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HomeWall Street Economic and Market Outlook 2010
Posted by Larry Doyle on January 6th, 2010 12:06 PM |
The New Year brings us the traditional economic and market outlooks from Wall Street firms. High five to a loyal Sense on Cents reader for sharing this recap collated by Birinyi Associates. (Click on image to access full report)
>> LD’s SUMMARY
The overall average calls across the economic and market landscape are as follows:
GDP: +3.1% increase
S&P 500 close at year end 2010: 1222, a 9.6% increase
S&P 500 earnings: $76/share
Oil: $80/barrel, effectively flat on the year
Dollar/Euro: 1.45, effectively flat on the year
The overall outlook does project that analysts believe better opportunities for growth lie outside the United States.
With all due respect to the analysts making these calls, there are no major market calls and especially outliers in this report. Why? Analysts know they have more downside in being bold and wrong. Additionally, the analysts are ultimately a public face for Wall Street salespeople trying to collect assets and sell products. What environment characteristics are most conducive for those pursuits? Low volatility with positive bias and trend. What have the analysts provided? Exactly that.
Wall Street is truly an oligopoly. Group think and coordinated — if not collusive — pricing and projections are simply how the game is played.
LD
Why Doesn’t the Market Move?
Posted by Larry Doyle on January 4th, 2010 2:55 PM |
Have you ever wondered why the market often times makes a very early move one way or the other then just seems to sit all day? Take today, for instance. The market moved solidly higher on the open, but has sat at up 160 points all day. Why? Let’s look at a 5 minute graph of today’s price movement for the Dow Jones Industrial Average:
The market has traded in a 10 to 15 point range for the better part of the last 4 hours. Why isn’t it moving? A lack of overall trading volume and accompanying conviction on the part of many investors. With fewer market participants involved, volatility diminishes, and the market sits.
Is this good, bad, right, wrong? It’s none of the above. This is merely the market.
All other things being equal, it is healthier for a market to trade up and down on heavier volume as that indicates a stronger conviction and develops a stronger foundation. One may agree or disagree with the price action of a market. That said, a market will do whatever it may want. That is, “the market is the market.”
LD
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…)
December 19, 2009: Month to Date Market Review
Posted by Larry Doyle on December 19th, 2009 11:26 AM |
Our economic landscape is anything but normal. The fits and starts, ups and downs, hills and valleys remain challenging and all assertions to the contrary are not about to change anytime soon. Those in Washington continue to try to put a happy face on our economy. Those on Wall Street revel in the easy money and try to project a populist image. But those on Main Street are paying the price in terms of navigating the real challenges of our economy. On that note, welcome to Sense on Cents. Let’s move on to our weekly review.
With most eyes fixated on problems here at home, the real issues in the global markets occurred in the Euro-zone. Is Greece close to a sovereign default? Would that create a chain reaction? The Euro continued to give ground this week and our greenback benefited in the process. Given the negative correlation between our greenback and many sectors of the equity, commodity, and bond markets, volatility remains a concern and risks remain high as we go into year end.
We continued to see a semblance of this phenomena play out again this week. Will it continue? Watch the U.S. Dollar Index and expect that it will continue to be negatively correlated with the markets.
Let’s navigate. Prior to reviewing the month to date market returns, I’ll address economic data released this week. (more…)
What’s the Market Telling Us?
Posted by Larry Doyle on December 11th, 2009 9:38 AM |
In the face of generally positive economic news the last two days, (Retail Sales this morning rose 1.3% and the improving Trade Deficit), the price action in the market is very interesting. What is it telling us? Let’s navigate.
With the U.S. Dollar Index having firmed over the last week, money does not appear to be coming out of the equity markets. The major equity averages are up anywhere from .5 to 2.5% on the month. What market segments are feeling the bulk of the pain? Government bonds and commodities, primarily oil and gold.
Interest rates on U.S. government bonds have continued to move higher as Treasury supply this week has not been well received. With rates on 10yr U.S. Treasurys higher by .35% over the last ten days, it would appear that market participants continue to believe the Fed will be forced to raise rates or make other moves to lessen the support and stimulus provided to the economy.
If rates are to move higher, our dollar should find support . . . and it is, as the U.S. Dollar Index remains above the 76.00 level. While dollar strength had been a harbinger of general weakness across almost all risk-based asset classes, the commodity sector is bearing the brunt of the pain currently.
The DJ-UBS Commodity Index has declined by 2.5% on the month led lower primarily by oil (down approximately 10% on the month) and gold (down 4% on the month).
Add it all up and what does it mean? If our domestic economy is in fact stabilizing, then the public at large and investors will compel the Grand Old Man, that is Uncle Sam, to back away from continuing to provide stimulus. As that occurs, the market may begin to normalize to levels at which private investors care to put money to work. At this juncture, investors are saying interest rates are not attractive at current levels. As interest rates rise, that may actually temper an economic rebound, especially in housing.
So be it. It is not realistic for market participants “to have their cake and eat it too.”
LD
Dollar Carry Trade Remains in Vogue
Posted by Larry Doyle on December 4th, 2009 3:47 PM |
Today’s price action in the markets is very telling. What is it telling us? The dollar carry trade remains in vogue and technicals continue to dominate overall flows much more than fundamentals. Let’s navigate.
Recall that the weakness in the U.S. dollar has facilitated a large number of hedge funds, market speculators, and to a less extent investors to borrow dollars and buy a variety of risk based assets. What assets? Equities, a wide array of bonds, a basket of commodities, primarily gold. How are these sectors performing?
After an initial spike of 1-1.5% across the equity markets, these major market averages have retraced and are now effectively unchanged to slightly better on the day. Is that a sign of investors not believing in the details of the employment report? No, anything but. In fact, I believe the equity performance today is quite strong given the fact that the dollar has increased by 1.6%.
Bonds have traded in a very narrow range. Interest rates moved higher by approximately 12 basis points (.12%) and have sat there almost all day. The question that now comes back front and center is when the Fed will decide to raise rates. While most analysts had written off the possibility of an increase in rates prior to 2011, now analysts are projecting that the Fed may raise rates by mid-2010.
If rates do rise here, what does that do for our greenback? It will do better and it is doing just that today. As I referenced the U.S. Dollar Index has increased by 1.6%. (more…)
The Market’s Greatest Risk
Posted by Larry Doyle on December 3rd, 2009 12:26 PM |
What is the greatest risk in the market currently? Is it the fact that the American consumer remains strapped? Unemployment showing no signs of improvement? Is it the continuation of problems within housing? While all of these issues are significant, I would maintain they are not anywhere close to being the greatest risk in the market. Why? Let’s navigate.
Each of the previously raised points is an economic factor, but the market is trading to a much greater extent based on technicals and excessive liquidity provided by the Fed than any individual or group of fundamental economic statistics.
Thus, let’s return to my original question. What is the greatest risk in the market currently? If the market is being supported by easy money provided by the Fed and that easy money is pressuring the dollar ever lower, then the greatest risk is that the dollar stops its decline. What might precipitate the dollar to increase in value? Coordinated intervention by international trade partners who are disadvantaged by a weak dollar. Could this happen? Without a doubt. In fact, our friends in Japan just started intervening in the currency markets to weaken the yen against the dollar.
The Wall Street Journal highlights this development in the brief video clip, Calls Increase for Japanese Intervention More Acute:
The yen has moved up to a current valuation of 88.14 versus the U.S. dollar from a month end level of 86.38 just this past Monday.
While I have no doubt that our political leaders in Washington are not unhappy with the weakening of our greenback, our international trade partners, such as Japan, are less thrilled. To the extent that these partners fashioned a coordinated response to strengthen the dollar and weaken their own currencies in an attempt to support their own exports, that coordinated effort is ‘the market’s greatest risk.’
LD
November 2009 Market Review
Posted by Larry Doyle on December 1st, 2009 6:48 AM |
The magnitude of market returns across virtually every segment (equities, bonds, currencies, and commodities) leaves me with one overriding belief: DON’T TRY THIS AT HOME.
To the extent that you have funds invested across asset classes, once again smile at the returns but do not think for a second that they are a precursor to a robust rebound in the economy. In fact, all you need to do is see what is happening in Washington this very week to get a pulse on the two most economic forces in our nation.
Today, the Obama administration released a revamped effort to support our housing market which continues its descent. I highlighted this initiative in my post yesterday, “Obama’s Socialized Housing Policy: If at First You Don’t Succeed….Try, Try Again.”
Later this week, Obama is hosting a Jobs Summit given the fact that the unemployment situation shows no signs of improving anytime soon. I highlighted this dynamic in my piece, “Jobs is Job # 1.”
What is going on in the markets? The same story. Excess liquidity provided by Ben Bernanke and Tim Geithner is bubbling over into virtually every asset class. While many money managers, foreign central bankers, and even some at the Fed have raised the question of asset bubbles, these situations can persist as long as the source of fuel, that is the Fed’s easy money, continues to flow.
Can you call a top to something that is already out of control? It would be purely guesswork. All this said, don’t get complacent and think for a second that the economy is not fragile and filled with risks.
LD
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.
ECONOMIC DATA
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…)
November 21, 2009: Month to Date Review of the Market
Posted by Larry Doyle on November 21st, 2009 6:19 AM |
Lack of trust and credibility is ultimately nothing more than a measure of increased risk. Let’s factor that in while we navigate the economic landscape and review the month to date performance of the markets.
Are we witnessing signs of a double dip in the economy? As government stimulus wears off and the reality of the underlying economy is reflected, I do not believe we will experience a double dip simply because I do not believe the real economy has ever truly bounced. Let’s navigate.
ECONOMIC DATA
1. Retail Sales: reported as a 1.4% increase versus a .9% expectation, but analysts failed to share that September’s report was revised from an initial reading of -1.5% to -2.3%. The overall trend lines over the last three months indicate no bounce. Expect serious price discounting for the upcoming holiday season.
2. Producer Price Index: increased .3% versus an expectation of .5%. The real news, however, is in the core rate (that is, excluding volatile components of food and energy) which registered a very surprising -.6% reading versus expectations of a .1% increase. Can you say deflation?
3. Industrial Production: increased by .1% versus an expected increase of .4%. This number indicates 4th quarter growth is slowing relative to the 3rd quarter when government stimulus provided its maximum benefit.
4. Housing Starts: declined by 10.6%!! This report took all the wind out of the sails of those who were calling for a V-shaped recovery. Mortgage delinquencies, defaults, and foreclosures continue to increase. There is no way housing can stabilize and recover until those figures stabilize.
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…)
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