matisse capital management

How Have Stocks Performed in Prior Recessions?

T. Rowe Price recently sent out an investor report that contained data from its own economists, the National Bureau of Economic Research and Ned Davis Research (NDR).   The report looked at the stock market's performance during past recessions and focused on the period post-1945.  Below are some of the highlights that might help investors navigate the market in this recession, however as the report cautions, its conclusions are averages that will not fit all bear markets or recessions.  They are, however, good signposts:

• Since 1945, recessions have had a median duration of 10 months.
• The market typically began declining several months before a recession and continued declining 5-6 months after it began.
• The stock market peaked about nine months (on average) before the start of a recession.  (By my calculations, this would put the start of the current recession in July).
• From the market peak before a recession, to the bear market low, the S&P 500 large cap stocks fell 23.6% on average.  (Applying the same percentage drop to the Dow's October 2007 high would put the bottom of the current bear market at about 10,716).

Around the World - Economic News You Need to Know

Bail out on the way? Warren Buffet recently made the following comments about Fannie Mae (FNM) and Freddie Mac (FRE): "They're looking for help, obviously. And the scale of help is such that I don't think it can come from the private sector..."  This means, no doubt, that the federal government will have to intervene and take over. In other news from around the world:

The difference dividend stocks can make: New York Times

Regulators take over the ninth bank this year: Bloomberg 

Americans buy 7.8% less gasoline than last year. International Herald Tribune

Is commercial real estate the next shoe to drop? International Herald Tribune

Britain facing its first recession in 15 years: Guardian

Argentina: financial difficulties yet again? Economist

Like Japan in the 90's, does US face a decade of stagnation ? Economist

Record exodus of foreign capital from Russia: Financial Times

Royal Bank (RY), next to buy back its auction rate securities? Globe and Mail

Lone Star Equity to buy troubled Germany bank IKB: Deutsche Welle

Big 3 auto makers seeking $50 B in government loans: Sydney Morning Herald

Venezuela inflation could hit 27%: Sydney Morning Herald

Changes to the 2008 Dividend Aristocrats List

Recently, Standard & Poor's released its updated "Dividend Aristocrats" list for 2008.  One of the primary criteria for the inclusion of a company on this list is a 25-year history of dividends increasing every year.  As you might expect, the number of companies has decreased, largely because of dividend cuts by financial stocks.  Below are four companies that fell off the list this year:

SLM, SLM Corporation

FITB, Fifth Third Bancorp

SNV, Synovus Financial Corporation

FHN, First Horizon National Corporation

And, the following company has been added to the list since the 2007 edition:

SIAL, Sigma-Aldrich Corp.

Which Dividend Aristocrats Fared Best in the Bear Market?

The Dow entered bear market territory at the end of June when it hit 11,358.  Not all stocks have been crushed by the bear, however, and some of the Dividend Aristocrats have held up rather well.  Immediately below are the top 10 performers from S&P's Dividend Aristocrats list from July 1 (the start of the bear market) through August 14.  The returns are share price appreciation, exclusive of dividends.  After this list are the top 10 performers from the Dividend Aristocrats list since January 1, 2008:

BBT, BB&T Corporation, +31.6%

BAC, Bank of America, +28.5%

LEG, Leggett & Platt, +27.5%

Reports and News This Week - August 11

Reports and announcements that will move the market this week:

On Wednesday, August 13, Retail Sales report at 8:30 am and the Petroleum Status Report at 10:35 am.  On Thursday, CPI (click on chart left) and jobless claims are reported at 8:30 am.  On Friday, Consumer Sentiment and Industrial Production are released at 10:00 am and 9:15 respectively.   Other economic news around the worlds is as follows:

Small banks profit by sticking to thier roots: New York Times

For WalMart, sales in China and Brazil remain strong: Financial Times

Emergency cabinet meeting; is Spain in recession? Financial Times

Without securitization, rates are higher for borrowers: New York Times

Autos lead retail sales down in July: New York Times

Gildan (GIL) hurt by doubtful accounts receivable: Globe and Mail

Creative accounting at Constellation Energy: Forbes

Liz Claiborne posts second quarter loss: Globe and Mail

Will Canada avoid recession?  Montreal Gazette

Bank of England: UK headed for recession: Telegraph

Credit Suisse (CS) gets record fine for mispricing securities: Guardian

Japan's economy is contracting: Guardian

What Happened to the Dow In the 70's & 90's Recessions?

As I have written before, I think the current recession is one part 1970's oil shock and one part 1989-90 real estate shock.  So what happened to the Dow Jones Industrial Average during these these recessions?  What can be learned from the past?  If nothing else, it can make us aware of how far the index can change.  Above is a chart of the price of oil since the 1940s in 2007 dollars.  As you can see, during the 1970's, it peaked in 1979.

And Still More Dividend Slashers

CBC, Capitol Bancorp - from $0.25 to $0.15 to $0.05 per share

FCH, FelCor Lodging Trust - from $0.35 to $0.15 per share

FNM, Fannie Mae - from $0.35 to $0.05 per share

FMC, Freddie Mac - from $0.25 to $0.05 per share (or less, pending board review)

GBE, Grubb & Ellis Co.  - from $0.1025 to suspended

HABC, Habersham Bancorp - from $0.10 to $0.05 per share

LPX, Louisiana Pacific Corp. - from $0.15 to suspended

LSI, LSI Corporation - from $0.60 to $0.15 to $0.25 per share annually

NBBC, Newbridge Bancorp. - from $0.17 to $0.05 per share

PNM, PNM Resources - from $0.23 to $0.125 per share

RDN.N, Radian Group - from $0.02 to $0.0025 per share

SBCF, Seacoast Banking Corp. - From $0.16 to $0.01

WFMI, Whole Foods Market, Inc. - from $0.20 to suspended

Two of the companies above are commercial real estate businesses: FCH is a hotel REIT and GBE a commercial brokerage firm.  Besides these slashers, Fortress Investment Group (FIG) may  have to cut its dividend per a Citigroup analyst.   And an analyst at Sanford C. Bernstein says Merrill Lynch may have to cut its dividend as well.  Among foreign stocks listed on the NYSE, Gol, the Brazilian Airline eliminated its dividend.

Reports This Week - August 4

Monday - Factory Orders

Tuesday - Federal Open Market Committee at 2:15 ET (chart below, grey = recession)

Wednesday - Energy Information status of petroleum inventories

Thursday - Jobless claims at 8:30 ET

Friday - Nonfarm productivity

More Problems for Financials

FDIC issues cease and desist orders to four banks. Financial Times

UK corporate insolvency jumps 15%.  Financial Times

FDIC closes the Florida bank First Priority. CNN

London Stock Exchange will cut trading fees.  Telegraph

Does the high volume of directors buying signal the bottom? Telegraph

Venezuela may nationalize Banco Santander's (STD) operations there. Forbes

IndyMac Bancorp will liquidate.  Globe and Mail

Shipping costs slowing globalization.  International Herald Tribune