Warren Buffett to CNBC: U.S. Economy In “Shambles” .. No Signs of Recovery Yet

Warren Buffett to CNBC: U.S. Economy In “Shambles” .. No Signs of Recovery Yet

In a live interview on CNBC today, Warren Buffett said there has been little progress over the past few months in the “economic war” being fought by the country.  “We haven’t got the economy moving yet.”

While the economy is a “shambles” and likely to stay that way for some time, he remains optimistic there will eventually be a recovery over a period of years.

BECKY:  The last time we sat down to talk to you was on May 4, and at that point you told us that you think we’re in an economic war right now.  How much progress do you think we’ve made in that war?

BUFFETT:  Well, it’s been pretty flat.  I get figures on 70-odd businesses, a lot of them daily.  Everything that I see about the economy is that we’ve had no bounce.  The financial system was really where the crisis was last September and October, and that’s been surmounted and that’s enormously important.   But in terms of the economy coming back, it takes a while.  There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while.  In the (Berkshire Hathaway) annual report I said the economy would be in a shambles this year and probably well beyond.  I’m afraid that’s true.

Buffett also noted that he had a cataract operation on his left eye about a month ago.  He joked that he thought it might help him see “green shoots” for the economy, but so far he hasn’t seen any hopeful signs.

Taking a firm position in an ongoing debate in the financial markets, Buffett says he’s not concerned about deflation, but thinks inflation will be a problem in coming years.

Despite his negative view on the economy, Buffett still believes the stock market is attractive “over the next 10 years” when compared to alternatives like Treasury bonds.

• Slideshow: Top 10 Places the Wealthy Call ‘Home’
• Slideshow: America’s 15 Most Recession-Resistant Cities

Buffett endorsed Ben Bernanke’s reappointment as Federal Reserve Chairman, saying “you couldn’t do better.”  He also praised Treasury Secretary Tim Geithner.

Asked about how Apple handled Steve Jobs’ liver transplant, Buffett said it is a “material fact” when the CEO of a company is facing major surgery.  He thinks criticism of Apple over the matter is appropriate.

Buffett repeated his criticism of “cap and trade” as a method to control pollution, saying it would be a huge, regressive tax.

Energy stocks fall back on Fed, inventory data—24/06/09

Energy stocks fall back on Fed, inventory data

By Steve Gelsi, MarketWatch

NEW YORK (MarketWatch) — Energy stocks fell back Wednesday following the Fed’s upbeat comments on the economy and in the face of mixed inventory data.

Investors didn’t appear to share the Fed’s enthusiasm as the Federal Open Market Committee issued its most upbeat statement about the economy in recent memory, saying that the downturn is slowing and deflation is no longer a big threat.

Meanwhile, U.S. gasoline inventories rose 3.9 million barrels last week, the Energy Information Administration reported. Analysts surveyed by Platts had expected a buildup of 1 million barrels. Crude inventories, however, fell 3.8 million barrels, a bigger-than-expected decline.

Crude futures fell 20 cents to $69.04.See Futures Movers.

The NYSE Arca Oil Index(XOI 904.83, +4.52, +0.50%) held onto a slim gain of 0.1% to 901. The NYSE Arca Natural Gas Index(XNG 407.50, +2.93, +0.72%) rose 0.1% to 405. The Philadelphia Oil Service Index(OSX 157.90, +1.36, +0.87%) fell fractionally at 156.

Oppenheimer slashed its ratings on Frontier Oil (FTO 12.36, -0.40, -3.14%), Valero(VLO 16.11, -0.45, -2.72%), Tesoro (TSO 12.49, -0.70, -5.31%) and Sunoco(SUN 22.89, -0.73, -3.09%) to perform from outperform after oil prices rose to the $70 level from the $40 level earlier this year. Valero fell 3.6% to $15.96. Sunoco dipped 3.3% to $22.83.

Iraq is moving ahead with its first auction of development rights for its oil fields in about 30 years, with bidding expected to begin next week.

Some 120 companies expressed interest in bidding for the contracts at the June 29 and 30 auction. Exxon Mobil Corp., Royal Dutch Shell , Eni SpA, Lukoil and Sinopec are expected to bid.

Among energy stocks in the spotlight, Addax Petroleum agreed to a $7.2 billion all-cash takeover bid from a division of China’s Sinopec (SNP 72.59, +1.79, +2.53%). The deal includes a major stake in the Taq Taq oil field in the Kurdistan region of northern Iraq as well as other exploration licenses in Kurdistan and Africa. Shares of Sinopec rose 4.3% to $73.83.

Marathon Oil (MRO 29.27, +0.40, +1.39%) inked a sales agreement with Vermilion Energy Trust for an 18.5% interest in the Corrib natural gas development offshore Ireland. The companies expect to close the transaction during the second half of 2009. The final sale proceeds to Marathon will range between $235 million and $400 million, subject to the timing of first commercial gas at Corrib. An initial payment of $100 million will be made at closing, with the remaining balance due at the time of first commercial gas from the site. Marathon expects to report a nearly $150 million loss in the second quarter from the planned divestiture. Shares of Marathon rose 2% to $29.48.

In the alternative energy arena, House Speaker Nancy Pelosi has scheduled a vote Friday on a historic climate-change bill despite resistance from Farm Belt Democrats.

Fed Engaged In ‘Cover Up’ of BofA, Merrill Deal: Lawmaker

Fed Engaged In ‘Cover Up’ of BofA, Merrill Deal: Lawmaker

The Federal Reserve sought to hide its extensive involvement and concerns about Bank of America’s [BAC  12.30 0.07  (+0.57%) ] acquisition of Merrill Lynch amid the latter’s worsening financial condition, a top Republican congressman said on Wednesday.

• See the Memo for GOP Members (Obtained from Non-Committee Sources)

“The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the ‘shotgun wedding’ that was the Merrill Lynch acquisition,” Rep. Darrell Issa of the House Oversight and Government Reform Committee said in a statement released to Reuters.

“The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies,” the statement said.

The committee has obtained a number of emails and documents from the U.S. central bank about its behind-the-scenes role in the merger, according to sources familiar with documents.

In an interview with CNBC, Issa said Congress will explore the allegations in further detail during upcoming hearings.

“We can’t tolerate government officials using their power,” he said. “We hope that we’ll be vindicated all through the process as we ask our witnesses to answer some tough questions.”

Bernanke is “going to have to answer for this role” in the deal, though Issa said the final package put together for the BofA-Merrill deal was not illegal.

“There’s nothing wrong with the deal as it turns out, but there is something wrong with interfering with businesses taking normal due diligence and informing their stockholders,” he said.

As Bernanke’s appointment nears its expiration, the turmoil over the merger could play a factor in whether President Obama will grant the chairman another term.

“The fact is that Bernanke has to be held accountable for how handled this wreck both publicly and privately, and right now there is serious doubt about whether privately he in fact handled it correctly,” Issa said.

Extract from CNBC.com

Fed Keeps Rates On Hold, Citing Weak US Economy—24/06/09

Fed Keeps Rates On Hold, Citing Weak US Economy

The Federal Reserve, as expected, dampened expectations for interest rate hikes this year, while holding steady on its plans for asset purchases.

The US central bank decided to hold its target for the federal funds rate, the rate banks charge each other for overnight loans, in the zero to 0.25 percent range reached in December.

That means commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will stay around 3.25 percent, the lowest in decades.

The Fed also decided not to ramp up asset purchases above an existing promise to buy $300 billion of longer-dated U.S. government bonds and $1.45 trillion of mortgage debt.

The Fed is on track to buy up to $1.25 trillion worth of securities issued by Fannie Mae [FNM 0.6351    -0.0049  (-0.77%)   ] and Freddie Mac [FRE  0.6815    -0.0285  (-4.01%)   ] by the end of this year or early next year. Nearly $456 billion worth of those securities have been purchased.

But slowing down the purchases carries risk, including that rates on mortgages and government debt could rise more than expected, which could hurt the economy’s prospects for emerging from recession, economists said.

A recent run-up in rates on mortgages and Treasury securities, if prolonged, could choke off prospects for an economic recovery.

Bernanke has predicted the recession will end later this year.

Some analysts say the economy will start growing again as soon as the July-September quarter as the Fed’s actions so far, along with the federal stimulus of tax cuts and increased government spending, take hold.

Even after the recession ends, the recovery is likely to be tepid, which will push unemployment higher. The nation’s unemployment rate — now at 9.4 percent — is expected to keep climbing into 2010.

Acknowledging that the jobless rate is going to climb over 10 percent, President Barack Obama said Tuesday he’s not satisfied with the progress his administration has made on the economy. He defended his recovery package but said the aid must get out faster.

Some analysts say the rate could rise as high as 11 percent by the next summer before it starts to decline. The highest rate since World War II was 10.8 percent at the end of 1982.

The weak economy, so far, has kept a lid on inflation. Consumer prices inched up 0.1 percent in May, but are down 1.3 percent over the last 12 months, the weakest annual showing since the 1950s.

Bernanke and other Fed officials don’t think companies will be in any position to jack up prices given cautious consumers, big production cuts at factories and the weak employment climate.

Obama said Tuesday that Bernanke was doing a fine job under difficult circumstances, but he declined to say whether he will reappoint the Fed chairman in January.

Bernanke took over the Fed in February 2006 after serving as President George W. Bush’s chief economist. His term will expire early next year.

Bernanke — a student of the Great Depression who spent most of his professional life in academia — has elicited praise and controversy for his radical efforts to lift the country out of recession and end the worst financial crisis since the 1930s.

FOMC Statement—24/06/09

WASHINGTON (MarketWatch) – The Federal Open Market Committee released the following statement Wednesday after a two-day meeting.

Release Date: June 24, 2009

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Investors Are Turning Cautious As Economy, Markets Struggle–24/06/09

Investors Are Turning Cautious As Economy, Markets Struggle

A growing chorus of economic signs pointing to slow growth is sending some investors away from risk amid worries that a market correction is in the works.

The results of such fears have been evident in the stock market over the past week.

While Wall Street on Wednesday was poised to avoid its seventh down session in the past eight trading days, analysts were worried that some of Fed Chairman Ben Bernanke’s “green shoots” were turning brown.

While no one is putting forth any doomsday scenarios—calling the low in March still seems a safe bet—the idea of a substantial summer pullback is gaining momentum.

“Slow growth and higher taxes—that’s not a recipe for higher stocks,” says Michael Pento, chief economist for Global Delta Advisors in Parsipanny, N.J. “The threat of a deflationary spiral is looking pretty good for now and that’s what spooked the market.”

The dour signs for the economy have been piling up lately. The White House on Monday conceded that 10 percent or worse unemployment is fairly inevitable, while the World Bank earlier that day predicted slow global growth.

At the same time, talk has accelerated for a Fed exit strategy from its onslaught of money easing and other liquidity measures. On top of all that, the Mortgage Bankers Association predicted far fewer originations this year than originally thought, and the National Association of Realtors said existing home sales in May gained less than expected, which was followed by a report that new home sales had unexpectedly decreased.

Wednesday’s report on durable goods orders provided a brief respite from the gloom, but all of the economic noise has caused portfolio managers to start preparing for slower growth.

“The one thing that we can be sure of is that recoveries follow recessions. It’s a safe bet that the economy will recover,” says Peter J. Tanous, president and director at Lynx Investment Advisory in Washington, D.C. “What has to change are two things: 1) Our estimate of future growth. That may be a sea-change. It may not be as fast as thought. Secondly, how we build our portfolios to safeguard our original investment.”

Investors who stayed heavily in stocks during the downturn lost portfolio value of 35 percent or more.

For Tanous, the steep, rapid slump should be a lesson that US investors were too weighted toward risk and leverage and need to rethink their strategies as the economy embarks on a journey that likely will take years before full recovery.

“Investors just got a punch to the gut,” he says. “Did you learn anything? Are you going to listen to the people who say stocks are really cheap now? They are, and you should own them, but maybe you should own less of them than you used to.”

Predictions vary as to how much of a pullback stocks will see, but the consensus seems to be around 10 percent.

Linda Duessel, equity market strategist at Federated Investors in Boston, says the Standard & Poor’s 500 could see as low as 830 but thinks the damage will be minimal and merely reflective of a natural retracement following the dramatic run-up.

“From an investing standpoint, the question I’m getting asked most often is, do you think it’s too late to get in,” Duessel says. “A pullback to the 800s might be a nice time to get in.”

Some investment advisors say they are staying in stocks but are returning to quality after a whipsaw rally from March to June that saw the biggest gains in the hardest-hit sectors of the previous slump, a phenomenon that Morningstar analyst Paul Larson calls a “junk rally.”

“As financial innovation goes into reverse a little bit and things get a little simpler, that’s going to be a drag on economic growth at least for a few years,” Larson says. “My strategy is to focus on the high-quality names, the ones that are going to be assured survivors.”

That’s a recurring theme from portfolio managers who are looking for strategies to pursue in the next wave of the market cycle. Many of them agree that the rally off the March lows is just about out of steam and are trying to position themselves going forward.

• Follow Major Indexes, Market Movers and More

“We may see a ‘W’-shaped recovery, and what happened between March and June was like the second line of the ‘W,’ ” says Emily Sanders, president of Sanders Financial Management in Atlanta. “There could still be another leg down before we start heading out of this recession.”

That doesn’t mean investors shouldn’t be putting some risk in their portfolios.

Rather, advisors are again focusing on dividend-paying stocks so there is some cushion against a drop in share price.

Tanous continues to like preferred shares and master limited partnerships for getting returns without all the risk, and advocates inflation protection through gold and Treasury Inflation Protected Securities.

Sanders sees value in dividends as well as emerging markets and some of the sectors that didn’t participate as much in the recent rally, such as health care. In that space, she particularly advocates Israel’s Teva Pharmaceutical [TEVA 47.22 0.79  (+1.7%) ], in which the Sanders firm holds a large position.

But gone, at least for now, is the big appetite for risk and leverage that helped inflate the market to its October 2007 highs, an area that probably won’t be breached again for quite some time.

“Maybe stocks should be a lower portion of portfolios than thought,” Tanous says. “We have to completely rethink risk, because we can’t afford to lose 30 to 40 percent of our portfolio in 18 months.”

Extract from Cnbc.com

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Financial Regulatory Reform Proposal

WASHINGTON (MarketWatch) — President Barack Obama on Wednesday proposed a sweeping revamp of the U.S. financial regulatory system which rivals the reform that was enacted in the aftermath of the Great Depression in the 1930s.

Obama argued that the financial regulatory reform proposal he is introducing will empower the free market to be more creative, bringing prosperity to the U.S.

“In these efforts, we seek a careful balance,” Obama said. “I have always been a strong believer in the power of the free market. I believe that our role is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still make this nation the envy of the world.”

Key aspects of the Obama administration’s financial regulatory reform proposals:

· Fed as systemic risk regulator for entire financial system

· Multi-agency council to identify emerging risks in firms and market activities

· Set up process to unwind failed big financial institutions

· Consumer Products Safety Commission to approve or reject mortgage products

· Issuers of complex mortgage products must maintain 5% stake in securities they sell

· Treasury working group to do study on regulatory capital by Dec. 31, 2009

To avoid another economic collapse, the President has said that financial regulatory reform was necessary to ensure that another credit crisis does not occur again.

“A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis — the Great Depression — was overwhelmed by the speed, scope, and sophistication of a 21st century global economy,” Obama said.

The plan would empower the Federal Reserve and make it the supervisor of large, systemically vital financial institutions, granting it the authority to be a lender of last resort in “unusual and exigent circumstances,” to mega-banks if the department first receives approval from the Treasury Department. See full story.

Big financial institutions will need to have greater capital on hand, less leverage and they will be scrutinized more thoroughly by the central bank, according to the administration plan.

The 85-page proposal will begin to be scrutinized Thursday with hearings in both the House and Senate. Lawmakers are expected to draft legislation reforming the bank regulatory system by the end of the year, with the House expected to approve a bill before the Senate.

The proposal also calls for the elimination of the Office of Thrift Supervision and the Federal Thrift Charter, subsuming the agency into a new “National Bank Supervisor,” agency based on the Office of Comptroller of the Currency that will supervise all federally chartered depository institutions.

It calls for the creation of an eight-member, multi-agency financial services oversight council that would seek to identify potential risks with large financial institutions and problematic investment products.

The proposal also seeks to set up a process to help unwind insolvent large, systemically significant financial institutions so their failure does not cause extended damage to the markets. Obama did not specify which agency would be responsible for this so called “resolution authority,” however he pointed out that the Federal Deposit Insurance Corp. already has a process for dismantling traditional savings and loan banks. The FDIC collects funds from banks to fill its deposit insurance fund that goes to pay depositors of a failed bank.

However, the FDIC’s deposit insurance pool is under-funded and has recently obtained the authority to borrow up to $500 billion from the Treasury over the next two years.

“Think about this: if a bank fails, we have a process through the FDIC that protects depositors and maintains confidence in the banking system,” Obama said. “This process was created during Great Depression when the failure of one bank led to runs on other banks, which in turn threatened wider turmoil. And it works. Yet we do not have any effective system in place to contain the failure of an AIG and the largest and most interconnected financial firms in our country.”

A Treasury working group will be set up to study whether changes need to be made to the regulatory capital requirements of banks, with a report due Dec. 31, 2009.

Reaction

So far the reaction to the proposal has been mixed.

Regulatory observers argue that the Obama plan is negative for banks and other financial firms. Jaret Seiberg, a policy analyst at Concept Capital in Washington, explains that the proposal’s call for higher capital standards and lower leverage limits for large systemically vital financial institutions will reduce the profitability of these banks and financial firms.

Key aspects of the Obama administration’s financial regulatory reform proposals:

· Fed as systemic risk regulator for entire financial system

· Multi-agency council to identify emerging risks in firms and market activities

· Set up process to unwind failed big financial institutions

· Consumer Products Safety Commission to approve or reject mortgage products

· Issuers of complex mortgage products must maintain 5% stake in securities they sell

· Treasury working group to do study on regulatory capital by Dec. 31, 2009

He also points out that one aspect of the proposal, which limits transactions between a bank and its affiliate, could make it more expensive to do business with an affiliate.

Another aspect of the proposal seeks to have issuers of complex mortgage products maintain a 5% stake in securities they sell, unless those home loan products are simple fixed rate mortgages. Seiberg added that such an approach would limit availability of variable rate mortgages and reduce mortgage innovation.

The Brookings Institute argues the proposal does not go far enough. In a statement, the think tank argues that political constraints have caused the administration to “stop short of a full solution in certain areas.”

Brookings Fellow Douglas Elliott argues that the proposal should have taken further steps to consolidate regulatory functions into fewer hands. He contends that the council of regulators the administration proposed will make it difficult for the Fed to effectively respond to systemic risk.

“The need to win a consensus across all the regulators, with their different views, constituencies, and institutional interests is likely to make it excessively hard to achieve the desired systemic safety,” Elliott said.

Mark Calabria , director of financial regulation studies at the Cato Institute said he was shocked that the reform proposal doesn’t seek to make regulatory changes to Fannie Mae and Freddie Mac, two giant mortgage entities that the government put into government “conservatorship” last year as they teetered on the edge of collapsing.

Calabria argues that the costs to taxpayers to bailout Fannie Mae and Freddie Mac will ultimately be greater than a $700 billion government program to inject capital into banks known as the Troubled Asset Relief Program, or TARP.

“These two entities were the single largest source of liquidity for the sub-prime market during its height,” Calabria said. “In all likelihood, their ultimate cost to the taxpayer will exceed that of TARP, once TARP repayments have begun. Any reform plan that leaves out Fannie and Freddie does not merit being taken seriously.”

Len Blum, managing director at New York-based Westwood Capital, said the proposal is an “exceptionally well thought out policy document that aims to do exactly what is necessary to reverse the mistakes of the past quarter century.”

Blum agreed with the proposal’s basic notion that it would be less efficient and far more costly to strip apart all of the existing financial industry regulatory structure in the U.S. in favor of a single super-regulator. With this proposal, Len said the Fed is given sufficient additional responsibility and authority. “We believe this will prove to be a highly successful alternative,” Len said.

The American Bankers Association said they are opposed to the proposal that would eliminate the Office of Thrift Supervision and the charter for thrift banks, arguing it will hurt banks.

“It needlessly rips apart all the existing regulatory agencies, eliminates charter choices and creates a new agency with powers to mandate loans and services that go well beyond consumer protection,” the ABA said.

Labor union Services Employees International Union Secretary-Treasurer Anna Burger said the proposal is a significant first step, however she said expects a big fight with the financial industry and its lobbyists as legislation is drafted on Capitol Hill.

“Despite this strong move by the White House, we must be on guard for a big fight with the financial industry and its lobbyists, who continue to try to dilute and nullify real financial reform,” Burger said.

Opposition on Capitol Hill

Key Democratic lawmakers are generally supportive for Obama’s financial regulatory reform proposal, however they express some concern about giving the Federal Reserve too many powers as a systemic risk regulator.

“There is a strong and healthy debate for having the Fed do this, they have expertise there to do it,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn. “Legitimate issues have been raised as to whether or not an agency [The Fed] whose primary function is to deal with monetary policy can assume that responsibility without being bias about what systemic risk is and how you enforce it.”

Both Dodd and House Financial Services Committee Chairman Barney Frank, D-Mass., indicated that they support Obama’s idea of creating a council of regulators to identify systemic risks.

However, regulatory observers believe they may want to grant that council more authority, such as the ability to set bank capital standards. One concern raised by observers is that The Fed may seek to have banks lower capital standards to risky levels to encourage banks to lend more, as a means of achieving its monetary policy goals.

GOP lawmakers are expected to criticize the proposal as too weak, while some Democratic lawmakers, including Sen. Byron Dorgan, D-N.D., will argue it isn’t stringent enough.

GOP lawmakers last week released their regulatory reform proposal, which unlike the Obama measure, would not create a new process for unwinding systemically significant financial institutions.

Republican leadership in the House argued that regulators should rely on the bankruptcy process to unwind large systemically significant financial institutions. They argue that the system Obama proposes would ultimately encourage the use of government bailout dollars to help resolve insolvent mega-financial institutions.

“As we have seen with the auto companies, banks, mortgage companies and our health care system, President Obama’s solution is to give the federal government more power to micromanage America’s economy,” The Republican National Committee wrote Wednesday. “President Obama and Congressional Democrats continue to expand the role of government with no exit plan at all. Enough is enough.”

Obama’s proposal is likely to give one agency the authority to collect fees and possibly use taxpayer dollars to pay off creditors and counterparties of an insolvent mega-institution as an approach that would seek to quickly limit the collateral damage a collapsing mega-institution would have on the markets. However, GOP lawmakers argue that the fees would not be enough and the government would use taxpayer dollars to pay off creditors and counterparties of insolvent financial institutions, picking winners and losers.

Ronald D. Orol is a MarketWatch reporter, based in Washington.

Moving averages point to more momentum—16/06/09

Moving averages point to more momentum

20-day run higher than 200-day moving averages, 50-day nears cross

SAN FRANCISCO (MarketWatch) — Short-term moving averages on the S&P 500 are starting to criss-cross longer term averages, reflecting how far stocks have come since the credit-related panic last fall and acting as guideposts for analysts trying to ascertain whether this rally will stick.

On Tuesday, the 50-day moving average on the the S&P 500 (SPX 916.30, -7.72, -0.84%)moved closer to crossing the 200-day moving average, which would mark a first since December 2007.

A move would follow a bounce in the 20-day moving average beyond the 200-day – a first since Nov. 2007. And it follows a break of the day-to-day index’s levels atop the 200-day earlier this month.

Beloved by technical analysts, moving averages iron out day-to-day bounces to tell a story of how far stocks have come and, if they’re rising, how fast they’re going.

“It marks a trend change,” said Michael Gibbs, director of equity strategy at Morgan Keegan.

A return to earlier relationships, in which short-term averages are higher than long-term averages, reinforces hope that this stock rally is for real. That’s because outperformance of these shorter term averages signals trading momentum.

A reversion would support fears that the recent months’ rally represents a blip in a longer bear market.

“Once you regain the trend, you don’t want to give it up,” said Gibbs.

On Tuesday, stocks faltered after rising early.

Led by a pullback in retail and energy shares, the S&P 500 (SPX 916.30, -7.72, -0.84%)lost nearly 10 points, or 1%, to 914.1. The Dow Jones Industrial Average(INDU 8,536, -76.33, -0.89%) fell 78 points, or 0.9%, to 8,534.8, and the Nasdaq Composite (COMP 1,806, -10.66, -0.59%) slid 15 points, or 0.8%, to 1,801.5.

‘The Golden Cross’

A flip in the 50-day moving average above the 200-day moving average usually portends good things for stocks, says one researcher.

Bespoke Investment Research looked at periods after this cross on the S&P 500 dating back to 1933. On average, the benchmark index gained 3.2% in the three months following what’s known as the “golden cross.” In the six months following, it advanced 4.7% on average.

Laura Mandaro is a reporter for MarketWatch in San Francisco.

U.K. housing market shows signs of stability: RICS

LONDON (MarketWatch) – Britain’s housing market showed signs of stability in May, with fewer property surveyors reporting price declines, the Royal Institution of Chartered Surveyors said Tuesday.

The survey’s net balance, which subtracts the number of surveyors who report falling prices from the number who report rising prices, remains in negative territory, but rose from -58.7 in April to -44.1 in May, its highest reading since November 2007, RICS reported.

The group said the survey offers evidence that activity in the housing market is continuing to pick up, albeit from historic lows.

The survey found new inquiries from prospective buyers rose for the seventh consecutive month in May. The net-balance reading on newly-agreed sales remained in positive territory for the third consecutive month.

In other economic news, the British Retail Consortium said same-store retail sales fell 0.8% in May compared to the same month last year.

Food sales slowed after an Easter-related boost in April, while clothing and footwear fell below May 2008′s strong sales and big-ticket housewares and furniture sales continued to struggle, the trade group said.

“Negative results show spring has been extremely difficult for most non-food retailers,” said Stephen Robertson, director general of the British Retail Consortium.

“The turnaround in sales of big-ticket items such as furniture and large electricals, which would indicate real change in the mood of customers, still eludes us.”

William L. Watts is a reporter for MarketWatch in London.

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