Wall Street rebounds on last day of the quarter

Technology, financial sectors lead rebound on Wall Street on last day of quarter

• Madlen Read and Sara Lepro, AP Business Writers
• Tuesday March 31, 2009, 11:47 am EDT

•  
• Print

NEW YORK (AP) -- Wall Street is turning higher as investors buy up technology and financial stocks to square their portfolios on the last day of the quarter.

Analysts are attributing much of the advance to large investors loading up on rising stocks to make their portfolios look good at the end of the first quarter, which ends on Tuesday.

Investors have shrugged off lackluster economic data and are snatching up some of the biggest names in technology and banking, including Google, International Business Machines, Bank of America and Citigroup.

At midday, the Dow Jones industrials are up 100 points at the 7,622 level. The Standard & Poor's 500 index is up 10 to 797, while the Nasdaq composite index is up 23 to 1,525.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

NEW YORK (AP) -- Wall Street resumed its advance on the last day of the quarter as investors focused on economic data.

A measure of consumer confidence inched up in March after plummeting to historic lows in February, a private research group reported Tuesday.

The Conference Board said its Consumer Confidence Index rose to 26.0, from a revised 25.3 reading in February -- below expectations, but a small uptick nonetheless.

The market is coming off a two-day pullback after rallying on better-than-expected home sales, retail sales and durable goods data. The Dow Jones industrials have jumped 21 percent in less than three weeks following a government plan for cleaning up bad assets from banks and reassuring remarks from the CEOs of several banks who said their businesses did well in January and February.

If Wall Street can get more evidence that the economy is bottoming out, it has a better chance of making up the sharp losses logged this year. The Dow is still down 14.3 percent for 2009, but up 14.5 percent from its nearly 12-year low on March 9.

Recent data have indicated the economy is "still weak, still poor, but not on a declining trend," said Rob Lutts, president of Cabot Money Management. And that's enough to encourage him to buy stocks in industries such as energy and technology -- ones that usually turn around when the economy does.

"I'm hopeful that by the end of the year, conditions will have improved," Lutts said. With the market already pricing in a severe recession, he said, "I don't think we need a strong improvement to get the stock market going."

The Dow Jones industrial average rose 53.52, or 0.7 percent, to 7,575.54 in morning trading.

Broader stock indicators also gained. The Standard & Poor's 500 index rose 4.78, or 0.6 percent, to 792.31, and the Nasdaq composite index rose 18.09, or 1.2 percent, to 1,519.89.

The Russell 2000 index of smaller companies rose 2.24, or 0.5 percent, to 418.21.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 182.7 million shares.

On the last day of the quarter, some "window dressing" buying may also be affecting the market. Portfolio managers that may have missed out on the recent rally want to be sure they aren't left behind, said Randy Frederick, director of trading at Charles Schwab.

"Imagine you're an institutional investor, you have a lot of cash on hand and missed the recent rally," he said. "Now, you don't want to be left behind in the next quarter. You probably want to put some of the cash to work."

The major indexes had dropped about 3 percent Monday as the White House rejected General Motors Corp.'s and Chrysler's turnaround plans, raising the possibility of an automaker bankruptcy.

On Tuesday, the S&P Case-Shiller index of 20 cities showed that U.S. home prices declined by record 19 percent in January from a year ago. The Chicago purchasing manager's index of business conditions dropped to a reading of 31.4 in March from 34.2 in February.

Bond prices were modestly higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.69 percent from 2.72 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged from late Monday at 0.18 percent.

Crude oil fell 37 cents to $48.04 a barrel on the New York Mercantile Exchange.

The dollar was lower against other major currencies. Gold also fell.

Overseas, Japan's Nikkei stock average fell 1.5 percent. In afternoon trading, Britain's FTSE 100 rose 2.8 percent, Germany's DAX index rose 1.1 percent, and France's CAC-40 rose 1.4 percent.

Outlook ahead of G-20 Meeting

On the coming 2 April 2009, G-20 summit will be conducted. Expect the market to retract due to the negative anticipation. Expect bad data on earnings and employment to be released in the coming summit. 

The stocks are likely to fall for the coming weeks. Be careful and dont hold long position.

White House questions viability of GM, Chrysler

White House sets tough deadline to force overhaul of ailing US carmakers

• Philip Elliott, Associated Press Writer
• Monday March 30, 2009, 8:17 am EDT

•  
• Print

Related:

• Northrop Grumman Corporation

WASHINGTON (AP) -- President Barack Obama is sending a blunt message to Detroit automakers: To survive -- and win more government help -- they must remake themselves top to bottom. Driving home the point, the White House ousted the General Motors chairman as it rejected GM and Chrysler's restructuring plans.

AP - In this June 26, 2008 file photo, then Democratic presidential candidate, Sen. Barack Obama D-Ill., left, talks with ...

Related Quotes

Symbol	Price	Change
NOC	45.02	0.00

Obama is set to elaborate on that message when he announces Monday what his White House told reporters over the weekend: Neither GM nor Chrysler submitted acceptable plans to receive additional federal bailout money.

GM chairman Rick Wagoner became the most conspicuous casualty of that decision, forced out Sunday as the White House indicated Detroit must make management and other changes if it hopes to survive -- and that the Obama administration will have a hands-on role in those changes. GM and Chrysler employ thousands in Ohio, the No. 2 state for vehicle production.

Michigan Gov. Governor Jennifer Granholm said Monday that Wagoner "clearly is a sacrificial lamb" who stepped aside "for the future of the company and for the future of jobs." She spoke on NBC's "Today" show.

Neither GM nor Chrysler is viable and deeper sacrifices must be made, the White House indicated Sunday, setting the stage for a crisis in Detroit that will dramatically reshape the nation's auto industry.

In a last-ditch effort, the administration has given company a short-term deadline to try one last time to persuade Washington that it is worth saving, said senior administration officials who spoke on the condition of anonymity to more frankly discuss the decision.

In an interview with CBS' "Face the Nation" broadcast Sunday, Obama said the companies must do more to receive additional financial aid from the government.

"We think we can have a successful U.S. auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge -- at the other end -- much more lean, mean and competitive than it currently is," Obama said.

Frustrated administration officials said Chrysler cannot function as an independent company under its current plan. They have given Chrysler a 30-day window to complete a proposed partnership with Italian automaker Fiat SpA, and will offer up to $6 billion to the companies if they can negotiate a deal before time runs out.

If a Chrysler-Fiat union cannot be completed, Washington plans to walk away, leaving Chrysler destined for a complete sell-off. No other money is available.

Shawn Morgan, a Chrysler spokeswoman, said the company wants to work with the Treasury Department and Obama's auto task force but declined to comment on the White House's plans.

"With the administration's announcement on the restructuring of the automotive industry imminent, it would be inappropriate to comment on speculation," Morgan said in a statement early Monday.

For GM, the administration offered 60 days of operating money to restructure. A frantic top-to-bottom effort began Sunday after chairman and CEO Wagoner stepped aside under pressure from the White House.

Fritz Henderson, GM's president and chief operating officer, became the new CEO, the company said in a statement Monday. Board member Kent Kresa, the former chairman and CEO of defense contractor Northrop Grumman Corp., was named interim chairman of the GM board.

In a major management shake-up, new directors will make up the majority of GM's board, the automaker said.

"The board has recognized for some time that the company's restructuring will likely cause a significant change in the stockholders of the company and create the need for new directors with additional skills and experience," Kresa said in a written statement.

Extensive regulatory overhaul planned

Sources: Obama admin. proposing regulation overhaul in areas blamed for financial crisis

• Martin Crutsinger, AP Economics Writer
• Thursday March 26, 2009, 12:18 am EDT

•  
• Print

Related:

• American International Group, Inc.

WASHINGTON (AP) -- The Obama administration is proposing an extensive overhaul of financial regulations to increase oversight of such exotic instruments as credit default swaps that have been blamed for contributing to the worst financial crisis to hit the country in seven decades.

AP - U.S. Treasury Secretary Timothy Geithner speaks at the Council on Foreign Relations Wednesday, March 25, 2009, in New ...

Related Quotes

Symbol	Price	Change
AIG	1.20	-0.19

Officials said Wednesday that the administration will seek to regulate the market for credit default swaps and other types of derivatives and require hedge funds to register with the Securities and Exchange Commission.

Treasury Secretary Timothy Geithner was scheduled to outline the administration's proposals in testimony Thursday before the House Financial Services Committee. Administration officials provided details of the plan ahead of the testimony only on condition of anonymity.

The program the administration was presenting to Congress will also include a recommendation for creation of a systemic risk regulator, possibly at the Federal Reserve, to monitor risks to the entire system.

The plan also includes a measure that Geithner and Federal Reserve Chairman Ben Bernanke discussed before the committee on Tuesday to give the administration expanded powers to take over major nonbank financial institutions such as insurance companies and hedge funds that were teetering on the brink of collapse.

The administration, pushing Congress to act quickly on its reform agenda, sent Congress a 61-page bill dealing with the expanded powers to seize control of nonbank institutions late Wednesday and the House Financial Services Committee, chaired by Rep. Barney Frank, has indicated it could move on the measure as early as next week.

However, it was unclear how fast the rest of the financial reform agenda might move through Congress. Geithner was providing only a broad outline of the other proposals, with many thorny details remaining to be worked out.

Administration officials promised that the remaining issues would be hammered out in consultation with Congress with the goal of getting legislation approved as quickly as possible.

The administration is proposing that hedge funds and other private pools of capital, including private equity funds and venture capital funds, be required to register with the SEC if their assets exceeded a certain size. The threshold amount has yet to be determined, officials said.

The proposal on credit default swaps and other derivatives would require the markets on which they are traded to be regulated for the first time and for the buying and selling of these instruments to be conducted in a way that will foster greater oversight.

Credit default swaps, which trade in a $60 trillion global market without government oversight, are contracts to insure against the default of financial instruments like bonds and corporate debt. They played a prominent role in the credit crisis that brought the downfall of investment banking giant Lehman Brothers Holdings Inc. last fall and pushed insurance giant American International Group Inc. to the brink of collapse, forcing the government to provide more than $180 billion in support.

Hedge funds, vast pools of capital holding an estimated $1.5 trillion in assets, operate mostly outside of government supervision. As the market crisis deepened last fall, hedge fund selling was widely cited as one of the reasons for increased volatility that pounded stocks and bonds. Hedge funds also suffered huge losses last year, notably from investments in securities tied to subprime mortgages.

The outline of the regulatory reform was being unveiled a week before President Barack Obama was scheduled to meet for discussions among the Group of 20 major industrialized and developing countries in London to assess what needs to be done to deal with the global financial crisis.

The administration is pushing other nations to follow the U.S. lead in putting together sizable economic stimulus programs to jump-start global growth. However, many in Europe are resisting those calls and arguing that the United States needs to do more to toughen financial regulations because they believe the current troubles can be traced to lax regulation in the United States in such key areas as hedge funds and credit default swaps.

The Bush administration resisted calls for tighter regulations in these areas but the Obama administration has signaled its willingness to do more and is hoping that the flaws in current regulations that were exposed by the financial crisis will spur Congress to act.

AP Business Writer Marcy Gordon contributed to this report.

Treasury's toxic asset plan could cost $1 trillion
Monday March 23, 1:15 am ET 
By Martin Crutsinger, AP Economics Writer

Administration rolling out plan to buy up to $1 trillion in toxic assets

WASHINGTON (AP) -- The Obama administration's latest attempt to tackle the banking crisis and get loans flowing to families and businesses will create a new government entity, the Public-Private Investment Program, to help purchase as much as $1 trillion in toxic assets on banks' books.

ADVERTISEMENT

The new effort, to be unveiled Monday, will be followed the next day with release of the administration's broad framework for overhauling the financial system to ensure that the current crisis -- the worst in seven decades -- is not repeated.

A key part of that regulatory framework will give the government new resolution authority to take over troubled institutions that would pose a threat to the entire financial system if they failed.

Administration officials believe this new power will save taxpayers money and avoid the type of controversy that erupted last week when insurance giant American International Group paid employees of its troubled financial products unit $165 million in bonuses even though the company had received more than $170 billion in support from the federal government.

Under the new powers being sought by the administration, the treasury secretary could only seize a firm with the agreement of the president and the Federal Reserve.

Once in the equivalent of a conservatorship, the treasury secretary would have the power to limit payments to creditors and to break contracts governing executive compensation, a power that was lacking in the AIG case.

The plan on toxic assets will use the resources of the $700 billion bank bailout fund, the Federal Reserve and the Federal Deposit Insurance Corp.

The initiative will seek to entice private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases. The government will share the risks if the assets fall further in price.

When Treasury Secretary Timothy Geithner released the initial outlines of the administration's overhaul of the bank rescue program on Feb. 10, the markets took a nosedive. The Dow Jones industrial average plunged by 380 points as investors expressed disappointment about a lack of details.

Christina Romer, head of the Council of Economic Advisers, said Sunday that it's important for investors to know that the administration is bringing a full array of programs to confront the problem.

"I don't think Wall Street is expecting the silver bullet," she said on CNN's "State of the Union." "This is one more piece. It's a crucial piece to get these toxic assets off, but it is just part of it and there will be more to come."

But private economists said investors may still have doubts about whether the government has adequate resources to properly fund the plan and whether private investors will be attracted to participate, especially after last week's uproar concerning the AIG bonuses, which has added to the anti-Wall Street feelings in the country.

Romer said the new toxic asset program would utilize around $100 billion from the $700 billion bailout fund, leaving the fund close to being tapped out.

Mark Zandi, an economist at Moody's Economy.com, estimated that the government will need an additional $400 billion to adequately deal with the toxic asset problem, seen by many analysts as key to finally resolving the banking crisis.

Administration officials, who briefed reporters late Sunday night, said no decision had been made on asking Congress for more money at the present time.

These officials, who spoke to reporters on condition of anonymity because the plan had not yet been released, said the goal was to prove that the asset purchase program could achieve success with the resources available to it.

In its budget request to Congress last month, the administration included a placeholder for an additional $750 billion in bailout funds, but many lawmakers said there was little chance more money will be approved, given the current political environment.

Zandi said the administration has no choice but to rely heavily on government resources because of the urgency of getting soured real estate loans and troubled asset-backed securities off the books of banks so that they can resume more normal lending to consumers and businesses.

"This is a start and we will see how far it goes, but I believe they will have to go back to Congress for more money," he said.

The Public-Private Investment Program that will be created was viewed as performing the same functions -- selling bonds to finance purchases of bad assets -- as a similar organization did for the Resolution Trust Corp., which was created to dispose of bad real estate assets in the savings and loan crisis of the 1980s.

According to administration and industry officials, the toxic asset program will have three major parts:

--A public-private partnership to back private investors' purchases of bad assets, with government support coming from the $700 billion bailout fund. The government would match private investors dollar for dollar and share any profits equally.

--Expansion of a recently launched Fed program that provides loans for investors to buy securities backed by consumer debt as a way to increase the availability of auto loans, student loans and credit card debt. Under Geithner's plan for the toxic assets, that $1 trillion program would be expanded to support purchases of toxic assets.

--Use of the FDIC, which insures bank deposits, to support purchases of toxic assets, tapping into this agency's expertise in closing down failed banks and disposing of bad assets.

Some industry officials said hedge funds and other big investors are likely to be more leery of accepting the government's enticements to purchase these assets, fearing tighter government restraints in such areas as executive compensation.

Administration officials, however, insisted Sunday that a distinction needed to be made between companies getting heavy support from the bailout programs and investors who are being asked to help dispose of troubled assets.

Romer said the partnership with the private sector will help ensure that the government doesn't overpay for the toxic assets that it will be purchasing.

"This isn't just another handout to banks," she said on CNN. "We very much have the taxpayers' interest in mind."

The administration's revamped program for toxic assets is the latest in a string of banking initiatives which have also included efforts to deal with mortgage foreclosures, boost lending to small businesses and unfreeze the market for many types of consumer loans.

In addition, the nation's 19 biggest banks are undergoing intensive examinations by regulators that are due to be completed by the end of April to determine whether they have sufficient capital reserves to withstand an even more severe recession. Those that do not will be able to get more support from the government.

The overhaul of financial regulation will be revealed by Geithner in testimony he is scheduled to give Tuesday and Thursday before the House Financial Services Committee.

In addition to the expanded authority to seize big institutions that pose a risk to the entire system, the administration is also expected to offer more general proposals on limiting excesses seen in executive compensation in recent years, where the rewards prodded extreme risk-taking.

The regulatory plan is also expected to include a major change that gives the Federal Reserve more powers to oversee systemic risks to the entire financial system.

The administration is working to unveil its proposed regulatory changes in advance of a meeting of the Group of 20 economic leaders, which Obama will attend on April 2 in London. European nations have complained that lax financial regulations in the United States set the stage for the current financial crisis.

----------------------------------------------------------------------------------------------------------------------------------------------

Massive financial system restructuring is in progress. The market sentiment is still very negative. Recommended not to hold long position in the equities market YET. Any plans to enter the equities market for long position should be delayed until the indexes shows a more stable pattern. Volatility level is still too high. 

Geithner: AIG to reimburse taxpayers for bonuses

73 AIG employees got at least $1 million, NY's Cuomo says

By Ronald D. Orol, MarketWatch

Last update: 10:41 p.m. EDT March 17, 2009

WASHINGTON (MarketWatch) -- Failed insurance giant American International Group Inc. will be ordered to reimburse the taxpayers up to $165 million for bonuses the company is giving employees, Treasury Secretary Tim Geithner said Tuesday.

Acknowledging "considerable outrage" about the bonus payments, Geithner said AIG will pay the Treasury an amount equal to the bonuses, and the Treasury will deduct that amount from the $30 billion in government assistance that will soon go to the company.

In a letter to congressional leaders, Geithner said the government can't block the payments, which are being made under contracts signed before the government stepped in with billions of dollars to prevent AIG from going bankrupt last September.

Geithner said the Obama administration hasn't given up on efforts to recoup the money from the employees who got the bonuses.

The U.S. government owns about 80% of AIG , but does not run the company's day-to-day operations.

Geithner acted after the chairman of the House Financial Services Committee, Rep. Barney Frank, D-Mass., said that the government should use its controlling interest in the company to force repayment of the bonuses.

"We should look at AIG as owner of the company. The time has come to exercise our rights as owner rather than interfering with contracts between two parties," Frank said at a press conference. "You didn't perform, you don't get bonuses."

Frank added that House Speaker Nancy Pelosi, D-Calif., is considering legislation that would give the government additional control of the company.

AIG paid "retention" bonuses of more than $1 million to 73 employees, including 11 who no longer work at the company, New York Attorney General Andrew Cuomo said Tuesday.

Before Geithner's decision to require the reimbursement, lawmakers on Capitol Hill stepped up their efforts on Tuesday to find some a way to claw back some of the money paid by AIG, which has received $173 billion in federal aid to prevent a bankruptcy that could further spread financial panic around the globe.

Several lawmakers introduced legislation to tax the bonuses.

On Monday, President Barack Obama said his administration would pursue all legal avenues to get the money back. The $165 million in bonuses were paid to employees of the financial products subsidiary, the unit that created and sold complex securities that led to the company's collapse.

Those securities were essentially insurance that guaranteed that investors would not lose money if mortgage-backed securities failed. AIG cornered the market on risk, but could not fulfill its obligations when housing prices fell and the securities went sour.

The investors include major investment banks, hedge funds, and pension funds.

In a letter to Congress sent Tuesday, Cuomo said he didn't agree with AIG's contention that it was obligated by contract to pay the bonuses, noting that the company renegotiated the salaries of the same group of employees.

"AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout," Cuomo wrote in the letter to the House Financial Services Committee. "Something is deeply wrong with this outcome."

Cuomo said the contracts required the 2008 bonuses to be equal to the 2007 bonuses, even though there were obvious signs that 2008 would be "disastrous." The contracts were signed in April 2008, after Bear Stearns failed because it bet housing prices would never fall.

Cuomo said the biggest single bonus was $6.4 million. Seven employees got more than $4 million each, and the 10 top took a combined $42 million. Cuomo has led an investigation into the bonuses, but has not yet learned the names of those who were paid, he said.

AIG Chairman Edward Liddy will appear before Frank's committee on Wednesday, along with Office of Thrift Supervision Director Scott Polakoff and Government Accountability Office director Orice Williams. Liddy succeeded Robert Willumstad in June 2008.

The chairman of the Senate Banking Committee, Sen. Christopher Dodd, D-Conn., said he wants a full briefing from the Federal Reserve on any conditions the Fed may have put on AIG executive bonuses. "We also want answers regarding where the Fed has been on conditions for these types of bonuses since the rescue effort first began."

At the same time, legislators on Capitol Hill are considering changes to the tax code to limit AIG's bonuses.

Rep. Gary Peters, D-Mich., introduced a bill that would impose a 60% surtax on bonuses over $10,000 paid by a company where the government has a greater than 79% equity stake. Currently, the wording of the bill would apply only to AIG.

Other House members have introduced similar legislation. Rep. Steve Israel, D-N.Y., introduced legislation that would hike taxes on bonuses of corporations receiving federal bailout capital.

Inter-relation of US-CHINA-JAPAN Economy

China wants assurance of safety of its debts in U.S.

MIL, Mar 13, 2009

Beijing, China: March 13, 2009, Dr. Raj Baldev, Cosmo Theorist from India - China is well concerned about her debts in United States, which is nearly half of its $2 trillion in currency reserves invested in U.S. Treasuries and notes issued by other government-affiliated agencies and that’s the issue where China looks to be perturbed.

China, therefore, apprehends that its holding in America might be unsafe since the lion’s share of its holding in America looks to be diverted to different stimulus and bailout packages and that’s against its interest of China and may en-risk its holding in the United States, as per the economists. Wen Jiabao, Chinese Prime Minister, admitted that China is watching the economic development of United States and their policy of stimulus and bailout packages, allocated to strengthen their economy and that has created concern in China’s government about the safety of their debts in United States.

The Chinese PM has definitely in mind that President Obama and his new administration have adopted a series of measures to deal with the financial crisis about which China is serious and watching closely whether their policy is affecting China’s investment in America, and wish to be sure that their money is safe and not being transferred to some other heads.

After the final session of the National People’s Congress, the Chinese legislature, Mr. Wen, at a news conference held on Friday in Beijing said:

“Our country is very much worried about its holdings of U.S. Treasuries and would like to call on the United States to ensure us that China’s investments are quite safe”.

China has the largest reserves of foreign exchange and has been using most of its reserves in increased purchases of U.S.Treasuries and financing of major investment projects meant to boost their growth in its own country.

As per NYT, Chinese investments have helped assure the stability of the U.S. Treasury market despite the economic convulsions of the last year, and some economists have warned of alarming consequences should the Chinese investments stop propping up the market for American public-sector debt.

During her visit to China last month, Secretary of State Hillary Rodham Clinton sought to reassure Beijing that those holdings remained a reliable investment.

Mr. Wen sought added reassurances on that front on Friday, calling on the United States to “maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

----------------------------------------------------------------------------------------------

Few things to note from the article!

1. China's asset is invested heavily in US Asset. (Close to 1 Trillion USD) Meaning that China's economic recovery depends heavily on US' recovery. (US cannot fall) >> Similar condition applies to Japan economy.

2. This push will leave US with no choice but to keep USD stable in its current valuation. Which means that with most of the countries in the world entering recessionary period, USD will be a safer bet to sail through this economic downturn.

Citigroup earning profit

Surprising news regarding Citigroup earning report. $8.3 billion in profit is projected for the 1st quarter of 2009. This pushes the stock market to the biggest one day rally in 2009. Dow Jones Industrial Average increased by 380 points.

 

Despite the good news, the market is expected to continue to drop due to the unchanged negative sentiment.

"To have a sustained rally, we have to have a shift in sentiment," said Kurt Karl, chief U.S. economist at Swiss Re. "One day isn't going to make a trend."

Complete news can be found here http://biz.yahoo.com/ap/090310/wall_street.html

Microsoft VS GOOGLE (Future Outlook)

A bit of comparison between Microsoft and Google. Both are leading technological company. But how will they perform in the future?

You may very well own Microsoft (MSFT) -- it's one of the most widely held stocks in the country. Now can you honestly explain to me how the world's leading software company will be as relevant in 2012 as it is in 2009?

Sure, there will be a wider audience of computer users in three years, but they aren't as likely to rely on Microsoft. Between open-source operating systems, free cloud-computing knockoffs of Microsoft Office, and a growing number of Web browsers, Microsoft will only continue to relinquish market share in many of its high-margin businesses. I can see MSN finally turning a profit by then. The company's Xbox franchise could definitely be more relevant. However, by and large, Microsoft will never be as important as it used to be. It has a crosshairs tattoo, and everyone is taking a shot.

The other side of the Microsoft coin is Google (GOOG). Now, here is a company that can clearly matter more in three years. The leading search engine is growing revenue and market share, even as the global ad market is faltering. It may be retreating out of old-school ad markets like print and radio, but its role as a localized lead generator will only improve in time.

Bottom line, for the past few years Microsoft has been slowly losing the market share, while Google has been adopting great business decisions and innovative organizational culture which continues to strenghten their market position.

Comparison of current to past recessions

Where we were and where we currently are. Still going down? All the indicators in the market are still pointing downward.

Is It Time to Buy Banks?

By Anand Chokkavelu 

February 24, 2009 

After processing Treasury Secretary Tim Geithner's latest plans to save our financial system, I'm tempted to buy a bank stock.

See, Mr. Market kicked my butt last year. And I want some revenge.

What better way than to be contrarian and pick up shares in the most beaten-down, toxic, left-for-dead sector this side of the homebuilders?

Why not?
It's not as if we're still worried that banks are going under. After all, the government has made it clear that the largest banks aren't going anywhere. Those that were already too big to fail only got bigger:

• Bank of America (NYSE: BAC) swallowed up Countrywide and Merrill Lynch.
• JPMorgan Chase (NYSE: JPM) grabbed Bear Stearns and Washington Mutual.
• Wells Fargo (NYSE: WFC) took over Wachovia.

Any remaining worry that the banking behemoths would be allowed to fail has been eliminated by the second helpings of TARP love for Bank of America and Citigroup ... and possibly more on the way.

See, too much is at stake. As fellow Fool Richard Gibbons explained, the lending banks provide allows our whole economic system to operate. Without this credit, we wouldn't just be talking about the impending collapse of companies with inherent problems like General Motors (NYSE: GM) and Chrysler -- we'd also be talking about the possible bankruptcies of robust companies like Wal-Mart (NYSE: WMT) and Procter & Gamble (NYSE: PG).

And we won't even get into what would happen to credit-dependent medium-sized businesses, mom-and-pop shops, and individuals.

The banks -- and the banking industry -- will definitely survive.

But what price survival?
So the banks will survive. They must. But -- and this is why temptation hasn't turned to action -- survival doesn't necessarily mean that shareholders will benefit.

Just ask the people who owned Fannie Mae, Freddie Mac, and AIG.

Yes, the government will continue to throw lifelines to the banks, but the implications for the banks and their shareholders are still undetermined. As shown by the new curbs on executive pay at companies receiving TARP funds, the government can and will make the costs of those lifelines increasingly punitive. It's no coincidence that Goldman Sachs (NYSE: GS) and JPMorgan suddenly want to pay back their TARP money as soon as they can.

And this may not be the end of it. Recall that the rescue of Bear Stearns last March was supposed to prevent a financial collapse. It didn't -- a year later, we're still groping for a stable plan of action.

The government has many tools at its disposal -- from the purchase of toxic assets to capital injections all the way on up to complete nationalization. And each of these options could be executed with very favorable or very unfavorable terms for the banks and their common shareholders.

Think positive?
Now, I'm a confirmed optimist, but given the government-intervention wild card, buying banks at this point is more speculation than investing.

Why? Even discounting government-related uncertainty, to invest in a bank, we must thoroughly understand the balance sheet of that bank.

And that's virtually impossible in the case of investment banks, especially now. Understanding even one derivatives contract is daunting; properly assessing the risks of a whole portfolio of derivatives contracts jacked up with leverage and swapped back and forth by mis-incentivized traders is more Einstein than Joe Investor.

Thus, I wouldn't touch shares of Goldman Sachs, despite its status as a finishing school for Treasury Secretaries. And if I wouldn't touch Goldman, I certainly wouldn't touch Morgan Stanley.

But even when we're talking about banks that have stuck to their commercial banking roots, avoided risky megamergers, and seemed to navigate the subprime debacle well -- like BB&T and US Bancorp -- we can't be sure.

Don't believe that the "healthy" banks are healthy just because nothing bad has come out yet. We've seen again and again in this crisis that everything is fine until it isn't.

Talking us off the ledge
So I would advise against buying a bank stock unless you have three things: particular insight into bank balance sheets, an unshakable faith in that bank’s management, and comfort speculating on the final form of the government bailout initiatives.

But I understand why it's tempting. When I see age-old companies with dividend yields hovering around 12.5%, I salivate. In the end, though, I'd rather find attractive yields attached to excellent companies that aren't living and dying at the whim of the government.