed his department's plan to launch a public-private partnership to buy toxic loans from struggling banks. And, if the stock market is a barometer of their mood, they liked what they saw.
There are ways to fight off the nation's next financial crisis, Federal Reserve Chairman Ben Bernanke said today, but before we worry about that governments must get financial systems working again to stabilize the economy.
Speaking at the Council on Foreign Relations, Bernanke said the U.S. government will continue to pour money into financial institutions if necessary.
"Until we stabilize the financial system, a sustainable economic recovery will remain out of reach," he said. "In particular, the continued viability of systemically important financial institutions is vital to this effort. In that regard, the Federal Reserve, other federal regulators, and the Treasury Department have stated that they will take any necessary and appropriate steps to ensure that our banking institutions have the capital and liquidity necessary to function well in even a severe economic downturn."
He went on to say that new regulations could "make crises less frequent and less virulent."
First among his four reform proposals was to deal with companies that are "too big to fail" before they fail. The government already has Citigroup and AIG on life support--costing hundreds of billions of dollars--and Bernanke, without mentioning any company by name, said the Fed's "commitment to avoiding such a failure remains firm."
"Looking to the future, however, it is imperative that policymakers address this issue by better supervising systemically critical firms to prevent excessive risk-taking and by strengthening the resilience of the financial system to minimize the consequences when a large firm must be unwound," Bernanke said.
The second step would be to strengthen the rules under which the financial markets operate, making sure the infrastructure remains strong in times of stress.
Third, Bernanke said, regulations need to be flexible so as not to "overly magnify the ups and downs in the financial system and the economy," such as allowing banks to lend more money in a bad economy than in a good economy.
Lastly, Bernanke proposed a government group that would monitor and address large-scale systemic problems.
Bernanke said his own agency may or may not be able to do the job but should certainly be involved.
"As a practical matter, however, effectively identifying and addressing systemic risks would seem to require the involvement of the Federal Reserve in some capacity, even if not in the lead role," he said.
The stock markets reacted well to Bernanke's comments, particularly about not letting big banks fail. Financial stocks rallied in the morning, climbing around 10 percent after weeks of declines.
