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.
Friday, April 10, 2009
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
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
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.**
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