“Agitation is the marshalling of the conscience of a nation to mold its laws.” Robert Peel (1788-1850)
Replaying
Reminiscent of last year, old worries are mounting and new grim facts untangle while fresh sets of discoveries enhance the existing suspense. Fragile attempts at European stability resurface while US business leaders scramble to instill trust as politicians and regulars attempt to deliver a plan for the impatient crowd. From Spain’s nationalization of banks to powerful election results in Europe, collective emotions are flaring. All in all, tension is back again and for market followers the script is becoming too familiar.
Amazingly, numbers find a way to fasinate observers – at least on a simple year-to-year comparision. Strange as it may be, on May 2, 2011, the S&P 500 Index peaked at 1370. Today it’s holding at a delicate range around 1350, leaving buyers and sellers to haggle for the next move. Of course, history does not always repeat itself in the same exact form – at lease we’d like to think so. Similarly, one can glance at the volaitlity index which peaked around 20 last May. Today, the expected fear barrmoter stands around 19.89 as of the end of last Friday. Not quite extreme fear levels, but quite reflective of a sensitive crowd that’s anxiously dealing with known problems but unknown consequences heading into the summer months.
Loss confronted
Against this big-picture backdrop, perhaps last week was not an ideal time to announce the loss of $2 billion dollars, especially for a “risk management expert.” Certainly, these days, there is no mercy for banks admitting fault when the overall climate is increasingly edgy. Unforgiving crowds continue to emerge as a theme that’s visible in voters and investors alike. Basically, the vote of confidence in the existing system is not producing a thrilling response. However, for executives of public companies, it may not be a bad time to dump all bad news in a jittery environment. Piling onto the pot of bad news is one strategy as less pleasant news becomes somewhat of the norm. Thus, discovering a bank loss or lack of control quickly takes us back down memory lane to an unshakeable new financial world. Basically, the effects of 2008 are with us – hard to shake – and regulatory measures are even more justifiable now.
Dissecting Mottos
In a basic form, the sales pitches of popular investment slogans are being questioned or being digested. Those fed up with paper assets and those clinging onto unfavorable views of the Federal Reserve's plan concluded that owning gold might be one safer answer. Of course, one glaring advertisement for gold lies in its past performance. Simply, it’s visible in its 12-year chart, demonstrating an eye-catching upward slide. Re-runs of that advertisement can get a crowd excited. Yet gold this year is up only 1%, reflecting a sluggish near-term performance and testing the will of commodity supporters. Again, just because central banks are buying to diversify their currency position is no guarantee for gold to skyrocket above $2500. Nor should waning stock and global growth issues spur an audience to turn to other alternative options.
Growth search
For a while, advisors remind us of the historical performance of the last decade, in which emerging markets vastly outperformed established markets. Clearly, for a while this so-called structural shift became fashionable and real in some respects. Mainly, this mindset created momentum in emerging markets, and drove plenty of folks to “chase the money” by owning possessions in China and other nations. Now this thought is not rosy, as recent headline outcomes continue to reconfirm the slowdown:
“China reported its industrial production rose 9.3 percent from a year earlier in April, below expectations and down from nearly 12 percent in March. ….India's industrial output fell 3.5 percent in March from a year earlier on weak manufacturing and investment. Output for the fiscal year ending in March rose 2.8 percent, down from 8.2 percent the year before.” (Associated Press, May 11, 2012)
Meanwhile, the classic textbook investment suggests that US Treasuries remain a barometer for risk-free rates. So far it has been the symbol of risk aversion, but on a basic level the returns are unappealing. Now yields are less than 2%, around all-time lows, as showcased for weeks, especially in a period where shelter is hard to find. Plenty of managers would rather give up higher returns for the comfort of perceived safety. This song and dance at some point has to end or take a new shape. The thought of safety may turn into a liability for those planning ahead. Perhaps, that’s the message from recent patterns in gold, emerging markets and US Treasuries. Soon we will have a better confirmation
Through all this, the lack of investment options may require investors to engage in further risk taking to meet desirable hurdles. For now, the near-term emphasis is highly focused on a barrage of worries. Yet, selective buying in US stocks and less discovered emerging markets may prove fruitful a year or so from now.
Article Quotes:
“US-based public pension funds constitute one of the most prominent institutional investor segments investing in real estate. The aggregate assets under management held by US public pensions that are active in real estate is over USD 3 trillion, with the average real estate allocation amounting to 6.3% of total assets, below the 8% average target allocation of this group of investors. Fifty-seven percent of public pension funds based in the US that invest in real estate have assets under management of below USD 1 billion; a further 28% have assets of between USD 1 billion and USD 9.99 billion. Eleven percent have total assets of USD 10-49.99 billion. Five percent have total assets of USD 50 billion or more. Seventy-three percent of US public pension funds that invest in real estate have a real estate allocation of less than USD 250 million.” (Preqin, May 2, 2012)
“In the face of the overwhelming demographic facts, Greece and Wisconsin will have to shed their antiquated notions of work and retirement. … Even if you believe in the economic promise of austerity, there are simply no cost-cutting measures to buoy an economy with one-third of the people retired and a sub-replacement birth rate. If we can begin to integrate our aging population into economic life, the payoff would be two-fold. First, it would stop the bleeding brought about by bygone retirement schemes and entitlements. Second, it would add GDP to the economy by growing the skilled workforce. Sure, the workplace of today is far different than it was 20 and even 10 years ago – but this can’t be an excuse to marginalize the aging. Instead, the older population is Greece’s and the world’s greatest hope for economic growth and recovery; and this group has decades of experience and expertise to offer. Throughout Europe, the story is much the same. Only Turkey, France, and Ireland have birth rates over 2.0, and the average old-age dependency ratio in Europe is 25 to 100; it will climb to 47 to 100 by 2050. “ (The Fiscal Times, May 11, 2012)
Levels:
S&P 500 Index [1353.69] – Attempting to hold 1350, as the index is below its 50-day moving average.
Crude [$96.13] – Barely holding on above $96, as the decline continues. The recent sharp fall is stimulated by higher inventory than expected; plus, slowing global demand triggers an inevitable downside action.
Gold [$1583] – A drop below the $1600 is eye grabbing in one view. Interestingly, the recent lows stood at $1531 on December 29, 2011. Now, enthusiasm is waning but buyers seeking a bargain might dabble. Yet this downtrend is hard to ignore.
DXY – US Dollar Index [79.19] – Since May 6, 2011, the index has managed to rise by 10%. Although not glaringly noticeable, a strengthening dollar is quietly and slowly brewing. Index is up 10 days in a row, making a noteworthy macro statement.
US 10 Year Treasury Yields [1.83%] – All-time lows are not too far at 1.67% and the downtrend pressures looms larger.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, May 14, 2012
Monday, May 07, 2012
Market Outlook | May 7, 2012
“We should not expect all the present to be as good as the best of the past.” (Lewis Korns, Thoughts 1892)
Interlinked brake
Leading up to this spring, several discussions resurfaced on global slowdown themes, which appear to coincide with peaking or consolidating commodities prices. Although this link is not always directly correlated, there are a few issues to ponder in connecting the dots between major macro indicators. At least, early signs of slowing commodity prices are igniting thought-provoking questions.
The overall available oil supply mildly shocked participants making a noteworthy move last week. Crude prices broke below $100, signaling a sharp weekly decline of 6%. The rise in US crude inventories showcased a trend that has continued for over six weeks. Recent price patterns did not quite live up to the chatter of Middle East disruption, which was causing worry about escalating crude prices. Refuting common groupthink thus far, this trend alerts us to lessen the emphasis on political chatter but refocus on more fundamental matters.
Vitally deadlocked
To grasp most of the mechanics in the commodity pricing requires linking a few puzzles. One key sensitive topic relates to recent awareness of emerging markets’ sluggish outlook. Again, as the facts and evidence reveal themselves, the decade-old commodity momentum is facing similar scrutiny as other risky assets. Recent crisis-mode behaviors have showcased synchronized downside movements in recent years. Amazingly, short-term memory will play psychological games for capital allocators.
The connection between gold prices and the US Dollar presents a noteworthy impact to market dynamics. Both heavily cited barometers have been stuck in a trading range lately, enhancing curiosity and discouraging trend followers. Gold has not found compelling reasons to spark an appreciation for several weeks. Meanwhile, the same applies for the US Dollar, which remains suppressed into customary low ranges in the last three months. These indicators are usually known (at least in conversations) to move in the opposite direction. However, the commodity and the currency are equally deadlocked in a period flooded with less certain events. This poses a hint in itself, of a pending inflection point.
Other observers will point out how a destabilized environment causes a rush into safer assets. In that scenario, the Dollar proved to be in higher demand in 2008 than gold. Similarly, the faith of quantitative easing will dictate whether further policies “eroding” the US Dollar’s value continue to benefit gold prices. If further easing is off the table, then gold may not sustain its leadership, despite its appeal as a reserve currency to central banks.
Benefiting by default
Considering the troublesome emerging markets, along with impactful election results in Europe, the US market seems poised to benefit from a lack of stability. Yet, the US monthly labor numbers were not as cheerful as a result of increasing growth expectations. Similarly, keeping up with previous solid quarterly earnings outcomes is not easy to deliver. “The percentage of companies beating earnings estimates has been just 53% over the last three days [last week], dropping the overall beat rate for all of earnings season down to 61%.” (Bespoke Investments Group, May 4, 2012). Perhaps a warning that ongoing solid surprises are not sustainable for a charged-up crowd Fatigue of a good stock market run is normal and it wears down the enthusiasm for a short period. It takes time to restore a collective resurgence. All that said, preparing to add exposure to US stocks is a valuable exercise, especially given the lack of better alternatives from all sides.
Article Quotes:
“Stock trading now accounts for 16 percent fewer customer trades at TD Ameritrade than it did in 2009. ‘We’ve had instances where it looked like things were clearing up,’ said Mr. Quirk. The company’s clients in some recent months tiptoed back into stocks, he said, ‘but then they rather surprisingly just quit.’ Among the broader population, the most common investment in stocks has been through mutual funds. The most conspicuous sign that these investors have grown disenchanted with American stocks has been the flow of money out of domestic stock mutual funds, which were drained of more than $400 billion since the start of 2008, compared with an inflow of $52 billion in the four years before that, according to the Investment Company Institute. The outflow has continued into 2012. The shift is partly attributable to the growing number of seniors moving from stocks to bonds, which is typical in retirement. But surveys by the institute have shown that investors young and old have grown less willing to invest in domestic stocks, even with interest rates on bonds at record lows in recent years.” (New York Times, May 6, 2012)
“The Lewis Point refers to the gradual disappearance of an unlimited rural labor supply that happens when a country develops. This, along with the commensurate rise in labor wages, is certainly happening in China, and as this World Bank blog post notes, could cause a decrease in FDI as China becomes a less attractive manufacturing destination. The characteristics of the workforce are also changing – more and more Chinese are going to college, creating a workforce more suited to skilled tasks than factory work. The middle income trap, as explained by this excellent New York Times article, is when a country’s growth starts slowing once per capita income has reached between $5,000 and $15,000. Once a country has reached a certain economic level, it becomes harder to grow further, in a situation analogous to the law of diminishing returns. Additionally, China is reaching the end of its demographic dividend, the disproportionate number of working age people that allowed it to leapfrog growth.” (The Diplomat, May 3, 2012)
Levels:
S&P 500 Index [1369.10] – Staying above 1350 is a near-term challenge; yet, a retest around 1360 is too familiar.
Crude [$98.49] – Sharp collapse below the $100 level. Appears like a knee-jerk reaction at first. However, this offers confirmation of slowing momentum in recent weeks.
Gold [$1643.75] – Barley changed from last week. Although a neutral territory is glaringly established, an anxious move awaits.
DXY – US Dollar Index [79.19] – Like gold prices, in the last 50 days or so, the index has not moved much. Importantly, the dollar has not made or retested new lows.
US 10 Year Treasury Yields [1.87%] – Short-lived run above 2% proved not to be sustainable. Yet, hovering at 2% is nothing unique or surprising.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, April 30, 2012
Market Outlook | April 30, 2012
“Most of our assumptions have outlived their uselessness.” (Marshall McLuhan 1911-1980)
Reinforcement
Cruel months accumulate for doubters of global stock markets and indexes. Rants and raves of varying economic views did not slowdown the shares of larger companies. Many scramble with the realization of dreadful assumptions in thinking that economic realities coincide with market performance, at least thus fur.
Certainly, the message from concerned groups has some validity in real economic matters. After all, the temperature of the real and new economies are harder to measure when digesting numerous data points with conflicting takeaways. Slowing growth rates of are hard to dismiss even for the narrowest-minded optimist. Anticipation of a mild pause or fear-driven thoughts circulate again this season, but the merits of those beliefs are less appealing for market movers and influencers alike. Behind all the jargon and mass-media banter, the US stock market signals a noteworthy confidence that's perhaps understated by outside or sideline observers.
Simply using stock market indexes to paint the full picture would be incomplete, while omitting cyclical nuances is equally dangerous. Surely, the ongoing philosophical debate of government involvement and the role of capitalism is the global issue at hand that’s messy and lengthy but the core of most arguments. Since the post-crisis bailout decision, this issue is unresolved, ferociously debated, and a deadlock of all kinds resurfaces. Confidence restoration is too tricky for non-S&P 500 companies, and job creation is not quite as efficient as commonly demanded by popularity seekers. Thus, in developing an opinion or a solution, one is forced to carefully distinguish thoughts of nostalgic economic revival versus the limited tools available in the current landscape.
These heavyweight matters are partially directed and reserved for central banks. The Federal Reserve suggested improving labor and business developments. For tuned in central bank followers, these were common and expected words that at times ended up being a non-event.
Barely touched
So now we ask, what's changed? Barely as much as noisemakers would like one to believe. Deliberation of well-established low interest rates is hardly up for debate. US 10 year treasury yields continue to extend a six-week decline below 2%. A reminder that familiar and liquid instruments are perceived as valuable.
At the same time, volatility has gradually decreased for several months, commodities are around where they've been and the US Dollar is around its historic lows. Political debates increase but collective resolutions remain uncertain. Meanwhile, the economy is adopting, adjusting and merely becoming a non-glamorous puzzle.
In taking a few deep breathes, we quickly realize a whole lot of nothing is made of patterns in liquid markets. Similarly, bombardments of the Eurozone scare are more like the same old known crisis and previously showcased episodes of self-pity by some and unshakable denial by others. Through a few screams and shouts of election implication and policy-making theatrics, we see the same story but slightly different actors in this European saga.
Coping
Frankly, from a trend follower’s perspective, it’s hard to justify altering the current status of attractive US markets. Each day feels like an inflection point where the interconnected markets set the tone, from Spanish news to the Chinese housing slowdown. Thus, synchronized and collective sentiments are quickly developed while potentially ruining fundamental-based ideas. Therefore, clarity on timeframe is a risk management trait that’s been emphasized in recent years. Expectations based on big theories are harder to apply than selectively picking a handful of growth stories for market participation.
Article Quotes:
“In 1980 China’s median (the age at which half the population is younger, half older) was 22. That is characteristic of a young developing country. It is now 34.5, more like a rich country and not very different from America’s, which is 37. But China is ageing at an unprecedented pace. Because fewer children are being born as larger generations of adults are getting older, its median age will rise to 49 by 2050, nearly nine years more than America at that point. Some cities will be older still. The Shanghai Population and Family Planning Committee says that more than a third of the city’s population will be over 60 by 2020. This trend will have profound financial and social consequences. Most obviously, it means China will have a bulge of pensioners before it has developed the means of looking after them. Unlike the rest of the developed world, China will grow old before it gets rich. Currently, 8.2% of China’s total population is over 65. The equivalent figure in America is 13%. By 2050, China’s share will be 26%, higher than in America.” (The Economist, April 21, 2011)
“With regard to the elephant in the room, which is Apple, my impression is that what appears to be endless exponential growth is actually the overlay of three separate logistic growth curves – one for the iPod, one for the iPhone, and one for the iPad. These are great products. Still, in order to maintain even a constant level of sales, every unit sold in a given year has to be matched by a replacement the next year – year-after-year – or it has to be matched by a new adoption, and adopters of used products don't count. In other words, every dollar that existing users spent on Apple products last year has to be spent again this year, or matched by some new user this year, and again next year, and again the year after that, ad infinitum. Of course, it's reasonable to expect that late-adopters (e.g. those who have to save in order to afford the product) will have lower replacement rates, which will need to be offset by even greater adoption. Yes, there are billions of people in developing countries without an iPhone. Unfortunately, most of these people are also without running water.” (John P. Hussman, Hussman Funds)
Levels:
S&P 500 Index [1403.36] – Re-establishing some strength, as seen in the first quarter. Momentum remains positive given several buyers’ interest at the 1360 range. Surpassing April 2 highs of 1422 is a range that’s attentively watched by technical observers.
Crude [$104.93] – Although directionless this month, oil prices are showcasing some sort of bottoming process between $102-106. Behavior around the 50-day moving average will stir some talking points while further catalysts linger.
Gold [$1641.50] – Nearly eight months of causal uneventful trading patterns for hopeful momentum chasers. Yet the wobbly price movement does not erode the established uptrend. An interesting point for new buyers, and more suspenseful for existing holders of gold.
DXY – US Dollar Index [79.19] – The 50-day average stands at 79.83 and the 200-day closed at 77.95. This illustrates the lack of major movements in months.
US 10 Year Treasury Yields [1.93%] – Another weekly finish below 2% is becoming more customary than a shock. Yet sustainability at these newly familiar rates invites intense questioning and anticipation.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, April 23, 2012
Market Outlook | April 23, 2012
“Our Age of Anxiety is, in great part, the result of trying to do
today's jobs with yesterday's tools.” Marshall McLuhan (1911- 1980)
Spring Revisited
Murmurs of last spring’s Eurozone fright and darker visions mostly scared risk takers and casual observers alike. With short-term memories convenient and relatively fresh, the issue of sovereign debt risk is dreadfully revisited. This is a tiresome issue, but each round presents a different angle in a new season, as Spanish concerns take the front-seat discussion for policy makers and commentators. Several months of improving sentiment that focused on restoration in global markets is now severely in question, yet again.
Confronting and addressing the core economic matters is where most leaders have chosen to shy away from, given the layers of complication. This mostly revolves around preservation of self-interest, which has unveiled its true nature. For scoreboard watchers and price influencers, the resurfacing grim thoughts and
emotional responses do set up a period for charged up near-term contemplations brewing to form mild uncertainty. Along with elections and political positioning, the search for clues lives on, while policies related to interest rates remain ever so intriguing to any stakeholder.
Around the same time last spring, volatility and the S&P 500 index traded very close to today’s levels. Yet, unlike the last two Aprils, the US 10 Year Treasury is trading below 2% instead of where it stood above 3% – an eye-grabbing macro trend that hits at the core of pending suspense. We also see growing discussions on how yields
dropped for the fifth week, which suggests shelter to safer assets. Surely, risk aversion is trigged by European events, as witnessed several times in the post-2008 era. For what it is worth, gold is not at all-time highs; neither are crude prices, at least for now, which again refocuses attention to central banks and policymakers.
Strength Examined
A six- to nine-month look back reminds us of the emphasis on and comfort in positive stock market trends. Some buyers who lucked out in staying resilient continue to cherish actual results that turned out better than the gloomiest of predictions, especially when panic peaked in summer 2011. As usual, the better-than-expected market performance did not fully dispel the usual concerns of labor restoration, known and unknown debt concerns and deliberation on pragmatic economic solutions. Yet, the perception between those having market investment exposure versus those digesting traditional economic data may produce varying outlooks.
The data from the earnings season may confirm or justify recent positive trends, at least in market behaviors. All eyes are fixated on these seasonal discoveries of the health of profitability in larger companies. So far, quarterly reports have demonstrated positive outcomes (against expectations) and further discovery awaits as we enter the crux of earning season. Investors face a conflict between pausing to let the looming turbulence pass versus gaining more comfort in owning shares and potentially increasing exposure in US equity markets. The investment options offered an appealing point, but finding a timely entry point is a daunting task in itself. Conventional yet practical viewpoints point to chasing higher returns,while others are willing to pay up for liquid market exposure. These dynamics are critical for investment managers in shaping portfolios to meet desired annual numbers as we’re nearing the midway point.
Resilience
Considering all points, global markets remain interconnected and for the most part share a collective upside move. Of course, financial behaviors easily become politicized and confusing, especially when short-term turbulence is the dominating theme. Plus, glaring crisis matters inevitably play out in the open markets at certain periods
with some spurts. Gauging the Federal Reserve’s intervention is the artful skill required from those active in markets. Speculative as it may be, betting along the central banks is the path favored by near-term traders despite waning investor sentiment. Meanwhile, value seekers should not feel to panic and sell or eagerly purchase, as
opportunities will present themselves in less flashy companies andindustries.
Article Quotes:
“After eight straight quarter increases, overall tax collections in the fourth quarter of 2011 are above the peak levels in most states.Total revenues were 3.0 percent higher in the fourth quarter of 2011 than in the same quarter of 2007. In the fourth quarter of 2011, 33 states reported higher tax revenue collections than in the same quarter of 2007. However, if we adjust the numbers for inflation, nationwide tax receipts show 3.4 percent decline in the fourth quarter of 2011 compared to the same quarter of 2007. … For most of the period during and after the last recession, local tax collections remained relatively strong. However, the trends are now shifting due in part to the lagged impact of falling housing prices on property tax collections. For the quarter ending in December, the 1.0 percent decline in the four-quarter moving average of local tax collections is weak compared to historical averages. The largest year-over-year growth in local tax collections in recent history was recorded in the third quarter of r of 2005, at 5.8 percent” (Rockfeller Institute ofGovernment – April 2012)
“So while Bo's particular brand of charisma may have been a bridge toofar, this is when China needs dynamic leadership most. As highlighted in a February World Bank study, China may well be facing another key inflection point and will require a new wave of economic reforms, such as commercializing the banking sector and redefining the state's role in the economy, or risk increasing the likelihood of a hard landing. But it will take an empowered and proactive new leadership to implement such an agenda over the strong resistance of powerful vested interests such as sprawling state firms and entrenched local officials. Instead, what Beijing has, and what is on display in the Bo case, is a stovepiped bureaucracy that strains to present a unified face to its people and the world. The problem is that an effective remedy would involve substantial structural changes to a system in which key players, such as the Chinese military, seek to advance their parochial interests by exploiting the gaps that pervade the current Leninist structure and which breed poor policy coordination. Extensive corruption also has filled the vacuum left by the demise of ideology,and the leadership has fostered a top-down decision-making culturethat discourages competing ideas and punishes any public hint of disagreement within the party's seniorranks. (Council of Foreign Relations, April 18, 2012)
Levels:
S&P 500 Index [1378.53] – Multi-month run alive but mildly pausing. Mostly uneventful pattern in the last few days. Verdict awaited in earnings sentiment and continuation of optimism. Trading almost around the 50-day moving average, which catches the attention of technical observers.
Crude [$103.50] – Additional evidence of strong buyers’ influences around the $100 range. Despite lacking upside boost, the uptrend has not broken.
Gold [$1641.50] – A tug-of-war between near-term buyers. Back and forth moves between $1650-1750 do not provide enough clues for projections, but emphasize that fueling the upside momentum is taking a while for gold optimists.
DXY – US Dollar Index [79.19] – Barely moving in recent days; hovering at familiar ranges.
US 10 Year Treasury Yields [1.96%] – Since March 20 peak of 2.39%, the downtrend has driven yields down below 2%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
today's jobs with yesterday's tools.” Marshall McLuhan (1911- 1980)
Spring Revisited
Murmurs of last spring’s Eurozone fright and darker visions mostly scared risk takers and casual observers alike. With short-term memories convenient and relatively fresh, the issue of sovereign debt risk is dreadfully revisited. This is a tiresome issue, but each round presents a different angle in a new season, as Spanish concerns take the front-seat discussion for policy makers and commentators. Several months of improving sentiment that focused on restoration in global markets is now severely in question, yet again.
Confronting and addressing the core economic matters is where most leaders have chosen to shy away from, given the layers of complication. This mostly revolves around preservation of self-interest, which has unveiled its true nature. For scoreboard watchers and price influencers, the resurfacing grim thoughts and
emotional responses do set up a period for charged up near-term contemplations brewing to form mild uncertainty. Along with elections and political positioning, the search for clues lives on, while policies related to interest rates remain ever so intriguing to any stakeholder.
Around the same time last spring, volatility and the S&P 500 index traded very close to today’s levels. Yet, unlike the last two Aprils, the US 10 Year Treasury is trading below 2% instead of where it stood above 3% – an eye-grabbing macro trend that hits at the core of pending suspense. We also see growing discussions on how yields
dropped for the fifth week, which suggests shelter to safer assets. Surely, risk aversion is trigged by European events, as witnessed several times in the post-2008 era. For what it is worth, gold is not at all-time highs; neither are crude prices, at least for now, which again refocuses attention to central banks and policymakers.
Strength Examined
A six- to nine-month look back reminds us of the emphasis on and comfort in positive stock market trends. Some buyers who lucked out in staying resilient continue to cherish actual results that turned out better than the gloomiest of predictions, especially when panic peaked in summer 2011. As usual, the better-than-expected market performance did not fully dispel the usual concerns of labor restoration, known and unknown debt concerns and deliberation on pragmatic economic solutions. Yet, the perception between those having market investment exposure versus those digesting traditional economic data may produce varying outlooks.
The data from the earnings season may confirm or justify recent positive trends, at least in market behaviors. All eyes are fixated on these seasonal discoveries of the health of profitability in larger companies. So far, quarterly reports have demonstrated positive outcomes (against expectations) and further discovery awaits as we enter the crux of earning season. Investors face a conflict between pausing to let the looming turbulence pass versus gaining more comfort in owning shares and potentially increasing exposure in US equity markets. The investment options offered an appealing point, but finding a timely entry point is a daunting task in itself. Conventional yet practical viewpoints point to chasing higher returns,while others are willing to pay up for liquid market exposure. These dynamics are critical for investment managers in shaping portfolios to meet desired annual numbers as we’re nearing the midway point.
Resilience
Considering all points, global markets remain interconnected and for the most part share a collective upside move. Of course, financial behaviors easily become politicized and confusing, especially when short-term turbulence is the dominating theme. Plus, glaring crisis matters inevitably play out in the open markets at certain periods
with some spurts. Gauging the Federal Reserve’s intervention is the artful skill required from those active in markets. Speculative as it may be, betting along the central banks is the path favored by near-term traders despite waning investor sentiment. Meanwhile, value seekers should not feel to panic and sell or eagerly purchase, as
opportunities will present themselves in less flashy companies andindustries.
Article Quotes:
“After eight straight quarter increases, overall tax collections in the fourth quarter of 2011 are above the peak levels in most states.Total revenues were 3.0 percent higher in the fourth quarter of 2011 than in the same quarter of 2007. In the fourth quarter of 2011, 33 states reported higher tax revenue collections than in the same quarter of 2007. However, if we adjust the numbers for inflation, nationwide tax receipts show 3.4 percent decline in the fourth quarter of 2011 compared to the same quarter of 2007. … For most of the period during and after the last recession, local tax collections remained relatively strong. However, the trends are now shifting due in part to the lagged impact of falling housing prices on property tax collections. For the quarter ending in December, the 1.0 percent decline in the four-quarter moving average of local tax collections is weak compared to historical averages. The largest year-over-year growth in local tax collections in recent history was recorded in the third quarter of r of 2005, at 5.8 percent” (Rockfeller Institute ofGovernment – April 2012)
“So while Bo's particular brand of charisma may have been a bridge toofar, this is when China needs dynamic leadership most. As highlighted in a February World Bank study, China may well be facing another key inflection point and will require a new wave of economic reforms, such as commercializing the banking sector and redefining the state's role in the economy, or risk increasing the likelihood of a hard landing. But it will take an empowered and proactive new leadership to implement such an agenda over the strong resistance of powerful vested interests such as sprawling state firms and entrenched local officials. Instead, what Beijing has, and what is on display in the Bo case, is a stovepiped bureaucracy that strains to present a unified face to its people and the world. The problem is that an effective remedy would involve substantial structural changes to a system in which key players, such as the Chinese military, seek to advance their parochial interests by exploiting the gaps that pervade the current Leninist structure and which breed poor policy coordination. Extensive corruption also has filled the vacuum left by the demise of ideology,and the leadership has fostered a top-down decision-making culturethat discourages competing ideas and punishes any public hint of disagreement within the party's seniorranks. (Council of Foreign Relations, April 18, 2012)
Levels:
S&P 500 Index [1378.53] – Multi-month run alive but mildly pausing. Mostly uneventful pattern in the last few days. Verdict awaited in earnings sentiment and continuation of optimism. Trading almost around the 50-day moving average, which catches the attention of technical observers.
Crude [$103.50] – Additional evidence of strong buyers’ influences around the $100 range. Despite lacking upside boost, the uptrend has not broken.
Gold [$1641.50] – A tug-of-war between near-term buyers. Back and forth moves between $1650-1750 do not provide enough clues for projections, but emphasize that fueling the upside momentum is taking a while for gold optimists.
DXY – US Dollar Index [79.19] – Barely moving in recent days; hovering at familiar ranges.
US 10 Year Treasury Yields [1.96%] – Since March 20 peak of 2.39%, the downtrend has driven yields down below 2%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, April 16, 2012
Market Outlook | April 16, 2012
“Truth is confirmed by inspection and delay; falsehood by haste and uncertainty.” Publius Cornelius Tacitus
Awaiting Scrutiny
By all measures, sensitive market reactions were forming leading up to the start of a new quarter. Casually anticipated and eventually stimulating negative responses slowly outweighed the built-up momentum in recent days. A mild break is known to challenge the bulls’ conviction, while doubtful pundits reappear loudly by pointing out numerous fragilities. Of course, it comes to the forefront of discussion for investors, especially after a week where the S&P 500 Index fell 2%.
After an explosive first quarter for stocks, plenty of edginess is being or set to be released with increased curiosity around earnings results. Naturally, this has capital allocators reexamining the definition of risk in a market that’s mostly shaped by low interest rate policies and mostly upbeat sentiments. Recent downtrends are not earth shattering, when viewing the key catalysts such as rotating European concerns or a much talked about Chinese slowdown. Both are glaring issues that easily stir macro reactions and headlines while increasing the guesswork for speculators of all sorts for months ahead. Importantly, what is the impact of slowing China and Europe on US corporate earnings? That’s the question that should be asked and researched further.
Early spring clues
The well-known macro drivers, such as commodities, have not accelerated recently and are attempting to restore some positive momentum. For example, the run-up in crude price, a dominant theme for a decade, is not quite finding a new wave of buyers above $110 a barrel. Surely, there is a supply and demand argument that conveniently floats around to justify further upside moves. Yet, weekly oil inventory is signaling that supply is much higher than experts’ estimates. It’s too early to judge for some, but worth taking notes on whether soft demand in commodities serves as a barometer for a weakening global economy.
Similarly, gold aficionados are not vibrantly pounding the table these days. Sure, general fear has subsided since late fall and investor eagerness for “safe assets” (i.e. gold) eventually cooled off. Interestingly, the looming concerns with paper assets are assumed to benefit gold. Increased turbulence reawakens the commodity supporters – barring a synchronized asset decline in major assets. The explosive run witnessed last spring may be hard to replicate, but the stakes, along with expectations, are high.
Observing time
Profit-taking in risky assets by some managers after the end of the first quarter appears somewhat logical. Unlike fall 2011, it is not quite as easy to bargain hunt for seekers of higher-risk groups, such as banks, homebuilders or smaller technology-based companies. Thus, being an aggressive buyer at current price ranges may not be too enticing for now. Patience is needed for buyers and sellers alike until the new rhythm sets a noticeable tone. Buying should not be feared or dismissed, but the readjustment in the investor’s mindset needs to be understood. Further discovery of earnings feel and sentiment may end up providing a fruitful clue rather than overexerting capital along with the frenzied crowd.
Article Quotes:
“It should not be forgotten that the key institutions in China’s banking system remain more or less government owned. This changes the rules of the game considerably. Standard risk management variables, such as the capital adequacy ratio — which, incidentally, is extremely high among Chinese banks — and the non-performing loan ratio are only of marginal relevance because the integrity of the biggest banks is guaranteed by the government. China’s central government is willing and able to act on that guarantee. The level of outstanding public debt is modest and even when contingent liabilities are taken into account, such as local-government debt, the prospect of China falling victim to a European-style public debt crisis is remote. … Property prices in China may well be inflated; price-to-income ratios, particularly in the major cities, suggest that they are. But for high prices to constitute a bubble, they must be able to burst. In the case of China, it is not clear that they have, nor where a trigger might come from.” (East Asia Forum, April 14, 2012)
“Consider the first conundrum: the current relationship of Treasury yields to equity and dividend yields. In both the third and fourth quarters of 2011, the earnings yield on the Standard & Poor’s 500 Index was more than 2.5 times the composite long-term government bond yield, by far the biggest multiple in the past 50 years. And in the fourth quarter, the dividend yield on the S&P 500 (2.13 percent) was only barely below the composite long-term government bond yield (2.7 percent) — the narrowest gap in decades. These facts are cited as reasons that bonds have been overpriced. Yet the complete historical record shows that the current relationship of earnings yields to Treasury bond yields is hardly unprecedented. The ratio has been far higher in the past and has stayed above current levels for long periods. The comparison of bond yields to dividend yields over the past 130 years paints a similar picture, with today’s bond yields appearing not all that unusual. “ (Institutional Investor, April 12, 2012)
Levels:
S&P 500 Index [1370.26] – Waning buyers’ appetite in the near-term to drive the index above 1400. Visible consolidation between 1360-1400 suggests a cooling period from multi-week strength.
Crude [$102.83] – Late March peak setting the tone for price declines. Revisiting the ever-so-familiar $100 mark, where buyers’ will is facing a strong resilience test.
Gold [$1666.50] – Mounting multi-month evidence of a weakening trend. Last two attempts to surpass $1750 have been too difficult and have drawn some doubts in investors’ minds.
DXY – US Dollar Index [80.04] – After an explosive fourth-quarter 2011 run, the dollar is back to a dull trend of much of the same week after week.
US 10 Year Treasury Yields [1.98%] – An eventful 30 days, where rates round-tripped back to the 2.0% range.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Awaiting Scrutiny
By all measures, sensitive market reactions were forming leading up to the start of a new quarter. Casually anticipated and eventually stimulating negative responses slowly outweighed the built-up momentum in recent days. A mild break is known to challenge the bulls’ conviction, while doubtful pundits reappear loudly by pointing out numerous fragilities. Of course, it comes to the forefront of discussion for investors, especially after a week where the S&P 500 Index fell 2%.
After an explosive first quarter for stocks, plenty of edginess is being or set to be released with increased curiosity around earnings results. Naturally, this has capital allocators reexamining the definition of risk in a market that’s mostly shaped by low interest rate policies and mostly upbeat sentiments. Recent downtrends are not earth shattering, when viewing the key catalysts such as rotating European concerns or a much talked about Chinese slowdown. Both are glaring issues that easily stir macro reactions and headlines while increasing the guesswork for speculators of all sorts for months ahead. Importantly, what is the impact of slowing China and Europe on US corporate earnings? That’s the question that should be asked and researched further.
Early spring clues
The well-known macro drivers, such as commodities, have not accelerated recently and are attempting to restore some positive momentum. For example, the run-up in crude price, a dominant theme for a decade, is not quite finding a new wave of buyers above $110 a barrel. Surely, there is a supply and demand argument that conveniently floats around to justify further upside moves. Yet, weekly oil inventory is signaling that supply is much higher than experts’ estimates. It’s too early to judge for some, but worth taking notes on whether soft demand in commodities serves as a barometer for a weakening global economy.
Similarly, gold aficionados are not vibrantly pounding the table these days. Sure, general fear has subsided since late fall and investor eagerness for “safe assets” (i.e. gold) eventually cooled off. Interestingly, the looming concerns with paper assets are assumed to benefit gold. Increased turbulence reawakens the commodity supporters – barring a synchronized asset decline in major assets. The explosive run witnessed last spring may be hard to replicate, but the stakes, along with expectations, are high.
Observing time
Profit-taking in risky assets by some managers after the end of the first quarter appears somewhat logical. Unlike fall 2011, it is not quite as easy to bargain hunt for seekers of higher-risk groups, such as banks, homebuilders or smaller technology-based companies. Thus, being an aggressive buyer at current price ranges may not be too enticing for now. Patience is needed for buyers and sellers alike until the new rhythm sets a noticeable tone. Buying should not be feared or dismissed, but the readjustment in the investor’s mindset needs to be understood. Further discovery of earnings feel and sentiment may end up providing a fruitful clue rather than overexerting capital along with the frenzied crowd.
Article Quotes:
“It should not be forgotten that the key institutions in China’s banking system remain more or less government owned. This changes the rules of the game considerably. Standard risk management variables, such as the capital adequacy ratio — which, incidentally, is extremely high among Chinese banks — and the non-performing loan ratio are only of marginal relevance because the integrity of the biggest banks is guaranteed by the government. China’s central government is willing and able to act on that guarantee. The level of outstanding public debt is modest and even when contingent liabilities are taken into account, such as local-government debt, the prospect of China falling victim to a European-style public debt crisis is remote. … Property prices in China may well be inflated; price-to-income ratios, particularly in the major cities, suggest that they are. But for high prices to constitute a bubble, they must be able to burst. In the case of China, it is not clear that they have, nor where a trigger might come from.” (East Asia Forum, April 14, 2012)
“Consider the first conundrum: the current relationship of Treasury yields to equity and dividend yields. In both the third and fourth quarters of 2011, the earnings yield on the Standard & Poor’s 500 Index was more than 2.5 times the composite long-term government bond yield, by far the biggest multiple in the past 50 years. And in the fourth quarter, the dividend yield on the S&P 500 (2.13 percent) was only barely below the composite long-term government bond yield (2.7 percent) — the narrowest gap in decades. These facts are cited as reasons that bonds have been overpriced. Yet the complete historical record shows that the current relationship of earnings yields to Treasury bond yields is hardly unprecedented. The ratio has been far higher in the past and has stayed above current levels for long periods. The comparison of bond yields to dividend yields over the past 130 years paints a similar picture, with today’s bond yields appearing not all that unusual. “ (Institutional Investor, April 12, 2012)
Levels:
S&P 500 Index [1370.26] – Waning buyers’ appetite in the near-term to drive the index above 1400. Visible consolidation between 1360-1400 suggests a cooling period from multi-week strength.
Crude [$102.83] – Late March peak setting the tone for price declines. Revisiting the ever-so-familiar $100 mark, where buyers’ will is facing a strong resilience test.
Gold [$1666.50] – Mounting multi-month evidence of a weakening trend. Last two attempts to surpass $1750 have been too difficult and have drawn some doubts in investors’ minds.
DXY – US Dollar Index [80.04] – After an explosive fourth-quarter 2011 run, the dollar is back to a dull trend of much of the same week after week.
US 10 Year Treasury Yields [1.98%] – An eventful 30 days, where rates round-tripped back to the 2.0% range.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, April 09, 2012
Market Outlook | April 9, 2012
“Always do what you are afraid to do.” Ralph Waldo Emerson (1803-1882)
Present feel
Deciphering how to feel is where the majority of time is spent on market diagnoses. Either indexes tell us how we should feel; or politically driven engines shape what to feel For some, common-sense observations may provider better insights.
Scoreboard glancing reminds us that broad indexes, as measured by stock performance, showcase strength. The S&P 500 is up 11% for the year, while the bank index is up nearly 25%. So far, it is not farfetched for one to declare conditions are improving, at least from several months ago. Reading the jobs number, however, requires a shrewd grasp of mechanics, self-serving goals and unlocking missing details that may not appease the casual sentiment examiner.
Right ahead of the holiday weekend, the jobs number provided a not-so-amazing, but still upwardly trending message. There is plenty to dissect in that sense, along with earnings for the first quarter. This reveals mixed results of sorts, which some may use to jump to early conclusions. Somehow, the fear-mongering crowd has its share of followers, but a slanted view among traders can misleadingly pollute minds to disregard the noticeable strength. Putting mind games aside, a clear and open-minded approach is needed heading into quarterly earnings results and further examination of upwardly trending economic numbers – not to mention improving manufacturing and calmer volatility for several months.
Overcoming chatter
Perhaps the recent low-volatility trends are “too calm” for some participants’ liking, but by a few measures, the sense of comfort echoes levels last seen ahead of the crisis. Of course, it is too common to fear relentless success, especially when pending sell-offs and uncertainties are promoted as a possibility. First, memories of the last two spring seasons suggest that markets do slump heading into summer months. Sure, that’s mostly a thought driven by short-term memory, which has a profound influence and a potential of self-fulfilling prophecy. Secondly, the slowing China story is long awaited, and how that reality sets in is another wildcard. Finally, European concerns are convenient to spark and revisit worrisome issues that linger.
Uplifting Custom
Like quantitative easing and LTRO (Long-Term Refinancing Operation), the markets gained a vote of confidence in the early part of the year. Speculating is one matter, but encouragement of risk taking from policymakers provides another boost of market returns. These stimulus efforts can result in simple but unsustainable habits in which active participants count on the same trends to continue. On the other hand, the low interest rate model appears to be a necessary tactic for survival mode to improve global markets. As for now, speculators fight to find and preserve short-term gains while politicians focus on pending elections. The long-term health is left as a surprise (as pointed out by those opposing the Fed), which draws further intrigue for risk managers. Yet, for the traditional money managers, selectively betting along the US market, more often than not, continues to pay off in the long tracked market history. As simple as it seems for intellectual minds, the reality keeps proving itself despite scars and bruises, which are simply part of the game that all must accept.
Article Quotes:
“When strategists speak of the ‘Malacca Dilemma’, they mean that Beijing's sea lines of communications are highly vulnerable. In times of conflict between the US and China, the supply of crude and iron ore needed to keep the Chinese economy alive and kicking could be relatively easily cut off in the straits that connect the Indian Ocean with the Pacific. As such, a move would force the Chinese leadership rather quickly to the negotiation tables on the enemy's terms – and as it becomes clearer that the western Pacific holds vast untapped reserves of oil and natural gas – Beijing naturally sees control over the areas as a way out of its precarious situation. (According to Chinese estimates, oil and gas reserves in the western Pacific could meet Chinese demand for more than 60 years.) With official defense spending to top US$100 billion in 2012, and the actual amount estimated to be much higher, China's People's Liberation Army (PLA) seems on course towards building the strength needed to ensure all goes smoothly in China's quest for energy security.” (Asia Times, April 6, 2012)
“One of the reasons that a perception of manufacturing’s decline exists is the severe job losses that have been experienced within the sector – particularly given the dramatic impact such shifts can have in small communities all over America. … What factors are driving the changes in Chinese wages? Quite a few different things, as it turns out (all of which we find quite intuitive): ‘Chinese wages have been increasing at a rapid pace in recent years, driven by a variety of factors including shortage of workers in the coastal manufacturing areas, rising education levels among young workers, domestic inflation, and the government’s focus on raising national income levels in its 5-year plan(s).’ All of this should bode well for US manufacturing, since it makes the US more competitive in cost terms.” (Financial Times, April 4, 2011)
Levels:
S&P 500 Index [1398.08] – Ability to stay around 1400 provides some early clues for daily observers. A consolidation to 1350 appears plausible. Even in that case, the positive trend is poised to remain in place.
Crude [$103.31] – In the last five years, the bulk of trading for crude has stood within the $80-$100 range, outside of two extremes seen in 2008 (peak of $147 and low of $32). That said, guidance for next ranges is desperately awaited.
Gold [$1631.00] – At a quick glance, the multi-year run is convincing enough to claim gold is in a powerful run. However, the 7-month slump in price appreciation begs the question of when the next reacceleration will be. Otherwise, fragile trading ranges await around $1600.
DXY – US Dollar Index [79.00] – Early attempts at reacceleration, which will serve as a barometer for risk aversion. Yet, unless there is a dramatic move, the current pattern is all too familiar.
US 10 Year Treasury Yields [2.18%] – Similar to a short-lived spark in fall 2011, another sharp run up is pausing. The bottoming process for yields is taking shape between 1.80-2.20%. Yet several catalysts, along with time, are required to witness a noteworthy rise in yields.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Present feel
Deciphering how to feel is where the majority of time is spent on market diagnoses. Either indexes tell us how we should feel; or politically driven engines shape what to feel For some, common-sense observations may provider better insights.
Scoreboard glancing reminds us that broad indexes, as measured by stock performance, showcase strength. The S&P 500 is up 11% for the year, while the bank index is up nearly 25%. So far, it is not farfetched for one to declare conditions are improving, at least from several months ago. Reading the jobs number, however, requires a shrewd grasp of mechanics, self-serving goals and unlocking missing details that may not appease the casual sentiment examiner.
Right ahead of the holiday weekend, the jobs number provided a not-so-amazing, but still upwardly trending message. There is plenty to dissect in that sense, along with earnings for the first quarter. This reveals mixed results of sorts, which some may use to jump to early conclusions. Somehow, the fear-mongering crowd has its share of followers, but a slanted view among traders can misleadingly pollute minds to disregard the noticeable strength. Putting mind games aside, a clear and open-minded approach is needed heading into quarterly earnings results and further examination of upwardly trending economic numbers – not to mention improving manufacturing and calmer volatility for several months.
Overcoming chatter
Perhaps the recent low-volatility trends are “too calm” for some participants’ liking, but by a few measures, the sense of comfort echoes levels last seen ahead of the crisis. Of course, it is too common to fear relentless success, especially when pending sell-offs and uncertainties are promoted as a possibility. First, memories of the last two spring seasons suggest that markets do slump heading into summer months. Sure, that’s mostly a thought driven by short-term memory, which has a profound influence and a potential of self-fulfilling prophecy. Secondly, the slowing China story is long awaited, and how that reality sets in is another wildcard. Finally, European concerns are convenient to spark and revisit worrisome issues that linger.
Uplifting Custom
Like quantitative easing and LTRO (Long-Term Refinancing Operation), the markets gained a vote of confidence in the early part of the year. Speculating is one matter, but encouragement of risk taking from policymakers provides another boost of market returns. These stimulus efforts can result in simple but unsustainable habits in which active participants count on the same trends to continue. On the other hand, the low interest rate model appears to be a necessary tactic for survival mode to improve global markets. As for now, speculators fight to find and preserve short-term gains while politicians focus on pending elections. The long-term health is left as a surprise (as pointed out by those opposing the Fed), which draws further intrigue for risk managers. Yet, for the traditional money managers, selectively betting along the US market, more often than not, continues to pay off in the long tracked market history. As simple as it seems for intellectual minds, the reality keeps proving itself despite scars and bruises, which are simply part of the game that all must accept.
Article Quotes:
“When strategists speak of the ‘Malacca Dilemma’, they mean that Beijing's sea lines of communications are highly vulnerable. In times of conflict between the US and China, the supply of crude and iron ore needed to keep the Chinese economy alive and kicking could be relatively easily cut off in the straits that connect the Indian Ocean with the Pacific. As such, a move would force the Chinese leadership rather quickly to the negotiation tables on the enemy's terms – and as it becomes clearer that the western Pacific holds vast untapped reserves of oil and natural gas – Beijing naturally sees control over the areas as a way out of its precarious situation. (According to Chinese estimates, oil and gas reserves in the western Pacific could meet Chinese demand for more than 60 years.) With official defense spending to top US$100 billion in 2012, and the actual amount estimated to be much higher, China's People's Liberation Army (PLA) seems on course towards building the strength needed to ensure all goes smoothly in China's quest for energy security.” (Asia Times, April 6, 2012)
“One of the reasons that a perception of manufacturing’s decline exists is the severe job losses that have been experienced within the sector – particularly given the dramatic impact such shifts can have in small communities all over America. … What factors are driving the changes in Chinese wages? Quite a few different things, as it turns out (all of which we find quite intuitive): ‘Chinese wages have been increasing at a rapid pace in recent years, driven by a variety of factors including shortage of workers in the coastal manufacturing areas, rising education levels among young workers, domestic inflation, and the government’s focus on raising national income levels in its 5-year plan(s).’ All of this should bode well for US manufacturing, since it makes the US more competitive in cost terms.” (Financial Times, April 4, 2011)
Levels:
S&P 500 Index [1398.08] – Ability to stay around 1400 provides some early clues for daily observers. A consolidation to 1350 appears plausible. Even in that case, the positive trend is poised to remain in place.
Crude [$103.31] – In the last five years, the bulk of trading for crude has stood within the $80-$100 range, outside of two extremes seen in 2008 (peak of $147 and low of $32). That said, guidance for next ranges is desperately awaited.
Gold [$1631.00] – At a quick glance, the multi-year run is convincing enough to claim gold is in a powerful run. However, the 7-month slump in price appreciation begs the question of when the next reacceleration will be. Otherwise, fragile trading ranges await around $1600.
DXY – US Dollar Index [79.00] – Early attempts at reacceleration, which will serve as a barometer for risk aversion. Yet, unless there is a dramatic move, the current pattern is all too familiar.
US 10 Year Treasury Yields [2.18%] – Similar to a short-lived spark in fall 2011, another sharp run up is pausing. The bottoming process for yields is taking shape between 1.80-2.20%. Yet several catalysts, along with time, are required to witness a noteworthy rise in yields.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, April 02, 2012
Market Outlook | April 2, 2011
“An intense anticipation itself transforms possibility into reality; our desires being often but precursors of the things which we are capable of performing.” (Samuel Smile 1812-1904)
Anticipation
In a decorative manner, most weekend headlines pointed out the best quarter for the S&P 500 index in over a decade. Surely, the liquid and robust equity markets reconfirmed a definitive trend of strength – a feel-good story for participants and optimistic storytellers. Interestingly, the shares of top-performing companies in the first quarter did not showcase similar traits last year. “The 50 S&P 500 stocks that were down the most in 2011 were up an average of 23.8% in the first quarter, which is by far the best of any decile.” (Bespoke March 30, 2012.). This begs the question of whether the multi-month trend is part of a suppressed buy appetite that’s catching up to not-so-bad realities. Or else, this can be characterized as a short-lived recovery from depressed ranges. Momentum followers cannot easily deny improvements in economic factors, especially labor, although, when opened to interpretations, Nonetheless, in the current conditions, owning shares of US companies has its advantages, even as a short-term chatter of corrections looms around us.
Repeat Attempt
In looking ahead, the stock market’s ability to replicate winning ideas will be both scrutinized, while the gains can result in a more hyped tone. Surely, lofty expectations are being set while curiosities re-emerge in pondering if these winnings extend toward the year’s end. Much of the strength in US equities appears solid from historical patterns, and in some metrics it echoes a ‘90s-like bull market after a nearly 13% rise in the S&P 500 Index. Yet, it is not quite viewed in the same manner by all. Skeptical mindsets may not accept this fact of positive momentum (in stocks and labor numbers) despite the declining Euro-zone realities. At this point, European concerns are too persistent to vanish, as Spain’s economy stands to reignite familiar shock waves in the near-term.
Enigma
Meanwhile, as usual in recent years, the global attention finds a way to wait in suspense on the Chinese growth rate. In terms of sentiment, investors have realized the slowdown, whether in GDP or attitudes by policymakers, to prevent overheating. So far this year, the Chinese broad index (FXI) has underperformed when compared to other emerging markets. For bargain hunters, Chinese stocks may remain appealing, especially if improvements in manufacturing numbers. However, the decade-old (conventional) investor mindset has to wonder on the potential rewards of owning state-run companies offering attractive returns. Some bank analysts are slowly raising estimates in Chinese growth, which is contrarian for now and requires a follow-through. Yet, the sustainability of near-term recovery has implications on sentiment related to commodities and other nations tied to the Chinese economy. However, betting on a slowing China is not a new event, so perhaps upside surprise should not be easily dismissed.
Impactful
A sense of stability is forming in establishing a low-rate environment, which resulted in lower volatility and increased relative comfort. Policymakers for now have successfully calmed participants’ nerves, at least for a little while. The low rate continues to expand into key developed countries as this trend is led by the US and characterized by some as “currency wars”. Predicting changes to for further easing plans may leave managers scrambling and speculating on the dollar and interest rate policies. Both a mega driver of macro themes impacting the perception of commodity and currency pricing while distinguishing the interests between emerging and developed markets. When considering these points, another reason for more capital inflow into US Equities especially if the alternatives globally continue is be overly limiting.
Quotes:
"Here’s another facet of a Chinese slowdown: its role as an importer. The longstanding notion of China as the world’s exporter is beginning to look a bit dated, argues Tao Wang, UBS’ China economist. Recent data shows imports have risen while exports have fallen, and Tao says China’s import power should not be underestimated: ‘For one thing, China’s imports have far outpaced exports in the past 4 years, and trade surplus has shrunk from 9% of GDP in 2007 to 3.3% in 2011. Also, as the numerous stories in financial newspapers can testify, China has become an increasingly important market for investment goods and certain high end consumer goods.’ 0.6 percentage points of Germany’s 3 per cent GDP growth for 2011 — or, about a fifth — was courtesy of its exports to China. Well, it probably helped Germany to reduce reliance on exporting to its fellow eurozone members. There’s a certain irony here in that Germany is simultaneously importing less from some eurozone peripherals, to a degree that could be harming their prospects of recovery. Meanwhile, Chinese imports also contributed to 0.1 percentage points of the US’ 1.7 per cent GDP growth in 2011. Not much of a small number, but not insignificant either — almost 6 per cent of US GDP growth. So, no wonder US companies are becoming increasingly worried about a Chinese slowdown. (Financial Times, March 26, 2012)
“To see the future of oil, consider the present of natural gas. Until recently, many thought the West was running out of gas — most of the easily accessible natural gas finds were being depleted, making the West reliant on ever more distant, ever more difficult reserves to exploit. The U.S., the world’s biggest natural gas importer, began to build ports to receive liquefied natural gas from distant continents in the expectation that it couldn’t import enough from Canada and Mexico. Then everything flipped. New technologies emerged to extract gas from shale and other rock formations. Because these so-called unconventional technologies — fracking is the best known among them — proved cheaper than obtaining gas from the harder-to-find “conventional” sources, and because shale gas is plentiful, the unconventional became the norm. Thanks to fracking, the U.S. has suddenly become the world’s largest producer of natural gas, creating a massive glut that has more than halved the price of natural gas. Those liquefied natural gas ports that the U.S. was building to import gas will now be used to export gas.” (Lawrence Solomon, Financial Post, March 30, 2012)
Levels:
S&P 500 Index [1408.47] – After reaching annual intra-day highs of 1419.15, the index closed at the higher end of a multi-month range. Currently trading 11% above the 200-day moving average.
Crude [$103.02] – Despite notable acceleration this year, crude has struggled to surpass the $107 range on numerous occasions. Further evidence is needed to justify the recent moves.
Gold [$1662.50] – Sideways pattern continues, as buyers have not shown enough demand to propel the commodity into new highs. Mostly, trading back and forth between $1600-1700.
DXY – US Dollar Index [79.00] – Barley moving, which comes as no surprise in recent months.
US 10 Year Treasury Yields [2.20%] – Pausing from recent acceleration. Surpassing the 2.40% range remains a challenge.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Anticipation
In a decorative manner, most weekend headlines pointed out the best quarter for the S&P 500 index in over a decade. Surely, the liquid and robust equity markets reconfirmed a definitive trend of strength – a feel-good story for participants and optimistic storytellers. Interestingly, the shares of top-performing companies in the first quarter did not showcase similar traits last year. “The 50 S&P 500 stocks that were down the most in 2011 were up an average of 23.8% in the first quarter, which is by far the best of any decile.” (Bespoke March 30, 2012.). This begs the question of whether the multi-month trend is part of a suppressed buy appetite that’s catching up to not-so-bad realities. Or else, this can be characterized as a short-lived recovery from depressed ranges. Momentum followers cannot easily deny improvements in economic factors, especially labor, although, when opened to interpretations, Nonetheless, in the current conditions, owning shares of US companies has its advantages, even as a short-term chatter of corrections looms around us.
Repeat Attempt
In looking ahead, the stock market’s ability to replicate winning ideas will be both scrutinized, while the gains can result in a more hyped tone. Surely, lofty expectations are being set while curiosities re-emerge in pondering if these winnings extend toward the year’s end. Much of the strength in US equities appears solid from historical patterns, and in some metrics it echoes a ‘90s-like bull market after a nearly 13% rise in the S&P 500 Index. Yet, it is not quite viewed in the same manner by all. Skeptical mindsets may not accept this fact of positive momentum (in stocks and labor numbers) despite the declining Euro-zone realities. At this point, European concerns are too persistent to vanish, as Spain’s economy stands to reignite familiar shock waves in the near-term.
Enigma
Meanwhile, as usual in recent years, the global attention finds a way to wait in suspense on the Chinese growth rate. In terms of sentiment, investors have realized the slowdown, whether in GDP or attitudes by policymakers, to prevent overheating. So far this year, the Chinese broad index (FXI) has underperformed when compared to other emerging markets. For bargain hunters, Chinese stocks may remain appealing, especially if improvements in manufacturing numbers. However, the decade-old (conventional) investor mindset has to wonder on the potential rewards of owning state-run companies offering attractive returns. Some bank analysts are slowly raising estimates in Chinese growth, which is contrarian for now and requires a follow-through. Yet, the sustainability of near-term recovery has implications on sentiment related to commodities and other nations tied to the Chinese economy. However, betting on a slowing China is not a new event, so perhaps upside surprise should not be easily dismissed.
Impactful
A sense of stability is forming in establishing a low-rate environment, which resulted in lower volatility and increased relative comfort. Policymakers for now have successfully calmed participants’ nerves, at least for a little while. The low rate continues to expand into key developed countries as this trend is led by the US and characterized by some as “currency wars”. Predicting changes to for further easing plans may leave managers scrambling and speculating on the dollar and interest rate policies. Both a mega driver of macro themes impacting the perception of commodity and currency pricing while distinguishing the interests between emerging and developed markets. When considering these points, another reason for more capital inflow into US Equities especially if the alternatives globally continue is be overly limiting.
Quotes:
"Here’s another facet of a Chinese slowdown: its role as an importer. The longstanding notion of China as the world’s exporter is beginning to look a bit dated, argues Tao Wang, UBS’ China economist. Recent data shows imports have risen while exports have fallen, and Tao says China’s import power should not be underestimated: ‘For one thing, China’s imports have far outpaced exports in the past 4 years, and trade surplus has shrunk from 9% of GDP in 2007 to 3.3% in 2011. Also, as the numerous stories in financial newspapers can testify, China has become an increasingly important market for investment goods and certain high end consumer goods.’ 0.6 percentage points of Germany’s 3 per cent GDP growth for 2011 — or, about a fifth — was courtesy of its exports to China. Well, it probably helped Germany to reduce reliance on exporting to its fellow eurozone members. There’s a certain irony here in that Germany is simultaneously importing less from some eurozone peripherals, to a degree that could be harming their prospects of recovery. Meanwhile, Chinese imports also contributed to 0.1 percentage points of the US’ 1.7 per cent GDP growth in 2011. Not much of a small number, but not insignificant either — almost 6 per cent of US GDP growth. So, no wonder US companies are becoming increasingly worried about a Chinese slowdown. (Financial Times, March 26, 2012)
“To see the future of oil, consider the present of natural gas. Until recently, many thought the West was running out of gas — most of the easily accessible natural gas finds were being depleted, making the West reliant on ever more distant, ever more difficult reserves to exploit. The U.S., the world’s biggest natural gas importer, began to build ports to receive liquefied natural gas from distant continents in the expectation that it couldn’t import enough from Canada and Mexico. Then everything flipped. New technologies emerged to extract gas from shale and other rock formations. Because these so-called unconventional technologies — fracking is the best known among them — proved cheaper than obtaining gas from the harder-to-find “conventional” sources, and because shale gas is plentiful, the unconventional became the norm. Thanks to fracking, the U.S. has suddenly become the world’s largest producer of natural gas, creating a massive glut that has more than halved the price of natural gas. Those liquefied natural gas ports that the U.S. was building to import gas will now be used to export gas.” (Lawrence Solomon, Financial Post, March 30, 2012)
Levels:
S&P 500 Index [1408.47] – After reaching annual intra-day highs of 1419.15, the index closed at the higher end of a multi-month range. Currently trading 11% above the 200-day moving average.
Crude [$103.02] – Despite notable acceleration this year, crude has struggled to surpass the $107 range on numerous occasions. Further evidence is needed to justify the recent moves.
Gold [$1662.50] – Sideways pattern continues, as buyers have not shown enough demand to propel the commodity into new highs. Mostly, trading back and forth between $1600-1700.
DXY – US Dollar Index [79.00] – Barley moving, which comes as no surprise in recent months.
US 10 Year Treasury Yields [2.20%] – Pausing from recent acceleration. Surpassing the 2.40% range remains a challenge.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 26, 2012
Market Outlook | March 26, 2012
“Our imagination is the only limit to what we can hope to have in the future” -Charles F. Kettering (1883-1931)
Seasonal Reevaluation
Like seasonal changes, there is suspense and excitement circling around markets. Since the fall, broad indexes have proved to be less turbulent and led to steadily rising equity markets. Now this comforting trend faces a period of further questioning and potential readjustment, despite the strong bullish statement in the past six months. For buyers, the weeks ahead offer a chance to examine or to take profits or hold off on further buying. Meanwhile, sideline observers eager to enter have reawakened to the lack of liquid alternatives and are facing the new realities. Of course, the skeptical crowd did not quite vanish completely, as each minor down day is most likely to reignite previously known tiresome worries. The end of the first quarter presents a reshuffling period for fund managers to pinpoint on assessing “value” while trying to get clarity on the meaning of risk.
Isolating key themes
Before reacting or responding to pending headline results, a breather is ¬needed. As a start, distinguishing the critical big-picture themes of the US’s relative strength versus anticipating near-term price decline is vital for participants.
First, long-term themes mostly revolve around the edge of America’s financial and legal system, which is ahead of Emerging nations and few steps ahead of Europe. Secondly, in a period where low interest rates are well established, other global policymakers are following the US strategy in attempting to “race to the bottom” in lowering rates. In turn, this has reaffirmed the strength of stocks, especially when compared to other fixed-income investments. Plus, this forces traditional fixed-income investors to reassess and look into higher yielding instruments (explore taking risks). Thirdly, overly feared macro events, such as a European crisis and China slowdown, may not end up eroding US growth as hugely as anticipated. This becomes a stronger point if economic stabilization and restoration of innovation-based sectors continues to take hold. All three points above should not be forgotten if the S&P 500 index declines 5 or 10% in the near term.
Thinking ahead
At the same time, the post-2008 era created hesitancy over stock market stability and opened some desire for alternatives. That trend may encourage investors to dabble int0 niche areas. However, the liquidity of US markets remains intact, despite a mini-glitch last week that was specific to one company. Surely, cumulating glitches can have bigger implications, but for now the question is around the reversal of recent low-volume trends and the continuation of lower volatility. A sensitive period indeed. The stakes are raised with high-profile IPOs awaiting launches, the federal reserve planning to clarify the macro plans and the unveiling of recent corporate earnings results. All combine to add nerves to what has been for the most part a seamless recent uptrend. Yet, a new season and new quarter are known to test all kinds of convictions.
Article Quotes:
“First, China’s economy is overly dependent on fixed-asset investment and exports. Consumption represents only about 35 per cent of GDP, a figure well below those of developing countries such as India. The perpetuation of a production-intensive economic model owes much to inefficient capital allocation. This condition is buttressed by an illiberal and politicised financial system, as well as distorted input costs including subsidised energy and land prices. Second, one of the more troubling consequences of China’s capital-intensive growth model is that companies (and the government) have captured much of the enormous wealth generated in the last three decades at the expense of Chinese households. This dynamic is not only exacerbating an already yawning gap between the government and business elite on the one hand and the average Chinese citizen on the other; it is also repressing consumption…. Third, China’s vast regional disparities in living standards and average incomes are often likened to the contrast between different centuries. Policy makers in Beijing face the unique problem of having to deal with issues typical of both 21st-century middle-income countries and 20th-century developing countries.” (East Asia Forum, March 24, 2012)
“Accredited investors willing to invest in start-ups are simply too few to provide enough capital for young companies. My analysis of data from representative surveys of Americans reveals that venture capitalists and accredited business angels make equity investments in only about 15,000 businesses per year. But roughly 150,000 small companies receive informal investments every year. Thus, the vast majority of informal investment comes from unaccredited investors who cannot be solicited online but who learn about the investment opportunities through other means. Equity crowd funding will just improve the efficiency of this process. As anyone with a Facebook or Linked In account knows, allowing people to use online tools just facilitates interactions that people are undertaking anyway. The House bill minimizes the risks that investors face from equity crowd funding by limiting the amount of money they can lose. The bill limits investment to the lesser of $10,000 or 10 percent of the investor’s income. In what might only be described as a Washington miracle, Congress has a chance to pass bipartisan legislation to help entrepreneurs in a presidential election year.” (The American, March 22, 2012)
Levels:
S&P 500 Index [1397.11] – Near-term signs of pausing around 1400. Ablity to stay above 1350 will stir interest concerning the sustainability.
Crude [$106.87] – Recent momentum briefly stalling below $110. The multi-month upside move is creating a perception of price spikes.
Gold [$1658.00] – Struggling to break above $1750 while not dipping below $1610. An extended stalling process reflects a lack of catalysts for an upside move while lacking serious sellers. The faith of the commodity remains unsettled for weeks ahead.
DXY – US Dollar Index [79.34] – Hardly moving in recent weeks while remaining near all-time lows, suggesting the deprecating dollar has not changed significantly.
US 10 Year Treasury Yields [2.23%] – Although there has been much chatter of rising rates in recent days, the 2.40% range has served as a tough ceiling to overcome. Too early to declare a trend shift, as yields remain low.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Seasonal Reevaluation
Like seasonal changes, there is suspense and excitement circling around markets. Since the fall, broad indexes have proved to be less turbulent and led to steadily rising equity markets. Now this comforting trend faces a period of further questioning and potential readjustment, despite the strong bullish statement in the past six months. For buyers, the weeks ahead offer a chance to examine or to take profits or hold off on further buying. Meanwhile, sideline observers eager to enter have reawakened to the lack of liquid alternatives and are facing the new realities. Of course, the skeptical crowd did not quite vanish completely, as each minor down day is most likely to reignite previously known tiresome worries. The end of the first quarter presents a reshuffling period for fund managers to pinpoint on assessing “value” while trying to get clarity on the meaning of risk.
Isolating key themes
Before reacting or responding to pending headline results, a breather is ¬needed. As a start, distinguishing the critical big-picture themes of the US’s relative strength versus anticipating near-term price decline is vital for participants.
First, long-term themes mostly revolve around the edge of America’s financial and legal system, which is ahead of Emerging nations and few steps ahead of Europe. Secondly, in a period where low interest rates are well established, other global policymakers are following the US strategy in attempting to “race to the bottom” in lowering rates. In turn, this has reaffirmed the strength of stocks, especially when compared to other fixed-income investments. Plus, this forces traditional fixed-income investors to reassess and look into higher yielding instruments (explore taking risks). Thirdly, overly feared macro events, such as a European crisis and China slowdown, may not end up eroding US growth as hugely as anticipated. This becomes a stronger point if economic stabilization and restoration of innovation-based sectors continues to take hold. All three points above should not be forgotten if the S&P 500 index declines 5 or 10% in the near term.
Thinking ahead
At the same time, the post-2008 era created hesitancy over stock market stability and opened some desire for alternatives. That trend may encourage investors to dabble int0 niche areas. However, the liquidity of US markets remains intact, despite a mini-glitch last week that was specific to one company. Surely, cumulating glitches can have bigger implications, but for now the question is around the reversal of recent low-volume trends and the continuation of lower volatility. A sensitive period indeed. The stakes are raised with high-profile IPOs awaiting launches, the federal reserve planning to clarify the macro plans and the unveiling of recent corporate earnings results. All combine to add nerves to what has been for the most part a seamless recent uptrend. Yet, a new season and new quarter are known to test all kinds of convictions.
Article Quotes:
“First, China’s economy is overly dependent on fixed-asset investment and exports. Consumption represents only about 35 per cent of GDP, a figure well below those of developing countries such as India. The perpetuation of a production-intensive economic model owes much to inefficient capital allocation. This condition is buttressed by an illiberal and politicised financial system, as well as distorted input costs including subsidised energy and land prices. Second, one of the more troubling consequences of China’s capital-intensive growth model is that companies (and the government) have captured much of the enormous wealth generated in the last three decades at the expense of Chinese households. This dynamic is not only exacerbating an already yawning gap between the government and business elite on the one hand and the average Chinese citizen on the other; it is also repressing consumption…. Third, China’s vast regional disparities in living standards and average incomes are often likened to the contrast between different centuries. Policy makers in Beijing face the unique problem of having to deal with issues typical of both 21st-century middle-income countries and 20th-century developing countries.” (East Asia Forum, March 24, 2012)
“Accredited investors willing to invest in start-ups are simply too few to provide enough capital for young companies. My analysis of data from representative surveys of Americans reveals that venture capitalists and accredited business angels make equity investments in only about 15,000 businesses per year. But roughly 150,000 small companies receive informal investments every year. Thus, the vast majority of informal investment comes from unaccredited investors who cannot be solicited online but who learn about the investment opportunities through other means. Equity crowd funding will just improve the efficiency of this process. As anyone with a Facebook or Linked In account knows, allowing people to use online tools just facilitates interactions that people are undertaking anyway. The House bill minimizes the risks that investors face from equity crowd funding by limiting the amount of money they can lose. The bill limits investment to the lesser of $10,000 or 10 percent of the investor’s income. In what might only be described as a Washington miracle, Congress has a chance to pass bipartisan legislation to help entrepreneurs in a presidential election year.” (The American, March 22, 2012)
Levels:
S&P 500 Index [1397.11] – Near-term signs of pausing around 1400. Ablity to stay above 1350 will stir interest concerning the sustainability.
Crude [$106.87] – Recent momentum briefly stalling below $110. The multi-month upside move is creating a perception of price spikes.
Gold [$1658.00] – Struggling to break above $1750 while not dipping below $1610. An extended stalling process reflects a lack of catalysts for an upside move while lacking serious sellers. The faith of the commodity remains unsettled for weeks ahead.
DXY – US Dollar Index [79.34] – Hardly moving in recent weeks while remaining near all-time lows, suggesting the deprecating dollar has not changed significantly.
US 10 Year Treasury Yields [2.23%] – Although there has been much chatter of rising rates in recent days, the 2.40% range has served as a tough ceiling to overcome. Too early to declare a trend shift, as yields remain low.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 19, 2012
Market Outlook | March 19, 2012
"History shows that where ethics and economics come in conflict, victory is always with economics. Vested interests have never been known to have willingly divested themselves unless there was sufficient force to compel them" B. R. Ambedkar (1891-1956)
Resilience
Dismissing the political banter and shortsighted stalemates, the US stock market is restoring its bull form. It takes time to alter the fear-driven mindsets, as the real economy is adjusting to a recovery that’s hard to gauge through an eyeball test. The magnitude of labor and manufacturing improvement might be hard to feel, but even analysis that accounts for political biases would confirm that the economy is better than before. “In the three months to the end of February employers added 734,000 jobs, which is the best result since April 2006 if you exclude from past figures workers hired temporarily for the federal census” (The Economist, March 17, 2012). Political egos and opinions aside, confidence restoration is quite visible.
Meanwhile, applying the word resilience to describe recent stock market strength is appropriate, especially when considering the fragile state of the financial service sector three years ago. There is some lingering stigma associated with financial firms, especially when it comes to public relations. However, that has not stopped the bank stocks from restoring value to shareholders and playing a significant role in a collective US market strength. At a quick glance, the perception-driven S&P 500 index continues to generate profits for long-term and patient buyers. These appreciations, mostly sparked by low interest rates, create an environment that’s friendly for equity owners.
Not fully sold
Generally, when buyers become too eager and cheerful, it is common for critics to build skeptical arguments stating that the run-up was "too fast, too quick" or “unsustainable,” or a warm-up to an "eventual demise." Whether these are part of clever excuses or (politically driven) fear tactics, the debate lives on. However, there is a wearisome market thesis that has dominated headlines and common chatter for months. Emotion-filled opinions have missed the rally while waiting for heavy sell-offs. Money managers know too well, you get paid for today’s market (if the price is right) and not for pondering on the great unknown of tomorrow.
Interestingly, trading volume is relatively low as exchange dynamics fail to match up with the surging broad index prices. In fact, last Monday (March 12), US markets displayed the lowest volume for the year. “Trading volume has been declining since October as customers of U.S. stock mutual funds withdrew more than $68 billion through January even as the S&P 500’s valuation has recovered by 14 percent.” (Bloomberg, March 12, 2012). Although technical patterns argue a lack of conviction, the low volume might suggest more participation ahead. In other words, lack of alternative investment options should drive rotation into stock markets for months ahead.
Vibrant
Are early autumn buyers satisfied with accumulated gains or ready to cash in during the upcoming weeks? For now, given the lack of undiscovered reasons (or risks) to sell, there is a case for riding this trend. Some ask, are there enough buyers for significant selling? At this point, not enough, since the process of forming a bubble takes time and needs widespread participation. Plus, investor appetite for doomsday scenarios and skeptical views has not vanished completely. Therefore, more discussions of a 2008-like crisis appear to be feared by many, which ironically ends up benefiting buyers. In other words, the lack of a major surprise element of expecting downward moves actually lessens the odds for a dramatic sell-off. We’re in a period of overemphasis of risk management, pondering of further financial regulations and fear of US market leadership. Perhaps, these three might be overblown. Apparently, the real fear should be channeled to missing growth opportunities that resurface here and there. Simply, failure to adjust to new market conditions is painful in most cycles.
Article Quotes:
“The Bureau of Labor Statistics closely tracks how an average American spends their money in an annual report called the Consumer Expenditure Survey. In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA). Even when looking at physical goods alone, Chinese imports still account for just a small fraction of U.S. spending. Just 6.4% of nondurable goods – things like food, clothing and toys – purchased in the U.S. are made in China; 76.2% are made in America. For durable goods – things like cars and furniture – 12% are made in China; 66.6% are made in America. Another way to grasp the value of Chinese-made goods is to look at imports. The U.S. imported $399 billion worth of goods from China last year, which is 2.7% of our $14.5 trillion economy. Is that a lot? Yes. Is it most of what we spend our money on? Not by a long shot.” (The Motley Fool, February 12, 2012)
“People in the West want to believe that China's economy will go on growing fast because the fragile recovery in Western economies depends on it. Twenty years of 10 percent-plus annual growth have made China the engine of the world economy, even though most Chinese remain poor. But the engine is fuelled by cheap credit, and most of that cheap money, as usual, has gone into real estate. Take the city of Wuhan, southwest of Shanghai and about 500 km in from the coast. It is only China's ninth-largest city, but in addition to a skyscraper half again as high as the Empire State Building it is currently building a subway system that will cost $45 billion, two new airports, a whole new financial district, and hundreds of thousands of new housing units. It is paying for all this with cheap loans from state-run banks. Last year Wuhan municipality spent $22 billion on infrastructure and housing projects although its tax revenues were only one-fifth of that amount. The bank loans were made to special investment corporations and do not appear on the city's books. The only collateral the banks have is city-owned land, and that is not a reliable asset in current circumstances.” (Japan Times, March 15, 2012)
Levels:
S&P 500 Index [1404.17] – Achieving new multi-year highs, as the positive momentum continues to build. Staying above 1400 is a near-term challenge, but strength confirmed.
Crude [$107.06] – Several months of a positive trend continues, although a break above $110 can trigger the next-wave move.
Gold [$1658.00] – Neutral pattern established between $1610-$1750. Several catalysts needed to determine if buyers’ demand reignites at current levels. In the last 6 months, enthusiasm has waned.
DXY – US Dollar Index [79.78] – Mostly unchanged week over week, but significantly up since the summer lows around 72.
US 10 Year Treasury Yields [2.02%] – A significant spike last week from the usual “2%” range. Surpassing the 2.41% range is the next noteworthy point for trend followers.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Resilience
Dismissing the political banter and shortsighted stalemates, the US stock market is restoring its bull form. It takes time to alter the fear-driven mindsets, as the real economy is adjusting to a recovery that’s hard to gauge through an eyeball test. The magnitude of labor and manufacturing improvement might be hard to feel, but even analysis that accounts for political biases would confirm that the economy is better than before. “In the three months to the end of February employers added 734,000 jobs, which is the best result since April 2006 if you exclude from past figures workers hired temporarily for the federal census” (The Economist, March 17, 2012). Political egos and opinions aside, confidence restoration is quite visible.
Meanwhile, applying the word resilience to describe recent stock market strength is appropriate, especially when considering the fragile state of the financial service sector three years ago. There is some lingering stigma associated with financial firms, especially when it comes to public relations. However, that has not stopped the bank stocks from restoring value to shareholders and playing a significant role in a collective US market strength. At a quick glance, the perception-driven S&P 500 index continues to generate profits for long-term and patient buyers. These appreciations, mostly sparked by low interest rates, create an environment that’s friendly for equity owners.
Not fully sold
Generally, when buyers become too eager and cheerful, it is common for critics to build skeptical arguments stating that the run-up was "too fast, too quick" or “unsustainable,” or a warm-up to an "eventual demise." Whether these are part of clever excuses or (politically driven) fear tactics, the debate lives on. However, there is a wearisome market thesis that has dominated headlines and common chatter for months. Emotion-filled opinions have missed the rally while waiting for heavy sell-offs. Money managers know too well, you get paid for today’s market (if the price is right) and not for pondering on the great unknown of tomorrow.
Interestingly, trading volume is relatively low as exchange dynamics fail to match up with the surging broad index prices. In fact, last Monday (March 12), US markets displayed the lowest volume for the year. “Trading volume has been declining since October as customers of U.S. stock mutual funds withdrew more than $68 billion through January even as the S&P 500’s valuation has recovered by 14 percent.” (Bloomberg, March 12, 2012). Although technical patterns argue a lack of conviction, the low volume might suggest more participation ahead. In other words, lack of alternative investment options should drive rotation into stock markets for months ahead.
Vibrant
Are early autumn buyers satisfied with accumulated gains or ready to cash in during the upcoming weeks? For now, given the lack of undiscovered reasons (or risks) to sell, there is a case for riding this trend. Some ask, are there enough buyers for significant selling? At this point, not enough, since the process of forming a bubble takes time and needs widespread participation. Plus, investor appetite for doomsday scenarios and skeptical views has not vanished completely. Therefore, more discussions of a 2008-like crisis appear to be feared by many, which ironically ends up benefiting buyers. In other words, the lack of a major surprise element of expecting downward moves actually lessens the odds for a dramatic sell-off. We’re in a period of overemphasis of risk management, pondering of further financial regulations and fear of US market leadership. Perhaps, these three might be overblown. Apparently, the real fear should be channeled to missing growth opportunities that resurface here and there. Simply, failure to adjust to new market conditions is painful in most cycles.
Article Quotes:
“The Bureau of Labor Statistics closely tracks how an average American spends their money in an annual report called the Consumer Expenditure Survey. In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA). Even when looking at physical goods alone, Chinese imports still account for just a small fraction of U.S. spending. Just 6.4% of nondurable goods – things like food, clothing and toys – purchased in the U.S. are made in China; 76.2% are made in America. For durable goods – things like cars and furniture – 12% are made in China; 66.6% are made in America. Another way to grasp the value of Chinese-made goods is to look at imports. The U.S. imported $399 billion worth of goods from China last year, which is 2.7% of our $14.5 trillion economy. Is that a lot? Yes. Is it most of what we spend our money on? Not by a long shot.” (The Motley Fool, February 12, 2012)
“People in the West want to believe that China's economy will go on growing fast because the fragile recovery in Western economies depends on it. Twenty years of 10 percent-plus annual growth have made China the engine of the world economy, even though most Chinese remain poor. But the engine is fuelled by cheap credit, and most of that cheap money, as usual, has gone into real estate. Take the city of Wuhan, southwest of Shanghai and about 500 km in from the coast. It is only China's ninth-largest city, but in addition to a skyscraper half again as high as the Empire State Building it is currently building a subway system that will cost $45 billion, two new airports, a whole new financial district, and hundreds of thousands of new housing units. It is paying for all this with cheap loans from state-run banks. Last year Wuhan municipality spent $22 billion on infrastructure and housing projects although its tax revenues were only one-fifth of that amount. The bank loans were made to special investment corporations and do not appear on the city's books. The only collateral the banks have is city-owned land, and that is not a reliable asset in current circumstances.” (Japan Times, March 15, 2012)
Levels:
S&P 500 Index [1404.17] – Achieving new multi-year highs, as the positive momentum continues to build. Staying above 1400 is a near-term challenge, but strength confirmed.
Crude [$107.06] – Several months of a positive trend continues, although a break above $110 can trigger the next-wave move.
Gold [$1658.00] – Neutral pattern established between $1610-$1750. Several catalysts needed to determine if buyers’ demand reignites at current levels. In the last 6 months, enthusiasm has waned.
DXY – US Dollar Index [79.78] – Mostly unchanged week over week, but significantly up since the summer lows around 72.
US 10 Year Treasury Yields [2.02%] – A significant spike last week from the usual “2%” range. Surpassing the 2.41% range is the next noteworthy point for trend followers.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 12, 2012
Market Outlook | March 12, 2012
“Doubt is not a pleasant condition but certainty is an absurd one.” Voltaire (1694-1778)
Hard to deny:
The multi-month uptrend in stock prices and improvement in labor numbers continues yet again . As gloom and doomers ease off from the ugly script, current economic numbers are in line with expectations. The mindset is slowly changing to the point where upside estimates are not viewed as a dramatic revelation but as moderate growth. Yet these rosy pictures are not enough to cleanse numerous doubts resurfacing from investment committees and spectators. In other words, some financial circles view further good news as already ‘priced into’ market pricing. Meanwhile, as political observers remind us, the race to election season has its influences on shaping perception. It’s only natural to expect that, but politics aside, the strength is quite visible despite lukewarm participation and low exchange volume.
This weekend, few headlines reminded us of the 3-year-old anniversary of this bull market in the US stock market. After all, March 2009 seemed bleak, following bailouts and escalating fears at alarming rates. Surely, near-term memories are tricky and often biased to selective memories. The main question remains: How much confidence restoration is left ahead? A question that strategists are wrestling with while weighing the justifications for adding or decreasing risk. Anticipating pullbacks has been a common form of thinking for several months, and that has yet to come to fruition. Interestingly, markets are not too friendly for common thinking, and a daring approach has its rewards. Despite the fear of stock prices rising too quickly , there is another perspective:
“Nine quarters of earnings growth have outpaced the index’s advance, leaving valuations 14 percent below the five-decade average of 16.4. The price-earnings ratio hasn’t been this low while the index was at a 52-week high in 23 years” (Bloomberg, March 5, 2012)
Next set of worries:
There is a consensus and established theme resurfacing. It circles around restructuring in Europe, recovering in America and potential overheating in emerging markets. Clearly, these are interlinked economies, but at different stages of a cycle. In fact, factors impacting these trends are at the core of decision makers’ minds. In the near-term, the sustainable growth in emerging markets is a wildcard and sparks thought-provoking debates. Plenty of pundits have waited for a while for a slowing grow rate in China and Brazil. These realizations beg for further confirmation and require investors to adjust expectations from last decade’s capital allocation. As usual, worry of rude awakening lingers in the psyche of risk managers. As we’ve learned in recent years, when cycle shifts take place, it takes time after early shocks to readjust. Thus, deciphering the real GDP in China and assessing the sustainability might provide the essential clue to this decade’s trends. Last week, China set its GDP target at 7.5% (in real term) for 2012, showcasing a scaled-down expectation not seen in several years.
More to go:
However, confidence in developed markets’ growth is not overwhelmingly comforting, either. Perhaps, from all developed markets, America’s strength has not vanished and is poised to stand out. Fund managers seeking moderate returns with attractive liquidity can cling on to the well-known and established US financial system. As hard as it may be for outside observers, the relative strength of large US companies’ growth is appealing and not fully appreciated.
Article Quotes:
“Take Brazil. Were managers rewarded with a quintupling of its stock market over the last decade because they cleverly spotted structural reforms? Or were they simply lucky to invest in Brazil during a period of falling global interest rates and the mother of all commodity booms? They will never know. What can be said, however, is that the amazing set of circumstances that helped many emerging markets to prosper may be nearing the end. Brazil’s gross domestic product grew just 2.7 per cent last year, its second-worst performance in almost a decade. Only by pumping the economy in the fourth quarter (aided by a 275 basis point cut in benchmark interest rates by the central bank since July) did the newish government avoid presiding over a technical recession. All of which is taking the fizz out of stocks. The local Bovespa index is flat over 12 months and, after leaping about like float dancers during carnival, many of Brazil’s biggest stocks, such as Vale, PDG Realty and Itau Unibanco, are roughly where they were four years ago. Petrobras shares are the same price now as at the end of 2005.” (Financial Times, March 9, 2012)
“Congress seems comfortable with this reduced role. We don't realize that by authorizing entitlement programs – perpetual mandatory spending – and hiding some of our biggest expenditures in unaccountable tax loopholes, we have diminished our constitutional duty to appropriate funds (Art. I, Sec. 9). In fact, we hide our biggest problems by keeping them off-budget, exempting ourselves from normal accounting rules. Congress has legalized its own budget blindness. Very few legislators have ever had to eat their own cooking, to run a business governed by the cumulative weight of the laws and regulations they supported. The most famous example is George McGovern who, after years as a liberal U.S. Senator from South Dakota and an unsuccessful presidential campaign, retired to run an inn in Connecticut. He wrote an article for The Wall Street Journal decrying all the useless regulations that burdened his business. This, of course, delighted his conservative critics but did nothing to lighten the regulatory burden.” (The Atlantic, March 8, 2012 -Jim Cooper is a Congressman in the U.S. House of Representatives)
Levels:
S&P 500 Index [1370.87] – Nearly unchanged from last week’s close. March 2, 2012 highs of 1378 remain intra-day highs. Buyers’ conviction tested above 1300, given the strong multi-month run.
Crude [$107.40] – New trading range forming above $105.00. More than a five-month trend of price appreciation. Observers await a revisit to last May’s highs around $114.83 to confirm the strength.
Gold [$1687.50] – Several evidences of waning buy demand around $1750. From previous patterns, some suggestions of buyers around $1600. A clearer picture to this setup requires some time.
DXY – US Dollar Index [80.04] – Hovering around an all-too-familiar point. The 50- and 5-day moving averages are around 79.00 showcasing the lack of major movements.
US 10 Year Treasury Yields [2.02%] – In the last 100 days, an established range between 1.80% and little above 2%. Confirmation of lack of movement in either direction while being stuck around all-time lows.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Hard to deny:
The multi-month uptrend in stock prices and improvement in labor numbers continues yet again . As gloom and doomers ease off from the ugly script, current economic numbers are in line with expectations. The mindset is slowly changing to the point where upside estimates are not viewed as a dramatic revelation but as moderate growth. Yet these rosy pictures are not enough to cleanse numerous doubts resurfacing from investment committees and spectators. In other words, some financial circles view further good news as already ‘priced into’ market pricing. Meanwhile, as political observers remind us, the race to election season has its influences on shaping perception. It’s only natural to expect that, but politics aside, the strength is quite visible despite lukewarm participation and low exchange volume.
This weekend, few headlines reminded us of the 3-year-old anniversary of this bull market in the US stock market. After all, March 2009 seemed bleak, following bailouts and escalating fears at alarming rates. Surely, near-term memories are tricky and often biased to selective memories. The main question remains: How much confidence restoration is left ahead? A question that strategists are wrestling with while weighing the justifications for adding or decreasing risk. Anticipating pullbacks has been a common form of thinking for several months, and that has yet to come to fruition. Interestingly, markets are not too friendly for common thinking, and a daring approach has its rewards. Despite the fear of stock prices rising too quickly , there is another perspective:
“Nine quarters of earnings growth have outpaced the index’s advance, leaving valuations 14 percent below the five-decade average of 16.4. The price-earnings ratio hasn’t been this low while the index was at a 52-week high in 23 years” (Bloomberg, March 5, 2012)
Next set of worries:
There is a consensus and established theme resurfacing. It circles around restructuring in Europe, recovering in America and potential overheating in emerging markets. Clearly, these are interlinked economies, but at different stages of a cycle. In fact, factors impacting these trends are at the core of decision makers’ minds. In the near-term, the sustainable growth in emerging markets is a wildcard and sparks thought-provoking debates. Plenty of pundits have waited for a while for a slowing grow rate in China and Brazil. These realizations beg for further confirmation and require investors to adjust expectations from last decade’s capital allocation. As usual, worry of rude awakening lingers in the psyche of risk managers. As we’ve learned in recent years, when cycle shifts take place, it takes time after early shocks to readjust. Thus, deciphering the real GDP in China and assessing the sustainability might provide the essential clue to this decade’s trends. Last week, China set its GDP target at 7.5% (in real term) for 2012, showcasing a scaled-down expectation not seen in several years.
More to go:
However, confidence in developed markets’ growth is not overwhelmingly comforting, either. Perhaps, from all developed markets, America’s strength has not vanished and is poised to stand out. Fund managers seeking moderate returns with attractive liquidity can cling on to the well-known and established US financial system. As hard as it may be for outside observers, the relative strength of large US companies’ growth is appealing and not fully appreciated.
Article Quotes:
“Take Brazil. Were managers rewarded with a quintupling of its stock market over the last decade because they cleverly spotted structural reforms? Or were they simply lucky to invest in Brazil during a period of falling global interest rates and the mother of all commodity booms? They will never know. What can be said, however, is that the amazing set of circumstances that helped many emerging markets to prosper may be nearing the end. Brazil’s gross domestic product grew just 2.7 per cent last year, its second-worst performance in almost a decade. Only by pumping the economy in the fourth quarter (aided by a 275 basis point cut in benchmark interest rates by the central bank since July) did the newish government avoid presiding over a technical recession. All of which is taking the fizz out of stocks. The local Bovespa index is flat over 12 months and, after leaping about like float dancers during carnival, many of Brazil’s biggest stocks, such as Vale, PDG Realty and Itau Unibanco, are roughly where they were four years ago. Petrobras shares are the same price now as at the end of 2005.” (Financial Times, March 9, 2012)
“Congress seems comfortable with this reduced role. We don't realize that by authorizing entitlement programs – perpetual mandatory spending – and hiding some of our biggest expenditures in unaccountable tax loopholes, we have diminished our constitutional duty to appropriate funds (Art. I, Sec. 9). In fact, we hide our biggest problems by keeping them off-budget, exempting ourselves from normal accounting rules. Congress has legalized its own budget blindness. Very few legislators have ever had to eat their own cooking, to run a business governed by the cumulative weight of the laws and regulations they supported. The most famous example is George McGovern who, after years as a liberal U.S. Senator from South Dakota and an unsuccessful presidential campaign, retired to run an inn in Connecticut. He wrote an article for The Wall Street Journal decrying all the useless regulations that burdened his business. This, of course, delighted his conservative critics but did nothing to lighten the regulatory burden.” (The Atlantic, March 8, 2012 -Jim Cooper is a Congressman in the U.S. House of Representatives)
Levels:
S&P 500 Index [1370.87] – Nearly unchanged from last week’s close. March 2, 2012 highs of 1378 remain intra-day highs. Buyers’ conviction tested above 1300, given the strong multi-month run.
Crude [$107.40] – New trading range forming above $105.00. More than a five-month trend of price appreciation. Observers await a revisit to last May’s highs around $114.83 to confirm the strength.
Gold [$1687.50] – Several evidences of waning buy demand around $1750. From previous patterns, some suggestions of buyers around $1600. A clearer picture to this setup requires some time.
DXY – US Dollar Index [80.04] – Hovering around an all-too-familiar point. The 50- and 5-day moving averages are around 79.00 showcasing the lack of major movements.
US 10 Year Treasury Yields [2.02%] – In the last 100 days, an established range between 1.80% and little above 2%. Confirmation of lack of movement in either direction while being stuck around all-time lows.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 05, 2012
Market Outlook | March 5, 2012
“The Excellency of every art is its intensity, capable of making all disagreeable evaporate.” (John Keats, 1795-1821)
Strength:
Momentum continues to favor a recovery in traditional markets. Enticing further buyers at this junction presents few challenges, given the extended chart patterns and loud screams from naysayers emphasizing caution. Yet, those looking to deploy capital investments lack many alternatives for investment exposure. For some capital allocators, importance is placed on having liquidity. Plus, the mindset of decision-makers is plagued with safety, even after a 27% move in the S&P 500 index since October 2011. Interestingly, there is a wishful crowd out there seeking higher growth, like returns, while not willing to risk much — simply not a practical expectation by many. Ongoing adjustments in desired returns will be required. This tuning of expected returns should drive more capital into known indexes and provide a further boost to the existing run.
Similarly, observers waited for strong pullbacks as a buy point, but that’s not been the case. Anticipating day-to-day, news-sensitive items omits the relative strength of the US markets. Dwelling on future unintended consequences may result in failing to spot the vital trading points. Motivated investors lurk to chase yields and remain willing to expand exposure beyond US equities and Treasuries. After all, the shaken confidence of the last few years does not impede the natural hunt for higher returns, not to mention the pent-up demand. Perhaps, intense eagerness is what drove markets higher at a faster pace so far this year. Big down days have not been visible thus far, which reiterates strength rather than irrational buying. Intense success is not to be feared but carefully cherished, and that’s the message from broad markets showing resilience.
Scarcity:
Today’s lack of options in the known and trusted investable asset signals the need to expand into illiquid assets, especially for larger fund managers. For example, direct asset purchasing is appealing due to a shortage of soft commodities. On that note, farmland investments are an attractive theme, given increasing food demand and positive set-up favoring agricultural-based commodities. A trend applicable in developed and frontier markets that presents a risk and reward is not to be overlooked by traditional asset managers. “In Illinois, specifically, high quality farm land also has surged in value, rising by about 27 percent in the last two years, from $7,500 an acre in January 2010 to $9,500 an acre in January 2012” (Kane County Chronicle, February 29, 2012).
Meanwhile, Chinese investment in African farmland is noteworthy and plays a key role in the flow of money. It reflects the demographics trends of China demanding more food while restating the perceived shortage of food as witnessed in the last decade. In the big picture, the European and credit markets’ recovery take some time. However, yield-seekers are left to explore tangible assets that fit longer-term trends. Importantly, these transactions do not end up benefiting from strength in overall liquid markets.
Rate Driven
Amidst the scramble for investment ideas, the low interest rate policies provide a definitive picture compared to other macro factors. Policies leading to lower rates are debated from all angles, but surly set the tone for analysts mapping out a three-to five-year plan. Partially, this is exhibited in calming volatility, as the central banks have clearly stated and remarked that low rates are here stay. Surely, assessing political and legal risk is too noisy to grasp now, with election uncertainty. However, those putting capital to work recognize the limitations in the reward of going against the Federal Reserve’s objections. Perhaps, a collective appreciation in hard and soft assets is a trend to follow. Surely dwelling on risk aversion may interest observers, but that approach is subsiding until the next pause. Interestingly, even if a downtrend begins to persist, then the safety net of further Fed easing is perceived to add confidence, as well. For now, stimulus efforts are working and interest rate directions are less mysterious.
Article Quotes:
“It is not so much that the Chinese eat more when they move to the cities. It is rather the composition of their diets which changes. They simply consume more animal proteins. Between 1994 and 2009, the Chinese effectively doubled their meat consumption from about 35 kilograms per annum to approximately 70 kilograms. … The United States, New Zealand and Australia are the heaviest meat eaters in the world with an average annual per capita consumption of about 110 kilograms. As the poor get wealthier, they will want more protein – mainly chicken, pork and beef. Converting a grain rich diet to a more protein rich diet will increase overall demand for grain significantly as livestock is inefficient in terms of converting grain to energy. It takes 2-3 kilograms of grain to produce 1 kilogram of chicken, about 4 kilograms of grain to produce 1 kilogram of pork and as much as 7-8 kilograms of grain to produce 1 kilogram of beef. Hence, if the average daily calorie consumption grows by 30% between now and 2030 as projected, demand for grain will grow by a multiple of that.” (Credit Writedowns, March 2, 2012)
“One thing is abundantly clear, however. The German economy has powered far ahead of France’s, and the gap is widening every year. Germany has maintained its industrial base and competitive edge, both technologically and in terms of cost, while France lacks a large sector of medium-size industrial enterprises and depends much more on services. The French share of global exports has steadily fallen, while the German share has steadily risen. French salaries have increased in real terms while German salaries have fallen, making French workers more expensive and thus less productive and competitive. French social protections for the unemployed are also much more lavish, especially after the Germans pushed through the so-called Hartz reforms, which largely limited unemployment benefits to 12 months. In France, the duration is 23 months for those under 50 and three years for those over 50, many of whom never work again. (New York Times, March 3, 2012)
Levels:
S&P 500 Index [1369.63] – Closed near the high end of the post-2008 recovery run. Uptrend momentum appears poised for retracements.
Crude [$106.70] – Current price levels above $105 mirror action of last spring. Strength restored and confirmed in recent months.
Gold [$1707.00] – Once again, buyers demand is questionable or neutral at around $1750. Sideways price action remains in place.
DXY – US Dollar Index [79.40] – Attempting to moderately re-accelerate. In a common trading range and in line with the 15-week moving average. Simply confirming the lack of major movement and remains in the low end of a multi-year trend.
US 10 Year Treasury Yields [1.97%] – In a very narrow range between 1.90% and 2.05%. Reinforces the point of low yields without major volatility.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Strength:
Momentum continues to favor a recovery in traditional markets. Enticing further buyers at this junction presents few challenges, given the extended chart patterns and loud screams from naysayers emphasizing caution. Yet, those looking to deploy capital investments lack many alternatives for investment exposure. For some capital allocators, importance is placed on having liquidity. Plus, the mindset of decision-makers is plagued with safety, even after a 27% move in the S&P 500 index since October 2011. Interestingly, there is a wishful crowd out there seeking higher growth, like returns, while not willing to risk much — simply not a practical expectation by many. Ongoing adjustments in desired returns will be required. This tuning of expected returns should drive more capital into known indexes and provide a further boost to the existing run.
Similarly, observers waited for strong pullbacks as a buy point, but that’s not been the case. Anticipating day-to-day, news-sensitive items omits the relative strength of the US markets. Dwelling on future unintended consequences may result in failing to spot the vital trading points. Motivated investors lurk to chase yields and remain willing to expand exposure beyond US equities and Treasuries. After all, the shaken confidence of the last few years does not impede the natural hunt for higher returns, not to mention the pent-up demand. Perhaps, intense eagerness is what drove markets higher at a faster pace so far this year. Big down days have not been visible thus far, which reiterates strength rather than irrational buying. Intense success is not to be feared but carefully cherished, and that’s the message from broad markets showing resilience.
Scarcity:
Today’s lack of options in the known and trusted investable asset signals the need to expand into illiquid assets, especially for larger fund managers. For example, direct asset purchasing is appealing due to a shortage of soft commodities. On that note, farmland investments are an attractive theme, given increasing food demand and positive set-up favoring agricultural-based commodities. A trend applicable in developed and frontier markets that presents a risk and reward is not to be overlooked by traditional asset managers. “In Illinois, specifically, high quality farm land also has surged in value, rising by about 27 percent in the last two years, from $7,500 an acre in January 2010 to $9,500 an acre in January 2012” (Kane County Chronicle, February 29, 2012).
Meanwhile, Chinese investment in African farmland is noteworthy and plays a key role in the flow of money. It reflects the demographics trends of China demanding more food while restating the perceived shortage of food as witnessed in the last decade. In the big picture, the European and credit markets’ recovery take some time. However, yield-seekers are left to explore tangible assets that fit longer-term trends. Importantly, these transactions do not end up benefiting from strength in overall liquid markets.
Rate Driven
Amidst the scramble for investment ideas, the low interest rate policies provide a definitive picture compared to other macro factors. Policies leading to lower rates are debated from all angles, but surly set the tone for analysts mapping out a three-to five-year plan. Partially, this is exhibited in calming volatility, as the central banks have clearly stated and remarked that low rates are here stay. Surely, assessing political and legal risk is too noisy to grasp now, with election uncertainty. However, those putting capital to work recognize the limitations in the reward of going against the Federal Reserve’s objections. Perhaps, a collective appreciation in hard and soft assets is a trend to follow. Surely dwelling on risk aversion may interest observers, but that approach is subsiding until the next pause. Interestingly, even if a downtrend begins to persist, then the safety net of further Fed easing is perceived to add confidence, as well. For now, stimulus efforts are working and interest rate directions are less mysterious.
Article Quotes:
“It is not so much that the Chinese eat more when they move to the cities. It is rather the composition of their diets which changes. They simply consume more animal proteins. Between 1994 and 2009, the Chinese effectively doubled their meat consumption from about 35 kilograms per annum to approximately 70 kilograms. … The United States, New Zealand and Australia are the heaviest meat eaters in the world with an average annual per capita consumption of about 110 kilograms. As the poor get wealthier, they will want more protein – mainly chicken, pork and beef. Converting a grain rich diet to a more protein rich diet will increase overall demand for grain significantly as livestock is inefficient in terms of converting grain to energy. It takes 2-3 kilograms of grain to produce 1 kilogram of chicken, about 4 kilograms of grain to produce 1 kilogram of pork and as much as 7-8 kilograms of grain to produce 1 kilogram of beef. Hence, if the average daily calorie consumption grows by 30% between now and 2030 as projected, demand for grain will grow by a multiple of that.” (Credit Writedowns, March 2, 2012)
“One thing is abundantly clear, however. The German economy has powered far ahead of France’s, and the gap is widening every year. Germany has maintained its industrial base and competitive edge, both technologically and in terms of cost, while France lacks a large sector of medium-size industrial enterprises and depends much more on services. The French share of global exports has steadily fallen, while the German share has steadily risen. French salaries have increased in real terms while German salaries have fallen, making French workers more expensive and thus less productive and competitive. French social protections for the unemployed are also much more lavish, especially after the Germans pushed through the so-called Hartz reforms, which largely limited unemployment benefits to 12 months. In France, the duration is 23 months for those under 50 and three years for those over 50, many of whom never work again. (New York Times, March 3, 2012)
Levels:
S&P 500 Index [1369.63] – Closed near the high end of the post-2008 recovery run. Uptrend momentum appears poised for retracements.
Crude [$106.70] – Current price levels above $105 mirror action of last spring. Strength restored and confirmed in recent months.
Gold [$1707.00] – Once again, buyers demand is questionable or neutral at around $1750. Sideways price action remains in place.
DXY – US Dollar Index [79.40] – Attempting to moderately re-accelerate. In a common trading range and in line with the 15-week moving average. Simply confirming the lack of major movement and remains in the low end of a multi-year trend.
US 10 Year Treasury Yields [1.97%] – In a very narrow range between 1.90% and 2.05%. Reinforces the point of low yields without major volatility.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 27, 2012
Market Outlook | February 27, 2012
“Conviction is worthless unless it is converted into conduct.” (Thomas Carlyle 1795-1881)
Positivity Justified
For a while, sellers have pointed to concerns, but the collective markets’ upward movement persists. Since October 2011, stocks have proved to be relatively attractive, despite muted cheerfulness among experts. Simply, the scoreboard is what keeps all participants honest. Plus, overall volatility remains calmer than in previous months. Secondly, an outlook of crisis, collapse and financial disaster resurfaces from idea generators, but is not fully playing out in practice.
Inaccurate Blames
This junction in the business cycle remains mysterious to some seeing improvement in the economic data and suspenseful to others who witness a rising stock market. The ongoing blame-the-Fed game, reliance on politicians or speculating on election outcomes add further theatrics but fail to paint a full picture. Plenty of myth is identifiable in the crowd engulfed with a "collapse" scenario. Similarly, clinging to feel-good bravado of invincibility is too common and tiresome, even beyond the US political arenas. In fact, this theme of deciphering a balanced view sounds too familiar to traders, much as it does for political observers.
Reading "market moving” materials easily creates a mixed message. The challenge of sorting out the data and messages from overly biased, politically driven sources intensifies in an election year. Surely, there are splits in opinions, which deviate from a required balanced view on topics such as sentiment or nature of the recovery or grasp of Americans’ edge in the global economy. Neutral observers such as money managers are paid to filter headlines while betting on high conviction that goes far beyond toxic banter.
Truth Confronted
At this point, plenty of folks have warned of a lack of overall system stability. Yet, no system is perfect, mindsets are mostly fickle and risk is not easy to assess in any market. Importantly, betting against this market for the last six months has been a losing proposition for managers and analysts. Skeptical managers are forced to readjust their global view from one-sided, fear-driven projections. Unfortunately, admitting fault by most “experts” is unfashionable and works against investors’ interests. For example, much of the worry is around sustainable corporate profits; however, the impact on markets presents a different story. “Mr. Ramsey [Leuthold Group] has studied market performance going back to 1938, and has discovered that in the 16 best years for stocks, eight actually coincided with declines in corporate earnings. And profits rose in 13 of the 16 worst years for stocks.” (New York Times, February 25, 2012).
Near-term awareness:
Pullbacks are not to be feared, as chart observers and odds-makers eagerly anticipate a slowdown. Now, the rising Crude pattern is a convenient catalyst for sellers, but observers have seen this before. Investors are witnessing a collective appreciation in asset classes, in equities as well as commodities. Clearly, there is demand for risky assets and equally, there is a lack of alternatives, given low global yields. In terms of the big picture, the shortage of investable ideas is the reoccurring theme, regardless of pending price declines. The challenge has not changed, as usual. It mostly comes down to picking the right assets while taking the risk of timing it close to “right.”
Article Quotes:
“The improper application of the theory is one of the things that fueled the spectacular growth in over-the-counter derivatives, from $60 trillion in 2000 to more than $600 trillion in 2008. This growth took place while the economists and regulators using bricks and mortar logic were arguing that derivatives distributed risk, when in fact massive amounts of derivatives concentrated risk. The fat tails played a starring role in the bankruptcy of Lehman Brothers and the $182 billion bailout of AIG. Merton's theory was right when certain assumptions held, and wrong when they were applied in an overconnected environment. … Economists, policy makers, and presidential advisors have to get it right. Their influence is so great that when they get it wrong, tragedy often ensues. As Robert Heilbroner explained in his classic book, The Worldly Philosophers, the impact of Adam Smith, Karl Marx, John Maynard Keynes, John Stuart Mill, Thorstein Veblen, and Joseph Schumpeter has been immense” (The Atlantic, February 23, 2012)
“Bond issuance in the U.S. declined in 2011 to $2.13 trillion, down from $2.56 trillion in 2011, according to Dealogic. The volume of syndicated loans rose to $1.87 trillion last year, from $1.13 trillion the year before. The shift has occurred despite the fact that rates on corporate bonds are hovering in the 3.3 percent range, near a record low....The Volcker rule and Basel III will also have unintended consequences. For example, a reduction in the inventory of bonds may spur a shift toward the use of more derivatives. ‘Asset managers already use CDSs to manage credit exposure, and in the future, they may use more CDSs as an alternative to credit,’ McPartland says. While the use of CDSs is not necessarily going to make the markets riskier, the expansion of the CDS market is hardly one of the goals of the Dodd-Frank law. The effect of boosting the CDS market is difficult to predict, especially in the event of a crisis.” (Institutional Investor, February 23, 2012)
Levels:
S&P 500 Index [1365.74] –Quickly approaching May 2011 ranges around 1370. Resumption of the upturn since March 2009.
Crude [$109.77] – A very sharp run in last few weeks. Questionable if the current run can get to $114 before exhausting.
Gold [$1777.50] – Nearing the $1800 mark set up a mixed feeling of strength and doubtful follow-through. For now, trading in a familiar trading range between $1600-1800, as seen in the last seven months.
DXY – US Dollar Index [78.35] – Short-lived dollar rally stalled in January, and that continues to be the near-term trend. Yet, the dollar index is 6% higher than its summer lows.
US 10 Year Treasury Yields [1.97%] – Once again, dropping below “2%,” which serves as an emphasis of low yields.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Positivity Justified
For a while, sellers have pointed to concerns, but the collective markets’ upward movement persists. Since October 2011, stocks have proved to be relatively attractive, despite muted cheerfulness among experts. Simply, the scoreboard is what keeps all participants honest. Plus, overall volatility remains calmer than in previous months. Secondly, an outlook of crisis, collapse and financial disaster resurfaces from idea generators, but is not fully playing out in practice.
Inaccurate Blames
This junction in the business cycle remains mysterious to some seeing improvement in the economic data and suspenseful to others who witness a rising stock market. The ongoing blame-the-Fed game, reliance on politicians or speculating on election outcomes add further theatrics but fail to paint a full picture. Plenty of myth is identifiable in the crowd engulfed with a "collapse" scenario. Similarly, clinging to feel-good bravado of invincibility is too common and tiresome, even beyond the US political arenas. In fact, this theme of deciphering a balanced view sounds too familiar to traders, much as it does for political observers.
Reading "market moving” materials easily creates a mixed message. The challenge of sorting out the data and messages from overly biased, politically driven sources intensifies in an election year. Surely, there are splits in opinions, which deviate from a required balanced view on topics such as sentiment or nature of the recovery or grasp of Americans’ edge in the global economy. Neutral observers such as money managers are paid to filter headlines while betting on high conviction that goes far beyond toxic banter.
Truth Confronted
At this point, plenty of folks have warned of a lack of overall system stability. Yet, no system is perfect, mindsets are mostly fickle and risk is not easy to assess in any market. Importantly, betting against this market for the last six months has been a losing proposition for managers and analysts. Skeptical managers are forced to readjust their global view from one-sided, fear-driven projections. Unfortunately, admitting fault by most “experts” is unfashionable and works against investors’ interests. For example, much of the worry is around sustainable corporate profits; however, the impact on markets presents a different story. “Mr. Ramsey [Leuthold Group] has studied market performance going back to 1938, and has discovered that in the 16 best years for stocks, eight actually coincided with declines in corporate earnings. And profits rose in 13 of the 16 worst years for stocks.” (New York Times, February 25, 2012).
Near-term awareness:
Pullbacks are not to be feared, as chart observers and odds-makers eagerly anticipate a slowdown. Now, the rising Crude pattern is a convenient catalyst for sellers, but observers have seen this before. Investors are witnessing a collective appreciation in asset classes, in equities as well as commodities. Clearly, there is demand for risky assets and equally, there is a lack of alternatives, given low global yields. In terms of the big picture, the shortage of investable ideas is the reoccurring theme, regardless of pending price declines. The challenge has not changed, as usual. It mostly comes down to picking the right assets while taking the risk of timing it close to “right.”
Article Quotes:
“The improper application of the theory is one of the things that fueled the spectacular growth in over-the-counter derivatives, from $60 trillion in 2000 to more than $600 trillion in 2008. This growth took place while the economists and regulators using bricks and mortar logic were arguing that derivatives distributed risk, when in fact massive amounts of derivatives concentrated risk. The fat tails played a starring role in the bankruptcy of Lehman Brothers and the $182 billion bailout of AIG. Merton's theory was right when certain assumptions held, and wrong when they were applied in an overconnected environment. … Economists, policy makers, and presidential advisors have to get it right. Their influence is so great that when they get it wrong, tragedy often ensues. As Robert Heilbroner explained in his classic book, The Worldly Philosophers, the impact of Adam Smith, Karl Marx, John Maynard Keynes, John Stuart Mill, Thorstein Veblen, and Joseph Schumpeter has been immense” (The Atlantic, February 23, 2012)
“Bond issuance in the U.S. declined in 2011 to $2.13 trillion, down from $2.56 trillion in 2011, according to Dealogic. The volume of syndicated loans rose to $1.87 trillion last year, from $1.13 trillion the year before. The shift has occurred despite the fact that rates on corporate bonds are hovering in the 3.3 percent range, near a record low....The Volcker rule and Basel III will also have unintended consequences. For example, a reduction in the inventory of bonds may spur a shift toward the use of more derivatives. ‘Asset managers already use CDSs to manage credit exposure, and in the future, they may use more CDSs as an alternative to credit,’ McPartland says. While the use of CDSs is not necessarily going to make the markets riskier, the expansion of the CDS market is hardly one of the goals of the Dodd-Frank law. The effect of boosting the CDS market is difficult to predict, especially in the event of a crisis.” (Institutional Investor, February 23, 2012)
Levels:
S&P 500 Index [1365.74] –Quickly approaching May 2011 ranges around 1370. Resumption of the upturn since March 2009.
Crude [$109.77] – A very sharp run in last few weeks. Questionable if the current run can get to $114 before exhausting.
Gold [$1777.50] – Nearing the $1800 mark set up a mixed feeling of strength and doubtful follow-through. For now, trading in a familiar trading range between $1600-1800, as seen in the last seven months.
DXY – US Dollar Index [78.35] – Short-lived dollar rally stalled in January, and that continues to be the near-term trend. Yet, the dollar index is 6% higher than its summer lows.
US 10 Year Treasury Yields [1.97%] – Once again, dropping below “2%,” which serves as an emphasis of low yields.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 20, 2012
Market Outlook | February 20, 2012
“The poetry is all in the anticipation, for there is none in reality” Mark Twain (1835-1910)
Collective rising
Since October 2011, crude and stocks (S&P 500 Index) prices have recovered from the summer losses to revisit levels last reached in May 2011. This is an interesting observation for two main reasons: First, this illustrates the synchronized movement in prices of major asset classes. Secondly, last spring ended up being a precursor to violent summer months. Now, these actions draw similar comparisons and trigger a question: Are investors are too complacent? If so, it is assumed it will justify further price declines. Plenty to be seen before that is answered. In terms of market tops, the current setup does not quite match the 2007 pattern, in which the phrase “synchronized sinking” marked a global peak. Surely, it’s a hard case to claim that markets are geared to mildly crash when overall volume is so low; trust in the system is mostly fragile, while skepticism has yet to evaporate.
For the past few weeks, price corrections have been long awaited in global markets. For example, the Nasdaq 100 index continues its noteworthy move by rising over 27% since August 2011,(led by Apple and IBM). Speculators wonder if this sharp move needs a breather, along with broad markets. Many continue to point out that investor sentiment is picking up, but betting against top performing stocks has mainly backfired against sellers. Clearly, macro catalysts are mostly centered around Europe's ability to fight through issues and China's level of slowdown from persistent growth. However, these fears are not a new discovery but create near-term suspense.
Beyond Business
Much of today’s market action is focused on anticipation of financial reforms, speculating on Federal Reserve actions, and the big reward lies in comprehending the tax and political structure. Asset managers in the post-2008 era face beyond the business-as-usual tasks of identifying growth, conducting value from distressed assets or conducting their own pricing methodology for appropriate pricing. Overhanging legal changes create suspense and reemphasize the value of managing and adjusting to legal risks and costs. “America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.” (The Economist, February 18, 2012). Again, legal changes in financial services create near-term worries but eventually, this will take its course in a new era.
Resolve
Quite evident without clarity of the new rules of engagement, there is noticeable reluctance by business owners to make aggressive decisions. Similarly, investors have not fully committed to risky assets while awaiting confirmation on strengthening labor data and election results. However, the points above are both well known and confusing for the causal observer in day-to-day headlines. Importantly, there is scarcity in quality ideas, and picking the right one presents upside potential. Perhaps the complacency is more applicable to money managers who struggle to overcome hesitancy and fear. Eventually, risk-aversion is not a growth solution or an ideal form of risk management. Thus, the existing sideline capital will have to take on further risk to get competitive returns.
Article Quotes:
“Why are Chinese households buying a defensive asset [gold] in a time of rapid growth? One reason could be the fear of inflation, which peaked at 7 per cent in mid 2011. But gold-buying by households has increased over the past two years regardless of inflation numbers rising or falling. … A better explanation could be the lack of alternatives for households that are the best savers in the world. In an economy lacking financial sophistication and depth, options are limited to savings accounts, which offer negative real returns, stocks listed on one of the two national exchanges, or else property. … Property is the other alternative. But Chinese knew of the country’s infamous ghost cities long before the international media. Knowing that yield was irrelevant, as many of these properties will never be rented out, locals knowingly bought them as speculative capital assets. Now prices have collapsed in many areas, locals are much more wary of pouring capital into an asset that may never offer a reliable return.” (Financial Times, February 16, 2012).
“Steubenville is one of scores of new boom towns springing up along the American Appalachians, from Ohio and Maryland, to West Virginia, Pennsylvania and New York, all of them beneficiaries of the shale gas revolution, a new technology that allows access to abundant reserves of natural gas trapped within the rock. The results are startling. It’s not just the mini-boom in business investment. It’s also meant that for the first time in more than 40 years, the US is close to achieving its goal of energy self-sufficiency. Energy costs have fallen so sharply that Methanex Corporation, the world’s biggest methanol maker, recently announced it was dismantling its factory in Chile and reassembling it in Louisiana, perhaps the biggest example yet of the new found fashion for “onshoring”. This is just one of any number of similar decisions that stem from the shale gas revolution. Dow Chemical plans a new propylene unit in Texas by 2015. Formosa Plastics similarly proposes a $1.5 billion investment in ethylene-related plants in the same state, while both US Steel and Vallourec are planning multi-million dollar investments in new steel capacity to meet demand for shale gas extraction.” (The Telegraph, February 18 2011)
Levels:
S&P 500 Index [1361.23] – Few points removed from May 2011 intra-day highs of 1370.58. Uptrend is well established.
Crude [$103.24] – Early signs of a breakout after a dull multi-month sideways patter. Breaking above $105 might get buyers enticed to revisit last spring’s highs of around $114.
Gold [$1711.50] –Most near-term trading falling between $1610 and $1750 price range. A break above or below this range can provide a definitive trend picture.
DXY – US Dollar Index [79.33] – Consolidating in the near-term. Trading in line with its 50-day moving average, demonstrating lack of movement.
US 10 Year Treasury Yields [2.00%] – About a year ago, yields stood between 3.40-3.60% range, which showcases a significant decline in rates tied to federal reserve polices.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Collective rising
Since October 2011, crude and stocks (S&P 500 Index) prices have recovered from the summer losses to revisit levels last reached in May 2011. This is an interesting observation for two main reasons: First, this illustrates the synchronized movement in prices of major asset classes. Secondly, last spring ended up being a precursor to violent summer months. Now, these actions draw similar comparisons and trigger a question: Are investors are too complacent? If so, it is assumed it will justify further price declines. Plenty to be seen before that is answered. In terms of market tops, the current setup does not quite match the 2007 pattern, in which the phrase “synchronized sinking” marked a global peak. Surely, it’s a hard case to claim that markets are geared to mildly crash when overall volume is so low; trust in the system is mostly fragile, while skepticism has yet to evaporate.
For the past few weeks, price corrections have been long awaited in global markets. For example, the Nasdaq 100 index continues its noteworthy move by rising over 27% since August 2011,(led by Apple and IBM). Speculators wonder if this sharp move needs a breather, along with broad markets. Many continue to point out that investor sentiment is picking up, but betting against top performing stocks has mainly backfired against sellers. Clearly, macro catalysts are mostly centered around Europe's ability to fight through issues and China's level of slowdown from persistent growth. However, these fears are not a new discovery but create near-term suspense.
Beyond Business
Much of today’s market action is focused on anticipation of financial reforms, speculating on Federal Reserve actions, and the big reward lies in comprehending the tax and political structure. Asset managers in the post-2008 era face beyond the business-as-usual tasks of identifying growth, conducting value from distressed assets or conducting their own pricing methodology for appropriate pricing. Overhanging legal changes create suspense and reemphasize the value of managing and adjusting to legal risks and costs. “America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.” (The Economist, February 18, 2012). Again, legal changes in financial services create near-term worries but eventually, this will take its course in a new era.
Resolve
Quite evident without clarity of the new rules of engagement, there is noticeable reluctance by business owners to make aggressive decisions. Similarly, investors have not fully committed to risky assets while awaiting confirmation on strengthening labor data and election results. However, the points above are both well known and confusing for the causal observer in day-to-day headlines. Importantly, there is scarcity in quality ideas, and picking the right one presents upside potential. Perhaps the complacency is more applicable to money managers who struggle to overcome hesitancy and fear. Eventually, risk-aversion is not a growth solution or an ideal form of risk management. Thus, the existing sideline capital will have to take on further risk to get competitive returns.
Article Quotes:
“Why are Chinese households buying a defensive asset [gold] in a time of rapid growth? One reason could be the fear of inflation, which peaked at 7 per cent in mid 2011. But gold-buying by households has increased over the past two years regardless of inflation numbers rising or falling. … A better explanation could be the lack of alternatives for households that are the best savers in the world. In an economy lacking financial sophistication and depth, options are limited to savings accounts, which offer negative real returns, stocks listed on one of the two national exchanges, or else property. … Property is the other alternative. But Chinese knew of the country’s infamous ghost cities long before the international media. Knowing that yield was irrelevant, as many of these properties will never be rented out, locals knowingly bought them as speculative capital assets. Now prices have collapsed in many areas, locals are much more wary of pouring capital into an asset that may never offer a reliable return.” (Financial Times, February 16, 2012).
“Steubenville is one of scores of new boom towns springing up along the American Appalachians, from Ohio and Maryland, to West Virginia, Pennsylvania and New York, all of them beneficiaries of the shale gas revolution, a new technology that allows access to abundant reserves of natural gas trapped within the rock. The results are startling. It’s not just the mini-boom in business investment. It’s also meant that for the first time in more than 40 years, the US is close to achieving its goal of energy self-sufficiency. Energy costs have fallen so sharply that Methanex Corporation, the world’s biggest methanol maker, recently announced it was dismantling its factory in Chile and reassembling it in Louisiana, perhaps the biggest example yet of the new found fashion for “onshoring”. This is just one of any number of similar decisions that stem from the shale gas revolution. Dow Chemical plans a new propylene unit in Texas by 2015. Formosa Plastics similarly proposes a $1.5 billion investment in ethylene-related plants in the same state, while both US Steel and Vallourec are planning multi-million dollar investments in new steel capacity to meet demand for shale gas extraction.” (The Telegraph, February 18 2011)
Levels:
S&P 500 Index [1361.23] – Few points removed from May 2011 intra-day highs of 1370.58. Uptrend is well established.
Crude [$103.24] – Early signs of a breakout after a dull multi-month sideways patter. Breaking above $105 might get buyers enticed to revisit last spring’s highs of around $114.
Gold [$1711.50] –Most near-term trading falling between $1610 and $1750 price range. A break above or below this range can provide a definitive trend picture.
DXY – US Dollar Index [79.33] – Consolidating in the near-term. Trading in line with its 50-day moving average, demonstrating lack of movement.
US 10 Year Treasury Yields [2.00%] – About a year ago, yields stood between 3.40-3.60% range, which showcases a significant decline in rates tied to federal reserve polices.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
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