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August 26, 2006
Week #34 (2006-08-26) in Review (FINAL)
Last weekend, I caused some consternation when I opined that, short-term, I could see strength in equity markets that I had not expected, but strength I believed could persist several weeks.
This week, despite a great many negative factors " including rapidly declining economic metrics for the U.S. and higher oil prices " traders are scratching their heads as to why the market has not cratered. So now you are seeing what I saw a week ago.
In other words, the powerful bull move of a week ago could not be explained then and the lingering strength cannot be easily explained now.
But I'll give it a shot.
I want you to look at this chart of the 30-year U.S. Treasury Bond yield. Look at the date this key indicator started south. Yes, it was May 10, the day the equity market started what I refer to as the 2006-?? Bear market.
One might expect that funds moving into bonds, pushing prices higher and yields down as we see since May 10, when Bernanke first opined that the economy was not strong, are funds fleeing riskier equities.
Maybe the Fed helped (or interfered) at that time, and maybe it didn't. I wouldn't know.
That mid-May through mid-June move higher in bonds, however, was tied to the rapid decline in equity prices.
Then from mid-June to the end of June, equity prices moved up as bond prices backed off. That was the inflation scare period.
At the start of July, equity prices started falling and bond prices rallied as the housing industry woes became apparent. So far, all seems to be in order.
But in early August everything starts to change in terms of the balance between the bond and equity markets. Both stocks and bonds start to fall. Maybe that was the Stagflation concern that took hold for a couple weeks as oil prices went from a late July low of $72.77 to a high of $77.70 on August 11.
But two weeks ago the bond market and the equity market started to rally together, and this is the point I got lost.
So what possibly did happen?
I suspect that so far, not that much capital has switched from fixed income to equities because the available dividend yields are relatively high compared to interest yields.
In addition, many of the large cap companies are using their strong cash positions to buy back stock, which is keeping equity prices high.
But the biggest driver for the recent strength in the equity market has truly been around hopes for lower oil prices.
It seems that when oil dropped from the short-term cycle high of $77.70 on Aug-11 to a low of $71.00 exactly a week later, traders somehow believed stories it might fall to the 40's and 50's in a recession. So they bought equities.
As to the bond market, I suspect two things are happening: (i) the Fed/Treasury are printing money rapidly in advance of what they see as a recession on the horizon, caused mostly by problems in the housing market, and (ii) most of that money is being lent to institutions that are investing into highly leveraged positions in the less risky Treasury debt market, based on concerns over a rapidly slowing economy, but some of that new money is propping up equities.
So here is where I say that the cross-currents are due to Fed operations. Traders' volumes have declined because they don't know what shoe is going to fall next. And Bernanke has decided not to talk about it.
On Friday, at an important economic conference at Jackson Hole Wyoming, Fed chairman Bernanke declined the opportunity to address issues of monetary policy. Instead he talked in nebulous terms of a world growing smaller because of globalization. It was a time waster, but it afforded Bernanke the opportunity to not have to discuss the Fed's open market operations, which I think are in highest possible gear right now.
I think Bernanke is hoping that buying time will allow the Fed and Treasury enough rope to ease a collapsing U.S. economy into a soft landing. I think Bernanke is hoping to get through the hurricane season with no more Katrina-like damage to the Gulf of Mexico infrastructure. In the interim, I think the Fed is nimbly playing all sides.
What all this economic strategizing will do for the equity market at the end of the day is, in my view, zero, zip, nada, so we shouldn't put too much thought into it. One massive hurricane anywhere midway from Galveston/Houston to Pensacola in the next eight weeks, and we all can say sayonara to high equity prices.
The Bernanke dilemma actually reminds me of the story of the Dutch boy Hans Brinker with his finger in the dike, trying to save a country. Trying to get through the night, Hans Brinker Bernanke realizes he's got a serious problem. He's not Superman.
I'm not blaming the man at all. In fact I think he is a brilliant person, and a skilful communicator " even if he appears a bit nervous at times. The problem here was caused by Greenspan and Bush. The leaky dike is of their making.
Greenspan forced interest rates too far down for too long " all to push the housing market too high for too long, hoping that extra jobs and inflated prices of homes would lead to the greater tax revenues that were needed to balance the tax windfall program of the Bush Administration.
To the Dem's Clinton/Rubin's credit, taxes were increased without harming the normal growth of the economy in the 1990's. No one can argue with that.
However, with the huge cost anticipated for the Middle East military adventure, Bush's advisors made a mistake that the U.S. economy could be made to grow so fast that the resulting tax flow might cover it.
Despite all that Greenspan did for the cause, ie, going way overboard with 1 pct Fed rates during the time that the PCE deflator (inflation) index was steady at about 2.5 pct, which was in th bigger picture economic suicide, the monthly U.S. government deficits grew to enormous sums.
Then there was panic as John Snow was called in as Treasury Secretary to work with Greenspan to try at G-20 meetings, and via friends in the media, to muscle the Chinese monetary authorities to revalue their RMB yuan higher, immediately, which would have dropped the value of the USD (against the yuan, not the Euro/Yen) and forced U.S. consumers to buy less product from China.
Some solution: give back tax money to the rich, and increase the cost of living (clothes and all other imports from China) to the poor.
The full court press failed, like everything Bernanke is going to do now is going to fail unless global oil prices collapse. That is the only factor that could play into the hands of the Administration right now. So they'll try to bully the Big Oil companies with talk of excess profits taxes, etc, which is stupid. They'll try to blame it on Nigerian rebels, or on a crackpot Banana Republic dictator who is going to give his oil away to the Chinese, or whatever, but the fact is the U.S. doesn't control the global commodity markets any more.
The problem is simple: if a country is going to go to war, it had better be able to write the check. If it can't, like Germany in World War II, the consequential inflation (i.e., depreciation of the money) is going to be wicked. Let's learn that once and for all.
Before getting into the week's market discussion, you ought to go to the Value Line reports this week because there are five of them, as follows:
(AIG: Value Line Report Aug. 25: next one is due Nov. 24)
(AXP: Value Line Report Aug. 25: next one is due Nov. 24)
(C: Value Line Report Aug. 25: next one is due Nov. 24)
(JPM: Value Line Report Aug. 25: next one is due Nov. 24)
(MSFT: Value Line Report Aug. 25: next one is due Nov. 24)
Global Market Summary
International Equities: The big money went out of Japan and into Canada and Russia " where the world's natural resources are.
U.S. Equities : The major market indexes were off from -0.55 pct for the S&P 500 to -1.75 pct for the Russell 2000. High beta stocks fared more poorly.
Dow 30 : There were 13 Dow stocks up and 17 down. It could have been worse.
U.S. Sector ETFs: There were 4 ETF's up and 6 down. Again, it could have been worse. The two biggest losers were Consumer Cyclicals (ie, discretionary spending) and Industrials (ie, the biggest employers and product producers). These are the sectors one would expect to be hit hardest when the economy goes south as quickly as the U.S. appears to be today.
First segment: most influenced by global commodities, forex and capex spending
10: Energy (XLE): #1 (+0.77 pct); From last to first
15: Basic Materials (XLB): #6 (-0.35 pct); It sure wasn't the metals
20: Industrials (XLI): #9 (-1.81 pct); BA down almost -5 pct
Second segment: most influenced by U.S. consumer spending and economic growth
25: Cons. Discretionary (XLY): #10 (-2.57 pct); EBAY down -7.2 pct
30: Cons. Staples (XLP): #3 (+0.20 pct); WMT and WAG were still way down
35: Healthcare (IYH): #2 (+0.70 pct); MRK was up +2.3 pct on rebound
Third segment: most influenced by U.S. interest rates and general economic health
40: Financial (XLF): #7 (-0.92 pct); Big Money dropped -0.54 pct on Fri.
45: Tech (SMH chips): #8 (-1.15 pct); Back to being major loser!
50: Telecom Services (IYZ): #4 (+0.11 pct); Almost a loser despite bonds
55: Utilities (XLU): #5 (-0.09 pct); Flat despite bonds
Bonds: Bonds rallied a bit with TLT up +0.77 pct W/W. The big story was the very negative yield curve with 3 month T-Bills yielding 4 bp more than 30-year T-Bonds. Yikes!Commodities: A week ago I said $CRB was down but not out. $CRB rallied this week due to metals and oil.
Oil & Gas: $WTIC futures were up +0.57 pct W/W as hurricane season finally arrives " heading straight for the mid Gulf of Mexico.
Gold: $GOLD did what gold should do. $GOLD rallied +1.51 pct W/W despite a stronger USD.
Goldminers: For two weeks, the goldminers were trashed an then merely beaten up. I told you they'd act like Rocky. You must have heard the music. The goldminers were up +4 pct this week. How about Kinross up +10.4 pct, Glamis up +8.1 pct and Goldfields up +5.7 pct, etc! So, Monday brought joy.
Forex: $USD had a moderately bullish week as the Japanese Yen tanked and the Euro sank a bit. The winner was the Canadian Dollar. That usually happens when oil and metal prices are up.
Sector ETF:
Four of ten sector ETF's were up. The biggest winners become the biggest losers and back again. "And that's the way this market has been gyrating. It's enough to stymie anyone."
For the U.S. equity market, as you know, I study it top down by sector. Here is the weekly performance of my favorite ten Sector Index Funds (ETF's). The following table is sorted by price performance Week over Week (W/W), i.e. 1W%N.
Table 1: Cara ETF List
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%ChangeYou can do this table yourself by entering the following string into the Summary window at Investertech.com and then clicking on the link for Performance. XLE XLB XLI XLY XLP IYH XLF SMH IYZ XLU . You can also add more ETF's " up to 30 in total.
For a list of components to any ETF, simply go to the AMEX.com web site, and click on ETF's. I do that frequently.
10 (energy: XLE)
15 (basic materials: XLB)
20 (industrial: XLI)
25 (consumer discretionary: XLY)
30 (consumer staples: XLP)
35 (healthcare: IYH)
40 (financial: XLF)
45 (technology, semiconductor: SMH)
50 (telecom: IYZ)
55 (utilities: XLU)
Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)This week, XLE was up +1.29 pct to 58.22. That was enough to put XLE from #10 spot performance wise to #1 this week.
Here's the XLE Monthly, Weekly, Daily and Hourly data charts:XLE Monthly data:
XLE Weekly data:
XLE Daily data:
XLE Hourly data:
Table 2: Senior oil & gas equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Oil & Gas Exploration & Production -Canada
The Canadian oils do like hurricane season. Reliable, trustworthy oil from Canada.
Sector 15 (basic materials: IYM, XLB, IGE and VAW)
The Basic Materials ETF (XLB) lost -0.35 W/W to close at 31.57.
Here's the XLB Monthly, Weekly, Daily and Hourly data charts:
XLB Monthly data:
XLB Weekly data:
XLB Daily data:
XLB Hourly data:
Table 3: Senior metals and steel equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
The Industrials and Transport sector ETF (XLI), aka capital goods producers, was down sharply this week by -1.81 pct to 31.94 after being up a week ago by +4.16 pct. Two weeks ago, XLI was down sharply -2.59 pct.Traders are nervous. They should all be watching the Dow Transport constituents, which is what I pointed out on Friday.
Here's the XLI Monthly, Weekly, Daily and Hourly data charts:
XLI Monthly data:
XLI Weekly data:
XLI Daily data:
XLI Hourly data:
Table 4: Senior capital goods makers and transportation
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Sector 25 (consumer discretionary: XLY, IYC and VCR)
The Consumer Discretionary sector ETF (XLY) was hammered -2.57 pct to 32.24 after rallying a week earlier by +3.31 pct.
Here's the XLY Monthly, Weekly, Daily and Hourly data charts:
XLY Monthly data:
XLY Weekly data:
XLY Daily data:
XLY Hourly data:
Table 5: Senior consumer discretionary equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Sector 30 (consumer staples: XLP, VDC, RTH and IYK)
This week the Consumer Staples sector ETF (XLP) gained a nickel (+0.20 pct W/W) to close at 25.24. Wal-Mart and Walgreen got hit though.
Here's the XLP Monthly, Weekly, Daily and Hourly data charts:
XLP Monthly data:
XLP Weekly data:
XLP Daily data:
XLP Hourly data:
Table 6: Senior consumer staples equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)
The healthcare ETF (IYH) was up +0.70 pct W/W to close at 64.30.
Here's the IYH Monthly, Weekly, Daily and Hourly data charts:
IYH Monthly data:
IYH Weekly data:
IYH Daily data:
IYH Hourly data:
Table 7: Senior healthcare equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%ChangeMerck rebounded after receiving some bad news in court a week earlier.
Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)
The Financials ETF (XLF), which had gained a lot the week before, got hammered this week, going down -0.92 pct W/W to this week, to 33.23.
I guess Bernanke was finally keeping mum.
Here's the XLF Monthly, Weekly, Daily and Hourly data charts:
XLF Monthly data:
XLF Weekly data:
XLF Daily data:
XLF Hourly data:
Table 8: Senior financial company equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%ChangeLehman Bros got clobbered -4.2 pct, and Goldman Sachs dropped -3.0 pct W/W.
Sector 45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, MTK and SMH)
SMH dropped -1.15 pct W/W to close at 32.77. A week earlier SMH had rocketed +8.2 pct, which as I said was quite a good year for some people.
Here's the SMH Monthly, Weekly, Daily and Hourly data charts:
SMH Monthly data:
SMH Weekly data:
SMH Daily data:
SMH Hourly data:
Table 9: Senior technology equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Sector 50 (telecom: IYZ, VOX and IXP)The U.S. telco sector ETF (IYZ) was up +0.11 pct W/W to close at 26.33. I'm not going to talk about three cent gains here.
Here's the IYZ Monthly, Weekly, Daily and Hourly data charts:IYZ Monthly data:
IYZ Weekly data:
IYZ Daily data:
IYZ Hourly data:
Sector 55 (utilities: IDU, XLU, and VPU)
The Utilities ETF (XLU) closed down -0.09 pct W/W to close at 34.31.
I'm not going to talk about three cent losses here.
Here's the XLU Monthly, Weekly, Daily and Hourly data charts:XLU Monthly data:
XLU Weekly data:
XLU Daily data:
XLU Hourly data:
Bonds:
This was a mildly bullish week for bonds as yields dropped from -2 to -5 basis points across the time horizon from 2-year to 30-year U.S. Treasury bonds. The big story was that the yield curve slope even further down (ie, negatively), so that today the yield on the 3-month T-Bills is 4 bp higher than 30-year T-Bonds.Also, the yield spread on the 10-year and 2-year Treasury paper is a negative -7 bp and the yield spread on the 2-year to 3-month Treasuries is now a negative -11 bp.
These are scary numbers to bankers. What they are now doing is watching their potential bad loan clients and their loan loss reserves carefully. They can see that the economy is pulling back quickly.
If you want a good job these days, head to the Special Loans Dept of the big banks. They are surely burning the midnight oil.
Interest rates and bond yields.
US Treasury Bonds Maturity Yield Yesterday Last Week Last Month 3 Month 4.96 4.94 4.95 4.94 6 Month 4.95 4.95 4.97 4.98 2 Year 4.85 4.87 4.87 5.06 3 Year 4.77 4.79 4.80 5.00 5 Year 4.74 4.76 4.78 4.97 10 Year 4.78 4.80 4.84 5.02 30 Year 4.92 4.93 4.97 5.09
Municipal Bonds Maturity Yield Yesterday Last Week Last Month 2yr AA 3.53 3.59 3.56 3.68 2yr AAA 3.52 3.58 3.55 3.72 2yr A 3.59 3.60 3.61 3.78 5yr AAA 3.61 3.65 3.63 3.79 5yr AA 3.63 3.67 3.64 3.83 5yr A 3.66 3.68 3.67 3.83 10yr AAA 3.79 3.80 3.83 4.02 10yr AA 3.77 3.79 3.81 3.99 10yr A 3.98 3.97 4.01 4.14 20yr AAA 4.16 4.17 4.21 4.39 20yr AA 4.15 4.16 4.20 4.38 20yr A 4.30 4.34 4.34 4.59
Corporate Bonds Maturity Yield Yesterday Last Week Last Month 2yr AA 5.28 5.31 5.31 5.47 2yr A 5.36 5.38 5.37 5.56 5yr AAA 5.24 5.26 5.30 5.51 5yr AA 5.33 5.37 5.39 5.59 5yr A 5.43 5.45 5.48 5.68 10yr AAA 5.61 5.63 5.70 5.79 10yr AA 5.54 5.55 5.62 5.82 10yr A 5.70 5.74 5.78 5.97 20yr AAA 5.84 5.89 6.04 6.09 20yr AA 6.02 6.07 6.15 6.32 20yr A 6.13 6.20 6.21 6.32
Interest rates and bond yields.
US Bond Funds -- Monthly Data Charts
SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
US Bond Funds -- Weekly Data Charts
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
US Bond Funds -- Daily Data Charts
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
US Bond Funds -- Hourly Data Charts
SHY Hourly data series chart:
IEF Hourly data series chart:
TLT Hourly data series chart:
AGG Hourly data series chart:
LQD Hourly data series chart:
TIP Hourly data series chart:
The consumer loan group (CFC, FNM and FRE) had a great week in the stock market. Enjoy the rally while it lasts. It's actually a good time to sell these into strength.
Table 11: Interest-sensitive securities
Sorted by 1-Week Price Performance. Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Consumer Finance -USA -- Weekly Data Charts
Consumer Finance -USA -- Daily Data Charts
Consumer Finance -USA -- Hourly Data Charts
Commodities:
$CRB gained +1.19 pct W/W to close at 336.26.
This week $WTIC (near oil futures) traded moderately higher this week, goig up +0.57 pct to 72.51, which is a gain of $+0.41.The surprises now will come from hurricanes because supply is tight, and refining and delivery infrastructure not too solid in the face of major storms in the Gulf.
Gold:
A week ago I wrote "$GOLD seems to want to test the support at 600. But I'm still a believer." On Friday, $GOLD rallied a bit ($2.30) +0.37 pct to close at 623.35. That put the yellow metal up ($9.25) +1.51 pct W/W.
But the goldminers told the story.
Weekly Gold EOD Continuous Contract Index:
Daily Gold EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Gold Bullion index.
$SILVER had another good week, going up +2.73 pct W/W to close at 12.40.
$SILVER did not capitulate in earlier weeks under pressure, as I pointed out.
Weekly Silver EOD Continuous Contract Index:
Daily Silver EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Silver Bullion index.
$PLAT closed up +0.84pct W/W to 1235.60.
Weekly Platinum EOD Continuous Contract Index:
Daily Platinum EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Platinum metal index.
$PALL gained +3.60 pct W/W after a week ago going up +3.88 pct. $PALL closed at 349.62.A week ago, about $PALL, I wrote: "No capitulation here."
Weekly Palladium EOD Continuous Contract Index:
Daily Palladium EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Palladium metal index.
$COPPER gained +0.99 pct W/W to 343.15. This is amazing when the "global economy is going to hell in a hand basket" story is so widespread.
Weekly Copper EOD Continuous Contract Index:
Daily Copper EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Copper metal index.
Table 12: Senior gold equities
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
The U.S.-listed goldminers ETF (GDX), and the Toronto goldminer index ETF (XGD) were up +4.17 pct, and +3.75 pct respectively.A week ago, with the big losses, I wrote: "As I have written, I am hanging in with the goldminers until I see (i) the $USD rally into a new bull trend, AND (ii) the current share prices fall below the 40-week/50-day Moving Averages. In the case of the current price/50-day MA, for GDX it is 38.38/37.87 and for XGD, it is 74.99/73.49. Close but this ain't horseshoes."
It pays to check the numbers, and to stay on the right side of the trend " unless you have very strong reasons (not stories) to do otherwise.
To watch the moves in precious metal miners, you will have to monitor the individual stock charts, preferably in real-time, as follows:
NEM ABX AU GFI GG HMY GLG KGC BVN
15-minute data
60-minute data
Daily data
Weekly data
MDG LIHRY AEM BGO IAG EGO PAAS GOLD CDE GRS
15-minute data
60-minute data
Daily data
Weekly data
CBJ SSRI RGLD SIL NG KRY HL TSE_HRG TSE_GUY TSE_AGI
15-minute data
60-minute data
Daily data
Weekly data
NXG GSS MNG DROOY MFN RNO RANGY MRB CLG GRZ
15-minute data
60-minute data
Daily data
Weekly data
Here are the key Silver miners and the SLV ETF:SLV SIL CDE HL PAAS SSRI SLW WTZ MGN
15-minute data
60-minute data
Daily data
Weekly data
Here are the Weekly and Daily Data charts of the indexes:
The U.S. goldminer share trust ETF trades under the ticker symbol GDX.
Here are the U.S. Goldminer ETF (GDX) index Weekly, Daily and Hourly data charts:
GDX Weekly data:
GDX Daily data:
GDX Hourly data:
The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF trades under the ticker symbol TSE:XGD.
Here are the Weekly and Daily data charts for the TSX Goldshares (XGD) index:
Forex:
The $USD regained a little ground this week. The $USD moved up +0.40 pct W/W to close at 85.43. No big deal.
The Euro (priced in USD) lost a little (-0.46 pct W/W) to close at 127.59 in USD. Not much, but a loss nonetheless.
The British Pound and the Canadian Dollar were up however, so I'm not thinking the move up in the USD amounts to much. I think it is tied to the Japanese Yen trade.
Weekly Euro Dollar Index, priced in USD:
Daily Euro Dollar Index, priced in USD:
Weekly British Pound Index:
Daily British Pound Index:
The British Pound gained +0.31 pct W/W to close 188.65.
Weekly Japanese Yen Index:
Daily Japanese Yen Index:
A week ago, I wrote: "The Yen is at a crossroads here. The current price of 86.29 is just above the 40-week MA and just below the 50-week MA. The bounce the Yen took this week (+0.43 pct W/W including +0.21 pct on Friday) helped keep the Yen above the crucial support of the 40-week MA. I use the Yen as another market indicator for gold. So, if the price starts trading above the 50-week MA (like the Euro) and appears, on the basis of other technical indicators, to be breaking out to the upside, then I'd feel comfortable that gold is going to rally."
This week the Yen actually broke down, while at the same time the gold stocks and bullion and the British Pound and Canadian Dollar rallied. So I'm going to watch the Yen more closely next week.
Weekly Canadian Dollar Index:
A week ago I wrote: "The Cdn Dollar is in the same position as the Yen. The current price (88.92) is above the 40-week MA (87.68) but just a bit below the 50-day MA (89.00). This week, the $CDW lost gained a small fraction (-0.11 pct) on the basis of some weak econ data at the end of the week."This week the Cdn Dollar rallied a lot +1.46 pct W/W.
Daily Canadian Dollar Index:
International Equities:
International equity markets this week were a mixed bag again.
Russia was up huge, which is what happens when metals and oil rally. The Templeton Russia Fund (TRF) was up +2.02 pct.
Table 13: International equities perspective
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%Change
Japanese equity market ETF: EWJ
The Japanese equity market ETF (EWJ, priced in USD), closed at 13.67, down -2.57 pct. Toyota Motor (TM) took a hit. Problem being "no tickee, no auto".
Here is the Japanese (EWJ) equity market ETF Monthly, Weekly, Daily and Hourly data charts:
U.K. equity market ETF: EWUEWU (priced in USD) lost fractionally -0.32 pct W/W, closing at 21.78 (seven cents on the week).
Here is the United Kingdom (EWU) equity market ETF Monthly, Weekly, Daily and Hourly data charts:
EWU Daily data:
Canadian equity market ETF: EWC
The EWC (Canada's equity market ETF that trades in the U.S. in USD) was up +2.01 pct this week o close at 24.82.
Even some of the Canadian banks are moving this market higher.
Here is the Canadian (EWC) equity market ETF Monthly, Weekly, Daily and Hourly data charts:
(Japan, Taiwan, Hong Kong, Singapore)
(U.K., Germany, France, Italy)
(Canada, Mexico, Brazil, Australia).
U.S. Equities:
A week ago I wrote, "You cannot fight the tape and win." I meant it on the upside, but this week, the tape turned weak.
The high-beta stock indexes Nasdaq and the Russell 2000 were down the most. The Nasdaq Composite lost -1.09 pct to 2140.29 and the Russell lost -1.75 pct to 699.24.
The S&P 500 and Dow 30 lost -0.55 pct and -0.85 pct respectively to 1295.08 and 11284.
Low volume persists, but the summer is almost over.
The Dow Transports ($DTX0X), which is an economic health indicator, fell again. It has been indicating problems for a while now.
Here is the Monthly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Hourly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
For the Dow 30 this week, there were 13 component stocks up and just 17 down. That's a huge change from a week ago where 27 had been up.
Table 14: Dow 30 List
Sorted by 1-Week Price Performance Symbol Close 1Day
Change1Day
%Change1W
%Change2W
%Change4W
%ChangeYTD
%Change3M
%Change6M
%Change12M
%ChangeYou can do this table yourself by entering the following string into the Summaries window at www.investertech.com and then clicking on the link for Performance.
AA AIG AXP BA C CAT DD DIS GE GM HD HON HPQ IBM INTC JNJ JPM KO MCD MMM MO MRK MSFT PFE PG T UTX VZ WMT XOM
Here are the links to interactive Dow charts from Investertech.com that I broke into groups of ten, which you can add technical indicators for as well. (list one) (list two) (list three)
This week, Value Line reviewed five Dow companies, including American International Group, American Express, Citigroup, JP Morgan and Microsoft.
VL likes the prospects for AIG, which after two bad quarters to end 2005, and a lot of trouble between former Chairman/CEO Hank Greenberg and New York State Attorney General Eliot Spitzer, seems to have come through with all flags flying.
American Express, on the other hand, is tied to the can of a weakening U.S. consumer. The big spenders are starting to pull in their horns, so, alas, AXP is seen by VL as having a tough voyage ahead.
For Citigroup shares, VL advises traders to look elsewhere for capital growth.
JP Morgan shares are seen by VL as being good for the 3 to 5 year haul, but a little pricy for now.
Microsoft is, like JPM, ranked great for 3 to 5 years out, but not so good for the next year.
Dow 30 list:
Alcoa [GICS 15, Dow 30]
(AA: Yahoo Finance file)
(AA: StockChart chart)
(AA: Investertech chart)
(AA: ADVFN Financial Data)
(AA: ADVFN Financial Data)
(AA: Value Line Report Jul. 21: next one is due Oct. 20)
Altria Group Inc [GICS 30, Dow 30]
(MO: Yahoo Finance file)
(MO: StockChart chart)
(MO: Investertech chart)
(MO: ADVFN Financial Data)
(MO: ADVFN Financial Data)
(MO: Value Line Report Aug. 4: next one is due Nov. 3)
American International Group [GICS 40, Dow 30]
(AIG: Yahoo Finance file)
(AIG: StockChart chart)
(AIG: Investertech chart)
(AIG: ADVFN Financial Data)
(AIG: ADVFN Financial Data)
(AIG: Value Line Report Aug. 25: next one is due Nov. 24)
American Express [GICS 40, Dow 30]
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Investertech chart)
(AXP: ADVFN Financial Data)(AXP: ADVFN Financial Data)
(AXP: Value Line Report Aug. 25: next one is due Nov. 24)
AT&T [GICS 50, Dow 30]
(T: Yahoo Finance file)
(T: StockChart chart)
(T: Investertech chart)
(T: ADVFN Financial Data)
(T: ADVFN Financial Data)
(T: Value Line Report Jun. 30: next one is due Sep. 29)
Boeing Co [GICS 20, Dow 30]
(BA: Yahoo Finance file)
(BA: StockChart chart)
(BA: Investertech chart)
(BA: ADVFN Financial Data)(BA: ADVFN Financial Data)
(BA: Value Line Report Jun. 23: next one is due Sep. 22)
Caterpillar [GICS 20, Dow 30]
(CAT: Yahoo Finance file)
(CAT: StockChart chart)
(CAT: Investertech chart)
(CAT: ADVFN Financial Data)(CAT: ADVFN Financial Data)
(CAT: Value Line Report Jul. 28: next one is due Oct. 27)
Citigroup [GICS 40, Dow 30, Cara 100]
(C: Yahoo Finance file)
(C: StockChart chart)
(C: Investertech chart)
(C: ADVFN Financial Data)(C: ADVFN Financial Data)
(C: Value Line Report Aug. 25: next one is due Nov. 24)
Coca Cola [GICS 30, Dow 30]
(KO: Yahoo Finance file)
(KO: StockChart chart)
(KO: Investertech chart)
(KO: ADVFN Financial Data)
(KO: ADVFN Financial Data)
(KO: Value Line Report Aug. 4: next one is due Nov. 3)
Disney [GICS 25, Dow 30, Cara 100]
(DIS: Yahoo Finance file)
(DIS: StockChart chart)
(DIS: Investertech chart)
(DIS: ADVFN Financial Data)(DIS: ADVFN Financial Data)
(DIS: Value Line Report May 19: next one is due Aug. 18)
Dupont [GICS 15, Dow 30]
(DD: Yahoo Finance file)
(DD: StockChart chart)
(DD: Investertech chart)
(DD: ADVFN Financial Data)(DD: ADVFN Financial Data)
(DD: Value Line Report Jul. 21: next one is due Oct. 20)
ExxonMobil [GICS 10, Dow 30, Cara 100]
(XOM: Yahoo Finance file)
(XOM: StockChart chart)
(XOM: Investertech chart)
(XOM: ADVFN Financial Data)
(XOM: ADVFN Financial Data)
(XOM: Value Line Report Jun. 16: next one is due Sep. 15)
General Electric [GICS 20, Dow 30, Cara 100]
(GE: Yahoo Finance file)
(GE: StockChart chart)
(GE: Investertech chart)
(GE: ADVFN Financial Data)(GE: ADVFN Financial Data)
(GE: Value Line Report Jul. 14: next one is due Oct. 13)
General Motors [GICS 25, Dow 30]
(GM: Yahoo Finance file)
(GM: StockChart chart)
(GM: Investertech chart)
(GM: ADVFN Financial Data)(GM: ADVFN Financial Data)
(GM: Value Line Report Jun. 2: next one is due Sep. 1)
Hewlett-Packard [GICS 45, Dow 30]
(HPQ: Yahoo Finance file)
(HPQ: StockChart chart)
(HPQ: Investertech chart)
(HPQ: ADVFN Financial Data)(HPQ: ADVFN Financial Data)
(HPQ: Value Line Report Jul. 14: next one is due Oct. 13)
Home Depot [GICS 25, Dow 30]
(HD: Yahoo Finance file)
(HD: StockChart chart)
(HD: Investertech chart)
(HD: ADVFN Financial Data) (HD: ADVFN Financial Data)
(HD: Value Line Report Jul. 7: next one is due Oct. 6)
Honeywell [GICS 20, Dow 30]
(HON: Yahoo Finance file)
(HON: StockChart chart)
(HON: Investertech chart)
(HON: ADVFN Financial Data)(HON: ADVFN Financial Data)
(HON: Value Line Report Jul. 28: next one is due Oct. 27)
IBM [GICS 45, Dow 30]
(IBM: Yahoo Finance file)
(IBM: StockChart chart)
(IBM: Investertech chart)
(IBM: ADVFN Financial Data)(IBM: ADVFN Financial Data)
(IBM: Value Line Report Jul. 14: next one is due Oct. 13)
Intel [GICS 45, Dow 30, Cara 100]
(INTC: Yahoo Finance file)
(INTC: StockChart chart)
(INTC: Investertech chart)
(INTC: ADVFN Financial Data)
(INTC: ADVFN Financial Data)
(INTC: Value Line Report Jul. 14: next one is due Oct. 13)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Yahoo Finance file)
(JNJ: StockChart chart)
(JNJ: Investertech chart)
(JNJ: ADVFN Financial Data)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report Jun. 2: next one is due Sep. 1)
JP Morgan [GICS 40, Dow 30]
(JPM: Yahoo Finance file)
(JPM: StockChart chart)
(JPM: Investertech chart)
(JPM: ADVFN Financial Data)
(JPM: ADVFN Financial Data)
(JPM: Value Line Report Aug. 25: next one is due Nov. 24)
McDonalds [GICS 30, Dow 30]
(MCD: Yahoo Finance file)
(MCD: StockChart chart)
(MCD: Investertech chart)
(MCD: ADVFN Financial Data)
(MCD: ADVFN Financial Data)
(MCD: Value Line Report Jun. 9: next one is due Sep. 8)
3M Company [GICS 20, Dow 30, Cara 250 June 25-06]
(MMM: Yahoo Finance file)
(MMM: StockChart chart)
(MMM: Investertech chart)
(MMM: ADVFN Financial Data)
(MMM: ADVFN Financial Data)
(MMM: Value Line Report May 19: next one is due Aug. 18)
Merck [GICS 35, Dow 30]
(MRK: Yahoo Finance file)
(MRK: StockChart chart)
(MRK: Investertech chart)
(MRK: ADVFN Financial Data)
(MRK: ADVFN Financial Data)
(MRK: Value Line Report Jul. 21: next one is due Oct. 20)
Microsoft [GICS 45, Dow 30]
(MSFT: Yahoo Finance file)
(MSFT: StockChart chart)
(MSFT: Investertech chart)
(MSFT: ADVFN Financial Data)
(MSFT: ADVFN Financial Data)
(MSFT: Value Line Report Aug. 25: next one is due Nov. 24) >
Pfizer [GICS 35, Dow 30]
(PFE: Yahoo Finance file)
(PFE: StockChart chart)
(PFE: Investertech chart)
(PFE: ADVFN Financial Data)
(PFE: ADVFN Financial Data)
(PFE: Value Line Report Jul. 21: next one is due Oct. 20)
Procter & Gamble Co. [GICS 30, Dow 30, Cara 100]
(PG: Yahoo Finance file)
(PG: StockChart chart)
(PG: Investertech chart)
(PG: ADVFN Financial Data)
(PG: ADVFN Financial Data)
(PG: Value Line Report)
United Technologies [GICS 20, Dow 30, Cara 100]
(UTX: Yahoo Finance file)
(UTX: StockChart chart)
(UTX: Investertech chart)
(UTX: ADVFN Financial Data)
(UTX: ADVFN Financial Data)
(UTX: Value Line Report Jul. 28: next one is due Oct. 27)
Verizon [GICS 50, Dow 30]
(VZ: Yahoo Finance file)
(VZ: StockChart chart)
(VZ: Investertech chart)
(VZ: ADVFN Financial Data)
(VZ: ADVFN Financial Data)
(VZ: Value Line Report Jun. 30: next one is due Sep. 29)
Wal-Mart [GICS 30, Dow 30, Cara 100]
(WMT: Yahoo Finance file)
(WMT: StockChart chart)
(WMT: Investertech chart)
(WMT: ADVFN Financial Data)
(WMT: ADVFN Financial Data)
(WMT: Value Line Report Aug. 11: next one is due Nov. 10)
Wrap up:
I have rushed this report in order to drive north to cottage country to join friends for somebody's 60th birthday party and retirement.
This report is not as complete as I'd like, and you'll have to excuse the typos because I never gave it a second read.
But, as my wife says, it's going to be good to get away from the computer and thinking about markets for a day and a half. I am not going to miss it at all. I need the break.
It now appears that the surgeon who I meet Wednesday may decide to operate or not operate on the melanoma that day. Like the market, however, it would be nice to know what's coming.
But also like the market, we're not in control of these things and cannot press. There are times when we just have to step back and take a deep breath. And a break.
Posted by Posted by Bill Cara on August 26, 2006 08:28:10 AM | Category: Cara Week in Review
Discourse
From the Globe & Mail today:
2007 economic growth reduced to 1.9% from 2.4%. Higher chance of recession predicted (40%, up from 15%):
http://www.theglobeandmail.com/servlet/story/RTGAM.20060825.wushousingslow0825/BNStory/Business/home
Posted by: ursus ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
August 26, 2006 11:53 AM [link]
Bond Bulls-
Remember that conundrum? It could work in reverse as well. If foreigners decide that low yields and a weak dollar make for a poor investment you could see treasury yields RISE in spite of a recession in the U.S.
The fed was unable to control the bond market when they wanted yields to rise... therefore they will also be unable to control bonds when they NEED yields to decline.
Maybe that break out in the TYX was not false? We'll know in a few months but I would be careful of assuming that yields can only go down from here. If yields turn up what would support equities?
JMHO
long: 1/2 former position in TLT
Posted by: stockman at
August 26, 2006 12:28 PM [link]
Stockman...you make an important observation.
Posted by: Leisa at
August 26, 2006 1:42 PM [link]
Bill,
Have a relaxing time off, and all the best with your health.
Stockman,
Good observation, but for the sake of the US economy I hope you are wrong.
It is my belief that CHina relies on the US consumer almost as much as we rely on them for both foreign investment and low cost goods/resources. I think it would have to get pretty bad for CHina to put their money elsewhere harming the US economy (and consumer), which in turn would hurt their economy which in a twisted way is as dependant on our consumption habits as we are on their low cost wares.
Posted by: rick s at
August 26, 2006 6:25 PM [link]
Rick s:
I think all it would take for China to want to harm the US economically is a dust-up over Taiwan, or less (conflict over oil vs. humanitarianism in Sudan, a mistake, like US bombing of Chinese embassy in Balkans or a "spyplane incident" that spins out of control). Surge of nationalist fervor might well balance disillusion from job loss.
For Iran or Venezuela (or any of the oil exporters) it might take much less. Oil exporters don't have the same employment/trade reasons for recycling dollars that China has.
When int'l business meets int'l politics, politics wins!
Jock,
I think China COULD harm the US economy if they wanted to in numerous ways, however the point I was making is that CHina needs the US economy and consumer to be financially healthy. (As a response to stockman's point that foreign investment may go elsewhere should US bonds become more unfavorable.) IMO CHina would continue their investment in US Bonds even if they could get more favorable yields/rates elsewhere, unless the bottom totally fell out.
Posted by: rick s at
August 27, 2006 4:13 AM [link]
"However, with the huge cost anticipated for the Middle East military adventure, Bush's advisors made a mistake that the U.S. economy could be made to grow so fast that the resulting tax flow might cover it."
You're straying into politics again, as well as engaging in mind-reading of political leaders, and this time it causes you to get a very basic fact wrong, Bill. The federal budget deficit has been very rapidly declining in the wake of what you describe as a "Middle East military adventure."
FY04 Deficit (beginning of the "adventure"): $413 billion
FY05 Deficit: $318 billion
FY06 Deficit (current): $260 billion
As I previously said, when you veer off of finance and into political commentary, you harm the credibility we can put on your analysis.
Posted by: Novalawyer at
August 27, 2006 7:53 AM [link]
Posted by: oratier at
August 27, 2006 8:53 AM [link]
http://www.whitehouse.gov/omb/pdf/overview-07.pdf
http://cbo.gov/ftpdocs/74xx/doc7492/Summary.pdf
A deficit is a deficit regardless of the spin. It's spending money you don't have. Forget the amount or percentage decline. It still a DEFICIT!
BTW...take a look at Figure 1 in the CBO summary: The actual revenues vs actual outlays (pay particular attention to the surplus' during the Clinton Administration) - try spinning that.
Posted by: oratier at
August 27, 2006 9:05 AM [link]
It's my understanding the cost of Iraq military operations are not included in the deficit figures.
It's positive news tax revenues for the recent period helped to reduce the deficit without including costs of Iraq. Unfortnately, in the land of smoke and mirrors, the true federal deficit including Iraq is worse than published.
Posted by: Seamus at
August 27, 2006 9:18 AM [link]
Re: "It's my understanding the cost of Iraq military operations are not included in the deficit figures."
If you have the time and the knack for reading "Government-ese" a good place to start is this link: http://cbo.gov/
BTW... in my previous postings above, I attempted to provide a counterpoint to the "...lawyer's" spin on deficit reduction. One link (above) is attempting the old smoke and mirrors routine, the other is attempting to provide infomation based on available data - you choose which is which.
Posted by: oratier at
August 27, 2006 9:35 AM [link]
Just to clarify the earlier post, it's the supplemental appropriations that are not included in the deficit.
Oratier--thanks for the info. If it was a rainy day, I might make time to skim, but it's decent outside. Enjoy the weekend.
Posted by: Seamus at
August 27, 2006 9:48 AM [link]
Besides oil prices, I believe that current rally can also be attributed to hopes for "soft landing". You do not go from growth to hard landing. There is a period in the middle when soft landing seems possible until new economic numbers comes out. We are in this period and hopes lead to a rally.
Traders may also be looking at November US elections. It does not look good for current administration according to polls. Hopes of change in fiscal policy, budget and different governance in US increase optimism in the stock market.
Posted by: biochemist at
August 27, 2006 10:24 AM [link]
Novalawyer stated "The federal budget deficit has been very rapidly declining in the wake of what you describe as a "Middle East military adventure."
As Bill would say, "Not!"
There are essentially three ways to look at the Federal deficit.
The Congressional Budget Office (CBO) reports on the "Unified Budget" which includes the annual surplus from Social Security Insurance.
Next is the "General Fund Budget" or "on-budget" that excludes the SS Insurance surplus, but includes surpluses from Military Retirement, Federal Employee Retirement and many other trust funds.
The third approach is to use the annual increase in the National Debt as the annual deficit.
The National Debt link: http://www.publicdebt.treas.gov/opd/opdpdodt.htm
For Fiscal Year 2005 (9/30/2004 thru 9/30/2005), the General Fund deficit was $493 Billion and the increase in the National Debt was $553 Billion - a gap of $60 Billion in non-SS off-budget expenditures.
For Fiscal Year 2006 (9/30/2005 thru 9/30/2006, the General Fund deficit is projected to be $437 Billion. As of 8/24/2006, the increase in the National Debt so far is $575 Billion and is projected to ne $600 Billion.
Over the last three years Congress has financed the entire war in Iraq, as well as the war in Afghanistan, with emergency supplemental requests that have totaled $248 billion. These emergency supplemental requests are not included in the "Unified Budget" nor do they appear in the "General Fund Budget"
Funding the "Middle East military adventure." by off-balance sheet methods make the deficit appear smaller, even as it gets increasingly larger.
Posted by: JIM at
August 27, 2006 10:57 AM [link]
I think Bill's bottom line is; that the growth in debt (pay for war) plus the slowing economy (lower tax receipts) will continue to grow the Current Account Deficit which means: lower dollar leading to inflated consumer costs (hurting the little guy) leading to continued slowing economy (due to lower consumer spending) and inflation (stagflation) leading to, drumroll please, higher gold prices and tough times for equity market. As money managers take this as fact, more money may move out of equities or into more defensive equities and Bernanke's printing press may go into overdrive to keep things afloat. If that is not Bill's story, it is mine and I am sticking to it.
Long gld, various miners.
Posted by: g034 at
August 27, 2006 11:39 AM [link]
Measuredmarkets Inc., a research firm in Toronto, found indications of suspicious trading in the securities of 41 percent of companies receiving buyout bids.
Of course this was immediately dismissed by the S.E.C. who "would not comment on the study but said that it had looked at Measuredmarkets' system and concluded that surveillance techniques of self-regulatory organizations like the New York Stock Exchange were more sophisticated." LOL!
Link: http://tinyurl.com/k27we
Posted by: JIM at
August 27, 2006 11:51 AM [link]
Per Novalawyer: "As I previously said, when you veer off of finance and into political commentary, you harm the credibility we can put on your analysis."
Novalawyer: I would appreciate your according me (I wouldn't not dream of speaking on behalf of others here) the simple courtesy of expressing your opinion in way that does not somehow rope me into it. Therefore, I would suggest a simple edit to your admonishment of Bill: please excise out "we" and replace it with "I". I consider myself part of the collective "we", and I would no way wish to be associated with the tenor or content of your post.
Posted by: Leisa at
August 27, 2006 12:25 PM [link]
IMO, the American government had no choice regarding the dropping of interest rates to 1%. The popping of the bubble; recession; 9/11; anthrax; Enron; MCI; accounting scandals; Teliban; Iraq and the constant threat of terrorism. The U.S., and for that matter, the rest of the world economies were on very shakey ground. Only way to avoid a severe global depression was to run the U.S.$ printing presses full time. Unfortunately, we live in a world where very few other countries are willing to step up to the plate in times of crisis. By stepping up to the plate, I imply spending 100s of billions of $$$$ to fight terrorism. This is of course just my opinion. Can we get back to the markets now?
Posted by: ragingtrader at
August 27, 2006 1:04 PM [link]
In regards to recent market strength-
1) We have been in a window that seasonally favors strength in equities on a normal calendar basis AND during the Midterm years (that ended on Friday +/-).
2) We were oversold (no longer)
3) We have sentiment surveys and asset allocation Rydex at bullish extermes relative to the bull market period we have been in. But the Rydex data is most important to me- it is actual action vs. a survey. And if one looks at the cycle lows in 1998 and 2002 we have not even gotten close to normal 4 year cycle low.
Given that we are at a perilous inflection point in housing, economy, commodities, etc... it seems unwise to me to chase stocks here. We know that this is a most hazardous period in the calendar- from the 4th week in Aug through October. Perhaps some of the longer term issues will become more clear over the next few months or follow the normal path of becoming reflected in stock prices. Whichever, from the end of October we enter the 'best 6 months' of the calendar cycle and 'the best two years' of the 4 year cycle.
While I try and point out long side ideas that I believe odds favor outperformance in- I should also add that in my investment accounts where I have a minimum equity exposure of 55% and maximum of 100%... I am at 55%. For my trading account I have substantially less exposure.
On BONDS- it is not only what actually happens that is important. Investor mood swings can cause some pretty good price swings as fears and uncertainty eventually come into any widely held view. Bonds, utes and financials are a crowded trade in my view- I am only pointing out there are risk to those positions as perceptions could change. For our bond market to come under pressure would not require forein owners to sell; they do not have to stop buying all together; they may only need to reduce the allocation going into our bonds to create a drag.
Trying to think this through- IF we go into recession- doesn't that mean
#1 our debt financing needs will go UP?
#2 our purchases of mfg goods from exporting companies will go down?
#3 our imports of oil (in $$$) will go down as it declines in price? and consumption declines
And doesn't that mean that those foreign buyers will have less dollars to recycle into our bond market?
The virtuous circle we have been in requires all these parts to continue to function- a consumer recession like 1990 would appear to offer a hiccup in that virtuous circle. So a 'bond bull market' seems to me to be less certain than past cycles. Now if you don't believe we get a hard landing, then I would question why anyone would chase bonds here.
Not saying this is going to happen so much as pointing out the risk of chasing or not having a sell discipline to those who may be less experienced.
I'll stop rambling-
JMHO
Posted by: stockman at
August 27, 2006 1:09 PM [link]
In terms of seperating politics and financial markets, it is becoming more difficult as political/world circumstances are arguably becoming the most influencial market catalysts.
This will continue as long as the US and much of the wolrd rely on the sweet crude from the middle east. The situation in Iran could be very negative for the US economy, even with full G-8 cooporation. I think Bill was pointing out that the US is relying too much on debt to finance its actions both at home and abroad. Regrdless of calculation method or opinion on Iraq, the national deficit is a political problem that will eventually expand to the fed, the bond market, etc.
Posted by: rick s at
August 27, 2006 1:15 PM [link]
Re: "There are essentially three ways to look at the Federal deficit."
Great Read!
I believe the challenge is reconciling the CBO and Treasury numbers to gain a sense of the actual deficit numbers. Anyone tired of "the spin" should attempt this exercise.
Posted by: oratier at
August 27, 2006 2:02 PM [link]
Stockman makes some very interesting points regarding bonds here...
This week as I make my trades: besides the price of oil - what I will be watching the most is how the inversion attempts to resolve itself - and the reaction of equities to this.
(a) Will there be one last inflation scare causing bonds to drop along with equities?
Probably something said in Tues Fed minutes release.
(b) Or will oil continue to drop and short term rates drop? If this happens despite
the last week of Aug and September being seasonally unfavourable - equities could still rise unless the drop is interpreted as "recession" in which case equities drop sharply.
However as pointed out by stockman and others - the COT data on bonds is interesting in that it is all spec traders going long - not commercials..
So I favour (a) as it gives Ben more breathing room going forward and it fits with the seasonals- but I remain on alert for (b)
tradesman
Posted by: Tradesman at
August 27, 2006 4:12 PM [link]
I don't know if the information contained in following news article will have a significant impact on oil prices; however, it may (read MAYBE) be a sign of oil sources closing their doors to the West and their allies( unheard of a decade ago). http://www.forbes.com/business/feeds/ap/2006/08/27/ap2975394.html
Posted by: oratier at
August 27, 2006 4:47 PM [link]
No value to add, but wanted to share a thanks to Bill and the commenters. Did I hear MarkM is gone? -Take care and good health Bill.
Posted by: rusticuf at
August 28, 2006 12:05 AM [link]
http://www.gao.gov/cghome/d061078cg.pdf
Terry Savage on the Street.com just today wrote a column about deficits and referenced the difference between cash and accrual based deficit. She also referenced the comptroller general's presentation which readers my find of interest. It adds an important dimension to the discussion that is not readily apparent in the other "official docs" that have a bit of spin in them.
Posted by: Leisa at
August 28, 2006 6:43 AM [link]
Bonds-
Aug. 28 (Bloomberg) --
"Hedge funds and other speculators are wagering more than ever on the rally in U.S. Treasuries.
Speculators at the Chicago Board of Trade own 347,559 more futures contracts betting that prices of 10-year Treasury notes will rise more than those that would profit from a decline in the benchmark government note. That amounts to an almost $35 billion gamble that the gains will continue.
The record amount, reported by the Commodities Futures Trading Commission, is a sign traders are convinced two-years of interest rate increases by the Federal Reserve are slowing growth enough to curb inflation. They're joining investors such as Bill Gross of Pacific Investment Management Co., who runs the world's largest bond fund, who grew more bullish during the two-month rally that has pushed 10-year note yields to five-month lows....... Large speculative long positions, or bets prices will rise on 10-year notes, totaled 675,003 in the five days ended Aug. 22, the Washington-based commission said in its Commitments of Traders report. By contrast, the total speculative short positions, or wages on a decline, was 327,444."
"The largest net long position on record before this month -- 183,000 contracts on March 17 -- was followed by a half-point increase in the 10-year note's yield over the next two months, and a collapse in speculators' net long position to zero."
Posted by: stockman at
August 28, 2006 7:19 AM [link]
Re: "Terry Savage on the Street.com just today wrote a column about deficits"
I hope the commentator won't mind my taking liberties by posting the referanced article below,
http://www.thestreet.com/_tscs/markets/economics/10305903.html
and
The GAO report contain a great deal of U.S. budget information compiled from separate sources into a slick (-; looking package - still hard to decipler though.
"Current fiscal policy is not sustainable, and hard choices must be made ... we're mortgaging the future of our children and grandchildren and creating a shameful legacy."
The above quote from Terry's article, having been published countless times before, has become a cliche. I believe the average reader either lack the capacity to understand the implications contained in the quote - or don't care (i.e self-preservation first and foremost)
Posted by: oratier at
August 28, 2006 7:33 AM [link]
Stockman
Ramble until you can ramble no more, again, very informative and well thought out posts
Posted by: tgifbipo at
August 28, 2006 7:51 AM [link]
Oratier- I suppose the lack of understanding leads to the "I don't care". I agree with your comment on the cliche...but it at least was around long enough for our getting a balanced budget in recent memory. Let's face it, there is little out there that allows folks to assimilate and distill the information. Budgetary policy is complex. I don't think that average reader is equipped to understand it because (as with market commentary)there are some very smart people on both sides of the argument making very compelling cases as to why the other side is wrong or how it is "different this time." I'll readily admit that I'm not well equipped. But I understand well-enough to understand that running a deficit and reducing taxes is an incongruency.
If the deficit etc. are to become issues that starts to effect folks, it will happen through our having a difficult time selling our debt to finance our "egregiously-sized" or "not-so-egregiously sized" deficit.
I suppose that it's like business--it doesn't matter what you think about your product or your business model, it's ultimately what your customers think. So what any of us thinks about the size of our deficit, amount of debt etc, is inconsequential (oh it pains to say that!). But if the customers of our debt stop buying or demand higher prices....then that speaks to what stockman posited in an earlier post.
Posted by: Leisa at
August 28, 2006 8:33 AM [link]
Leisa,
Thoughtful commentary.
The "cliche" comment is partly due to my frustration with current public dialog, as in "Why can't they see what I see?" (-:
Seriously, we the people sincerely hope you continue adding more to the discourse at this Blog. Folks are beginning to take notice. And that'a a good thing.
Posted by: oratier at
August 28, 2006 9:07 AM [link]
Oratier
Your comments are kinder than I deserve. Thank you.
Posted by: Leisa at
August 28, 2006 10:11 AM [link]
ALOHA!!
Yes, it is unfortunate but the rule is nobody stays on "top" forever and that includes the empire of the USA. No matter how much spin you throw out certain dynamics have and will continue to shift that is out of control of the US government and the US Fed. Financial markets are at stake and huge bets are on the derivitives table ... off table betting and as the Fed and SEC prefer ... totally unregulated! TICK ... TICK !!! Where's that chart? Refco anyone?
Truly we as a Nation must depend on the kindness of strangers(foreigners)for our material and financial future. Export manufacturing and borrow to the hilt and there you have it ... instant conundrum.
Tax wise you "cannot squeeze blood out of a pineapple"(Hawaiian saying)and I believe the US citizen is close to "taxed out". Add in unlimited money printing(silent tax)inflation and something has to give. Choices are limited just like the Fed ... print money or not print money ... spend or not spend. Where does 70million "voting" retiring baby boomers fit into the budget? Lets face it if you're too old to work and the government shuts off(taxes up)your meager Social Security checks then the Average Joe will be forced to liquidate savings, homes, art and perhaps even their 401ks and ETrade accounts to maintain their lifestyle and medical bills. Babyboomers are retiring into a financial hurricane and will not be happy about it with their votes. Yet voting never cured anything financial ... If it did we wouldn't be in this mess now.
It is true what Bill says ... I have said forever ... is that the US government cannot afford these military adventures. We cannot compete in a guerilla war against a society that has an unlimited historical supply of "suicide bomber mentality" while Americans offer up an unlimited supply of TV and Vegas mentality! War is not fun especially guerilla war ... So let the CBO play their Enron games and leave the price of war out of the budget. Budget wise not only the US government is running the gauntlet but so are all its citizens. So many now depend on direct government assistance that it is one huge welfare state. Everyone from government workers, defense contractors, unions, elderly, disabled, poor ... add in indirect welfare recipients like the construction industry and banking and there really isn't one single industry that does not receive a government sponsored check. Camoflauged Socialism ...
Dire straits exist and the "shoe" can drop at any time. While we all trade the markets gambling for a "trade up" in lifestyle, I agree with Bill, in that the markets are more tricky thanks to government and bank meddling. They are attempting to practically rewrite economics to succeed and I will bet against that ... Money is the lifeblood of any society and ours is anemic.
Aside from my gambling strategy(stock market)... like Cramer calls it "Mad Money" ... being debt free is high on my list of financial goals. If we were all debt free(no mortgage)that would leave almost nothing for stock market gambling!
Back to the "cliche' ... short and sweet ... the future's spent!
Posted by: kaimu at
August 28, 2006 10:42 AM [link]
Market is going crazy today, IMO a rally to scare off all of the short sellers and put buyers. I can not believe the spike.
It seems that somehow the Iranian issue has fallen out of the picture. However I see Iran as significant as any of the economic reports this week. http://online.wsj.com/article/SB115667380196846652.html?mod=world_news_whats_news
AM I crazy, or does this seem like something that will weigh down the market?
Posted by: rick s at
August 28, 2006 11:19 AM [link]
Recommended reading:
Fingers of Instability
http://www.frontlinethoughts.com/index.asp
The chart on correlation of NAHB and SPX should spook any bulls-
JMHO
Posted by: stockman![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
August 26, 2006 11:21 AM [link]