Economic Clouds? Wall Street Sees Signs of Sunshine

New York Times (05/02/08); Bajaj, Vikas
The stock market has risen 11 percent since early April, with junk bonds, credit derivatives, financial shares, bank loans and other investments improving. Analysts and executives in the United States continue to see a brighter future, and even Treasury Secretary Henry Paulson seems to see light at the end of the tunnel. On the other hand, the Bank of England is more cautious, especially with regard to mortgage securities, which the bank claims have fallen too far. The strengthening of the dollar and the decline in oil prices have brightened the outlooks of many investors and analysts, but consumers are hard pressed to see the light with the weakening job market and the tighter lending standards of banks. Some observers are concerned that the optimism will be foiled by further economic declines, though many hope the tax rebate checks will help bolster the general economy. Some pleasing signs of recovery include the bailout of Bear Stearns, the opening of the Fed window to investment banks, the cost of insuring against failing banks and companies dropping, and the recent declines in interbank borrowing costs. A number of banks also have reduced their use of the Fed discount window in recent months. While Federal Reserve Chair Ben Bernanke and Paulson believe the financial problems are "contained," other analysts note that foreclosures and housing values continue to decline rapidly. The national average for a 30-year fixed mortgage has risen to 6.06 percent from 5.85 percent in the last month and the number of workers unemployed has increased. Corporate profits also are declining, though nonfinancial sectors are doing well, according to BlackRock. Analysts increasingly are concerned about the impact lower consumer spending will have on the economy.