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HomeNovember 7, 2009: Month to Date Market Review
Posted by Larry Doyle on November 7th, 2009 8:39 AM |
Unemployment hits 10.2% and every self-respecting economist knows it is heading higher.
Does anybody want to ask Tim Geithner if he wants to review the rigor and integrity of the Bank Stress Tests conducted last Spring? What were the assumptions used for the Unemployment Rate? For those who care to review the premises of the long ago but now forgotten Bank Stress tests, I submit from the FDIC, FAQs-Supervisory Capital Assessment Program. In regard to the assumptions used for unemployment:
2009 Base Case 8.4%
2009 Adverse Case 8.9%2010 Base Case 8.8%
2010 Adverse Case 10.3%
Garbage in, garbage out. We are now within .1% of the more adverse unemployment case for NEXT year. Not that it might matter given the fact that the liquidity experiment undertaken by the Fed and Treasury is bubbling up in asset valuations while neglecting Main Street’s economic plight. That said, I would once again question as I did last April, “Bank Stress Tests: Major Sham??”
What are the implications for sham transactions? Subsequent misallocation of funds in order to cover and disguise the initial sham. I am not stating that government officials are stealing, although I’m not stating that they’re not. I am stating that there is little doubt that future funds continue to get redirected into organizations (banks, Freddie, Fannie) and programs the health of which were not accurately represented to the American public. (more…)
October 31, 2009 Market Review: Cinderella’s Ball?
Posted by Larry Doyle on October 31st, 2009 8:34 AM |
HAPPY HALLOWEEN!! Is the clock getting ready to strike twelve? Is it time to get home? Is the magical ball that has enchanted many market participants about to end? How so? As quantitative easing programs around the world end and global governments start to increase interest rates, will we experience a double dip in the global economy?
Or, are the Uncle Sam economy and numerous global economies blazing new trails and redefining the economic landscape?
As with most things economic and market related, the answers are never ‘crystal’ clear nor do they fit like a ‘slipper,’ but let’s do our best to read the October market moves and project our way forward.
ECONOMY
The U.S. economy came out of recession in the 3rd quarter with a positive 3.5% print. While that number surprised to the upside, please review my post “Grossly Distorted Product” or “Christmas in July” to get a pulse on just how weak the American consumer remains. Further confirmation of a subdued American consumer is reflected in the decidedly weak Consumer Confidence report highlighted in my post, “Jobs + Housing = Consumer Confidence.”
Around the globe, non-Japan Asia is generating some real growth. To wit, we have already seen Australia raise interest rates to stem fears of inflation. Who next raised rates? Norway. The U.K remains mired in a recession. Eastern Europe is struggling while Germany is leading the EU. If we know anything about Germany, they have little interest in any hints of inflation.
While there are pockets of strength around the globe, many economies – including the U.S. – remain challenged. What will continue to happen? International trade tensions as weak countries try to generate greater exports via weak currencies.
Let’s review market returns. (more…)
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…)
Brazil Wants ‘Real’ity Check
Posted by Larry Doyle on October 21st, 2009 9:04 AM |
Brazil is increasingly concerned by the flow of capital pouring into its economy. Why? Isn’t that a good thing? Well, when the money is ‘fast money’ (meaning largely speculative) and it drives a nation’s currency dramatically higher, it can have an extremely negative and potentially destabilizing impact on a nation’s trade flows, primarily its exports. Let’s navigate.
There is no doubt the global markets are being driven largely by the cheap funding that is emanating from the United States. The oft-repeated statement by Fed chair Ben Bernanke that he will leave the Fed Funds rate unchanged at 0-.25% for an extended period has provided real comfort to speculators, traders, and investors around the world. What are these market participants doing? Selling the U.S. greenback to purchase a variety of global risk based assets. While investors may like positive returns generated to date on their investments, rest assured foreign central bankers are significantly less enthused with the strengthening of their own currencies relative to the greenback. Why?
As I highlighted in my weekly recap, October 10, 2009: Month to date Market Review:
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.
Let’s navigate south and visit Brazil. The Brazilian currency, the real (pronounced “ray-al”), has appreciated by approximately 36% against the greenback this year alone. The real has appreciated over 50% against the greenback from its lowest valuation a few years ago. While that appreciation is a positive for Brazilian consumers, it is a major headwind for Brazilian exporters. (more…)
