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Posts Tagged ‘markets’

Pump and Dump

Posted by Larry Doyle on May 6th, 2010 2:28 PM |

Has the price action over the last year been largely nothing more than one of Wall Street’s greatest scams? Which scam is that? The classic scam in the securities industry known as pump and dump. While this scam is typically relegated to penny stocks or thinly traded stocks, the fact is the basic principles have been utilized within our current market structures as well.

The coordinated actions amongst global governments, regulators, and accounting boards have allowed the system to disguise the fact that our global economies remain mired in excessive debt. Obviously, certain countries and companies are much less impacted by debt than others but largely speaking the global debt vs GDP ratio remains exceptionally high. This fact is not changing anytime soon. (more…)

March 14, 2010: Economic/Market Week in Review

Posted by Larry Doyle on March 14th, 2010 9:31 AM |

No rest for the weary given the slew of developments on Wall Street, in Washington, and around the world. That said, are the markets getting tired or are they preparing to receive another jolt of government caffeine?

Welcome to our Sense on Cents Week in Review where I provide a streamlined recap of the major economic data and news, along with month-to-date market returns.

ECONOMIC DATA
Overall, we did not receive a lot of economic news this week but what we did receive was decidedly mixed (although that is not exactly how it was presented). Let’s navigate.

1. Jobless Claims: remained stubbornly high at 460k jobs. Congress extended unemployment benefits until year end as the long-term unemployed remain at extremely high levels. This structural unemployment receives little media attention, but is THE critical issue in our economy. (more…)

2009 Market Review

Posted by Larry Doyle on January 2nd, 2010 11:34 AM |

Time.

More than any period of the last thirty years, I think it is imperative to view the global economy and market prospects with a longer time horizon. Those in Washington and on Wall Street have never displayed the discipline nor the inclination to truly take this approach. I strongly encourage those reading Sense on Cents to view your personal situation and that of our global economy and market with a longer time horizon. Why?

I personally believe our global economy remains in the relatively early stages of a significant fundamental shift. Recall that the shadow banking system provided 40-45% of the credit to our domestic economy. That shadow banking system remains a mere shadow of itself. Pardon the pun.

Try as he might, Uncle Sam can not fill that credit void forever. Credit demand and credit supply remain overwhelmed by the mountain of debts at the federal, municipal, and personal levels. The bad debt embedded in toxic assets on Wall Street also remains. While selected segments of our private market can and will grow, the economy as a whole remains constrained by the aforementioned debts. The price to service these debts (that is, the prevailing level of interest rates) will likely move higher.

Can we experience a confluence of higher interest rates along with a general decline in wages and prices, that is the core of deflation? That double whammy scares the hell out of Fed Chair Ben Bernanke. These questions and prospects will not be answered anytime real soon. They will take time.

What is an individual to do? Continue to pay down debt and be disciplined in maintaining a diversified investment portfolio. On that note, let’s look back at 2009 so we can most effectively look forward to 2010 and navigate the economic landscape.

The figures I provide are year-end 2009 relative to year-end 2008, and the returns for the year. (more…)

Corporate Titans Master the Obvious

Posted by Larry Doyle on October 30th, 2009 3:25 PM |

Why is the market breaking down today?

A number of analysts are pointing to comments by corporate titans, Wilbur Ross, George Soros, and bank analyst Mike Mayo.

What did Ross, Soros, and Mayo have to say? With all due respect, these corporate titans do not offer any new news. That said, let’s navigate.

1. Wilbur Ross sees a pending crash in commercial real estate.

Really? Is this news? This story has been touted for the last 6 months. The banking system has well over a hundred billion in impending losses on commercial real estate.

In a Bloomberg interview as I write, Carl Icahn concurs with Ross’ assessment. Icahn can’t understand why REITS are currently as highly valued as they are.

2. George Soros also harps on the pending doom on the commercial real estate market. Additionally, he highlighted the fact that the American consumer can not and will not be the engine for global growth. Soros offered that the economy may slip back into recession.

Really? Is this news? George, please tell us something we don’t know.

3. Mike Mayo, highly regarded banking analyst, highlights that Citigroup may very well have $10 billion in unrealized losses yet to take.

That’s all? Really? I think Mayo is likely low by a significant margin.

Recall that the IMF projects global banking losses to total $3.4 trillion and that approximately just slightly more than half of those have been taken to date. Another $1.7 trillion in losses and Citigroup has only got $10 billion to recognize?

The fact is the overall economy remains mired somewhere between intensive care and critical condition despite what the wizards in Washington would have us believe.

Today’s pullback in the market is not an indication of any real change in the economy. The economy is still quite ill. Today’s pullback is an indication that the speculative money in a highly speculative market is sending a signal for “everybody out of the pool.”

LD

October 24, 2009: Month to Date Market Review

Posted by Larry Doyle on October 24th, 2009 7:32 AM |

Did the market merely take a breather this week or is the ‘little engine that could’ getting tired? Are we distinguishing the winners from the laggards? Are the cracks in our economic foundation repairing or are some just too large to hold back the flow of red ink, i.e. embedded losses? Perhaps we are experiencing all of the above as we continue our journey along the new and varied trails of our economy. Let’s review the major economic statistics for the week, along with the month to date returns across a wide array of market segments.

I thank you for reading my work, and now let’s collectively ‘navigate the economic landscape,’ the mission of Sense on Cents. If you have any questions, please do not hesitate to ask.

ECONOMIC DATA

I largely discount positive news on the housing front as I view them largely manipulated by Uncle Sam while delinquencies, defaults, and foreclosures move ever higher. This may be an oversight on my part, but so be it.

Aside from that, I believe the most meaningful news this week was the GDP report from the UK. Please see my Friday morning commentary highlighting how the UK remains mired in recession.

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:

U.S. DOLLAR

$/Yen: 92.08 versus 89.68, +2.7%
Euro/Dollar: 1.500 versus 1.4635, +2.5%
U.S. Dollar Index: 75.44 versus 76.72, -1.7%

Commentary: the overall U.S. Dollar Index declined marginally this week. The dollar has improved versus the Japanese yen, but remains decidedly weak versus the Euro. The U.S. Dollar Index did break below 75.00 at one point early Friday. The correlation between the U.S. Dollar Index and the equity markets remains quite high. Both markets ended the week close to unchanged. Have too many people bought equities and commodities while having sold the U.S. greenback? I have been asking that question for the last month so no reason to stop now. The biggest impact of the weak dollar is seen in the commodity markets and long term interest rates. Commodities continue to trade with a firm tone while interest rates move higher.

I reiterate my comment from previous weeks: while I think Washington is not disappointed in a relatively weak dollar, although they should be (“Dollar Devaluation Is a Dangerous Game”), other countries are not overly keen about further dollar weakness. Why? A weak dollar puts those countries in a marginally less competitive position in international trade. On this topic, please read “Brazil Wants A ‘Real’ity Check.”

COMMODITIES

Oil: $79.65/barrel versus $70.39, +13.1% REMAINS VERY FIRM
Gold: $1055/oz. versus $1008.2, +4.6%
DJ-UBS Commodity Index: 137.32 versus 127.683, +7.5%

Commentary: I repeat from last week, unless you grow your own crops or have your own source of energy, you should expect to get increasingly squeezed as prices at the supermarket and gas station are likely to head higher. While Washington will not address this development, these price moves are directly correlated with Washington’s weak dollar policy. The banks and others able to borrow cheap money for trading and investing benefit from the weak dollar. American consumers and savers get stuck with the bill.

The  Baltic Dry Index once again moved higher and got back above the 3000 level. Is the improvement in the non-Japan Asian economic bloc for real? Certainly the economies in Europe and North American remain decidedly challenged.

I continue to believe these commodity tea leaves are an indication of inflationary expectations in these ‘inputs,’ while we encounter deflationary pressures in wages and real estate. (more…)

Attorney Richard Greenfield Brands Mary Schapiro and FINRA Execs as “Liars”

Posted by Larry Doyle on October 19th, 2009 10:09 AM |

Is Mary Schapiro a liar? Are other FINRA executives also liars?

Fully appreciating that merely asking these questions is aggressive by its very nature, I do not ask them in a derisive fashion. The fact is, the answer to those questions in the eyes of Richard Greenfield is an unequivocal, “Yes!”

Who is Richard Greenfield? I had the distinct pleasure of chatting with Richard last evening on my weekly Sunday evening radio program. Richard Greenfield of Greenfield & Goodman is an attorney with over 40 years of experience in banking, securities, and consumer litigation. Amongst other legal venues, Attorney Greenfield has been admitted to practice before the Supreme Court of the United States.

Our conversation last evening was riveting. If you have an interest in the markets, our economy, developments on Wall Street and in Washington, I strongly encourage you to listen to the interview in its entirety. I will share with you some of the highlights which Richard provided.  (The timing I provide for these highlights can be used in the audio player provided here.)

16:40: FINRA’s mindset has never been on major league enforcement, but rather relatively picayune broker-dealer violations and even then the violations are more technical than they are real. Greenfield said, “the big boys always seem to get away with murder.”

18:30: The NASD coming out of the 1930s initially did a good job, but over time it became less and less concerned with enforcement and more concerned with the appearance of enforcement.

20:00: Most state attorneys general don’t have resources to devote to securities regulations. It’s the rare state, California and New York for example, which undertakes real enforcement activities. (LD’s comment: I would add that Massachusetts has also aggressively undertaken serious enforcement of securities regulation.)

22:00: Too Much Wall Street money finds its way into campaign warchests with the result that its special interests rival those of the insurance and defense industries and as a result Congress and many state government initiatives have been subverted.

25:00: Every major financial institution has ‘cooked their books’ for the last five years.

At the 29 minute mark or thereabouts,  our conversation truly elevates from the general nature of financial regulation to the very specific details of the cases Richard Greenfield and colleagues from the Washington D.C. based firm of Cuneo, Gilbert, and LaDuca are bringing against FINRA. I STRONGLY encourage you to listen to the next twenty minutes.

29:30: Greenfield provides background information on the complaint filed on behalf of the California based FINRA member firm, Standard Investment Chartered against FINRA.

32:00-44:00:
- Greenfield comments on some interesting connections between Bernie Madoff and Mary Schapiro, former head of FINRA and current head of the SEC.

- Documents provided by the NASD (now known as FINRA) to Greenfield and his colleagues show unequivocally that the NASD defendants lied to the NASD member firms regarding distribution of funds from the sale of the Nasdaq. Greenfield reiterates that these individuals lied blatantly and unequivocally. They intentionally lied. The lies are repeated over and over in a proxy statement provided to the member firms. The lies were repeated at roadshows which took place all around the country.

Who is they? Who lied? Who repeated the lies?

Mary Schapiro and senior officers in the NASD (FINRA)!!!

> The primary lie is the misrepresentation of the maximum proceeds that could have been paid to the NASD member firms. That figure was represented as being $35k when in fact it could have been much, much higher.

> Greenfield also highlights the fact that FINRA failed to perform in protecting investors from the Auction-Rate Securities scandal while liquidating its own ARS investment position in 2007.

> Greenfield sheds some light that he believes New York AG Andrew Cuomo is investigating FINRA’s liquidation of its Auction-Rate Securities investment.

>47:00

- Greenfield repeats his assertion initially made on September 3rd while appearing on America’s Nightly Scoreboard on Fox Business News (video clips can be seen here) that, based upon information and belief obtained from a source which Greenfield and colleagues believe to be reliable, FINRA had made investments with Bernie Madoff!!

- Greenfield believes that FINRA may have to be disbanded and the self-regulation of Wall Street may have to be scrapped because the self-regulatory model for this industry has failed.

- Greenfield concludes that Mary Schapiro talks a tough game, but is truly a non-regulator.

While Greenfield makes some serious allegations and charges in the course of this interview, he has unquestioned credibility and experience which comes from 40 years of fighting these battles.

Will the truth and transparency being sought in these complaints and which the American public so badly needs at this time come out? Do not discount the power of information. Please share this information which Richard Greenfield so descriptively and professionally detailed last evening with your friends and colleagues.

I thank you.

Questions, comments, constructive criticisms always appreciated.

LD

It’s the Economy, Stupid!!

Posted by Larry Doyle on October 16th, 2009 9:05 AM |

The American public is becoming increasingly wise to the ways of Wall Street and Washington.

Many Americans were duped by financial practices and products emanating from Wall Street. Where was Washington? I would assess Washington’s involvement and responses in the following fashion:

1. At worst, Washington was complicit given a wide array of failed public policy programs, especially in housing. These public policies were largely ’greased’ by lobbying dollars and campaign contributions.

2. To a large extent, Washington was negligent in terms of oversight, especially on the financial regulatory front.

3. At best, Washington was naive given a general lack of understanding of markets and finance.

The American public is now responding in appropriate fashion. How so? In increasing numbers, they are choosing not to play the Wall Street game. What game is that? Active trading and investing. While the numbers of pure day traders may have increased, the American population at large is focused elsewhere. Where is that focus? On the economy at large and on their individual pocket books.

Washington’s focus on Wall Street and its selling of the market rebound as reflective of a return towards prosperity is a product that will not fly . . . try as they might. Why?

It’s the economy, stupid! Reports this morning indicate that wages will likely show the greatest decline since 1991. Even in the face of declining wages, consumers’ purchasing power is being further eroded by the continuing decline in the value of the dollar. That decline is inflationary which hurts consumers but it continues to present a very cheap funding vehicle for those who want to use the greenback to employ leverage in the markets. Who has the advantage in that process? The large banks. Do they spread that wealth in terms of increased credit and higher savings rates? Now why would they do that?

The American saver and consumer shouldered the cost of the bank bailouts in 2008. They are now shouldering the cost of the wealth transfer to the banks in 2009. While Washington would like to sell this dynamic differently, the American public gets it.

Washington will continue to sell this dynamic at its peril.

LD

Poll Indicates Investing Has Declined Significantly

Posted by Larry Doyle on October 15th, 2009 3:56 PM |

Have you given up on the market? Do you not trust the financial industry? Have you stuffed your money under the mattress? To an ever increasing extent, more and more Americans have become more risk averse when it comes to investing.

Alix Partners, a consulting firm, produced Half of Americans Have Stopped or Reduced Investing and a Quarter Don’t Intend To Invest for at Least Three Years:

Americans will be investing significantly less in the future, according to a new survey released today by AlixPartners LLP, the global business advisory firm, indicating that the financial crisis is likely to have a significant impact on investor behavior over the next several years.

While the U.S. financial services industry is slowly recovering from its biggest losses in decades, investor confidence appears to be recuperating tepidly at best.  A staggering 49% of people surveyed who identified themselves as “previous investors” reported either having stopped or reduced investing in stocks or mutual funds and 26% said they had no intention of investing in these bedrock financial vehicles in the next three years. The survey also found that among higher-income households, those earning more than $75,000 per annum, 21% of previous investors reported having stopped investing altogether in stocks or mutual funds.  These results could point to a significant structural contraction in the market for financial services firms and financial advisors, while also suggesting that financial companies should be thinking about how to better focus their marketing dollars in today’s uncertain market.

“Investors who had placed their trust in the investment industry are cross, cautious and confused,” observed Clarence Hahn, AlixPartners’ Financial Services Improvement practice co-lead.   “And while the collective loss of wealth in the past year has had a deep impact psychologically as well as financially, the irony is that the lost wealth can only be rebuilt through participation in the markets.  Financial-advisory firms therefore have two key challenges:  to figure out who really is going to start investing again; and to win back trust by building into their offerings a level of oversight, due diligence and risk management that will eradicate the possibility of similar meltdowns in the future.”

While brokers and financial planners will need to figure out how to reengage with a client base that was often ill-served, I strongly believe individuals will need to assume a greater degree of the burden to truly understand the art of investing. What does that art entail?  Let’s start with the following:

1. Learn about risk: how to measure risk, how to identify risk, what are the risks in different investments.

2. Learn about the values of diversity across asset classes and regions.

3. Learn about the impact of policy implemented in Washington and the influence it has on Wall Street specifically and finance and investing in general.

4. Learn about the differences in fundamentals and technicals.

How do you start to undertake the above four steps?

5. Read Sense on Cents.

Don’t necessarily give up on investing. Get started on educating yourself.

LD

Bill Gross Making Sense on Cents

Posted by Larry Doyle on October 14th, 2009 12:56 PM |

Looking beyond the liquidity provided by the Treasury and Federal Reserve to refloat our equity markets, what will be the drivers of our economy and markets going forward? While Uncle Sam may think he can leave rates at 0-.25% for an extended period, at some point even ‘extended’ runs out. Will the Uncle Sam economy have adapted and implemented the structural changes necessary to move on to a new phase of growth and prosperity?

I am very concerned and reiterate that our markets are masking significant embedded issues in our economy and overall fiscal health.

As much as I found Pimco to be challenging when trading with them, and question their integrity in handling their outstanding Auction-Rate Securities issuance, I respect their views on the markets and economy. In fact, I think Bill Gross and Mohamed El-Erian consistently provide a lot of “sense on cents.”  What does Mr. Gross have to say about our economic landscape lately? He writes:

What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital” – the accumulation of it and the eventual efficient employment of it – for growth in profits and real wages alike.

Regrettably, more and more capital here at home is being directed toward the servicing of our massive deficit. Additionally, taxes will surely increase to do the same. Over and above those two definites, I believe strongly  that capital will increasingly look for opportunities outside our nation given the pressure on our greenback.

Gross touches upon an issue which I strongly believe is a MASSIVE drag on our current economy and our future well being, that is our  secondary schools which rank 18th overall in the developed world. Gross writes:

What California once had and is losing rapidly is its “capital”: unquestionably in its ongoing double-digit billion dollar deficits, but also in its crown jewel educational system that led to Silicon Valley miracles such as Hewlett Packard, Apple, Google, and countless other new age innovators. In addition, its human capital is beginning to exit as more people move out of the state than in. While the United States as a whole has yet to suffer that emigration indignity, the same cannot be said for foreign-born and U.S.-educated scientists and engineers who now choose to return to their homelands to seek opportunity. Lady Liberty’s extended hand offering sanctuary to other nations’ “tired, poor and huddled masses” may be limited to just that. The invigorated wind up elsewhere.

Do the powers that be in Washington and in the state houses possess the necessary discipline to right our ship and set sail on smoother seas? If so, they will have to display a set of values and practices which are entirely inconsistent with how our government operates. While I remain bullish on those who want to educate themselves, practice discipline, and save for better days, I am bearish on people who think Washington or other entities can provide those necessary values. Gross is also cautious in concluding:

Now that our financial system has been stabilized, one wonders whether California’s “Governator” and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around. Our future doggie bags can hold steak bones or doo-doo of an increasingly familiar smell. For now investors should be holding their noses, their risk orientation, as well as their blue bags, until proven otherwise. Specifically that continues to dictate a focus on high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a  “new normal” economy of slower growth, muted profit gains, and potential capital destruction via default, abrogation of property rights, and dollar devaluation.

If we think a return to business as usual is the proper path, we will merely go in circles and end up right back in this same spot….if not worse.

I welcome comments from those who share or differ with these assessments.

LD

October 10, 2009: Month to Date Market Review

Posted by Larry Doyle on October 10th, 2009 10:12 AM |

We are reaching a point in our new “Uncle Sam” economy where rhetoric from Wall Street, Washington, and global financial centers seems to be having greater impact than true market and economic fundamentals. Why? Our financial and political ‘wizards’ are working overtime to reconnect the great ‘disconnect’ between Wall Street and Main Street. While we receive glimmers of hope in certain economic statistics, the dark clouds in employment and housing remain daunting.

Are the ‘Washington wizards’ (Bernanke, Geithner, Summers) providing hints of support for our greenback while truly hoping for a manageable decline? I believe they are, and I believe this financial engineering is a very dangerous game.

I thank you for reading my work, and now let’s collectively ‘navigate the economic landscape,’ the mission of Sense on Cents.

ECONOMIC DATA

Non-manufacturing Institute of Supply Management: this report rose above 50 (an indication of growth) with a positive development in new orders (this is clearly good), but with no signs of improvement in employment and pricing power by manufacturers.

Redbook: indications of slight improvement in same store sales although next week’s Retail Sales report will likely look exceptionally weak as it incorporates an end to the ‘Cash for Clunkers’ program. Overall signs point to what is expected to be a weak holiday retail season.

Jobless Claims: overall claims declined, which presents a sign of stability within employment. That said, it is hard to be optimistic on the employment front on the heels of the employment report released on October 2nd (embedded within the Equity section of this commentary).

Trade Deficit: this deficit surprisingly narrowed, with a slight increase in exports combined with a slight decrease in imports. All other things being equal, this report would be positive for our dollar but the noise surrounding our currency is overwhelming the focus within this one month reading.

I would typically lead my review with focus on the equity and bond markets, but those sectors are actually following developments in the currency and commodity markets so let’s shift our focus accordingly.

How did the markets handle the Fed-speak, the data, and technical flows? Let’s continue navigating. The figures I provide are the weekly close and the month-to-date returns on a percentage basis.

U.S. DOLLAR

$/Yen: 89.78 vs. 89.68
Euro/Dollar: 1.4709 vs. 1.4635
U.S. Dollar Index: 76.35 vs. 76.72

Commentary: the overall U.S. Dollar Index has declined by approximately .5% this month, but the volatility and focus on movements in this space have been tremendous. Precipitated by an increase in rates by the Australian Central Bank midweek, the U.S. Dollar Index plunged below 76 which represents multi-year lows. The dollar weakness led to a move higher in global equities as traders, investors, and speculators were emboldened to enter into more ‘positive dollar carry trades.’

While I think Washington is not disappointed in a relatively weak dollar, although they should be (“Dollar Devaluation Is a Dangerous Game”), other countries are not overly keen about further dollar weakness. Why? A weak dollar puts those countries in a marginally less competitive position in international trade. ECB President Jean-Claude Trichet voiced his concerns on this topic. Rest assured, the Asian nations feel the same way although they are careful in their comments. Adding further fuel to dollar weakness was speculation that the trading of oil and a basket of other commodities, which are currently transacted in U.S. dollars, would shift trading away from being dollar-based. On that note, let’s review the action in commodities.

COMMODITIES

Oil: $72.29/barrel vs. $70.39
Gold: $1050.1/oz. vs. $1008.2   !!!! THE BIG WINNER !!!!
DJ-UBS Commodity Index: 129.177 vs. 127.683

Commentary: I view this segment of the market to be the STRONGEST indicator of the global economic pulse. Additionally, the price action in commodities is likely a strong indication of the ‘positive carry’ trade put on by hedge funds and other traders.

The overall commodity index has moved higher by approximately 1.2% on the month, but the movements within specific commodities is gaining the real focus. Gold specifically has soared by over 4% this month. Why? Market speculation about a potential further slide in the greenback would be inflationary.  Oil and other commodities also benefited from the story I referenced above. The conundrum I find in this space revolves around overall levels of international trade. Are these commodities moving higher truly because of an increase in demand or merely because of speculative investing and trading? Where do we go to get a pulse on that? The Baltic Dry Index. How is our friendly indicator of global shipping activity doing?

The  Baltic Dry Index continues to move marginally lower. Can global equities in general and commodities specifically increase in value if the major indicator of global trade, that being the BDI (Baltic Dry Index), is in a downtrend? I think not for the long haul, but for a period of time a cheap funding vehicle, that is the U.S. dollar, can override market fundamentals.

I read these commodity tea leaves as sign of inflationary expectations in these ‘inputs’ while we encounter deflationary pressures in wages and real estate. What a world.

EQUITIES

DJIA: 9865, +1.6%
Nasdaq: 2139, +0.8%
S&P 500: 1071, +1.3%
MSCI Emerging Mkt Index: 946, +3.6%
DJ Global ex U.S.: 197.6, +1.5%

Commentary: equities regained momentum after last week’s selloff. Recall how just one week ago, we faced a remarkably weak and disappointing Unemployment Report which culminated a week in which equities had given up approximately 2%. Well, we not only recaptured that decline but rallied further by another 1-2%. This past week accounted for the strongest advancement in equities since early July. Are we poised for a breakout past 10,000 on the Dow? Well, we need to remain focused on what is driving the market . . . and that is the weak greenback.

Indications of economic strength in Australia compelled the Australian Central Bank to raise rates which drove the Aussie higher and the dollar to new lows. In the process, the ‘dollar carry trade’ gained momentum propelling global equities higher.

The initial earnings reports released continue to show no real signs of improvement in top line revenue generated by increased sales while the bottom lines have improved given ongoing cost cutting progams. If a company cuts ALL its costs, will its stock still go higher? Rising stock values ultimately need to be driven by ‘growth.’

BONDS/INTEREST RATES

2yr Treasury: .97%, an increase of 2 basis points or .01% 
10yr Treasury: 3.39%,
an increase of 9 basis points

The yield curve steepened (longer maturities underperformed shorter maturities) under the weight of another Treasury refunding (3yr, 10yr, and 30yr). The 30yr auction on Thursday was disappointing which precipitated the selloff. The bond market has been trading in sync with equities for the last few months. That price action is an anomaly as typically bonds will trade in an inverse relationship with equities. Comments by Bernanke in the latter part of the week about an eventual and timely increase in rates by the Fed did take the wind out of the bond market’s sails.

COY (High Yield ETF): 6.64, +3.8%
FMY (Mortgage ETF): 17.85, +0.3%
ITE (Government ETF): 57.77, -0.3%
NXR (Municipal ETF): 14.46, +0.1%

Commentary: while interest rates did move marginally higher over the week, overall they remain at remarkably low levels. The high-yield market remains on fire as that sector is benefiting from a lot of hedge funds allocating capital via the ‘dollar carry trade’ referenced previously.

Summary/Conclusion

The game continues. The disconnect between the overall domestic economy and the price action in the markets presents what one noted investor described as ‘the greatest experiment’ in modern finance. To the extent that people are putting money to work, I would focus on buying quality and utilizing ‘dollar cost averaging’ techniques.

Thanks for your support. If you like what you see here, please subscribe via e-mail, Twitter, Facebook, or an RSS feed.

Thoughts, comments, questions always appreciated.

Have a great day and weekend.

LD






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