Measuring the Impact of Five Big Statements

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to The Friday Five. I like to think that we have no small statements on The Friday Five, but this week out there in the marketplace there were several big statements. Here with me to do a recap is Morningstar markets editor, Jeremy Glaser.

Jeremy, thanks for joining me.

Jeremy Glaser: You're welcome, Jason.

Stipp: So what do you have for The Friday Five this week?

Glaser: Well, we did have five big statements. One, about governments role in solving the recession and trying to bring the recession to an end; one about the stress test for banks in Europe; on housing prices; on cap-and-trade legislation; and finally, we had a big statement from BP.

Stipp: So for number one, the government obviously had some unprecedented action to try to rein in the recession. They're doing a little bit of a recap on that ... now. What did you see on that front?

Glaser: This week we saw a report from Alan Blinder, Princeton University, and Mark Zandi from Moody's Economy.com highlight the impact of government programs like the stimulus and TARP and the Fed opening the discount window on ending this so called Great Recession. And their findings using the econometric model were that these programs actually were very effective; that without them the economy would have been much worse than it is now; that the economy might be a little bit uneven for the next year, but that we're on a sustainable recovery. And they think that these programs really on balance did a lot of good.

Now it's a little bit, I think, early to say that absolutely this is the case. We're not out of the recession yet, which is something that they freely admit in the paper. I think, we have to wait until the recovery is fully hold, and we're seeing great growth, before we can really go back and see if these big statements are truth, but it's interesting that people are finally starting to take a constructive look at this data, and I think, it's going to be a debate we're having for some time.

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Stipp: Now the bank stress test in U.S. were a big part of gauging one of the primary trouble spots of the U.S. downturn. Europe also did some stress test last week, and the results of those came out. Was there a big statement there?

Glaser: They certainly tried to make a big statement saying that, "Hey all the European banks are mostly fine." There are only a handful that failed the test and were ones that people were pretty sure were weak.

But I think that most investors didn't take them too seriously. A lot of the things that they were testing on were not terribly stringent. They didn't look at things like what would happen in a complete sovereign default. They only looked at what happened in other certainly stressful situations, but not a complete all-out fiscal Armageddon that could out through Europe.

So banks certainly rallied on the news through the week. I think people were relieved that it wasn't worse, but I don' think it was quite the enormous statement that the European banking community hoped they were making with the test.

Stipp: One area that I know a lot of folks are looking at for recovery back here in the U.S. is the housing market, but it seems like it's really in neutral and kind of stalled, what are you seeing on housing?

Glaser: Case-Shiller reports came out this week and showed that there was, you know, a four odd percent increase in housing prices year-over-year in the month of May, but certainly they did not see any sustainable recovery, and it's something that they have said a few times and said again this month was that there was no sustainable recovery in housing prices. With things being bad for so long, they've yet to really see us turn the corner.

So there was certainly some positive movement, but they're not ready to sign off saying that the decline in housing prices is over, which is something that could be disconcerting considering how important a recovery in housing will be for the entire economy to get back on track.

Stipp: In legislative news, one of the big statements the Obama administration was hoping to make on green energy sort of had to be taken away this week. What did you see on that front?

Glaser: Harry Reid apparently did not want to make that statement. It kind of came out quietly that the Senate is not going to vote on the cap-and-trade legislation that was passed by the house quite some time ago. And I think that the reality politically was that there weren't enough votes, so it's never going to be able to get the 60 votes needed to break a filibuster.

I don't think this is the end of cap and trade. It's a relatively new policy proposal. I think, it's the sort of thing that will probably come back, and we're going to hear about it for many years, but investors that were looking at maybe some energy plays they thought would benefit from cap and trade, that benefit might be pushed out a little bit farther than they had initially thought.

Stipp: So for number 5, I mean, one through four were very interesting, and I'd like to stay for number 5, but I really have to get to a meeting, so I'm just going to watch it later, but I'm sure that number 5 will be really interesting for our readers, so go ahead, take it away.

Glaser: Well, Jason, I don't know what meeting you have that's more important than The Friday Five, but perhaps it's with BP Chairman, Carl-Henric Svanberg, who during BP's conference call made it clear to investors that he had another appointment after the call, and would only be able to stay for about half of it.

Now of course BP was making other important announcements, big statements about replacing Tony Hayward with Bob Dudley as the CEO, and of course restructuring some of their other assets. But it certainly struck me as somewhat odd that the chairman couldn't be bothered to block out an entire hour of his day for the conference call and to take investor questions and say could only stay for part of it. I think given the PR problems that BP had, maybe that's not the correct statement that they're trying to make right now.

Well hopefully, Jason will be able to clear his schedule enough for next week's Friday Five. For Morningstar.com, I'm Jeremy Glaser. Thanks for watching.