Corporate profits bottoming out
Econoday Short Take 5/6/09
By Mark Pender, Senior Financial Writer, Econoday
The first-quarter earnings season has proven to be one of the very best in memory, showing very few negative surprises and helped by major improvement in bank earnings. With about three quarters of the season over, profits for the S&P 500 are down 34.7 percent on the year. That sounds bad of course but it's no surprise, and that's what turns out to be the surprise. During the seven quarters of ongoing profit contraction, final results have routinely come in far below expectations. To what degree current share price gains in the financial sector are tied to the accounting switch to mark-to-model from mark-to-market is uncertain but the switch certainly hasn't hurt. With all the major firms having reported except AIG, financials in the S&P 500 are posting a net $13 billion net profit for the first quarter versus a net $74 billion loss in the fourth quarter of 2008. Two thirds of financial firms are now beating estimates. No wonder bank shares have been rallying strongly over the past three weeks, lifting the whole stock market with them. (Earnings data courtesy of Thomson Reuters unit First Call).
Base effects pending
Profits have been on such a long deep slide that comparisons are now very easy, a factor that looks to make for outsized gains in the quarters ahead. In the graph below, the solid blue bars represent actual year-on-year quarterly profit change over the past six years. The open bars on the right side of the graph are analyst expectations for the coming quarters. The rate of contraction is expected to hold steady in the ongoing quarter and then ease in the third quarter. But against the dreadfully easy comparison of fourth quarter 2008, fourth quarter 2009 profits are expected to jump 165 percent!
The S&P 500 index has really been rallying this year, now holding at 900 and up from a low of 666.79 in early March. That was when word came of income improvements at Citigroup and Bank of America, news that started the whole rally which is now being fed further by the financial sector's actual results. There are plenty of factors behind share values, too long to list. But changes in profits are without a doubt right at the very top.
Profit growth exceeded stock market appreciation through much of 2004 through 2006. Then profit growth slowed and began to contract, this while share prices kept going higher. Note that contraction in S&P profits first appears in third-quarter 2007, preceding the economic recession by more than a full year. For the past year, changes in profits and changes in share prices have been in line. Were the second quarter to end today, profits and share prices would be almost perfectly in line.
Earnings season primer
The two- to three-week approach to an earnings season is often a touchy time for the stock market. Company news is light and the news that is released is often negative as companies who have done poorly come clean in what is known as the confession season. This confession season was actually positive, with the S&P 500 moving from about 780 in late March to over 850 by early April.
The exact dates for an earnings season are difficult to pin down but they're centered in the months immediately following the end of a calendar quarter. The graph below tracks changes in the S&P 500 from the beginning of an earnings season (red bars) to what we'll consider to be the end of the season at month end (gold bars). April 1st may be a day for fools but it also would have been a very good day to have gone long the stock market, as shown on the very right of the graph. The S&P 500 rose 7.6 percent in the month of April and is up 13.3 percent when adding the three trading days of May. But the gain has to be compared against the 11.4 percent loss of January's fourth-quarter 2008 earnings season and the massive 16.6 percent loss in the third-quarter 2008 earnings season of October.
Bottom Line
Profit data definitely support hopes that economic recovery is on the way. But it's important to remember the base effect, namely that the prior contraction has pulled current levels to a much lower level. But levels have stabilized and, as hinted at by the 165 percent gain expected for the fourth quarter, improvement from these levels may very well be something to see. Should profits improve, foreign investment into U.S. equities could become an important factor for the market. Foreigners have been pulling their money out of the U.S. market over the past year-and-a-half. But the emergence of profit growth would no doubt pull foreign money off the sidelines, feeding what could be a very nice rally for U.S. stocks.
Wednesday, May 6, 2009
Tuesday, May 5, 2009
Redbook
Released on 5/5/2009 8:55:00 AM For wk5/2, 2009
Previous Actual
Store Sales Y/Y change 0.7 % 0.3 %
Highlights
Redbook and ICSC-Goldman are offering differing takes on store sales with Redbook, at a year-on-year +0.3% in the May 2 week, indicating strength while ICSC, reported earlier this morning at -0.8%, indicating weakness. Still Redbook's latest reading is down from the prior week, the result it said of swine flu which kept shoppers at home. Redbook estimates that full month April sales, benefiting from this year's Easter shift, rose 1.5 percent compared to March, a result that points to strength for the non-auto non-gas category of the monthly retail sales report. Redbook sees strength continuing, targeting a 0.5 percent month-to-month rise for May.
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales
Why Investor's CareConsumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.
Frequency
Weekly
Revisions
Sometimes for the previous week
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.
Previous Actual
Store Sales Y/Y change 0.7 % 0.3 %
Highlights
Redbook and ICSC-Goldman are offering differing takes on store sales with Redbook, at a year-on-year +0.3% in the May 2 week, indicating strength while ICSC, reported earlier this morning at -0.8%, indicating weakness. Still Redbook's latest reading is down from the prior week, the result it said of swine flu which kept shoppers at home. Redbook estimates that full month April sales, benefiting from this year's Easter shift, rose 1.5 percent compared to March, a result that points to strength for the non-auto non-gas category of the monthly retail sales report. Redbook sees strength continuing, targeting a 0.5 percent month-to-month rise for May.
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales
Why Investor's CareConsumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.
Frequency
Weekly
Revisions
Sometimes for the previous week
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.
Pending Home Sales Index
Released on 5/4/2009 10:00:00 AM For March, 2009
Previous Actual
Pending Home Sales Index - Level 82.1 84.6
Pending Home Sales Index - M/M 2.1 % 3.2 %
Highlights
Government efforts to push mortgage rates lower in combination with financing incentives and falling home prices may be turning the housing sector around at long last. The pending sales index rose 3.2 percent to 84.6 in March pointing to improvement in existing sales for April and May. Gains were centered in the Midwest and South, but a decline in the West, where the housing collapse is centered, does pose the only bad news in the report. Construction spending for March was also released at 10:00 ET and shows the first increase in six months. Markets showed no reaction to the reports at least initially, though they should give stocks an extra boost through the session and may also raise talk of easing toxic pressures on banks.
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
2009 Release Schedule
Released On: 1/6 2/3 3/3 4/1 5/4 6/2 7/1 8/4 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Why Investor's Care
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Monthly
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
Previous Actual
Pending Home Sales Index - Level 82.1 84.6
Pending Home Sales Index - M/M 2.1 % 3.2 %
Highlights
Government efforts to push mortgage rates lower in combination with financing incentives and falling home prices may be turning the housing sector around at long last. The pending sales index rose 3.2 percent to 84.6 in March pointing to improvement in existing sales for April and May. Gains were centered in the Midwest and South, but a decline in the West, where the housing collapse is centered, does pose the only bad news in the report. Construction spending for March was also released at 10:00 ET and shows the first increase in six months. Markets showed no reaction to the reports at least initially, though they should give stocks an extra boost through the session and may also raise talk of easing toxic pressures on banks.
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
2009 Release Schedule
Released On: 1/6 2/3 3/3 4/1 5/4 6/2 7/1 8/4 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Why Investor's Care
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Monthly
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
Construction Spending
Released on 5/4/2009 10:00:00 AM For March, 2009
Previous Consensus Consensus Range Actual
Construction Spending - M/M change -0.9 % -1.0 % -2.0 % to -0.1 % 0.3 %
Construction Spending - Y/Y change -11.1 %
Highlights
Construction spending in March rebounded unexpectedly but housing is still on a downtrend. Construction outlays posted a 0.3 percent gain in March, following a 1.0 percent decrease the month before. The rise in March was much better than the market forecast for a 1.0 percent fall. The rebound in March was led by private nonresidential outlays which jumped 2.7 percent after a 0.7 increase in February. The public component also advanced 1.1 percent, following a 1.3 percent boost the month before. However, the private residential component continued its downward trend, falling 4.2 percent after a 5.9 percent plunge in February.
Within private residential outlays, the single-family component dropped a monthly 8.6 percent while the multifamily component slipped 1.1 percent in the latest month.
On a year-on-year basis, overall construction outlays weakened to down11.1 percent in March, from down 10.1 percent in February.
Construction outlays in March indicate that businesses may be looking ahead toward the end of recession when increased capacity is needed. And we may be seeing a rising in public construction from fiscal stimulus beginning. But the important housing sector has not yet hit bottom. However, today's pending home sales report was moderately positive, indicating that outlays in this sector could be bottoming soon. Equities rose on the news of improvement in both outlays and pending home sales.
Market Consensus Before Announcement
Construction spending in February fell again but not as much as expected. Construction outlays dropped another 0.9 percent in February, after plunging 3.5 percent in January. Weakness in February was led private residential outlays, which fell 4.3 percent. The single-family subcomponent dropped 10.9 percent while the multifamily portion slipped 2.1 percent. The other two major components actually made partial rebounds. The private nonresidential component rose 0.3 percent after a 4.3 percent drop in January. Public outlays rebounded 0.8 percent, following a 2.4 percent decrease the month before. Looking ahead, the drop in the level of housing starts on average over the last three months indicates that the residential component of outlays will likely continue downward in March, pulling down overall construction spending.
Definition
The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars. Why Investors Care
Data Source: Haver Analytics
Over the last year, a decline in residential outlays has pulled down year-on-year growth for overall construction outlays. Nonresidential and public outlays are positive with nonresidential actually strong.
Data Source: Haver Analytics
2009 Release Schedule
Released On: 1/5 2/2 3/2 4/1 5/4 6/1 7/1 8/3 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Previous Consensus Consensus Range Actual
Construction Spending - M/M change -0.9 % -1.0 % -2.0 % to -0.1 % 0.3 %
Construction Spending - Y/Y change -11.1 %
Highlights
Construction spending in March rebounded unexpectedly but housing is still on a downtrend. Construction outlays posted a 0.3 percent gain in March, following a 1.0 percent decrease the month before. The rise in March was much better than the market forecast for a 1.0 percent fall. The rebound in March was led by private nonresidential outlays which jumped 2.7 percent after a 0.7 increase in February. The public component also advanced 1.1 percent, following a 1.3 percent boost the month before. However, the private residential component continued its downward trend, falling 4.2 percent after a 5.9 percent plunge in February.
Within private residential outlays, the single-family component dropped a monthly 8.6 percent while the multifamily component slipped 1.1 percent in the latest month.
On a year-on-year basis, overall construction outlays weakened to down11.1 percent in March, from down 10.1 percent in February.
Construction outlays in March indicate that businesses may be looking ahead toward the end of recession when increased capacity is needed. And we may be seeing a rising in public construction from fiscal stimulus beginning. But the important housing sector has not yet hit bottom. However, today's pending home sales report was moderately positive, indicating that outlays in this sector could be bottoming soon. Equities rose on the news of improvement in both outlays and pending home sales.
Market Consensus Before Announcement
Construction spending in February fell again but not as much as expected. Construction outlays dropped another 0.9 percent in February, after plunging 3.5 percent in January. Weakness in February was led private residential outlays, which fell 4.3 percent. The single-family subcomponent dropped 10.9 percent while the multifamily portion slipped 2.1 percent. The other two major components actually made partial rebounds. The private nonresidential component rose 0.3 percent after a 4.3 percent drop in January. Public outlays rebounded 0.8 percent, following a 2.4 percent decrease the month before. Looking ahead, the drop in the level of housing starts on average over the last three months indicates that the residential component of outlays will likely continue downward in March, pulling down overall construction spending.
Definition
The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars. Why Investors Care
Data Source: Haver Analytics
Over the last year, a decline in residential outlays has pulled down year-on-year growth for overall construction outlays. Nonresidential and public outlays are positive with nonresidential actually strong.
Data Source: Haver Analytics
2009 Release Schedule
Released On: 1/5 2/2 3/2 4/1 5/4 6/1 7/1 8/3 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
ICSC-Goldman Store Sales
Why Investor's Care
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.
Released on 5/5/2009 7:45:00 AM For wk5/2, 2009
Previous Actual
Store Sales - W/W change -0.7 % 0.7 %
Store Sales - Y/Y -1.7 % -0.8 %
Highlights
ICSC-Goldman said hot weather boosted same-store chain store sales by 0.7 percent in the May 2 week though the year-on-year rate remains negative at -0.8 percent. Redbook is up next.
Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.
Released on 5/5/2009 7:45:00 AM For wk5/2, 2009
Previous Actual
Store Sales - W/W change -0.7 % 0.7 %
Store Sales - Y/Y -1.7 % -0.8 %
Highlights
ICSC-Goldman said hot weather boosted same-store chain store sales by 0.7 percent in the May 2 week though the year-on-year rate remains negative at -0.8 percent. Redbook is up next.
Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.
Market Reflections 5/4/2009
A strong purchasing report out of China combined with improvement in U.S. construction spending and pending home sales are lifting the economic outlook, in turn lifting the stock market and a host of commodities in Monday's trade. The S&P rose 3.4% to 907, its highest close since early in January.
Accounts moved out of the safety of the dollar, which lost 1-1/2 cents to $1.3406 against the euro, and moved money into commodities. Copper was a big mover, back near $2.10/lb, but oil was a standout, ending $2 higher to $54.50 for its best level since November. But the gains didn't dent gold which firmed slightly to $900. The easing in swine flu concern didn't help hog prices as June lean hogs fell another 2.8% to 63.78 cents/lb.
Banks were very big gainers in the session with the Financial SPDR jumping 10% to $11.73. News that the White House doesn't expect to ask for more bailout money for the banking sector gave a boost as did speculation that the worst news is already out. A report that regulators are telling Wells Fargo it needs to raise more money did not hurt the bank's shares in the least, jumping 24% to $24.25.
Accounts moved out of the safety of the dollar, which lost 1-1/2 cents to $1.3406 against the euro, and moved money into commodities. Copper was a big mover, back near $2.10/lb, but oil was a standout, ending $2 higher to $54.50 for its best level since November. But the gains didn't dent gold which firmed slightly to $900. The easing in swine flu concern didn't help hog prices as June lean hogs fell another 2.8% to 63.78 cents/lb.
Banks were very big gainers in the session with the Financial SPDR jumping 10% to $11.73. News that the White House doesn't expect to ask for more bailout money for the banking sector gave a boost as did speculation that the worst news is already out. A report that regulators are telling Wells Fargo it needs to raise more money did not hurt the bank's shares in the least, jumping 24% to $24.25.
Saturday, May 2, 2009
Weekly Market Update (5/1/09)
HEADLINE NEWS WEEK ENDING 5/1/09
Overview
The US economy shrank at an annual rate of 6.1% in the first quarter of 2009 after contracting at a 6.3% pace in the fourth quarter of 2008. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
US MARKETS
Treasury/Economics
US Treasuries sold-off this week, breaking recent support levels in 10-year and 30-year yields, for several reasons. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Large-Cap Equities
The stock market rallied modestly this week despite fears of a pandemic flu outbreak and the government stress tests. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Corporate Bonds
Investment grade primary activity picked up slightly this week despite nearly a third of companies reporting first quarter earnings. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Mortgage-Backed Securities
A slew of economic reports suggesting a glimmer of hope for financial markets helped mortgages outperform Treasuries. more..http://payden.com/library/weeklyMarketUpdateE.aspx#overview.
Municipal Bonds
Build America Bonds (BABs) finished the week tighter in spread to US Treasuries (the difference in yield between BABs and Treasuries) while the broader municipal bond market struggled. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
High-Yield
The high yield market finished April as one of the best performing global assets classes. The broad high yield indices, such as the Merrill Lynch High Yield Constrained Index, were up over 11% for the month, with the lower end of the market rallying most. more...
http://payden.com/library/weeklyMarketUpdateE.aspx#overview
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were insurances (+10.2%) and banks (+9.6%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.3% this week, while the Russian stock index RTS went up +0.2%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Global Bonds and Currencies
Major non-US sovereign bond markets were generally slightly firmer in the past week, although yields remained within their recent ranges in most cases. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Credit spreads grinded lower on the back of equity markets maintaining recent gains and further encouraging data releases from the US. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
For more information, please contact 800 5-PAYDEN or visit payden.com.
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Have a great weekend!
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Overview
The US economy shrank at an annual rate of 6.1% in the first quarter of 2009 after contracting at a 6.3% pace in the fourth quarter of 2008. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
US MARKETS
Treasury/Economics
US Treasuries sold-off this week, breaking recent support levels in 10-year and 30-year yields, for several reasons. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Large-Cap Equities
The stock market rallied modestly this week despite fears of a pandemic flu outbreak and the government stress tests. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Corporate Bonds
Investment grade primary activity picked up slightly this week despite nearly a third of companies reporting first quarter earnings. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Mortgage-Backed Securities
A slew of economic reports suggesting a glimmer of hope for financial markets helped mortgages outperform Treasuries. more..http://payden.com/library/weeklyMarketUpdateE.aspx#overview.
Municipal Bonds
Build America Bonds (BABs) finished the week tighter in spread to US Treasuries (the difference in yield between BABs and Treasuries) while the broader municipal bond market struggled. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
High-Yield
The high yield market finished April as one of the best performing global assets classes. The broad high yield indices, such as the Merrill Lynch High Yield Constrained Index, were up over 11% for the month, with the lower end of the market rallying most. more...
http://payden.com/library/weeklyMarketUpdateE.aspx#overview
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were insurances (+10.2%) and banks (+9.6%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.3% this week, while the Russian stock index RTS went up +0.2%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Global Bonds and Currencies
Major non-US sovereign bond markets were generally slightly firmer in the past week, although yields remained within their recent ranges in most cases. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Credit spreads grinded lower on the back of equity markets maintaining recent gains and further encouraging data releases from the US. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Friday, May 1, 2009
The cost of the Bailout to you
The International Monetary Fund has just estimated the American taxpayer’s tab for all of Washington’s bailouts, guarantees, backstops and other support of the financial system.
It’s $1.9 trillion over the next five years. $6,200 for every American man, woman and child.
In a sure sign the torch of world leadership is passing from American hands, Washington protested the estimate as way too high, faulting the IMF’s methodology. The IMF assumed 10% losses for the assets the Fed has taken onto its books. It also assumed the FDIC will have to get additional funding from Congress to rescue depositors at insolvent banks.
We, on the other hand, won’t be surprised if the IMF’s methodology turns out to be conservative.
It’s $1.9 trillion over the next five years. $6,200 for every American man, woman and child.
In a sure sign the torch of world leadership is passing from American hands, Washington protested the estimate as way too high, faulting the IMF’s methodology. The IMF assumed 10% losses for the assets the Fed has taken onto its books. It also assumed the FDIC will have to get additional funding from Congress to rescue depositors at insolvent banks.
We, on the other hand, won’t be surprised if the IMF’s methodology turns out to be conservative.
Market Reflections 4/30/2009
The $8 billion bail-out/bankruptcy of Chrysler failed to give stocks a lasting push with the S&P 500 slipping 0.1 percent. Even with the survival of Chrysler, auto shutdowns pose a major risk to the manufacturing sector this summer. In economic data, Chicago purchasers reported solid improvement in orders but here again, future improvement will not include the auto sector. Personal income and spending data were disappointing and included another very strong savings rate, at 4.2 percent and another reflection of flight-to-safety, this time at the consumer level.
Other markets were also little changed including the dollar which held to a tight range to end at $1.3250 against the euro. Oil and gold held in tight ranges, ending at $50.99 and $888. Hog prices continue to plunge, down more than 3 percent on the day and otherwise are the only area being hurt by swine flu.
Other markets were also little changed including the dollar which held to a tight range to end at $1.3250 against the euro. Oil and gold held in tight ranges, ending at $50.99 and $888. Hog prices continue to plunge, down more than 3 percent on the day and otherwise are the only area being hurt by swine flu.
Thursday, April 30, 2009
Greenback May Lose 14% Against Loonie: Technical Analysis
By Chris Fournier
April 29 (Bloomberg) -- The U.S. dollar may depreciate as much as 14 percent against the Canadian currency by November if it breaks through a key technical level amid “steady selling pressure,” according to TD Securities Inc.
Canada’s currency, known as the loonie, is headed for its fifth weekly gain against the greenback, the longest winning streak since November 2007. Speculation that the worst of the global economic crisis may be over is prompting investors to venture out of safe havens and into higher-yielding assets, such as stocks and commodity-linked currencies.
If the U.S. dollar breaks below C$1.1764, “the downside opens up hugely over the next few months” to the upper C$1.04 area, Shaun Osborne, chief currency strategist in Toronto at TD, wrote in a note to clients today. That would be a drop of about 14 percent from yesterday’s close. He recommends selling the U.S. dollar on rallies.
The loonie strengthened 1.5 percent to C$1.2019 against the U.S. dollar at 1:58 p.m. in Toronto, from C$1.2196 yesterday. One Canadian dollar buys 83.20 U.S. cents.
The drop to the upper C$1.04 area is the “maximum technical implication of a break under C$1.1764” rather than a formal forecast and could occur in the next six to nine months, Osborne wrote in a separate e-mail.
Gains in the U.S. dollar have been met with “significant selling pressure” in four of the past five weeks, giving the market a “top-heavy look,” and patterns in the monthly chart indicate the greenback may be ready to reverse its upward trend against the Canadian dollar, Osborne wrote.
Loonie’s Parity
Canada’s dollar reached parity with its U.S. counterpart for the first time in three decades in September 2007 following a 60 percent climb in the preceding five years on the back of rising commodity prices. The loonie lost a record 18 percent last year as demand for raw materials, the source of more than half of the nation’s export revenue, evaporated.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. TD Securities is a unit of Canada’s second-largest bank.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
April 29 (Bloomberg) -- The U.S. dollar may depreciate as much as 14 percent against the Canadian currency by November if it breaks through a key technical level amid “steady selling pressure,” according to TD Securities Inc.
Canada’s currency, known as the loonie, is headed for its fifth weekly gain against the greenback, the longest winning streak since November 2007. Speculation that the worst of the global economic crisis may be over is prompting investors to venture out of safe havens and into higher-yielding assets, such as stocks and commodity-linked currencies.
If the U.S. dollar breaks below C$1.1764, “the downside opens up hugely over the next few months” to the upper C$1.04 area, Shaun Osborne, chief currency strategist in Toronto at TD, wrote in a note to clients today. That would be a drop of about 14 percent from yesterday’s close. He recommends selling the U.S. dollar on rallies.
The loonie strengthened 1.5 percent to C$1.2019 against the U.S. dollar at 1:58 p.m. in Toronto, from C$1.2196 yesterday. One Canadian dollar buys 83.20 U.S. cents.
The drop to the upper C$1.04 area is the “maximum technical implication of a break under C$1.1764” rather than a formal forecast and could occur in the next six to nine months, Osborne wrote in a separate e-mail.
Gains in the U.S. dollar have been met with “significant selling pressure” in four of the past five weeks, giving the market a “top-heavy look,” and patterns in the monthly chart indicate the greenback may be ready to reverse its upward trend against the Canadian dollar, Osborne wrote.
Loonie’s Parity
Canada’s dollar reached parity with its U.S. counterpart for the first time in three decades in September 2007 following a 60 percent climb in the preceding five years on the back of rising commodity prices. The loonie lost a record 18 percent last year as demand for raw materials, the source of more than half of the nation’s export revenue, evaporated.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. TD Securities is a unit of Canada’s second-largest bank.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Currencies and Economic News
In the currency market, the dollar continued to fall against the euro. Late Wednesday, the euro was trading at $1.3264 vs. $1.3141 on Tuesday.
The two big events of the day were release of GDP figures and the FOMC meeting. The former was wretched, to say the least. The Commerce Department said inflation-adjusted, seasonally-adjusted GDP fell at a 6.1% annualized rate in the first quarter, following a 6.3% decline in 4Q08.
Taken together, that represented the worst showing in six decades. Since 1947, the economy had never contracted by more than 5% for two consecutive quarters.
However, as Marketwatch reported, “Buried in details of the U.S. GDP report, a [2.2%] rebound in consumer spending and a drop in inventories bolstered optimism that the U.S. economy was on the track to recovery after a brutal first quarter. Those bright spots, combined with surprise rise in eurozone sentiment, pushed the euro higher against the dollar.”
Meanwhile, the Fed kept its target interest rate unchanged at an ultra-low 0%-to-0.25% range, and said the U.S. economic outlook has "improved modestly.” There were no changes to plans to buy Treasurys and other securities to support the flow of credit to the economy. Thus “some of the fear of additional quantitative easing anytime soon quickly abated,” said Dan Cook of IG Markets in Chicago.
“The only major difference between [yesterday’s] statement and the previous one on March 18 is that [yesterday’s] cited the fact that most evidence points to a slowing rate of economic decline. Anyone with two eyes and a brain knows this to be the case,” wrote Josh Shapiro, of MFR, Inc.
The Blue Chip survey of economists forecasts a 2% annual pace of decline in growth in the current quarter, a small positive growth rate in the third quarter, and a stronger economy by the end of the year.
The two big events of the day were release of GDP figures and the FOMC meeting. The former was wretched, to say the least. The Commerce Department said inflation-adjusted, seasonally-adjusted GDP fell at a 6.1% annualized rate in the first quarter, following a 6.3% decline in 4Q08.
Taken together, that represented the worst showing in six decades. Since 1947, the economy had never contracted by more than 5% for two consecutive quarters.
However, as Marketwatch reported, “Buried in details of the U.S. GDP report, a [2.2%] rebound in consumer spending and a drop in inventories bolstered optimism that the U.S. economy was on the track to recovery after a brutal first quarter. Those bright spots, combined with surprise rise in eurozone sentiment, pushed the euro higher against the dollar.”
Meanwhile, the Fed kept its target interest rate unchanged at an ultra-low 0%-to-0.25% range, and said the U.S. economic outlook has "improved modestly.” There were no changes to plans to buy Treasurys and other securities to support the flow of credit to the economy. Thus “some of the fear of additional quantitative easing anytime soon quickly abated,” said Dan Cook of IG Markets in Chicago.
“The only major difference between [yesterday’s] statement and the previous one on March 18 is that [yesterday’s] cited the fact that most evidence points to a slowing rate of economic decline. Anyone with two eyes and a brain knows this to be the case,” wrote Josh Shapiro, of MFR, Inc.
The Blue Chip survey of economists forecasts a 2% annual pace of decline in growth in the current quarter, a small positive growth rate in the third quarter, and a stronger economy by the end of the year.
Market Reflections 4/29/2009
Policy makers at the FOMC are definitely less downbeat, saying contraction is easing and that steps already taken will lead to a gradual return to growth. Stocks rallied with the S&P 500 ending near its highs, up 2.2 percent at just under 875. Having little effect were late reports that Chrysler, as part of an alliance with Fiat, will file for bankruptcy tomorrow.
The dollar firmed 1/2 cent in immediate reaction to the FOMC statement, ending at $1.3250 to the euro. With conditions stable, the FOMC did not announce any new outright purchases, a factor that hurt Treasuries where the 10-year yield rose 9 basis points to end at 3.09 percent. Gains in the dollar held down many commodities including gold, ending at $900, and oil, ending under $51. Hog prices, down about 1.5 percent, fell for a third day in reaction to the swine flu crisis.
The dollar firmed 1/2 cent in immediate reaction to the FOMC statement, ending at $1.3250 to the euro. With conditions stable, the FOMC did not announce any new outright purchases, a factor that hurt Treasuries where the 10-year yield rose 9 basis points to end at 3.09 percent. Gains in the dollar held down many commodities including gold, ending at $900, and oil, ending under $51. Hog prices, down about 1.5 percent, fell for a third day in reaction to the swine flu crisis.
Wednesday, April 29, 2009
Market Reflections 4/28/2009
Reports that Citigroup and Bank of America have failed the government's stress tests offset a surprisingly strong consumer confidence report that suggests better times are ahead even if current job losses remain severe. The S&P 500 ended down 0.3 percent at 855.16. The dollar softened 1 cent to $1.3154 against the euro.
The confidence report weakened demand for Treasuries where yields were up 8 basis points for the 5-year note which ended at 1.93 percent. The Treasury auctioned $35 billion of new 5-year notes in the session, part of its herculean effort to fund government spending. The quarterly refunding announcement is tomorrow at 9:00 a.m. ET.
Commodities were little changed though hog prices continued to slide on swine flu concern. Soybeans, which had been one of the biggest gainers in April, fell back on rumors that Chinese importers are cancelling orders.
The confidence report weakened demand for Treasuries where yields were up 8 basis points for the 5-year note which ended at 1.93 percent. The Treasury auctioned $35 billion of new 5-year notes in the session, part of its herculean effort to fund government spending. The quarterly refunding announcement is tomorrow at 9:00 a.m. ET.
Commodities were little changed though hog prices continued to slide on swine flu concern. Soybeans, which had been one of the biggest gainers in April, fell back on rumors that Chinese importers are cancelling orders.
Tuesday, April 28, 2009
Market Reflections 4/27/2009
Rising swine flu cases and uncertainty over the size of the problem pushed stocks and many commodity prices lower. But Monday also saw new hope for General Motors. A massive downsizing and a stock-for-debt swap sent GM shares 20 percent higher and made for a brief but wide mid-morning rally. There wasn't any calendar data in the session but Boeing's CEO offered a new description for the downturn, calling it a "once in a lifetime" event.
The S&P 500 fell 1 percent to 857.51. The dollar was up, ending at $1.3050 against the euro while the Mexican pesos tumbled 4.1 percent to 13.9060 vs. the dollar. There was little movement in the Treasury market.
Hog prices fell steeply, down 4.2 percent on the June contract. Prices of grains and industrial metals posted less severe declines. Oil seesawed with the stock market before ending just above its central line at $50. Gold held firm at $905.
The S&P 500 fell 1 percent to 857.51. The dollar was up, ending at $1.3050 against the euro while the Mexican pesos tumbled 4.1 percent to 13.9060 vs. the dollar. There was little movement in the Treasury market.
Hog prices fell steeply, down 4.2 percent on the June contract. Prices of grains and industrial metals posted less severe declines. Oil seesawed with the stock market before ending just above its central line at $50. Gold held firm at $905.
Friday, April 24, 2009
Weekly Market Update (4/24/09)
HEADLINE NEWS WEEK ENDING 4/24/09
Overview
The US Treasury is expected to release the criteria for its upcoming bank stress tests later today. more...
US MARKETS
Treasury/Economics
US Treasuries continue to trade without any specific direction and within a very narrow yield range. more...
Large-Cap Equities
The stock market ended modestly lower in this relatively quiet week. The equity market fell for the first time in almost 2 months on concerns that government stress tests on 19 banks will signal additional losses. more...
Corporate Bonds
Investment grade primary activity continued to stay on the sidelines as earnings remained the center of attention. more...
Mortgage-Backed Securities
The government-agency mortgage market traded in a very tight range over the past week. more...
Municipal Bonds
Build American Bonds (BABs) dominated headlines and market action this week. The State of California sold nearly $7 billion in taxable municipal bonds, $5 billion of which were issued under the BABs program. more...
High-Yield
Along with the equity market, high yield started the week lower but came charging back. more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were oil and gas (+5.4%) and retail (+5.4%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +1.4% this week, while the Russian stock index RTS lost -0.4%. more...
Global Bonds and Currencies
Major non-US sovereign bond markets spent a relatively quiet week, in most cases ending slightly firmer but well within their recent ranges. more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads were largely unchanged this week, following the tone in US equities. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The US Treasury is expected to release the criteria for its upcoming bank stress tests later today. more...
US MARKETS
Treasury/Economics
US Treasuries continue to trade without any specific direction and within a very narrow yield range. more...
Large-Cap Equities
The stock market ended modestly lower in this relatively quiet week. The equity market fell for the first time in almost 2 months on concerns that government stress tests on 19 banks will signal additional losses. more...
Corporate Bonds
Investment grade primary activity continued to stay on the sidelines as earnings remained the center of attention. more...
Mortgage-Backed Securities
The government-agency mortgage market traded in a very tight range over the past week. more...
Municipal Bonds
Build American Bonds (BABs) dominated headlines and market action this week. The State of California sold nearly $7 billion in taxable municipal bonds, $5 billion of which were issued under the BABs program. more...
High-Yield
Along with the equity market, high yield started the week lower but came charging back. more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were oil and gas (+5.4%) and retail (+5.4%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +1.4% this week, while the Russian stock index RTS lost -0.4%. more...
Global Bonds and Currencies
Major non-US sovereign bond markets spent a relatively quiet week, in most cases ending slightly firmer but well within their recent ranges. more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads were largely unchanged this week, following the tone in US equities. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Market Reflections 4/23/2009
Markets showed little reaction to talk that Chrysler is preparing for bankruptcy and news that GM is closing down output for two months. But the headlines don't improve the economic outlook any. Neither do existing home sales which continue to scrape along the bottom. Weekly jobless data show a 12th straight rise in continuing claims. The S&P 500 ended 1.0 percent higher at 851.92. The day's run of earnings produced no surprises.
Strong economic data out of Europe did raise optimism there, pushing down the dollar which fell 1-1/2 cents to $1.3150 against the euro. Oil held just under $50 with gold edging over $900. Money moved into the Treasury market across the curve with the 3-month bill ending at a very tight yield of 9 basis points.
Strong economic data out of Europe did raise optimism there, pushing down the dollar which fell 1-1/2 cents to $1.3150 against the euro. Oil held just under $50 with gold edging over $900. Money moved into the Treasury market across the curve with the 3-month bill ending at a very tight yield of 9 basis points.
Thursday, April 23, 2009
Market Reflections 4/22/2009
Banking news may be taking a turn for the worse. Morgan Stanley posted an unexpectedly deep loss and cut its dividend, news that follows last week's warning from Bank of America that qualified borrowers are scarce. Morgan Stanley shares lost 9.0 percent while the S&P 500 slipped 0.8 percent. The dollar eased slightly to end at $1.3005 against the euro while the Treasury curve steepened ahead of long-end supply. Huge builds in weekly inventories didn't hurt oil which firmed to $48. Gold firmed slightly to $890.
Tuesday, April 21, 2009
Market Reflections 4/21/2009
Reassurance from Treasury Secretary Geithner that the vast majority of banks are well capitalized helped to ease questions over stress tests and sparked a rally in the stock market where the S&P 500 gained 2.1 percent to end at 850.08. Earnings news was mostly upbeat including an optimistic outlook from industrial conglomerate United Technologies. Kansas City Federal Reserve President Thomas Hoenig offered lively testimony, saying the too-big-to-fail doctrine is uncompetitive and is at the center of the financial crisis. The dollar held firm at $1.2950 against the euro while Treasury yields were mixed. Oil firmed to just over $47 while gold held steady at $884.
Market Reflections 4/20/2009
News from Bank of America that it is having trouble finding qualified borrowers is a new twist for the markets which had been focused on whether banks were bankrupt or not. The change to mark-to-model accounting is giving a boost to bank profits including profits at Bank of America. Not doing as well are the bank's customers who are being pulled under by the wave of layoffs.
Investors ran back into safety Monday in a big move that raises the question whether five weeks of stock-market gains were grounded in fundamentals. The S&P 500 ended at their lows, down 4.3 percent at 832.39. Investors also ran to the dollar, which jumped 1 cent against the euro to $1.2924. Treasuries were in high demand with the yield on the 10-year falling 11 basis points to 2.83 percent. The yield on the 3-month bill tightened a notch to a thinning 12 basis points.
Investors fled commodities which had been benefiting from expectations for economic improvement together with inflation. Oil touched $44 for the first time in five weeks, ending down 4-1/2 dollars to $45.60. Grains and industrial metals, two groups that had been very strong, were down across the board. Gold of course was one commodity that didn't suffer. Gold, which just last week seemed to be finally wavering, gained $15 to end at $885.
Investors ran back into safety Monday in a big move that raises the question whether five weeks of stock-market gains were grounded in fundamentals. The S&P 500 ended at their lows, down 4.3 percent at 832.39. Investors also ran to the dollar, which jumped 1 cent against the euro to $1.2924. Treasuries were in high demand with the yield on the 10-year falling 11 basis points to 2.83 percent. The yield on the 3-month bill tightened a notch to a thinning 12 basis points.
Investors fled commodities which had been benefiting from expectations for economic improvement together with inflation. Oil touched $44 for the first time in five weeks, ending down 4-1/2 dollars to $45.60. Grains and industrial metals, two groups that had been very strong, were down across the board. Gold of course was one commodity that didn't suffer. Gold, which just last week seemed to be finally wavering, gained $15 to end at $885.
Friday, April 17, 2009
Weekly Market Update (4/17/09)
HEADLINE NEWS WEEK ENDING 4/17/09
Overview
There are signs of a modest improvement in the latest US economic data. However, it is still premature to call a bottom for the US recession which began in December 2007. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
US MARKETS
Treasury/Economics
US Treasury yields barely moved this week. With the Fed continuing their buyback program and no Treasury supply on the agenda, investors remained on the sidelines. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Large-Cap Equities
The stock market rallied for the week spurred by better-than-expected first quarter earnings from some of the largest S&P 500 firms. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Corporate Bonds
Investment grade primary activity slowed to a crawl as a number of issuers reported earnings. There is a chance that General Electric’s and Citibank’s better-than-expected earnings at the end of this week might catapult us through the avalanche of earnings over the next several weeks. more...
http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Mortgage-Backed Securities
Agency mortgages weathered a pickup in originations to outperform Treasuries in a sideways market. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Municipal Bonds
Build American Bonds (BABs) captured the market’s attention this week. Speculation is that BABs will substitute for regular tax-exempt issuance and thus keep municipal bond market supply more limited than otherwise. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
High-Yield
The high yield market started the first half of April at a torrid pace, with broad indices up over 5% since the end of March 2009. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were banks (+14.9%) and financial services (+10.7%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.6% this week, while the Russian stock index RTS went up by +2.9%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Global Bonds and Currencies
Major non-US sovereign bond markets spent the past week trading within well-established ranges. After making modest progress over most of the week, European and UK sovereign bond markets finished flat to slightly weaker, after a late sell-off on Friday afternoon. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. A combination of better-than-expected earnings announcements from US banks and marginal improvement in US economic data helped continue the positive tone in risk markets. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
There are signs of a modest improvement in the latest US economic data. However, it is still premature to call a bottom for the US recession which began in December 2007. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
US MARKETS
Treasury/Economics
US Treasury yields barely moved this week. With the Fed continuing their buyback program and no Treasury supply on the agenda, investors remained on the sidelines. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Large-Cap Equities
The stock market rallied for the week spurred by better-than-expected first quarter earnings from some of the largest S&P 500 firms. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Corporate Bonds
Investment grade primary activity slowed to a crawl as a number of issuers reported earnings. There is a chance that General Electric’s and Citibank’s better-than-expected earnings at the end of this week might catapult us through the avalanche of earnings over the next several weeks. more...
http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Mortgage-Backed Securities
Agency mortgages weathered a pickup in originations to outperform Treasuries in a sideways market. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Municipal Bonds
Build American Bonds (BABs) captured the market’s attention this week. Speculation is that BABs will substitute for regular tax-exempt issuance and thus keep municipal bond market supply more limited than otherwise. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
High-Yield
The high yield market started the first half of April at a torrid pace, with broad indices up over 5% since the end of March 2009. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were banks (+14.9%) and financial services (+10.7%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.6% this week, while the Russian stock index RTS went up by +2.9%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Global Bonds and Currencies
Major non-US sovereign bond markets spent the past week trading within well-established ranges. After making modest progress over most of the week, European and UK sovereign bond markets finished flat to slightly weaker, after a late sell-off on Friday afternoon. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. A combination of better-than-expected earnings announcements from US banks and marginal improvement in US economic data helped continue the positive tone in risk markets. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
For more information, please contact 800 5-PAYDEN or visit payden.com.
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Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
GE results
General Electric's GE earnings for the first quarter were largely in line with our expectation, excluding the tax benefits flowing through GE Capital. For the past few quarters, the company has been riding the back of energy infrastructure, and this quarter's results showed much of the same. Surprisingly, aviation increased revenue and profit 12% and 39%, respectively. Given the weakness in the economy and project delays at Boeing BA and Airbus, we expected weaker numbers in this group. As impressive as energy and aviation were, the rest of the segme nts were equally unimpressive. Consumer and industrial and NBC Universal continued to take the brunt of the recession with a combined profit drop of 50%. These two segments are highly dependent on a strong consumer, so we expect the weakness here to persist until employment picks up and people begin buying houses again. While it is true that GE Capital earned $1.1 billion in profit for the quarter, all of the profit came from a tax benefit of $1.2 billion. Pretax, preprovision income was down 45% to $2.2 billion from $3.9 billion last year, reflecting the shrinking size of GE Capital's balance sheet and fewer financing transactions in the broader market. The results for the quarter were not stellar, but do show that GE's portfolio of businesses has held up far better than others thus far. We are comfortable with our fair value estimate and assumptions.
Daniel Holland
Daniel Holland
CITI results April 2009
Iknow everybody is in love with the citi results, but I thought it would be worth noting that $2.5B of "earnings" came from marks on their own debt and also as a result of recent cave in by FASB on fair value accounting, Citi was able to have $631MM pretax lower impairment charges recorded in net revenue in the quarter.
Market Reflections 4/16/2009
Strong results at JP Morgan, benefiting like other financial firms from changes to mark-to-market accounting, drove the stock market higher with the S&P 500 ending 1.6 percent higher at 865.27. Google after the close also beat estimates.
Economic news was mostly downbeat led by a big fall in housing starts which have yet to reflect the improvement underway in home sales. The Philadelphia's Fed manufacturing report showed another month of steep contraction but a little less severe contraction than in prior months. Many fewer individuals applied for first-time jobless claims though the data were skewed by the shortened Easter/Passover week. Continuing claims in the prior week continued to rise and are now over 6 million.
Gold dropped suddenly at mid-morning raising talk of sales by the International Monetary Fund which may be raising cash for G-20 stimulus efforts. Gold fell about $25 to end near $875. Oil remains hypnotized ending little changed just under $50. The effect of very heavy supply in oil is being offset by investment demand. The dollar ended little changed at $1.3178 against the euro. Treasuries were mixed though the yield on the 3-month bill continues to fall, down 1 basis point on the day to 13 basis points and signaling continuing doubts over the banking system.
Economic news was mostly downbeat led by a big fall in housing starts which have yet to reflect the improvement underway in home sales. The Philadelphia's Fed manufacturing report showed another month of steep contraction but a little less severe contraction than in prior months. Many fewer individuals applied for first-time jobless claims though the data were skewed by the shortened Easter/Passover week. Continuing claims in the prior week continued to rise and are now over 6 million.
Gold dropped suddenly at mid-morning raising talk of sales by the International Monetary Fund which may be raising cash for G-20 stimulus efforts. Gold fell about $25 to end near $875. Oil remains hypnotized ending little changed just under $50. The effect of very heavy supply in oil is being offset by investment demand. The dollar ended little changed at $1.3178 against the euro. Treasuries were mixed though the yield on the 3-month bill continues to fall, down 1 basis point on the day to 13 basis points and signaling continuing doubts over the banking system.
Wednesday, April 15, 2009
Market Reflections 4/15/2009
The Fed's Beige Book added to the run of good news on the economy, showing weak conditions but also signs that the pace of contraction is easing. April's housing market index offers similar indications, showing a rare jump tied to home affordability and government stimulus efforts. The Treasury International Capital report is another reason for optimism showing improving foreign interest in U.S. financial assets especially out of China and Japan.
But not all of Wednesday's news was good. The Fed's industrial production showed sharp declines that were much worse than expected and that point to sizable drop for first quarter GDP. Also not good was talk that the government's stress tests in the banking sector, to be released early next month, may show trouble, possible trouble that is helping to keep gold steady near $900 despite the extended climb in the stock market. Capital One is definitely showing some stress with the credit card issuer reporting rising charge-offs in line with rising unemployment.
The biggest surprise in the markets came from oil which showed no reaction to a huge jump in U.S. crude inventories. Oil's strength is raising talk that market players, through ETFs and hedge funds, appear to consider oil as a safe-haven financial asset. But demand for oil has yet to improve and the dollar has yet to erode due to inflation, which are apparently the two central reasons behind oil's curious stability. Oil ended little changed at just under $49.50.
Other financial markets showed limited reaction to all the news with the S&P 500 up 1.3% at just over 850. The dollar firmed about 3/4 of a cent to $1.3200 against the euro. Treasury yields edged 1 to 2 basis points lower across the curve with the 3-month yield, at 0.14 percent, betraying a significant lack of confidence in the banking system.
But not all of Wednesday's news was good. The Fed's industrial production showed sharp declines that were much worse than expected and that point to sizable drop for first quarter GDP. Also not good was talk that the government's stress tests in the banking sector, to be released early next month, may show trouble, possible trouble that is helping to keep gold steady near $900 despite the extended climb in the stock market. Capital One is definitely showing some stress with the credit card issuer reporting rising charge-offs in line with rising unemployment.
The biggest surprise in the markets came from oil which showed no reaction to a huge jump in U.S. crude inventories. Oil's strength is raising talk that market players, through ETFs and hedge funds, appear to consider oil as a safe-haven financial asset. But demand for oil has yet to improve and the dollar has yet to erode due to inflation, which are apparently the two central reasons behind oil's curious stability. Oil ended little changed at just under $49.50.
Other financial markets showed limited reaction to all the news with the S&P 500 up 1.3% at just over 850. The dollar firmed about 3/4 of a cent to $1.3200 against the euro. Treasury yields edged 1 to 2 basis points lower across the curve with the 3-month yield, at 0.14 percent, betraying a significant lack of confidence in the banking system.
Market Reflections 4/14/2009
A big fall in retail sales together with soft producer price data pushed back the outlook for economic improvement. The retail sales drop more than wiped out the gains in February and suggest that job losses, which are continuing without letup based on weekly jobless claims, may very well be hurting this month's retail sales as well. Fed Chairman Ben Bernanke eased some of the sting, saying that the economy is indeed on the mend.
Money moved out of stocks and the dollar and into the safety of Treasuries. The S&P 500 fell 2% to end at 841.65 while the dollar fell about 1 cent to $1.3276 against the euro. Treasury yields fell nearly 10 basis points for long rates and about 2 basis points for short rates, including a 1.6 point drop for the 3-month bill which, at a very tight yield of 0.15 percent, reflects still unrelenting demand for safety.
The weak data pushed down many commodities including oil, which dipped about 50 cents to just under $49.50. But gold was steady ending little changed just under $890.
Money moved out of stocks and the dollar and into the safety of Treasuries. The S&P 500 fell 2% to end at 841.65 while the dollar fell about 1 cent to $1.3276 against the euro. Treasury yields fell nearly 10 basis points for long rates and about 2 basis points for short rates, including a 1.6 point drop for the 3-month bill which, at a very tight yield of 0.15 percent, reflects still unrelenting demand for safety.
The weak data pushed down many commodities including oil, which dipped about 50 cents to just under $49.50. But gold was steady ending little changed just under $890.
Tuesday, April 14, 2009
Market Reflections 4/13/2009
Reports of a pending bankruptcy at GM and extending gains in bank stocks, in lingering reaction to last week's shockingly strong profits at Wells Fargo, headed an otherwise quiet session ahead of earnings. The S&P 500 ended fractionally higher at 858.72.
News of strong car sales out of China raised demand for platinum, up 3% at $1,237, while news of new stimulus out of China raised demand for industrial metals including copper which rose 2% on the day to end at $2.0934/lb. Gold ended just above $890 while oil ended right at $50.
Money moved into the Treasury market where the Fed, as part of its effort to lower lending rates, bought $4.4 billion of 2- to 3-year Treasuries. The Fed will buy 4- to 7-year paper on Tuesday. The Fed has so far bought back $36.5 billion of Treasuries under a $300 billion program announced last month. The dollar eased in the session, ending at $1.3376 against the euro.
News of strong car sales out of China raised demand for platinum, up 3% at $1,237, while news of new stimulus out of China raised demand for industrial metals including copper which rose 2% on the day to end at $2.0934/lb. Gold ended just above $890 while oil ended right at $50.
Money moved into the Treasury market where the Fed, as part of its effort to lower lending rates, bought $4.4 billion of 2- to 3-year Treasuries. The Fed will buy 4- to 7-year paper on Tuesday. The Fed has so far bought back $36.5 billion of Treasuries under a $300 billion program announced last month. The dollar eased in the session, ending at $1.3376 against the euro.
Monday, April 13, 2009
U.S. Treasury tells GM to prepare for bankruptcy
General Motors was instructed by the U.S. Treasury to be ready to file for bankruptcy protection no later than June 1, The New York Times reported, quoting unnamed sources who are familiar with the matter. The government wants to see GM go through the bankruptcy process as quickly as possible to minimize the likely damage to the company's sales and to its image among car buyers, according to the newspaper. The New York Times Bondholders reportedly readying to fight GM bankruptcy.
Investors who own General Motors bonds are working on legal arguments against a potential bankruptcy filing by the troubled automaker, The Wall Street Journal reported, quoting sources acquainted with the matter. The bondholders fear that having GM in bankruptcy would force them to accept huge losses on their investments, according to the newspaper. Reuters.
This is unbelievable. who would have thought that a bankruptcy would force one to accept losses?
Investors who own General Motors bonds are working on legal arguments against a potential bankruptcy filing by the troubled automaker, The Wall Street Journal reported, quoting sources acquainted with the matter. The bondholders fear that having GM in bankruptcy would force them to accept huge losses on their investments, according to the newspaper. Reuters.
This is unbelievable. who would have thought that a bankruptcy would force one to accept losses?
Friday, April 10, 2009
Weekly Market Update (4/9/09)
HEADLINE NEWS WEEK ENDING 4/9/09
Overview
The US trade deficit shrank by more than $10 billion in February to $26 billion—its lowest level since 1999. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
US MARKETS
Treasury/Economics
US Treasuries sold off this week on the back of ongoing supply fears and a positive sentiment change in the financial sector. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Large-Cap Equities
The stock market continued to rally during this holiday shortened trading week. more...
Corporate Bonds
Investment grade primary issuance was almost non-existent this week as Alcoa, the first of many companies, started to report earnings. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Mortgage-Backed Securities
Agency mortgages performed very well on an absolute basis and relative to Treasuries. A strong tone in credit and equity markets coupled with healthy buying overseas, the US Government, and domestic money managers helped support mortgage prices. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Municipal Bonds
Investor demand for high grade municipal bonds and pre-refunded securities remains strong. Yields on AAA-rated general obligation bonds were about 4 bps lower across maturities this week. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
High-Yield
The high yield market started April on firm footing. The continuing equity rally and significant inflows into the high yield market pushed the market higher. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe lost ground over the past week. The stocks with the worst performance were oil and gas (-6.2%) and health care (-6.2%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +5.9% this week, while the Russian stock index RTS went up by +8.7%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Global Bonds and Currencies
The surge of confidence inspired by the previous week’s G-20 summit faded in the past week and equity markets weakened, while major non-US sovereign bond markets were mixed. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. The positive tone in credit markets continued as equity markets were buoyed by better-than-expected earnings announcements in the US. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The US trade deficit shrank by more than $10 billion in February to $26 billion—its lowest level since 1999. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
US MARKETS
Treasury/Economics
US Treasuries sold off this week on the back of ongoing supply fears and a positive sentiment change in the financial sector. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Large-Cap Equities
The stock market continued to rally during this holiday shortened trading week. more...
Corporate Bonds
Investment grade primary issuance was almost non-existent this week as Alcoa, the first of many companies, started to report earnings. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Mortgage-Backed Securities
Agency mortgages performed very well on an absolute basis and relative to Treasuries. A strong tone in credit and equity markets coupled with healthy buying overseas, the US Government, and domestic money managers helped support mortgage prices. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Municipal Bonds
Investor demand for high grade municipal bonds and pre-refunded securities remains strong. Yields on AAA-rated general obligation bonds were about 4 bps lower across maturities this week. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
High-Yield
The high yield market started April on firm footing. The continuing equity rally and significant inflows into the high yield market pushed the market higher. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe lost ground over the past week. The stocks with the worst performance were oil and gas (-6.2%) and health care (-6.2%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +5.9% this week, while the Russian stock index RTS went up by +8.7%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Global Bonds and Currencies
The surge of confidence inspired by the previous week’s G-20 summit faded in the past week and equity markets weakened, while major non-US sovereign bond markets were mixed. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. The positive tone in credit markets continued as equity markets were buoyed by better-than-expected earnings announcements in the US. more...http://payden.com/library/weeklyMarketUpdateE.aspx#emerging
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Thursday, April 9, 2009
Banks' "shadow inventory" of housing could destroy the market
Various real estate research firms estimate that banks are sitting on hundreds of thousands of foreclosed homes that they have neither sold nor listed. If these rumors are true, and the banks brought these homes onto market, it would flood an already dismal housing market... causing prices to fall further.
From The San Francisco Chronicle:
Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."
From The San Francisco Chronicle:
Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."
Market Reflections 4/8/2009
A report that the Treasury will extend TARP funds to insurers gave a boost to Wednesday's session. The S&P 500 rose 1.2% to end at 825.01. A move to protect insurers would be aimed at bolstering confidence in the sector and limiting customer redemptions. Insurers posting gains included Lincoln National (LNC) +35 percent, Principal Financial (PFG) +21 percent and Hartford Financial Services (HIG) +13 percent.
Also helping the market was surprisingly solid earnings from home furnishings retailer Bed Bath & Beyond (BBBY), whose shares rose more than 20 percent. Stocks were initially set to move lower in reaction to weak earnings late yesterday from aluminum giant Alcoa. Brokers are warning that stocks over the next week are likely to swing in wide moves in reaction to single earnings announcements. Earnings don't get underway in force until mid-month with Thomson Reuters pegging S&P 500 earnings at -38 percent.
FOMC minutes held attention late in the session but offered no surprises, showing that policy makers are committed to injecting huge amounts of liquidity into the banking system. Economic data included an upbeat wholesale trade report that shows inventories are coming back in line with sales, a plus for future output and future employment.
Oil data showed another build in crude inventories and also a build in gasoline. But the builds weren't enough to shake oil's lockstep with the stock market. May WTI gained nearly $1 to end just below $50.
Treasuries firmed helped by strong demand for $35 billion of new 3-year notes. The 3-year yield ended 1 basis point lower on the day at 1.29 percent. Gold slipped $5 to $880. The dollar was little changed at $1.3246 against the euro.
Also helping the market was surprisingly solid earnings from home furnishings retailer Bed Bath & Beyond (BBBY), whose shares rose more than 20 percent. Stocks were initially set to move lower in reaction to weak earnings late yesterday from aluminum giant Alcoa. Brokers are warning that stocks over the next week are likely to swing in wide moves in reaction to single earnings announcements. Earnings don't get underway in force until mid-month with Thomson Reuters pegging S&P 500 earnings at -38 percent.
FOMC minutes held attention late in the session but offered no surprises, showing that policy makers are committed to injecting huge amounts of liquidity into the banking system. Economic data included an upbeat wholesale trade report that shows inventories are coming back in line with sales, a plus for future output and future employment.
Oil data showed another build in crude inventories and also a build in gasoline. But the builds weren't enough to shake oil's lockstep with the stock market. May WTI gained nearly $1 to end just below $50.
Treasuries firmed helped by strong demand for $35 billion of new 3-year notes. The 3-year yield ended 1 basis point lower on the day at 1.29 percent. Gold slipped $5 to $880. The dollar was little changed at $1.3246 against the euro.
Wednesday, April 8, 2009
Gambling and the stock market
By Richard Russell in Dow Theory Letters:
Markets can be compared with gambling at Las Vegas. When you gamble at Vegas, you are bucking the house odds. Which is why if you play long enough at Vegas, you will always lose your money. Vegas is stacked that way. Las Vegas is constructed to separate players from their money. The stock market is a bit classier. When you buy stocks, you are at least buying something. It feels good to say, "I bought 500 shares of Johnson & Johnson."
When you put your money down at Las Vegas, you are not buying anything, but with a slim chance (the odds are against you) of winning more than you put down. Las Vegas is one of the few places where you pay your dollars, and are guaranteed to receive NOTHING of any value.
"Gambling is a tax on people who don't understand money," that's my favorite adage about gambling. Investing in the stock market is a long-term tax on people who want something (profits) without doing any real work for those imaginary profits.
Markets can be compared with gambling at Las Vegas. When you gamble at Vegas, you are bucking the house odds. Which is why if you play long enough at Vegas, you will always lose your money. Vegas is stacked that way. Las Vegas is constructed to separate players from their money. The stock market is a bit classier. When you buy stocks, you are at least buying something. It feels good to say, "I bought 500 shares of Johnson & Johnson."
When you put your money down at Las Vegas, you are not buying anything, but with a slim chance (the odds are against you) of winning more than you put down. Las Vegas is one of the few places where you pay your dollars, and are guaranteed to receive NOTHING of any value.
"Gambling is a tax on people who don't understand money," that's my favorite adage about gambling. Investing in the stock market is a long-term tax on people who want something (profits) without doing any real work for those imaginary profits.
Market Reflections 4/7/2009
Stocks fell a steep 2.4 percent to 815.15 on the S&P 500 on profit taking which more and more are warning may bite into half of the market's month-long rally, a move that would put the S&P in the mid 700s. The dollar rose nearly 1-1/2 cents to $1.3268 as the euro was pressured by weak economic data out of Europe. Money moved into the Treasury market where yields were several basis points lower including 0.54 percent for the 52-week bill. There was heavy demand in the session for $25 billion of new 52-week bills in a good sign for all markets. Crude was ending just over $49 while gold, bouncing from sharp losses, rose more than $10 to nearly $885.
Tuesday, April 7, 2009
More Banking trouble - Mike Mayo
Mike Mayo is a guy that really threw a cat among the pigeons yesterday, causing a BIG scare and sell off of risk assets... Currencies that is... His name is Mike Mayo, and he used to work at Deutsche Bank, and now is a banking analyst at Caylon Securities... And brother can he ever move a market! To make a long story short... Mr. Mayo basically said yesterday in a report that "Bank Loan Losses Will Exceed Depression Levels"... So, all that James Brown, feeling good, that went on last week with the G-20 singing everything is beautiful, all went down the drain after Mr. Mayo spoke... The Wall Street Journal printed the following.... "One reason why he (Mayo) believes the banks will face more pressure is because the legacy loans they hold on their balance sheets have not been marked to market - he estimates the marks at about 98 cents on the dollar, a much higher estimate than what others would come up with. We see more downside with government programs regarding those bank stocks with more traditional banking since this business - aside from when involving an acquisition - is not marked to market," he writes. As a result, he believes the government's help will either result in rosier-than-expected projections that allow the banks to maintain their unwanted assets on their balance sheets, or hammer them with demands for more capital, which will "hurt traditional banking more."
Market Reflections 4/6/2009
Stocks fell on long liquidation ahead of the earnings season which begins at mid-month. The S&P 500 ended 0.8 percent lower at 835.43. Losses were heavy in gold which fell more than $20 to end just above $870. The prospect of IMF gold sales tied to last week's G-20 stimulus agreements sank prices as did rising talk that global stimulus, led by the Obama administration, may successfully pull the global economy out of recession. The dollar firmed nearly 1 cent to end at $1.3400 against the euro. Treasuries were little changed with the 2-year yield ending at 94 basis points. Oil fell nearly $1 to just over $51 for May WTI.
Saturday, April 4, 2009
Weekly Market Update (4/3/09)
Payden & Rygel (paydenrygel@payden-rygel.com)
HEADLINE NEWS WEEK ENDING 4/3/09
Overview
The US labor market continues to deteriorate at an alarming rate. According to the latest figures from the Bureau of Labor Statistics, the US economy shed 663,000 jobs in March and the unemployment rate rose to a 25-year high of 8.5% during the month. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
US MARKETS
Treasury/Economics
US Treasuries traded within a very narrow range this week showing a tendency towards higher yields. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Large-Cap Equities
The stock market rallied for the fourth consecutive week due to positive news from the Group of 20 (G-20) meeting in London and the relaxing of mark-to-market accounting rules. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Corporate Bonds
Investment grade primary issuance slowed down considerably this week as economic data and the automakers ruled the headlines. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Mortgage-Backed Securities
Agency mortgages outperformed Treasuries as yields drifted higher and the focus shifted from agency products to the credit sensitive asset classes. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Municipal Bonds
AAA-rated bond yields were 10 to 12 bps lower in the 2-5 year maturity range over the last week. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
High-Yield
The high yield market finished the month of March in solid form, despite mixed economic data towards month end and continuing uncertainty about the eventual fate of two high yield companies: General Motors and Chrysler Automotive. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were construction and materials (+11.8%) and travel and leisure (+11.8%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +10.0% this week, while the Russian stock index RTS went up by +3.4%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Global Bonds and Currencies
Major sovereign bond markets declined over the past week, mainly on the view that the G-20’s stimulus package would prove sufficient to stabilize the global economy. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. The constructive outcome of the G-20 summit and a US $1 trillion commitment to IMF reserves resulted in a continuation of the positive tone in risk markets seen over the past few weeks. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
HEADLINE NEWS WEEK ENDING 4/3/09
Overview
The US labor market continues to deteriorate at an alarming rate. According to the latest figures from the Bureau of Labor Statistics, the US economy shed 663,000 jobs in March and the unemployment rate rose to a 25-year high of 8.5% during the month. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
US MARKETS
Treasury/Economics
US Treasuries traded within a very narrow range this week showing a tendency towards higher yields. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Large-Cap Equities
The stock market rallied for the fourth consecutive week due to positive news from the Group of 20 (G-20) meeting in London and the relaxing of mark-to-market accounting rules. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Corporate Bonds
Investment grade primary issuance slowed down considerably this week as economic data and the automakers ruled the headlines. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Mortgage-Backed Securities
Agency mortgages outperformed Treasuries as yields drifted higher and the focus shifted from agency products to the credit sensitive asset classes. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Municipal Bonds
AAA-rated bond yields were 10 to 12 bps lower in the 2-5 year maturity range over the last week. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
High-Yield
The high yield market finished the month of March in solid form, despite mixed economic data towards month end and continuing uncertainty about the eventual fate of two high yield companies: General Motors and Chrysler Automotive. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were construction and materials (+11.8%) and travel and leisure (+11.8%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +10.0% this week, while the Russian stock index RTS went up by +3.4%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Global Bonds and Currencies
Major sovereign bond markets declined over the past week, mainly on the view that the G-20’s stimulus package would prove sufficient to stabilize the global economy. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. The constructive outcome of the G-20 summit and a US $1 trillion commitment to IMF reserves resulted in a continuation of the positive tone in risk markets seen over the past few weeks. more...http://payden.com/library/weeklyMarketUpdateE.aspx#highyield
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Friday, April 3, 2009
Very bearish: World's largest gold buyer halts imports
India, the world's largest buyer of gold, has stopped importing the precious metal as residents are scrapping jewelry and coins to take advantage of high prices.
Dealers said there were no gold imports in February or March.
Even in January - the middle of the gift-giving wedding season - India imported just 1.8 million tonnes, down nearly 90 percent from a level of 14 tonnes a year earlier, industry data showed.
Dealers said there were no gold imports in February or March.
Even in January - the middle of the gift-giving wedding season - India imported just 1.8 million tonnes, down nearly 90 percent from a level of 14 tonnes a year earlier, industry data showed.
Jobs Jamboree Friday
It's A Jobs Jamboree Friday! But before we go there... Let's recap this week's employment numbers leading up to the Jobs Jamboree, eh? First we had the ADP report show 742K jobs were lost in March... Then yesterday we had the Weekly Initial Jobless Claims show that 669K new claims were filed, and that the previous week's 630K figure was revised up to 672K... What's really scary here folks is that the 4-week moving average is now up to 649.5K... All the King's Men and all the King's Horses that believe the Humpty Dumpty economy will be recovering by the end of this year, might want to look over those forecasts and come clean on what they really think, not what the Gov't wants them to say, to make it look like everything will be right on the night, because... These unemployment numbers are not shaping up to be anything close to a recovering economy!
There is not much good news in the March employment report, and that is not surprising. Payrolls fell 663,000. That was in-line with an expected 650,000 decline.
There were widespread losses by employment category. Education and health care managed an 8,000 increase, but manufacturing dropped 161,000 jobs.
The unemployment rate shot to 8.5% from 8.1%. It is now already well above the average 8.1% average for 2009 as forecast in the Obama budget presented just weeks ago. The trend in employment suggests that the projected deficit is thus already no longer operative.
The other components of the release also reflected weakness. The average workweek fell 0.1 to 33.2 hours. The workweek tends to lead payroll changes, as employers adjust hours before payrolls.
The manufacturing workweek fell 0.2 to 39.3. This suggests a significant reduction in industrial production in March.
Average hourly earnings rose 0.2%. The year-over-year change is 3.4%.
The data can be considered about as expected, but are also clearly very weak. The market has been anticipating an improved economic environment, and payrolls lag demand, so the degree to which this undermines the recent optimism is uncertain.
There is not much good news in the March employment report, and that is not surprising. Payrolls fell 663,000. That was in-line with an expected 650,000 decline.
There were widespread losses by employment category. Education and health care managed an 8,000 increase, but manufacturing dropped 161,000 jobs.
The unemployment rate shot to 8.5% from 8.1%. It is now already well above the average 8.1% average for 2009 as forecast in the Obama budget presented just weeks ago. The trend in employment suggests that the projected deficit is thus already no longer operative.
The other components of the release also reflected weakness. The average workweek fell 0.1 to 33.2 hours. The workweek tends to lead payroll changes, as employers adjust hours before payrolls.
The manufacturing workweek fell 0.2 to 39.3. This suggests a significant reduction in industrial production in March.
Average hourly earnings rose 0.2%. The year-over-year change is 3.4%.
The data can be considered about as expected, but are also clearly very weak. The market has been anticipating an improved economic environment, and payrolls lag demand, so the degree to which this undermines the recent optimism is uncertain.
Commercial meltdown: Companies dumped 25 million square feet
How the commercial real estate meltdown will destroy the insurance industry... Your policies could be at risk.
From Calculated Risk:
Companies struggling to cut costs dumped a near-record 25 million square feet of office space in the first quarter, driving vacancy up and rents down, according to data to be released today by Reis Inc.
The office vacancy rate nationwide rose to 15.2% from 14.5% in the previous quarter, and likely will surpass 19.3% over the next year, according to Reis, a New York firm that tracks commercial property. That would put the vacancy rate above the level during the real-estate bust of the early 1990s, the worst on record.
From Calculated Risk:
Companies struggling to cut costs dumped a near-record 25 million square feet of office space in the first quarter, driving vacancy up and rents down, according to data to be released today by Reis Inc.
The office vacancy rate nationwide rose to 15.2% from 14.5% in the previous quarter, and likely will surpass 19.3% over the next year, according to Reis, a New York firm that tracks commercial property. That would put the vacancy rate above the level during the real-estate bust of the early 1990s, the worst on record.
April 2009, Zacks Economic Report
April 2nd, 2009
After ruminating on the rally we saw in March, it is time to shift our focus on to the remaining 9 months of the year. Now, more than ever, investors are asking their advisors if we did indeed reach the market bottom in early March. It is best to recognize "exact market timing" as a myth, and instead recognize when opportunities present themselves and invest accordingly.
As the market re-tested its lows, and enjoyed a nice rally, sentiment on the street seemed to turn from a smile to a smirk as the market raged on. Continued weakness in the economy is expected, but this weakness is already priced into the market. To assist you better understanding the current economic conditions, we are pleased to bring you highlights from the most recent Zacks Economic Report.
The Outlook in Brief
Despite a recent upturn in equity markets, the earlier implosion, and other signs of weakness, especially abroad, darkened an already-dismal economic landscape. Expected near-term declines in GDP were deepened, and the projected upturn starting in the second half has been trimmed back significantly. GDP is now expected to decline at a 5.5% pace in the first quarter, and fall at a 0.5% rate in the second quarter. In the second half, GDP is projected to grow at just a 1.4% pace.
This forecast assumes that equities decline 22% (at a quarterly rate) in the first quarter, versus a 5% decline expected last month, and carving an additional $2.1 trillion from household net worth. This decline significantly restrains consumer spending relative to last month's forecast in the second half
of this year and in the first half of 2010.
Every major component of final sales, save government spending, is significantly weaker in the first half of 2009 in this forecast than last month. Overall final sales are expected to decline at nearly a 4% pace in the first quarter before flattening (0.0%) in the second quarter. The downward revisions in
capital spending components were especially sharp, as the credit-market dysfunction and growing pessimism begin to weigh heavily on this sector.
GDP is now expected to decline 0.9% in 2009 and to rise 3.5% in 2010, both 0.6 percentage point less than we expected last month. As a result, the unemployment rate is expected to peak at 9.4% early next year and to decline to just 8.1% by the end of 2011.?? With considerable slack emerging in the economy, inflation quickly falls to near zero, and by 2011 moves into a period of mild deflation. Core consumer inflation (excludes food and energy prices) is projected to rise 0.4% in 2009, remain flat in 2010, and decline 0.2% in 2011.
The federal funds rate target remains pinned near zero into late 2011, and the Federal Reserve's unconventional policies will be pursued aggressively to promote easier credit conditions. The Fed will continue to emphasize its conditional commitment to keep the federal funds rate near zero, will
expand its credit facilities, and begin the purchase of longer-term Treasury securities in order to ease credit conditions.
Zacks Investment Management
After ruminating on the rally we saw in March, it is time to shift our focus on to the remaining 9 months of the year. Now, more than ever, investors are asking their advisors if we did indeed reach the market bottom in early March. It is best to recognize "exact market timing" as a myth, and instead recognize when opportunities present themselves and invest accordingly.
As the market re-tested its lows, and enjoyed a nice rally, sentiment on the street seemed to turn from a smile to a smirk as the market raged on. Continued weakness in the economy is expected, but this weakness is already priced into the market. To assist you better understanding the current economic conditions, we are pleased to bring you highlights from the most recent Zacks Economic Report.
The Outlook in Brief
Despite a recent upturn in equity markets, the earlier implosion, and other signs of weakness, especially abroad, darkened an already-dismal economic landscape. Expected near-term declines in GDP were deepened, and the projected upturn starting in the second half has been trimmed back significantly. GDP is now expected to decline at a 5.5% pace in the first quarter, and fall at a 0.5% rate in the second quarter. In the second half, GDP is projected to grow at just a 1.4% pace.
This forecast assumes that equities decline 22% (at a quarterly rate) in the first quarter, versus a 5% decline expected last month, and carving an additional $2.1 trillion from household net worth. This decline significantly restrains consumer spending relative to last month's forecast in the second half
of this year and in the first half of 2010.
Every major component of final sales, save government spending, is significantly weaker in the first half of 2009 in this forecast than last month. Overall final sales are expected to decline at nearly a 4% pace in the first quarter before flattening (0.0%) in the second quarter. The downward revisions in
capital spending components were especially sharp, as the credit-market dysfunction and growing pessimism begin to weigh heavily on this sector.
GDP is now expected to decline 0.9% in 2009 and to rise 3.5% in 2010, both 0.6 percentage point less than we expected last month. As a result, the unemployment rate is expected to peak at 9.4% early next year and to decline to just 8.1% by the end of 2011.?? With considerable slack emerging in the economy, inflation quickly falls to near zero, and by 2011 moves into a period of mild deflation. Core consumer inflation (excludes food and energy prices) is projected to rise 0.4% in 2009, remain flat in 2010, and decline 0.2% in 2011.
The federal funds rate target remains pinned near zero into late 2011, and the Federal Reserve's unconventional policies will be pursued aggressively to promote easier credit conditions. The Fed will continue to emphasize its conditional commitment to keep the federal funds rate near zero, will
expand its credit facilities, and begin the purchase of longer-term Treasury securities in order to ease credit conditions.
Zacks Investment Management
Taxing Mutual Funds
These are taxing times for mutual-fund shareholders, indeed.
Not only are stock-fund investors facing stiff losses from 2008, those in taxable accounts also received a bill from the IRS. That's because their fund managers sold appreciated securities to meet redemptions and rescue performance in last year's meltdown. Investors were left with capital gains taxes to pay -- but nothing to show for it.
Shareholders who reinvest distributions are hit hardest. Owing tax when you haven't sold a single share is one of the rougher edges of fund investing, in good markets or bad.
Individual stockholders don't have that problem; they pay capital gains taxes only when they sell. If fund shareholders could do the same, money siphoned for taxes could instead be invested and grow over time.
Some reform-minded lawmakers in Congress have tried over the past decade to give fund investors an even tax break, but with no luck. A new session of Congress offers yet another chance to level the playing field, but for now the score is still IRS: 1; Shareholders: 0.
-- Jonathan Burton , assistant personal finance editor, Morningstar
Not only are stock-fund investors facing stiff losses from 2008, those in taxable accounts also received a bill from the IRS. That's because their fund managers sold appreciated securities to meet redemptions and rescue performance in last year's meltdown. Investors were left with capital gains taxes to pay -- but nothing to show for it.
Shareholders who reinvest distributions are hit hardest. Owing tax when you haven't sold a single share is one of the rougher edges of fund investing, in good markets or bad.
Individual stockholders don't have that problem; they pay capital gains taxes only when they sell. If fund shareholders could do the same, money siphoned for taxes could instead be invested and grow over time.
Some reform-minded lawmakers in Congress have tried over the past decade to give fund investors an even tax break, but with no luck. A new session of Congress offers yet another chance to level the playing field, but for now the score is still IRS: 1; Shareholders: 0.
-- Jonathan Burton , assistant personal finance editor, Morningstar
Market Reflections 4/2/2009
The U.S. Financial Accounting Standards Board (FASB) offered new guidance that immediately gives companies more leeway on mark-to-market valuations, news that triggered an inflow into the stock market where the S&P 500 rose 2.9 percent to 834.38. News out of the G-20 also boosted the stock market. World leaders pledged more than $1 trillion in emergency aid for undeveloped countries.
The dollar fell 2-1/2 cents after the ECB defied both expectations and G-20 calls for stimulus and cut rates by an incremental 25 basis points, half of what was expected.
Commodities were mostly lower especially gold which had been benefiting from the scramble of stimulus efforts, all of which as some warn are certain to lead to inflation down the road. Gold fell about $15 to end at $905 after briefly dipping below $900. Oil ended above $52.
Money moved into the stock market and out of the Treasury market where yields backed up from 7 to 10 basis points with the belly of the curve hit by the most selling. The yield on the 3-year note rose 10 basis points to 1.23 percent.
The dollar fell 2-1/2 cents after the ECB defied both expectations and G-20 calls for stimulus and cut rates by an incremental 25 basis points, half of what was expected.
Commodities were mostly lower especially gold which had been benefiting from the scramble of stimulus efforts, all of which as some warn are certain to lead to inflation down the road. Gold fell about $15 to end at $905 after briefly dipping below $900. Oil ended above $52.
Money moved into the stock market and out of the Treasury market where yields backed up from 7 to 10 basis points with the belly of the curve hit by the most selling. The yield on the 3-year note rose 10 basis points to 1.23 percent.
Thursday, April 2, 2009
Bailout scorecard: Adding up the dollars Total: $10.5 trillion allocated $2.6 trillion spent
If you are getting dizzy from all the government rescue attempts and trying to get your arms around what has been
committed and how much is out the door, then you might find the following table I found on CNNMoney as a good
reference or starting point.
The government is engaged in an unprecedented - and expensive - effort to rescue the economy. Here are all the elements of the bailouts.
Date Bailout Allocated Spent
December 2007 Term Auction Facility
Lending program that allows commercial banks to unload hard-to-sell assets, including mortgage-backed securities: Fed takes assets as collateral and banks get cash. $600 billion $468.6 billion
February 2008 Economic Stimulus Act of 2008
Tax rebates of up to $600 for individual filers and $1,200 for couples in effort to boost the economy. Businesses received more than $60 billion in tax breaks. $168 billion $168 billion
March 2008 Bear Stearns bailout
Program to guarantee potential losses on Bear Stearns' portfolio; smoothed the way for JPMorgan Chase to buy the failed investment bank. $29 billion $26.2 billion
March 2008 Term Securities Lending Facility
Federal Reserve facility that loans Treasurys to banks against hard-to-sell collateral like mortgage-backed securities. $200 billion $88.6 billion
March 2008 Primary Dealer Credit Facility
Long-time lending facility for commercial banks that was opened to investment banks for first time in March 2008. n/a $61.3 billion
May 2008 Student loan guarantees
Program to purchase federal student loans from private lenders. Aim is to provide financing to companies that provide student loans. $130 billion $9 billion
September 2008 Fannie Mae and Freddie Mac bailout
Cost to the government of taking the mortgage finance companies into conservatorship. $400 billion1 $59.8 billion
September 2008 Foreign exchange dollar swaps
Exchange of dollars to 13 foreign central banks for collateral. Aim is to provide liquidity to foreign financial institutions. Unlimited $327.8 billion
October 2008 FHA housing rescue
Funding set aside for insurance of new 30-year fixed-rate mortgages for at-risk borrowers, tax credits for first-time home buyers and assistance to states and municipalities. $320 billion $20 billion +2
October 2008 Auto industry energy efficiency loans
Low-interest loans to help speed the industry's transition to more fuel-efficient vehicles. $25 billion $0
October 2008 Troubled Asset Relief Program
Financial rescue plan aimed at restoring liquidity to the financial markets. Funds thus far allocated for capital purchases in banks and emergency bailouts. $700 billion $323.4 billion
October 2008 Bank capital investments $218 billion $198.6 billion
November 2008 Citigroup capital investment
Emergency funding to keep bank afloat; in addition to previous $25 billion capital investment. $20 billion $20 billion
November 2008 Asset Guarantee Program
Funds set aside to backstop potential losses to Treasury from Citigroup and Bank of America loans. $12.5 billion $0
November 2008 TALF loss provisions
Funds set aside to backstop potential losses to Treasury from purchases of consumer loan-backed securities and mortgage-backed securities. $35 billion $0
December 2008 Auto industry bailout
Program that will provide capital on a case-by-case basis to systemically significant institutions that are at substantial risk of failure. $29.8 billion $24.8 billion
December 2008 General Motors
Government bailout of automaker to keep company afloat and help it achieve viability for the future. Last $4 billion subject to congressional approval $13.4 billion $13.4 billion
December 2008 Chrysler
Government bailout of automaker to keep company afloat and help it achieve viability for the future. Last $4 billion subject to congressional approval $4 billion $4 billion
December 2008 GMAC
Government bailout of auto finance company to which Federal Reserve granted bank holding company status. $5 billion went to GMAC directly and $1 billion to GM to make an investment in the company. $5.9 billion $5.9 billion
January 2009 Chrysler Financial
Government bailout of auto finance company to which Federal Reserve granted bank holding company status. $1.5 billion $1.5 billion
March 2009 Auto Supplier Support Program
Program to help stabilize auto suppliers by guaranteeing debt owed to them for shipped products, and providing financing to continue operations. $5 billion $0
hide
January 2009 Bank of America capital investment
Emergency funding to aid Merrill Lynch transaction; in addition to previous $25 billion capital investment. $20 billion $20 billion
February 2009 Foreclosure prevention
$50 billion4 $0
February 2009 Public-private investment fund
Taxpayer funds used in partnership with private investment that will buy up at least $500 billion of toxic assets from financial institutions. $100 billion $0
March 2009 AIG common stock investment
Money to help troubled insurer pay off now defunct lending facility set up by Fed in the initial version of the company's bailout. $40 billion $40 billion
March 2009 TALF investment $20 billion $20 billion
March 2009 AIG preferred capital investment $30 billion $0
March 2009 Small business loan-backed securities purchasesFunds to purchase securities backed by SBA loans in effort to unlock credit for small businesses $15 billion $0
n/a Estimated capital investment payback
-$25 billion n/a
n/a Funds left unallocated
$134.5 billion n/a
hide
October 2008 Money market guarantees
Four programs to help money market funds by insuring against losses; financing bank purchases of debt from funds; buying funds’ debt; and lending to funds directly. $659 billion $15 billion
October 2008 Commercial Paper Funding Facility
Purchases of short-term corporate debt aimed at boosting the struggling market and providing critical three-month financing to businesses. $1.4 trillion $241.3 billion
November 2008 Unemployment benefit extensions
Funds to help states expand unemployment benefits. $8 billion $8 billion
November 2008 Citigroup loan-loss backstop
Funds set aside to insure against losses from bank’s mortgage-backed securities investments. $245 billion $0
November 2008 Term Asset-Backed Securities Loan Facility
Program to buy consumer loan-backed securities. Aim is to revive the securitization market for consumer loans like credit cards and auto loans. $1 trillion $4.7 billion
November 2008 GSE mortgage-backed securities purchases
Program to buy mortgage-backed securities held by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. $1.25 trillion $236.2 billion
November 2008 GSE debt purchases
Program to buy debt issued by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. $100 billion $50.4 billion
November 2008 FDIC Temporary Liquidity Guarantee Program
Guarantees on newly issued bank bonds with maturities of more than three months. Aim is to restore liquidity to the corporate bond market and provide long-term financing to banks. $1.5 trillion $297.1 billion
2008 FDIC bank takeovers
Cost to FDIC fund that insures losses depositors suffer when a bank fails. n/a $18.5 billion
January 2009 Bank of America loan-loss backstop
Funds set aside to insure against losses from bank’s Merrill Lynch merger. $97 billion $0
January 2009 Credit Union deposit insurance guarantees
$80 billion $0
January 2009 U.S. Central Federal Credit Union capital injection
$1 billion $1 billion
February 2009 American Recovery and Reinvestment Act
Infrastructure spending, funding for states, help for the needy and tax cuts for individuals and businesses to stimulate the economy. $787.2 billion n/a3
February 2009 Tax cuts for individuals and businesses $212 billion n/a
February 2009 Direct spending $267 billion n/a
February 2009 Appropriations spending $308.3 billion n/a
hide
February 2009 Foreclosure prevention $25 billion4 $0
March 2009 AIG
Multifaceted bailout to help insurer through restructuring, minimize the need to post collateral and get rid of toxic assets from its balance sheet. $182 billion5 $129.3 billion5
November 2008 Bridge loan
Financing to help company through its restructuring process as it spins off non-core businesses. $60 billion6 $43.2 billion
November 2008 Collateralized debt obligation purchases
Facility to buy private investors' loans on which AIG sold insurance. As the value of loans plummeted, AIG was forced to post more collateral to back up the insurance contracts, known as credit default swap agreements. $30 billion $27.6 billion
November 2008 Mortgage-backed securities purchases
Facility to buy company’s securities backed by residential loans. $22.5 billion $18.4 billion
March 2009 Treasury preferred capital investment
Loan to help pay off a now defunct lending facility set up by the Fed in the initial version of the company’s bailout. $30 billion $0
March 2009 Investment in ALICO and AIA life insurance units $26 billion $0
March 2009 Purchases of life insurance-backed securities $8.5 billion $0
March 2009 Treasury common stock investment $40 billion $40 billion
hide
March 2009 U.S. government bond purchases
Federal Reserve will buy up to $300 billion of U.S. debt to support Treasury market and help keep interest rates down for consumer loans. $300 billion $15 billion
2009 FDIC bank takeovers
Cost to FDIC fund that insures losses depositors suffer when a bank fails. n/a $2.3 billion
Total: $10.5 trillion $2.6 trillion
1$200 billion set aside in September 2008; $200 billion additional in February 2009
2At least $20 billion
3Estimated budget impact for 2009 is $120 billion
4Making Home Affordable foreclosure prevention program will get $50 billion from Treasury, $20 billion from GSEs and $5 billion from HUD.
5Includes $70 billion from TARP
6Bridge loan allocation to be reduced to not less than $25 billion once government takes stakes in life insurance units
Sources: Federal Reserve, Treasury, FDIC, CBO
Note: Figures as of April 1, 2009
committed and how much is out the door, then you might find the following table I found on CNNMoney as a good
reference or starting point.
The government is engaged in an unprecedented - and expensive - effort to rescue the economy. Here are all the elements of the bailouts.
Date Bailout Allocated Spent
December 2007 Term Auction Facility
Lending program that allows commercial banks to unload hard-to-sell assets, including mortgage-backed securities: Fed takes assets as collateral and banks get cash. $600 billion $468.6 billion
February 2008 Economic Stimulus Act of 2008
Tax rebates of up to $600 for individual filers and $1,200 for couples in effort to boost the economy. Businesses received more than $60 billion in tax breaks. $168 billion $168 billion
March 2008 Bear Stearns bailout
Program to guarantee potential losses on Bear Stearns' portfolio; smoothed the way for JPMorgan Chase to buy the failed investment bank. $29 billion $26.2 billion
March 2008 Term Securities Lending Facility
Federal Reserve facility that loans Treasurys to banks against hard-to-sell collateral like mortgage-backed securities. $200 billion $88.6 billion
March 2008 Primary Dealer Credit Facility
Long-time lending facility for commercial banks that was opened to investment banks for first time in March 2008. n/a $61.3 billion
May 2008 Student loan guarantees
Program to purchase federal student loans from private lenders. Aim is to provide financing to companies that provide student loans. $130 billion $9 billion
September 2008 Fannie Mae and Freddie Mac bailout
Cost to the government of taking the mortgage finance companies into conservatorship. $400 billion1 $59.8 billion
September 2008 Foreign exchange dollar swaps
Exchange of dollars to 13 foreign central banks for collateral. Aim is to provide liquidity to foreign financial institutions. Unlimited $327.8 billion
October 2008 FHA housing rescue
Funding set aside for insurance of new 30-year fixed-rate mortgages for at-risk borrowers, tax credits for first-time home buyers and assistance to states and municipalities. $320 billion $20 billion +2
October 2008 Auto industry energy efficiency loans
Low-interest loans to help speed the industry's transition to more fuel-efficient vehicles. $25 billion $0
October 2008 Troubled Asset Relief Program
Financial rescue plan aimed at restoring liquidity to the financial markets. Funds thus far allocated for capital purchases in banks and emergency bailouts. $700 billion $323.4 billion
October 2008 Bank capital investments $218 billion $198.6 billion
November 2008 Citigroup capital investment
Emergency funding to keep bank afloat; in addition to previous $25 billion capital investment. $20 billion $20 billion
November 2008 Asset Guarantee Program
Funds set aside to backstop potential losses to Treasury from Citigroup and Bank of America loans. $12.5 billion $0
November 2008 TALF loss provisions
Funds set aside to backstop potential losses to Treasury from purchases of consumer loan-backed securities and mortgage-backed securities. $35 billion $0
December 2008 Auto industry bailout
Program that will provide capital on a case-by-case basis to systemically significant institutions that are at substantial risk of failure. $29.8 billion $24.8 billion
December 2008 General Motors
Government bailout of automaker to keep company afloat and help it achieve viability for the future. Last $4 billion subject to congressional approval $13.4 billion $13.4 billion
December 2008 Chrysler
Government bailout of automaker to keep company afloat and help it achieve viability for the future. Last $4 billion subject to congressional approval $4 billion $4 billion
December 2008 GMAC
Government bailout of auto finance company to which Federal Reserve granted bank holding company status. $5 billion went to GMAC directly and $1 billion to GM to make an investment in the company. $5.9 billion $5.9 billion
January 2009 Chrysler Financial
Government bailout of auto finance company to which Federal Reserve granted bank holding company status. $1.5 billion $1.5 billion
March 2009 Auto Supplier Support Program
Program to help stabilize auto suppliers by guaranteeing debt owed to them for shipped products, and providing financing to continue operations. $5 billion $0
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January 2009 Bank of America capital investment
Emergency funding to aid Merrill Lynch transaction; in addition to previous $25 billion capital investment. $20 billion $20 billion
February 2009 Foreclosure prevention
$50 billion4 $0
February 2009 Public-private investment fund
Taxpayer funds used in partnership with private investment that will buy up at least $500 billion of toxic assets from financial institutions. $100 billion $0
March 2009 AIG common stock investment
Money to help troubled insurer pay off now defunct lending facility set up by Fed in the initial version of the company's bailout. $40 billion $40 billion
March 2009 TALF investment $20 billion $20 billion
March 2009 AIG preferred capital investment $30 billion $0
March 2009 Small business loan-backed securities purchasesFunds to purchase securities backed by SBA loans in effort to unlock credit for small businesses $15 billion $0
n/a Estimated capital investment payback
-$25 billion n/a
n/a Funds left unallocated
$134.5 billion n/a
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October 2008 Money market guarantees
Four programs to help money market funds by insuring against losses; financing bank purchases of debt from funds; buying funds’ debt; and lending to funds directly. $659 billion $15 billion
October 2008 Commercial Paper Funding Facility
Purchases of short-term corporate debt aimed at boosting the struggling market and providing critical three-month financing to businesses. $1.4 trillion $241.3 billion
November 2008 Unemployment benefit extensions
Funds to help states expand unemployment benefits. $8 billion $8 billion
November 2008 Citigroup loan-loss backstop
Funds set aside to insure against losses from bank’s mortgage-backed securities investments. $245 billion $0
November 2008 Term Asset-Backed Securities Loan Facility
Program to buy consumer loan-backed securities. Aim is to revive the securitization market for consumer loans like credit cards and auto loans. $1 trillion $4.7 billion
November 2008 GSE mortgage-backed securities purchases
Program to buy mortgage-backed securities held by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. $1.25 trillion $236.2 billion
November 2008 GSE debt purchases
Program to buy debt issued by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. $100 billion $50.4 billion
November 2008 FDIC Temporary Liquidity Guarantee Program
Guarantees on newly issued bank bonds with maturities of more than three months. Aim is to restore liquidity to the corporate bond market and provide long-term financing to banks. $1.5 trillion $297.1 billion
2008 FDIC bank takeovers
Cost to FDIC fund that insures losses depositors suffer when a bank fails. n/a $18.5 billion
January 2009 Bank of America loan-loss backstop
Funds set aside to insure against losses from bank’s Merrill Lynch merger. $97 billion $0
January 2009 Credit Union deposit insurance guarantees
$80 billion $0
January 2009 U.S. Central Federal Credit Union capital injection
$1 billion $1 billion
February 2009 American Recovery and Reinvestment Act
Infrastructure spending, funding for states, help for the needy and tax cuts for individuals and businesses to stimulate the economy. $787.2 billion n/a3
February 2009 Tax cuts for individuals and businesses $212 billion n/a
February 2009 Direct spending $267 billion n/a
February 2009 Appropriations spending $308.3 billion n/a
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February 2009 Foreclosure prevention $25 billion4 $0
March 2009 AIG
Multifaceted bailout to help insurer through restructuring, minimize the need to post collateral and get rid of toxic assets from its balance sheet. $182 billion5 $129.3 billion5
November 2008 Bridge loan
Financing to help company through its restructuring process as it spins off non-core businesses. $60 billion6 $43.2 billion
November 2008 Collateralized debt obligation purchases
Facility to buy private investors' loans on which AIG sold insurance. As the value of loans plummeted, AIG was forced to post more collateral to back up the insurance contracts, known as credit default swap agreements. $30 billion $27.6 billion
November 2008 Mortgage-backed securities purchases
Facility to buy company’s securities backed by residential loans. $22.5 billion $18.4 billion
March 2009 Treasury preferred capital investment
Loan to help pay off a now defunct lending facility set up by the Fed in the initial version of the company’s bailout. $30 billion $0
March 2009 Investment in ALICO and AIA life insurance units $26 billion $0
March 2009 Purchases of life insurance-backed securities $8.5 billion $0
March 2009 Treasury common stock investment $40 billion $40 billion
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March 2009 U.S. government bond purchases
Federal Reserve will buy up to $300 billion of U.S. debt to support Treasury market and help keep interest rates down for consumer loans. $300 billion $15 billion
2009 FDIC bank takeovers
Cost to FDIC fund that insures losses depositors suffer when a bank fails. n/a $2.3 billion
Total: $10.5 trillion $2.6 trillion
1$200 billion set aside in September 2008; $200 billion additional in February 2009
2At least $20 billion
3Estimated budget impact for 2009 is $120 billion
4Making Home Affordable foreclosure prevention program will get $50 billion from Treasury, $20 billion from GSEs and $5 billion from HUD.
5Includes $70 billion from TARP
6Bridge loan allocation to be reduced to not less than $25 billion once government takes stakes in life insurance units
Sources: Federal Reserve, Treasury, FDIC, CBO
Note: Figures as of April 1, 2009
DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING
DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING
1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!
2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.
3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.
4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.
5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.
6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.
7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.
8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.
9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.
10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!
11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”
12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.
13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.
14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.
15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.
16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.
1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!
2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.
3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.
4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.
5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.
6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.
7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.
8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.
9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.
10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!
11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”
12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.
13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.
14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.
15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.
16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.
Another reason weve seen the market low for now
About a year ago I wrote about how the stock market resembles a dog on a leash. Prices fluctuate from the trend, sometimes in extreme spikes which mark important inflection points.
I thought I’d revisit the idea by taking a long term look at the S&P 500 and comparing how it has fared to its own long term (200 moving average). To equalize things and make it comparable over time, I expressed the divergence from the mean as a percentage:
Looking at the data from 1950 to present, here are the rare times when the S&P 500 Index (SPX) traded at an extreme relative to its simple 200 day moving average:
July 26th 1962 -22.62%
May 26th 1970 -23.18%
October 4th 1974 -28.58%
October 19th 1987 -24.75%
Sept 21st 2001 -22.11%
July 23rd 2002 -26.98%
October 7th, 2002 -23.84%
November 20th 2008 -39.79%
March 9th 2009 -36.53%
The dates should be easily recognizable since they correspond to almost every single major turning point in recent market history. The numbers represent the percentage relative to the long term moving average. So on July 26th, 1962 the S&P 500 traded 22.62% below its simple 200 day moving average.
Looking at the data this way, you easily gain perspective on just how epic the recent market action has been. Not since 1929 has the market veered off so dramatically from its long term path. Put another way, if the November 2008 low doesn’t mark a significant inflection point, it will be the first time.
A quick back-of-the-envelope calculation shows that 60 trading days after these dates shown above the market is always higher, sometimes significantly:
7.95%
10.03%
12.93%
10.72%
6.14%
9.54%
8.3%
20.9%
I’ll revisit this when 60 days have passed from March 9th, 2009
Even if we assume that the November lows will indeed mark a significant low for the S&P 500, there is no reason to believe that prices would simply climb higher from here onward. We could enter a protracted sideways market, or we could also slowly drip lower, revisiting the previous lows. But it is difficult to argue that what we have just witnessed isn’t but a monumental and rare market event that has characterized important turning points in the past.
I thought I’d revisit the idea by taking a long term look at the S&P 500 and comparing how it has fared to its own long term (200 moving average). To equalize things and make it comparable over time, I expressed the divergence from the mean as a percentage:
Looking at the data from 1950 to present, here are the rare times when the S&P 500 Index (SPX) traded at an extreme relative to its simple 200 day moving average:
July 26th 1962 -22.62%
May 26th 1970 -23.18%
October 4th 1974 -28.58%
October 19th 1987 -24.75%
Sept 21st 2001 -22.11%
July 23rd 2002 -26.98%
October 7th, 2002 -23.84%
November 20th 2008 -39.79%
March 9th 2009 -36.53%
The dates should be easily recognizable since they correspond to almost every single major turning point in recent market history. The numbers represent the percentage relative to the long term moving average. So on July 26th, 1962 the S&P 500 traded 22.62% below its simple 200 day moving average.
Looking at the data this way, you easily gain perspective on just how epic the recent market action has been. Not since 1929 has the market veered off so dramatically from its long term path. Put another way, if the November 2008 low doesn’t mark a significant inflection point, it will be the first time.
A quick back-of-the-envelope calculation shows that 60 trading days after these dates shown above the market is always higher, sometimes significantly:
7.95%
10.03%
12.93%
10.72%
6.14%
9.54%
8.3%
20.9%
I’ll revisit this when 60 days have passed from March 9th, 2009
Even if we assume that the November lows will indeed mark a significant low for the S&P 500, there is no reason to believe that prices would simply climb higher from here onward. We could enter a protracted sideways market, or we could also slowly drip lower, revisiting the previous lows. But it is difficult to argue that what we have just witnessed isn’t but a monumental and rare market event that has characterized important turning points in the past.
The biggest names on Wall Street expect stocks to soar this year!!!
Contrarians take note: Wall Street's average end of year price target is 956.5. This is around 20% higher that where we are today.
In other words, big firms like Goldman Sachs, UBS, and Credit Suisse expect stocks to soar in the next nine months. If you're feeling bullish, then you're smack dab in the middle of the crowd.
In other words, big firms like Goldman Sachs, UBS, and Credit Suisse expect stocks to soar in the next nine months. If you're feeling bullish, then you're smack dab in the middle of the crowd.
War on poor Southerners
Barack Obama got elected for two reasons
1. It felt so good to so many people to vote against Bush & Co.
And...
2. He promised the world to people who like to believe you can get something for nothing.
Everyone who believes this nonsense will eventually get what they deserve. But smokers who believe are going to "get it" immediately. Obama's massive cigarette tax increase - put into effect today - is going straight for the pocketbooks of smokers. Most smokers are poor, so it's basically a tax on poor people.
The tax increase will also depress cigarette sales... which is particularly harmful to Southern states with low cigarette tax rates. It greatly increases the amount per pack a Southerner will pay for his smokes.
You asked for it America... here come the taxes.
1. It felt so good to so many people to vote against Bush & Co.
And...
2. He promised the world to people who like to believe you can get something for nothing.
Everyone who believes this nonsense will eventually get what they deserve. But smokers who believe are going to "get it" immediately. Obama's massive cigarette tax increase - put into effect today - is going straight for the pocketbooks of smokers. Most smokers are poor, so it's basically a tax on poor people.
The tax increase will also depress cigarette sales... which is particularly harmful to Southern states with low cigarette tax rates. It greatly increases the amount per pack a Southerner will pay for his smokes.
You asked for it America... here come the taxes.
Commercial real estate much worse than thought
Yesterday's sale of the John Hancock Tower to Normandy was an interesting market test, with media reports claiming it implied either nothing much or only good things about CRE and CMBS recoveries. A contrarian (and realistic) analysis on the transaction out of Morgan Stanley implies that based on this deal, not all is good in CRE land.
In a foreclosure auction today, the John Hancock Tower - a marquee building in Boston - traded at $660MM to Normandy Real Estate Partners. That same property was appraised for $1.3BN in 2006 and traded for $935MM in 2003. This is VERY negative for commercial real estate. At face, it looks like even top quality assets are down 50% from their peak, but that forgets the value of the financing that Normandy now gets to assume. There will still be a $640.5MM mortgage on the property at a rate of 5.6%.
**The main takeaway: property values are down A LOT more than people think, especially when considering the implied value of financing. Caveat Emptor.**
In a foreclosure auction today, the John Hancock Tower - a marquee building in Boston - traded at $660MM to Normandy Real Estate Partners. That same property was appraised for $1.3BN in 2006 and traded for $935MM in 2003. This is VERY negative for commercial real estate. At face, it looks like even top quality assets are down 50% from their peak, but that forgets the value of the financing that Normandy now gets to assume. There will still be a $640.5MM mortgage on the property at a rate of 5.6%.
**The main takeaway: property values are down A LOT more than people think, especially when considering the implied value of financing. Caveat Emptor.**
More big bank trouble ahead
It’s a widespread misconception that banks have marked most of their assets to market. The mark to market rules generally apply only to securities, not whole loans. Whole loans are carried at original face value, less any impairment (i.e., provisions for loan losses) judged appropriate by management, with input from auditors.
So the big banks have marked only a small fraction of their assets to market. In crushing all of the big bank stocks until the March 10 bottom, the market was discounting massive increases in loan loss provisions. The banks have already increased their provisions dramatically (in line with delinquencies and other indicators of impairment), but they still have a long way to go to offset the enormous potential losses on whole loans.
So the big banks have marked only a small fraction of their assets to market. In crushing all of the big bank stocks until the March 10 bottom, the market was discounting massive increases in loan loss provisions. The banks have already increased their provisions dramatically (in line with delinquencies and other indicators of impairment), but they still have a long way to go to offset the enormous potential losses on whole loans.
Banks repay TARP money
Four different banks paid back their TARP loans yesterday, the first of the lot to do so. Signature Bank of New York; Old National Bancorp of Evansville, Ind.; Iberiabank down in Lafayette, La.; and California’s Bank of Marin paid back a collective $338 million, mostly by repurchasing the shares Uncle Sam bartered in exchange for the capital.
“It became apparent that we should return these funds to the Treasury,” said Signature’s CEO Joseph J. DePaolo. “The return of these funds allows us to continue to execute our business model, which includes the successful recruitment and retention of highly talented banking professionals throughout the metropolitan New York area.”
DePaolo went on to say TARP pressures and restrictions “adversely affected our business model.” In other words, the feds had forced him to borrow taxpayer cash and then hamstrung his ability to pay employees.
If small banks are starting to walk without a government crutch, should we expect those that are “too big to fail” to follow? Heh… not quite yet.
“It became apparent that we should return these funds to the Treasury,” said Signature’s CEO Joseph J. DePaolo. “The return of these funds allows us to continue to execute our business model, which includes the successful recruitment and retention of highly talented banking professionals throughout the metropolitan New York area.”
DePaolo went on to say TARP pressures and restrictions “adversely affected our business model.” In other words, the feds had forced him to borrow taxpayer cash and then hamstrung his ability to pay employees.
If small banks are starting to walk without a government crutch, should we expect those that are “too big to fail” to follow? Heh… not quite yet.
1st Quarter 2009 results
You’d think with a large portion of the Western world’s retirement funds vaporized over the past 18 months -- there’d be a lot more blue hairs in the streets. The Dow and S&P 500 closed out the first quarter yesterday with an 11% loss. That’s the sixth quarter of losses in a row, the longest streak since 1970.
Market Reflections 4/1/2009
The ISM manufacturing report shows a second month of improvement with new orders showing a much shallower rate of contraction, results which are raising talk that the worst may be over for the economy. The results are also giving a lift to risk taking, evident by the inflow into the stock market where the S&P 500 index ended at its highs, up 1.6 percent at 810.26. Helping the market's late rally was month-to-month strength in vehicle sales, results that offer hope for a third month of strength for retail sales. But not all the news was good as ADP is calling for a massive, larger-than-expected decline in Friday's employment report.
The dollar firmed about 1/2 cent to $1.3221 against the euro. Steady firmness in the dollar is feeding talk that the currency may be set to make a move toward the $1.2000 area especially if this weekend's G-20 plays down prospects for a world currency or a gold standard. The $1.2000 area was the high range prior to the Fed's eventful announcement two weeks ago that is was buying long-dated Treasuries, news that triggered a massive but apparently limited run on the dollar. Treasuries and gold were little changed.
Oil was not little changed, falling about 50 cents to $48.50 for May WTI following surprising builds in weekly inventory data including a giant build in gasoline stocks that is hitting at the same time that gasoline demand, due to high pump prices and the weak economy, is now thinning.
The dollar firmed about 1/2 cent to $1.3221 against the euro. Steady firmness in the dollar is feeding talk that the currency may be set to make a move toward the $1.2000 area especially if this weekend's G-20 plays down prospects for a world currency or a gold standard. The $1.2000 area was the high range prior to the Fed's eventful announcement two weeks ago that is was buying long-dated Treasuries, news that triggered a massive but apparently limited run on the dollar. Treasuries and gold were little changed.
Oil was not little changed, falling about 50 cents to $48.50 for May WTI following surprising builds in weekly inventory data including a giant build in gasoline stocks that is hitting at the same time that gasoline demand, due to high pump prices and the weak economy, is now thinning.
Wednesday, April 1, 2009
Market Reflections
Stocks recovered about half of Monday's deep losses, not in reaction to news but on bargain hunting and hopes that the worst is past. The S&P 500 rose 1.3 percent to 797.87 to close out a very strong month, but a month benefiting from an easy comparison against a very weak February. The index was up 8.5 percent in March but down 12 percent on the quarter. Tuesday's economic data included a Conference Board report that shows consumer confidence holding quietly at record lows. Company news included a warning from steel-fastener maker Ingersoll Rand, the latest in a rush of negative company news out of the industrial sector. The dollar gave back some of its recent gains, down slightly against the euro to end at $1.3268. Treasuries were mixed though money did ease out of the front end of the curve, reflected in a weak 4-week note auction and a more than 5 basis point rise in the 3-month rate to 0.20 percent. Oil, at $49, and gold, at $920, were little changed.
Tuesday, March 31, 2009
Market Reflections 3/30/2009
President Obama's removal of GM's chairman is raising talk of widening economic nationalization but also talk that the government will not keep losing firms afloat, at least losing firms outside the financial sector. The news sent a chill through the markets which, taking their cues from the administration, now expect both GM and Chrysler to fall into bankruptcy. Yet bankruptcy or not, the future extent of the government's involvement with the domestic auto sector appears expansive, with the president saying the government will offer incentives to consumers, will stand by warranties and that the U.S. will lead the world in building the next generation of cars.
After jumping 20 percent over the past two weeks, stocks were ready to fall back and fall back they did, ending near their lows at 787.53 on the S&P 500 for a 3.5 percent plunge. Money moved into the safety of the dollar, which rose 1 cent against the euro to end at $1.3193. Money also moved into the safety of Treasuries, especially front-end Treasuries where the 3-month bill ended at 0.130 percent -- a key indication that demand for safety has once again turned intense.
Losses in oil were steep, more than $3 for May WTI which ended just under $49. Like the stock market, recent gains in oil have been strong and not altogether backed by indications of improvement in underlying fundamentals -- setting up today's profit taking. But gold, benefiting from its own safe-haven demand, held little changed near $925 despite the gain in the dollar.
After jumping 20 percent over the past two weeks, stocks were ready to fall back and fall back they did, ending near their lows at 787.53 on the S&P 500 for a 3.5 percent plunge. Money moved into the safety of the dollar, which rose 1 cent against the euro to end at $1.3193. Money also moved into the safety of Treasuries, especially front-end Treasuries where the 3-month bill ended at 0.130 percent -- a key indication that demand for safety has once again turned intense.
Losses in oil were steep, more than $3 for May WTI which ended just under $49. Like the stock market, recent gains in oil have been strong and not altogether backed by indications of improvement in underlying fundamentals -- setting up today's profit taking. But gold, benefiting from its own safe-haven demand, held little changed near $925 despite the gain in the dollar.
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