Bulls Win Today; Watson’s Example is Timeless

Good Evening: U.S. stocks stretched their recent winning streak to six straight today, as some good economic news and some potential help for CIT combined to lift share prices. With more investors becoming convinced the worst is over for our economy, the major averages all tacked on gains of 1% or more. The S&P 500 posted its highest close of 2009 on Monday, and though we haven’t exactly seen a buying panic yet, those who are either short or underinvested are getting increasingly uncomfortable. The swelling ardor for equities should remind bulls and bears alike of the need to be patient and flexible in this unprecedented environment, but I wonder if we would even be in this fix if financial professionals at all levels were more like Tom Watson.

Stock markets overseas were on the firm side overnight, as were our stock index futures this morning. Much of the credit for this early rise went to a pending capital infusion by CIT’s current bondholders (see below). This privately financed rescue package would be a costly one for CIT (indications are LIBOR +1000 bps), but it’s good news in that 1) hundreds of small and medium sized businesses will see less disruption to their operations, and 2) the U.S. government is not involved. With $2 billion out of a total of $3 billion already committed, a CIT rescue is not exactly a done deal, but word that Seth Klarman’s Baupost Group is on board will probably give other bondholders the comfort (and cover) they need to participate.

Adding to the warm and fuzzy feelings before the bell was a stronger than expected print for the leading economic indicators. Up 0.7% versus consensus estimates of 0.5%, the leading indicators figures have now been strongly positive for three straight months — a streak usually associated with the end of recessions in the post WWII period. This post-bubble recession may be a different animal than ones populating econometric models, but the strength in the LEI was enough to cause BAC-MER to once again opine that the worst is most assuredly over for the U.S. economy (see report at bottom). Other firms offered similar sentiments, and stocks wasted little time in rallying 1% once trading commenced in New York.

When the S&P was unable to surmount the 950 level, a quick bout of profit taking took the major averages back toward unchanged. That was it for the downside, though, and equities spent the balance of the session marching higher. By day’s end the S&P did manage to close above 950, and the rest of the averages closed with gains ranging from 1.1% (S&P, Dow) to 2.1% (Dow Transports). Treasurys for once didn’t suffer at the hands of a strong equity tape, and yields fell between 2 and 5 basis points. Dollar holders had their pockets picked by approximately 1%, while commodities continued their confident run to the upside. Recently acting more like a tech-laden ETF than a basket of tradable goods, the CRB index levitated a further 1.2% today.

It was nerves, pure and simple. I refer not to yesterday’s British Open, but to the time 13 years ago when I stood on the first tee of the 445 yard first hole at Cog Hill Golf Club. Through a series of fortunate events, I had the honor of playing in the Pro-Am of the Western Open, one of the PGA tour’s oldest tournaments. Before I could even swing my driver on that opening hole, I had warmed up on the range with household names; I had my photo taken with a future member of golf’s Hall of Fame; and my brother/caddie was sporting a bib with my name on it. Greg Norman’s group had just teed off ahead of us, and the group including Tiger Woods, then an amateur, was set to tee off in the group behind us. The fairways were lined with people on both sides, the loudspeaker had called my name, and I suddenly realized this was a very big deal.

I barely made contact, and the ball skittered just far enough along the ground for me to escape the indignity of not getting past the ladies’ tee box. As my group headed toward the fairway, I asked our pro for advice. “Tom, how can I deal with nerves on the golf course?” The legendary Tom Watson turned to me and smiled, saying, “just take a deep breath, finish your backswing, and then fire. You’ll be fine”. And he was right; it worked.

Though he was trying to prepare for the tournament that would start the next day, Tom Watson spent the entire afternoon engaging everyone in our group. Want golf advice? He gave it. Prefer to figure it out for yourself? Tom let you play. Ask him a question, and he’d look you in the eye before giving you a straight answer. He told golf stories, a couple of jokes, and was not above playing a practical joke on one of his playing partners. Coming off the 18th green, our whole group agreed that Watson was a consummate gentleman from the old school, the type of man who understood it is the fans, volunteers, and pro-am donors who transform the game he loves into a great way to make a living. He tried very hard to make everyone — including the marshals and sign holders — feel special. He was a class act, a man of character.

I relate this vignette not because I’m a golf fanatic (though I am). Nor is it some ode to Tom Watson, though it would be fitting after watching him almost beat the world in the Open Championship this past weekend at the ripe age of 59. I write not to say how much I feel for a man who gave it his all against long odds in an attempt to make sports history. No, I write to say that I wish there were more Tom Watsons on this planet. Had the executive suites in Wall Street been populated by men with his character, and had policy makers in Washington (e.g. in the corner office of the Eccles building) possessed even a fraction of his values, then we might have avoided the worst of the financial crisis.

It’s been said, and I agree, that you learn a lot about a person during a round of golf. Honor, grace, dignity, and a penchant for doing what’s right because it’s the right thing to do — those were the things I learned about Tom Watson that day in 1996. That he couldn’t win a record sixth British Open when almost eligible for Social Security is a shame, but it’s not a tragedy. As Mr. Watson himself said in mock admonishment to the press after letting the title slip away in a playoff yesterday, “C’mon, this isn’t a funeral!” No, the tragic loss I bemoan is that there aren’t more people like him, and not just on the PGA tour. Whether in high places in Wall Street or in high office in Washington, we need more role models like Tom Watson.

— Jack McHugh

U.S. Stocks Gain, S&P 500 Jumps to Highest Level Since November
CIT Said to Get $3 Billion Rescue Financing From Bondholders
Leading Index Shows U.S. Economy Nearing Slump’s End
Tom Watson Not Ready to Mourn After British Open Loss to Cink
LEI suggest economy passed the bottom.pdf

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