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November 28, 2009: Month to Date Review of the Market

Posted by Larry Doyle on November 28th, 2009 4:10 AM |

What a world and what a market.

Despite ongoing economic weakness and now a potential sovereign default (Dubai), the major market equity averages closed the week generally unchanged. The Treasury market benefited the most from the reality that risks remain abundant and, in a flight to safety, capital poured into this sector.  The dollar continued its descent into hell while supporting a large number of market segments, primarily commodities and especially gold.

Despite seeming investor indifference to major fundamental developments over the last six months, we disregard the situation in Dubai at our peril. Why? As Bloomberg writes, Dubai Crisis May End in ‘Major’ Default, BofA Says:

Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

“One cannot rule out — as a tail risk — a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” Bank of America strategists Benoit Anne and Daniel Tenengauzer wrote in a report.

A default would lead to a “sudden stop of capital flows into emerging markets” and be a “major step back” in the recovery from the global financial crisis, they wrote.

Let’s address economic data released this week prior to reviewing the month to date market returns.


1. Existing Home Sales: increased by 10.1%. The expectation of Uncle Sam’s tax credit for housing being discontinued has served to pull demand forward in this sector. I’ll believe that health is returning to housing when mortgage delinquencies, defaults, and foreclosures decline on a regular basis. We’re a long way from that happening.

2. GDP: revised lower to a 2.8% increase from last month’s initial reading of 3.5% increase. Things that make you go hmmmm!!

3. Consumer Confidence: registered a reading of 49.5, which does not compare favorably to an August reading of 54.5. Confidence is all about jobs and housing. Unless and until we see signs of real health return to those sectors, do not expect a robust rebound in consumer confidence.

4. Durable Goods: declined by .6% versus an expectation of a .5% increase. This negative reading is offset somewhat by October’s Durable Goods report being revised from a 1.0% increase to a 2.0% increase. Again, I do not expect to see consistent growth in these figures without real consistency in the housing and automotive sectors.  

Let’s move along to market performance. The figures I provide are the weekly close and the month-to-date returns on a percentage basis: (more…)

Is The Economy Turning The Corner?

Posted by Larry Doyle on April 21st, 2009 7:05 AM |

Markets correct by price (both up and down) and time (extended). Despite the 3+% price declines in equity markets yesterday, the markets are up approximately 20% since the market lows seen on March 6th. Some analysts believe this upward move signals an improvement in the economy largely due to the fiscal and monetary stimulus provided by Uncle Sam. I am not in that camp.

A few emerging economies, specifically China, have improved. Can the rest of the world, including the U.S., expect those economies to be the engine for a global turnaround at this juncture? I do not think so. I still see the following issues on our domestic horizon:

1. continued deterioration in loan performance on bank books

2. a banking system woefully capital deficient

3. an automotive industry which must downsize

4. municipalities which are faced with the predicamant of capital shortfalls and underfunded pensions

5. commercial real estate just starting to experience real defaults

6. a housing market with increased foreclosures pressuring prices

7. an unemployment rate clearly headed toward double digits

Earnings reports for the first quarter have been mixed. I view the recently reported bank earnings as largely “managed” via accounting gimmicks. Meredith Whitney believes the earnings for major money center banks will turn negative in the 2nd quarter. The regional banks, without the benefit of large capital market activities but facing credit writedowns, report earnings today. Key Corp just reported a loss of $1.09 eps (earnings per share) versus an estimate of -.21. I suspect we will see losses from other regional banks of a similar magnitude. (more…)

Let’s Meet David Darst

Posted by Larry Doyle on March 14th, 2009 6:00 PM |

David Darst may not be a household name for the general public, but for those involved in the world of finance he is held in very high regard. In fact, I think so highly of David that in the Sense on Cents Reading Room, I included his book:

The Complete Bond Book: A Guide to All Types of Fixed-Income Securities
by David Darst
– the Wall Street insider’s Bible to all types of fixed income securities.

David was interviewed yesterday on Bloomberg News. He touches on issues I have recently addressed here at Sense on Cents. I appreciated his commentary on the fact that the equity market rally this week was a “psychological” bounce in the context of a bear market. I addressed the particulars of the current market psychology in my piece, Is the Market Oversold? UPDATE.

Darst also offers enlightening color on overall market outlook, inflation, and places to hide amidst this turmoil.  I know you will not be disappointed in viewing Morgan Stanley’s Darst Sees Psychology Driving Stocks. It’s a 5 minute clip from a man with a lifetime of experience!! I am happy to bring it to you as we collectively navigate the economic landscape.


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