Innovest's June 2009 Market Commentary

Please click here to read the June 2009 Market Commentary.

The Economy

During the month of June, the Federal Reserve announced that it would allow firms to pay back TARP funds if they could demonstrate the capacity to raise adequate capital. Soon thereafter, ten large financial institutions received the go-ahead to repay $68 billion in government funding, liberating them from limits on executive compensation and substantial government scrutiny. These repayments signaled that the solvency of the banking system is improving. The Obama administration also proposed financial regulatory reform, which would empower the Federal Reserve to supervise systemically important financial institutions and require loan underwriters to maintain an economic interest in the loans that they securitize.

Despite investors’ fledging optimism about the economy, General Motors failed to meet President Obama’s profitability plan criteria and filed for bankruptcy. Unsecured bondholders were forced to accept equity and warrant compensations for their senior holdings, and the U.S. government (taxpayers) purchased a 60% stake in the post-bankruptcy firm. Chrysler forged a deal with Italian manufacturer Fiat, saving the firm from liquidation. While the bankruptcy of America’s iconic automakers may have been a necessary evil, the implication on unemployment does not bode well for the economy. Considering many of these jobs may not return as the economy recovers indicates structural unemployment may remain elevated for sometime...

Please click here to continuing read the June 2009 Market Commentary.